$60,000,000 SANTA MONICA-MALIBU UNIFIED SCHOOL DISTRICT (Los Angeles County, California) Election of 2012 General Obligation Bonds, Series B

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1 NEW ISSUE FULL BOOK-ENTRY RATINGS: Moody s: Aa1 ; Standard & Poor s: AA (See MISCELLANEOUS Ratings herein) In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California ( Bond Counsel ), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the Bonds is exempt from State of California personal income tax. Dated: Date of Delivery $60,000,000 SANTA MONICA-MALIBU UNIFIED SCHOOL DISTRICT (Los Angeles County, California) Election of 2012 General Obligation Bonds, Series B Due: July 1, as shown on inside cover This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Santa Monica-Malibu Unified School District (Los Angeles County, California) Election of 2012 General Obligation Bonds, Series B (the Bonds ), were authorized at an election of the registered voters of the Santa Monica-Malibu Unified School District (the District ) held on November 6, 2012, at which the requisite 55% of the persons voting on the proposition voted to authorize the issuance and sale of $385,000,000 aggregate principal amount of general obligation bonds of the District. The Bonds are being issued to finance (i) the repair, upgrading, acquisition, construction and equipping of District sites and facilities, and (ii) pay the costs of issuance of the Bonds. The Bonds are general obligations of the District payable solely from ad valorem property taxes. The Board of Supervisors of Los Angeles County is empowered and obligated to annually levy such ad valorem taxes, without limitation as to rate or amount, upon all property within the District subject to taxation by the District (except certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Bonds when due. The Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee for The Depository Trust Company, New York, New York (collectively referred to herein as DTC ). Purchasers of the Bonds (the Beneficial Owners ) will not receive physical certificates representing their interest in the Bonds. The Bonds will be dated as of their date of initial delivery (the Date of Delivery ) and will be issued as current interest bonds, such that interest thereon will accrue from the Date of Delivery and be payable semiannually on January 1 and July 1 of each year, commencing January 1, The Bonds are issuable as fully registered bonds in denominations of $5,000 principal amount or any integral multiple thereof. Payments of principal of and interest on the Bonds will be made by the designated Paying Agent, to DTC for subsequent disbursement to DTC Participants who will remit such payments to the Beneficial Owners of the Bonds. U.S. Bank National Association has been appointed as agent of the Treasurer and Tax Collector of Los Angeles County to act as Paying Agent for the Bonds. The Bonds are subject to optional and mandatory sinking fund redemption prior to maturity as further described herein. MATURITY SCHEDULE (see inside front cover) The Bonds will be offered when, as and if issued and received by the Underwriters, subject to the approval of legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, Bond Counsel and Disclosure Counsel. Certain legal matters will be passed upon for the Underwriters by Nossaman LLP, Irvine, California. The Bonds, in book-entry form, will be available for delivery through the facilities of DTC in New York, New York on or about July 7, RBC CAPITAL MARKETS Dated: June 23, 2015

2 MATURITY SCHEDULE Base CUSIP (1) : $60,000,000 SANTA MONICA-MALIBU UNIFIED SCHOOL DISTRICT (Los Angeles County, California) Election of 2012 General Obligation Bonds, Series B Maturity (July 1) $38,250,000 Serial Bonds Principal Amount Interest Rate Yield CUSIP (1) 2016 $12,180, % 0.310% MZ ,540, NA , (2) NB ,035, (2) NC ,210, (2) ND ,400, (2) NE ,610, (2) NF ,835, (2) NG ,940, (2) NH ,185, (2) NJ ,445, (2) NK7 $21,750, % Term Bonds due July 1, Yield: 4.05%; CUSIP (1) : NL5 (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by S&P Capital IQ, on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for CUSIP Services. None of the Underwriters, the Financial Advisor or the District are responsible for the selection or correctness of the CUSIP numbers set forth herein. (2) Yield to call at par on July 1, 2025.

3 SANTA MONICA-MALIBU UNIFIED SCHOOL DISTRICT Board of Education Laurie Lieberman, President Dr. Jose Escarce, Vice President Craig Foster, Member Maria Leon-Vazquez, Member Ralph Mechur, Member Dr. Richard Tahvildaran-Jesswein, Member Oscar de la Torre, Member District Administration Sandra Lyon, Superintendent Janece Maez, Associate Superintendent, Business and Fiscal Services/CFO PROFESSIONAL SERVICES Bond Counsel and Disclosure Counsel Stradling Yocca Carlson & Rauth, a Professional Corporation San Francisco, California Financial Advisor Keygent LLC El Segundo, California Paying Agent, Registrar and Transfer Agent U.S. Bank National Association, as agent of the Treasurer and Tax Collector of Los Angeles County Los Angeles, California

4 TABLE OF CONTENTS Page INTRODUCTION... 1 THE DISTRICT... 1 PURPOSE OF THE BONDS... 1 AUTHORITY FOR ISSUANCE OF THE BONDS... 2 SOURCES OF PAYMENT FOR THE BONDS... 2 DESCRIPTION OF THE BONDS... 2 TAX MATTERS... 3 OFFERING AND DELIVERY OF THE BONDS... 3 BOND OWNER S RISKS... 3 CONTINUING DISCLOSURE... 3 PROFESSIONALS INVOLVED IN THE OFFERING... 3 OTHER INFORMATION... 3 THE BONDS... 4 AUTHORITY FOR ISSUANCE... 4 SECURITY AND SOURCES OF PAYMENT... 4 GENERAL PROVISIONS... 5 ANNUAL DEBT SERVICE... 6 APPLICATION AND INVESTMENT OF BOND PROCEEDS... 7 REDEMPTION... 7 BOOK-ENTRY ONLY SYSTEM DISCONTINUATION OF BOOK-ENTRY ONLY SYSTEM; REGISTRATION, PAYMENT AND TRANSFER OF BONDS DEFEASANCE ESTIMATED SOURCES AND USES OF FUNDS TAX BASE FOR REPAYMENT OF BONDS AD VALOREM PROPERTY TAXATION ASSESSED VALUATIONS SECURED TAX CHARGES AND DELINQUENCIES ALTERNATIVE METHOD OF TAX APPORTIONMENT - TEETER PLAN TAX RATES PRINCIPAL TAXPAYERS STATEMENT OF DIRECT AND OVERLAPPING DEBT CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS ARTICLE XIIIA OF THE CALIFORNIA CONSTITUTION LEGISLATION IMPLEMENTING ARTICLE XIIIA UNITARY PROPERTY ARTICLE XIIIB OF THE CALIFORNIA CONSTITUTION PROPOSITION ARTICLE XIIIC AND ARTICLE XIIID OF THE CALIFORNIA CONSTITUTION PROPOSITIONS 98 AND PROPOSITION PROPOSITION 1A AND PROPOSITION JARVIS VS. CONNELL PROPOSITION PROPOSITION FUTURE INITIATIVES i

5 TABLE OF CONTENTS (cont'd) Page DISTRICT FINANCIAL INFORMATION STATE FUNDING OF EDUCATION OTHER REVENUE SOURCES ACCOUNTING PRACTICES COMPARATIVE FINANCIAL STATEMENTS BUDGET PROCESS STATE BUDGET MEASURES SANTA MONICA-MALIBU UNIFIED SCHOOL DISTRICT INTRODUCTION POSSIBLE REORGANIZATION OF THE DISTRICT ADMINISTRATION DISTRICT GROWTH LABOR RELATIONS DISTRICT RETIREMENT SYSTEMS OTHER POST-EMPLOYMENT BENEFITS RISK MANAGEMENT DISTRICT DEBT STRUCTURE TAX MATTERS LEGAL MATTERS LEGALITY FOR INVESTMENT IN CALIFORNIA EXPANDED REPORTING REQUIREMENTS CONTINUING DISCLOSURE LITIGATION FINANCIAL STATEMENTS LEGAL OPINION MISCELLANEOUS RATINGS UNDERWRITING ADDITIONAL INFORMATION APPENDIX A: FORMS OF OPINIONS OF BOND COUNSEL... A-1 APPENDIX B: AUDITED FINANCIAL STATEMENTS OF THE DISTRICT... B-1 APPENDIX C: FORM OF CONTINUING DISCLOSURE CERTIFICATE... C-1 APPENDIX D: ECONOMIC AND DEMOGRAPHIC INFORMATION FOR THE CITY OF MALIBU, THE CITY OF SANTA MONICA AND LOS ANGELES COUNTY... D-1 APPENDIX E: LOS ANGELES COUNTY TREASURY POOL... E-1 ii

6 This Official Statement does not constitute an offering of any security other than the original offering of the Bonds of the District. No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representations other than as contained in this Official Statement, and if given or made, such other information or representation not so authorized should not be relied upon as having been given or authorized by the District. The issuance and sale of the Bonds have not been registered under the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, in reliance upon exemptions provided thereunder by Sections 3(a)2 and 3(a)12, respectively. This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. The information set forth herein, other than that provided by the District, has been obtained from sources which are believed to be reliable, but is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the District. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. When used in this Official Statement and in any continuing disclosure by the District in any press release and in any oral statement made with the approval of an authorized officer of the District or any other entity described or referenced in this Official Statement, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, forecast, expect, intend and similar expressions identify forward looking statements within the meaning of the Private Securities Litigation Reform Act of Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITERS MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. The District maintains a website. However, the information presented on the District s website is not incorporated into this Official Statement by any reference, and should not be relied upon in making investment decisions with respect to the Bonds.

7 $60,000,000 SANTA MONICA-MALIBU UNIFIED SCHOOL DISTRICT (Los Angeles County, California) Election of 2012 General Obligation Bonds, Series B INTRODUCTION This Official Statement, which includes the cover page, inside cover page and appendices hereto, provides information in connection with the sale of the Santa Monica-Malibu Unified School District (Los Angeles County, California) Election of 2012 General Obligation Bonds, Series B (the Bonds ). This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page, inside cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. The District The Santa Monica-Malibu Unified School District (the District ) was established in 1875 and includes within its boundaries the Cities of Santa Monica and Malibu, as well as a portion of unincorporated Los Angeles County (the County ). The District currently operates 10 elementary schools, two middle schools, one K-8 school, one 6-12 school, one high school, one continuation high school, a regional occupation program ( ROP ) and an adult education program, as well as child care and development centers. For fiscal year , the District s projected average daily attendance ( ADA ) is 10,795 students, and taxable property within the District has an assessed valuation of $43,691,489,591. The District is governed by a seven-member Board of Education (the District Board ), each member of which is elected to a four-year term. Elections for positions to the District Board are held every two years, alternating between three and four available positions. The management and policies of the District are administered by a Superintendent appointed by the District Board who is responsible for day-to-day District operations as well as the supervision of the District s other personnel. Ms. Sandra Lyon is currently the District Superintendent. See TAX BASE FOR REPAYMENT OF BONDS for information regarding the District s assessed valuation, and DISTRICT FINANCIAL INFORMATION and SANTA MONICA-MALIBU UNIFIED SCHOOL DISTRICT herein for information regarding the District generally. Purpose of the Bonds The proceeds from the sale of the Bonds will be used by the District to (i) finance the repair, upgrading, acquisition, construction and equipping of District sites and facilities and (ii) pay the costs of issuance of the Bonds. See THE BONDS Application and Investment of Bond Proceeds and ESTIMATED SOURCES AND USES OF FUNDS herein. 1

8 Authority for Issuance of the Bonds The Bonds are issued pursuant to certain provisions of the State of California Government Code and pursuant to a resolution adopted by the District Board. See THE BONDS Authority for Issuance herein. Sources of Payment for the Bonds The Bonds are general obligations of the District payable solely from ad valorem property taxes. The Board of Supervisors of the County is empowered and obligated to annually levy such ad valorem taxes, without limitation as to rate or amount, upon all property subject to taxation by the District (except certain personal property which is taxable at limited rates) for the payment of principal of and interest on the Bonds. See also THE BONDS Security and Sources of Payment and TAX BASE FOR REPAYMENT OF BONDS herein. Description of the Bonds Form and Registration. The Bonds will be issued in fully registered form only, without coupons. The Bonds will be initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), who will act as securities depository for the Bonds. See THE BONDS General Provisions and Book-Entry Only System herein. Purchasers of the Bonds (the Beneficial Owners ) will not receive physical certificates representing their interests in the Bonds purchased. In the event that the book-entry only system described below is no longer used with respect to the Bonds, the Bonds will be registered in accordance with the Resolution described herein. See THE BONDS Discontinuation of Book-Entry Only System; Registration, Payment and Transfer of Bonds herein. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references herein to the Owners, Bondowners or Holders of the Bonds (other than under the caption TAX MATTERS and in APPENDIX A) will mean Cede & Co. and will not mean the Beneficial Owners of the Bonds. Denominations. Individual purchases of interests in the Bonds will be available to purchasers of the Bonds in the denominations of $5,000 principal amount, or any integral multiples thereof. Redemption. The Bonds are subject to optional and mandatory sinking fund redemption prior to their stated maturity dates as further described herein. See THE BONDS Redemption herein. Payments. The Bonds will be dated as of their date of initial delivery (the Date of Delivery ) and will be issued as current interest bonds, such that interest thereon will accrue from the Date of Delivery and be payable semiannually on each January 1 and July 1 (each, a Bond Payment Date ), commencing January 1, Principal of the Bonds is payable on July 1 in the amounts and years as set forth on the inside cover page hereof. Payments of the principal of and interest on the Bonds will be made by the designated paying agent, registrar and transfer agent (the Paying Agent ), to DTC for subsequent disbursement through DTC Participants (defined herein) to the Beneficial Owners of the Bonds. U.S. Bank National Association has been appointed as agent of the Treasurer and Tax Collector of the County (the Treasurer ) to act as Paying Agent for the Bonds. 2

9 Tax Matters In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, Bond Counsel, based on existing statutes, regulations, rulings and judicial decisions and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest on the Bonds is exempt from State of California personal income tax. See TAX MATTERS herein. Offering and Delivery of the Bonds The Bonds are offered when, as and if issued, subject to approval as to their legality by Bond Counsel. It is anticipated that the Bonds in book-entry form will be available for delivery through the facilities of DTC in New York, New York, on or about July 7, Bond Owner s Risks The Bonds are general obligations of the District payable from ad valorem property taxes which may be levied on all taxable property in the District, without limitation as to rate or amount (except with respect to certain personal property which is taxable at limited rates). For more complete information regarding the taxation of property within the District, see TAX BASE FOR REPAYMENT OF BONDS herein. Continuing Disclosure Pursuant to that certain Continuing Disclosure Certificate relating to the Bonds, the District will covenant for the benefit of the Owners and Beneficial Owners of the Bonds to make available certain financial information and operating data relating to the District and to provide notices of the occurrence of certain listed events, in compliance with S.E.C. Rule 15c2-12(b)(5) (the Rule ). The specific nature of the information to be made available and of the notices of listed events is summarized below under LEGAL MATTERS Continuing Disclosure and APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE herein. Professionals Involved in the Offering Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, is acting as Bond Counsel and Disclosure Counsel to the District with respect to the Bonds. Keygent LLC, El Segundo, California is acting as Financial Advisor to the District with respect to the Bonds. Stradling Yocca Carlson & Rauth, a Professional Corporation and Keygent LLC will receive compensation from the District contingent upon the sale and delivery of the Bonds. Certain matters will be passed on for the Underwriters (defined herein) by Nossaman LLP, Irvine, California. Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies of documents referred to herein and information concerning the Bonds are available from the Santa Monica-Malibu Unified School District, th Street, Santa Monica, California 90404, telephone: (310) The District may impose a charge for copying, mailing and handling. 3

10 No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representations other than as contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the District. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The summaries and references to documents, statutes and constitutional provisions referred to herein do not purport to be comprehensive or definitive, and are qualified in their entireties by reference to each such documents, statutes and constitutional provisions. The information set forth herein, other than that provided by the District, has been obtained from official sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the District. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. Authority for Issuance THE BONDS The Bonds are issued pursuant to the provisions of Article 4.5 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code of the State of California (the Act ), commencing with Section et seq., as amended, Article XIIIA of the California Constitution and pursuant to a resolution adopted by the District Board on May 7, 2015 (the Resolution ). The District received authorization at an election held on November 6, 2012 by the requisite fifty-five percent of the votes cast by eligible voters within the District to issue $385,000,000 aggregate principal amount of general obligation bonds (the 2012 Authorization ). The Bonds are the second series of bonds issued under the 2012 Authorization, and following the issuance thereof, $295,000,000 of the 2012 Authorization will remain. See also SANTA MONICA-MALIBU UNIFIED SCHOOL DISTRICT District Debt Structure General Obligation Bonds herein. Security and Sources of Payment The Bonds are general obligations of the District payable solely from ad valorem property taxes. The Board of Supervisors of the County is empowered and obligated to annually levy such ad valorem taxes, without limitation as to rate or amount, upon all property subject to taxation by the District (except certain personal property which is taxable at limited rates), for the payment of the principal of and interest on the Bonds. Such ad valorem property taxes will be levied annually in addition to all other taxes during the period that the Bonds are outstanding in an amount sufficient to pay the principal of and interest thereon when due. The levy ad valorem property taxes for payment of the Bonds, as and when levied, may include an allowance for an annual reserve, established for the purpose of avoiding fluctuating tax levies. While the County has historically levied ad valorem property taxes to establish such a reserve for other bonds of 4

11 the District, the County is not obligated to establish or maintain such a reserve, and the District can make no representations that the County will do so in future years. Such taxes, when collected, will be placed by the County in the respective Debt Service Fund (defined herein), which are required to be segregated and maintained by the County and which are designated for the payment of the Bonds and interest thereon when due, and for no other purpose. Pursuant to the Resolution, the District has pledged funds on deposit in the Debt Service Fund to the payment of the Bonds. Although the County is obligated to levy ad valorem property taxes for the payment of the Bonds as described above, and will maintain the Debt Service Fund, the Bonds are not a debt of the County. The moneys in the Debt Service Fund, to the extent necessary to pay the principal of and interest on the Bonds, as the same becomes due and payable, will be transferred by the County to the Paying Agent. The Paying Agent will in turn remit the funds to DTC for remittance of such principal and interest to its Participants (as defined herein) for subsequent disbursement to the Beneficial Owners of such Bonds. The amount of the annual ad valorem property taxes levied by the County to repay the Bonds as described above will be determined by the relationship between the assessed valuation of taxable property in the District and the amount of debt service due on the Bonds in any year. Fluctuations in the annual debt service on the Bonds and the assessed value of taxable property in the District may cause the annual tax rates to fluctuate. Economic and other factors beyond the District s control, such as general market decline in land values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by the State of California (the State ) and local agencies and property used for qualified education, hospital, charitable or religious purposes), or the complete or partial destruction of the taxable property caused by a natural or manmade disaster, such as earthquake, flood, drought or toxic contamination, could cause a reduction in the assessed value of taxable property within the District and necessitate a corresponding increase in the respective annual tax rates. For further information regarding the District s assessed valuation, tax rates, overlapping debt, and other matters concerning taxation, see CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Article XIIIA of the California Constitution and TAX BASE FOR REPAYMENT OF BONDS herein. General Provisions The Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee for DTC. Beneficial Owners will not receive certificates representing their interest in the Bonds. The Bonds will be dated as of the Date of Delivery. The Bonds will be issued as current interest bonds, such that interest thereon will accrue from the Date of Delivery and will be payable semiannually on each Bond Payment Date, commencing January 1, Each Bond shall bear interest from the respective Bond Payment Date next preceding the date of authentication thereof unless it is authenticated as of a day during the period from the 16th day of the month next preceding any Bond Payment Date to that Bond Payment Date, inclusive, in which event it shall bear interest from such Bond Payment Date, or unless it is authenticated on or before the first Record Date (defined herein), in which event it shall bear interest from the Date of Delivery. The Bonds are issuable in denominations of $5,000 principal amount or any integral multiple thereof. The Bonds mature on July 1, in the years and amounts set forth on the inside cover page hereof. Payment of interest on any Bond on any Bond Payment Date shall be made to the person appearing on the registration books of the Paying Agent as the registered Owner thereof as of the 15 th day of the month immediately preceding such Bond Payment Date (the Record Date ), such interest to be paid by check mailed to such Bond Owner on the Bond Payment Date at his or her address as it appears 5

12 on such registration books or at such other address as he may have filed with the Paying Agent for that purpose on or before the Record Date. The Bond Owner in an aggregate principal amount of $1,000,000 or more may request in writing to the Paying Agent that such Bond Owner be paid interest by wire transfer to the bank and account number on file with the Paying Agent as of the Record Date. The principal, and redemption premiums, if any, payable on the Bonds shall be payable upon maturity upon surrender at the principal office of the Paying Agent. The interest, principal and premiums, if any, on the Bonds shall be payable in lawful money of the United States of America. The Paying Agent is authorized to pay the Bonds when duly presented for payment at maturity, and to cancel all Bonds upon payment thereof. Annual Debt Service The following table shows the annual debt service requirements of the District for Bonds, together with the annual debt service requirements of the District s prior bonded indebtedness. Year Ending Aug. 1 Prior Outstanding Bonds (1) Annual Principal Payment The Bonds Annual Interest Payment (2) Total Annual Debt Service 2015 $47,246, $47,246, ,481, $12,180, $2,376, ,038, ,167, ,540, ,173, ,881, ,907, ,596, ,503, ,752, ,596, ,348, ,300, ,596, ,896, ,928, ,596, ,525, ,511, ,596, ,108, ,120, ,596, ,716, ,367, ,596, ,963, ,691, ,596, ,287, ,276, , ,596, ,742, ,872, ,035, ,553, ,460, ,478, ,210, ,501, ,189, ,096, ,400, ,440, ,937, ,728, ,610, ,370, ,709, ,381, ,835, ,290, ,507, ,026, ,940, ,198, ,164, ,783, ,185, ,101, ,070, ,562, ,445, , ,999, ,325, ,725, , ,920, ,157, ,005, , ,923, ,943, ,300, , ,884, ,870, , ,378, ,230, , ,584, ,620, , ,804, Total $565,108, $60,000, $32,686, $657,794, (1) Interest on certain of the District s prior bonds is payable semiannually on January 1 and July 1, with principal payable on July 1 of each year. Interest on certain other bonds is payable semiannually on February 1 and August 1, with principal payable on August 1 of each year. Reflects gross debt service on the District s Build America Bonds. For more information, as well as a breakdown of the District s prior bond issues, see SANTA MONICA-MALIBU UNIFIED SCHOOL DISTRICT Long-Term Debt General Obligation Bonds herein. (2) Interest payments on the Bonds will be made semiannually on January 1 and July 1 of each year, commencing January 1,

13 Application and Investment of Bond Proceeds The Bonds are being issued to (i) finance the repair, upgrading, acquisition, construction and equipping of District sites and facilities, and (ii) pay the costs of issuance of the Bonds. The net proceeds from the sale of the Bonds will be paid to the County to the credit of the Santa Monica-Malibu Unified School District Election of 2012 General Obligation Bonds, Series B Building Fund (the Building Fund ). Any premium received by the County from the sale of the Bonds will be kept separate and apart in the fund designated as the Santa Monica-Malibu Unified School District Election of 2012 General Obligation Bonds, Series B Debt Service Fund (the Debt Service Fund ) and used only for payment of principal of and interest on the Bonds. Any excess proceeds of the Bonds not needed for the authorized purposes for which the Bonds are being issued shall be transferred to the Debt Service Fund and applied to the payment of principal of and interest on the Bonds. Pursuant to the Resolution, the District has pledged monies on deposit in the Debt Service Fund to the payment of the Bonds. If, after payment in full of the Bonds, there remain excess proceeds, any such excess amounts shall be transferred to the general fund of the District. Moneys in the Debt Service Fund and the Building Fund are expected to be invested through the County s pooled investment fund. See APPENDIX E - LOS ANGELES COUNTY TREASURY POOL herein. Redemption Optional Redemption. The Bonds maturing on or before July 1, 2017 are not subject to redemption prior to their stated maturity dates. The Bonds maturing on and after July 1, 2026 may be redeemed prior to their respective stated maturity dates at the option of the District, from any source of funds, in whole or in part, on July 1, 2025 or on any date thereafter, at a redemption price equal to the principal amount of such Bonds called for redemption, together with interest accrued thereon to the date fixed for redemption, without premium. Mandatory Sinking Fund Redemption. The Bonds maturing on July 1, 2040 (the Term Bonds ) are subject to redemption prior to maturity from mandatory sinking fund payments on July 1 of each year, on and after July 1, 2035, at a redemption price equal to the principal amount thereof as of the date fixed for redemption, together with interest accrued to the date set for such redemption, without premium. The principal amount of Bonds to be so redeemed and the redemption dates therefor, and the final payment date is as shown in the following table: Redemption Date (July 1) (1) Maturity. 7 Principal Amount 2035 $2,725, ,005, ,300, ,870, ,230, (1) 4,620,000 In the event that a portion of such Term Bonds are optionally redeemed prior to maturity, the remaining mandatory sinking fund payments shown above shall be reduced proportionately (or as otherwise directed by the District), in integral multiples of $5,000 principal amount, in respect of the portion of such Term Bonds optionally redeemed.

14 Selection of Bonds for Redemption. Whenever provision is made for the redemption of Bonds and less than all Bonds are to be redeemed, the Paying Agent, upon written instruction from the District, shall select Bonds for redemption as so directed and if not directed, in inverse order of maturity. Within a maturity, the Paying Agent, shall select Bonds for redemption by lot. Redemption by lot shall be in such manner as the Paying Agent shall determine; provided, however, that the portion of any Bond to be redeemed in part shall be in a principal amount of $5,000, or any integral multiple thereof. Redemption Notice. When redemption is authorized or required pursuant to the Resolution, the Paying Agent, upon written instruction from the District, will give notice (a Redemption Notice ) of the redemption of the Bonds. Each Redemption Notice will specify (a) the Bonds or designated portions thereof (in the case of redemption of the Bonds in part but not in whole) which are to be redeemed, (b) the date of redemption, (c) the place or places where the redemption will be made, including the name and address of the Paying Agent, (d) the redemption price, (e) the CUSIP numbers (if any) assigned to the Bonds to be redeemed, (f) the Bond numbers of the Bonds to be redeemed in whole or in part and, in the case of any Bond to be redeemed in part only, the principal amount of such Bond to be redeemed, and (g) the original issue date, interest rate and stated maturity date of each Bond to be redeemed in whole or in part. The Paying Agent will take the following actions with respect to each such Redemption Notice: (a) at least 20 but not more than 45 days prior to the redemption date, such Redemption Notice will be given to the respective Owners of Bonds designated for redemption by registered or certified mail, postage prepaid, at their addresses appearing on the bond register; (b) at least 20 but not more than 45 days prior to the redemption date, such Redemption Notice will be given by registered or certified mail, postage prepaid, telephonically confirmed facsimile transmission, or overnight delivery service, to the Securities Depository; (c) at least 20 but not more than 45 days prior to the redemption date, such Redemption Notice will be given by registered or certified mail, postage prepaid, or overnight delivery service, to one of the Information Services; and (d) to such other persons as may be required pursuant to the Continuing Disclosure Certificate. Information Services means Financial Information, Inc. s Daily Called Bond Service, 1 Cragwood Road, 2nd Floor, South Plainfield, New Jersey 07080, Attention: Editor; Mergent Inc., 585 Kingsley Park Drive, Fort Mill, South Carolina 29715, Attention: Called Bond Department; and Standard and Poor s J.J. Kenny Information Services Called Bond Record, 55 Water Street, 45th Floor, New York, New York Securities Depository shall mean The Depository Trust Company, 55 Water Street, New York, New York A certificate of the Paying Agent or the District that a Redemption Notice has been given as provided in the Resolution will be conclusive as against all parties. Neither failure to receive any Redemption Notice nor any defect in any such Redemption Notice so given will affect the sufficiency of the proceedings for the redemption of the affected Bonds. Each check issued or other transfer of funds made by the Paying Agent for the purpose of redeeming Bonds will bear or include the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer. Payment of Redeemed Bonds. When a Redemption Notice has been given substantially as described above, and, when the amount necessary for the redemption of the Bonds called for redemption (principal, interest, and premium, if any) is irrevocably set aside in trust for that purpose, as described in Defeasance, the Bonds designated for redemption in such notice will become due and payable on the date fixed for redemption thereof and upon presentation and surrender of said Bonds at the place specified 8

15 in the Redemption Notice, said Bonds will be redeemed and paid at the redemption price out of such funds. All unpaid interest payable at or prior to the redemption date will continue to be payable to the respective Owners, but without interest thereon. Partial Redemption of Bonds. Upon the surrender of any Bond redeemed in part only, the Paying Agent will execute and deliver to the Owner thereof a new Bond or Bonds of like tenor and maturity and of authorized denominations equal in principal amounts to the unredeemed portion of the Bond surrendered. Such partial redemption is valid upon payment of the amount required to be paid to such Owner, and the County and the District will be released and discharged thereupon from all liability to the extent of such payment. Effect of Redemption Notice. If on the applicable designated redemption date, money for the redemption of the Bonds to be redeemed, together with interest to such redemption date, is held by an independent escrow agent selected by the District so as to be available therefor on such redemption date as described in Defeasance, and if a Redemption Notice thereof will have been given substantially as described above, then from and after such redemption date, interest on the Bonds to be redeemed shall cease to accrue and become payable. Rescission of Redemption Notice. With respect to any Redemption Notice in connection with the optional redemption of Bonds (or portions thereof) as described above, unless upon the giving of such notice such Bonds or portions thereof shall be deemed to have been defeased as described in Defeasance, such Redemption Notice will state that such redemption will be conditional upon the receipt by an independent escrow agent selected by the District, on or prior to the date fixed for such redemption, of the moneys necessary and sufficient to pay the principal, and premium, if any, and interest on, such Bonds (or portions thereof) to be redeemed, and that if such moneys shall not have been so received said Redemption Notice will be of no force and effect, no portion of the Bonds will be subject to redemption on such date and such Bonds will not be required to be redeemed on such date. In the event that such Redemption Notice contains such a condition and such moneys are not so received, the redemption will not be made and the Paying Agent will within a reasonable time thereafter (but in no event later than the date originally set for redemption) give notice to the persons to whom and in the manner in which the Redemption Notice was given that such moneys were not so received. In addition, the District will have the right to rescind any Redemption Notice, by written notice to the Paying Agent, on or prior to the date fixed for such redemption. The Paying Agent will distribute a notice of the rescission of such Redemption Notice in the same manner as such notice was originally provided. Bonds No Longer Outstanding. When any Bonds (or portions thereof), which have been duly called for redemption prior to maturity, or with respect to which irrevocable instructions to call for redemption prior to maturity at the earliest redemption date have been given to the Paying Agent, in form satisfactory to it, and sufficient moneys shall be held irrevocably in trust for the payment of the redemption price of such Bonds or portions thereof, and, accrued interest thereon to the date fixed for redemption, then such Bonds will no longer be deemed outstanding and shall be surrendered to the Paying Agent for cancellation. 9

16 Book-Entry Only System The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy or completeness thereof. The District cannot and does not give any assurances that DTC, DTC Direct Participants or Indirect Participants (as defined herein) will distribute to the Beneficial Owners (a) payments of interest on, principal of or premium, if any, on the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered Owner of the Bonds, or that they will so do on a timely basis or that DTC, Direct Participants or Indirect Participants will act in the manner described in this Official Statement. The current Rules applicable to DTC are on file with the Securities and Exchange Commission and the current Procedures of DTC to be followed in dealing with Participants are on file with DTC. The Depository Trust Company, New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.6 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants, and together with the Direct Participants, the Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each Beneficial Owner is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will 10

17 not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, defaults, and proposed amendments to the Resolution. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds and distributions on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the District or the Paying Agent, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds or distributions to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. For every transfer and exchange of Bonds, Owners requesting such transfer or exchange may be charged a sum sufficient to cover any tax, governmental charge or transfer fees that may be imposed in relation thereto, which charge may include transfer fees imposed by the Paying Agent, DTC or the DTC Participant in connection with such transfers or exchanges. 11

18 DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the District or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to the Owners thereof. Discontinuation of Book-Entry Only System; Registration, Payment and Transfer of Bonds So long as any of the Bonds remain outstanding, the District will cause the Paying Agent to maintain at its principal office all books and records necessary for the registration, exchange and transfer of such Bonds, which shall at all times be open to inspection by the District, and, upon presentation for such purpose, the Paying Agent shall, under such reasonable regulations as it may prescribe, register, exchange or transfer or cause to be registered, exchanged or transferred, on said books, Bonds as provided in the Resolution. In the event that the book-entry system described above is no longer used with respect to the Bonds, the following provisions will govern the payment, registration, transfer, exchange and replacement of the Bonds. The principal of the Bonds and any premium and interest upon the redemption thereof prior to the maturity will be payable in lawful money of the United States of America upon presentation and surrender of the Bonds at the designated office of the Paying Agent, initially located in Los Angeles, California. Interest on the Bonds will be paid by the Paying Agent by check or draft mailed to the person whose name appears on the registration books of the Paying Agent as the registered Owner, and to that person s address appearing on the registration books as of the close of business on the Record Date. At the written request of any registered Owner of at least $1,000,000 in aggregate principal amount, interest shall be wired to a bank and account number on file with the Paying Agent as of the Record Date. Any Bond may be exchanged for Bonds of like tenor, maturity and Transfer Amount (which with respect to any outstanding Bonds means the principal amount thereof) upon presentation and surrender at the principal office of the Paying Agent, together with a request for exchange signed by the registered Owner or by a person legally empowered to do so in a form satisfactory to the Paying Agent. A Bond may be transferred only on the Bond Register by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation at the office of the Paying Agent, accompanied by delivery of a written instrument of transfer in a form approved by the Paying Agent, duly executed. Upon exchange or transfer, the Paying Agent shall register, authenticate and deliver a new Bond or Bonds of like tenor and of any authorized denomination or denominations requested by the Owner equal to the Transfer Amount of the Bond surrendered and bearing interest at the same rate and maturing on the same date. Neither the District nor the Paying Agent will be required (a) to issue or transfer any Bonds during a period beginning with the opening of business on the 16th day next preceding any Bond Payment Date, the stated maturity of any of the Bonds or any date of selection of Bonds to be redeemed and ending with the close of business on the applicable Bond Payment Date, the close of business on the applicable stated maturity date or any day on which the applicable notice of redemption is given or (b) to transfer any Bonds which have been selected or called for redemption in whole or in part. 12

19 Defeasance All or any portion of the outstanding maturities of the Bonds may be defeased at any time prior to maturity in the following ways: (a) (b) Cash: by irrevocably depositing with an independent escrow agent selected by the District an amount of cash which, together with amounts transferred from the Debt Service Fund, if required, is sufficient to pay all Bonds outstanding and designated for defeasance, including all principal thereof, interest thereon and redemption premium, if any, at or before their maturity dates; Government Obligations: by irrevocably depositing with an independent escrow agent selected by the District noncallable Government Obligations together with monies transferred from the Debt Service Fund together with any other cash, if required, in such amount as will, in the opinion of an independent certified public accountant, be fully sufficient to pay and discharge all Bonds outstanding and designated for defeasance, including all principal thereof, interest thereon and redemption premium, if any, at or before their maturity dates; then, notwithstanding that any such maturities of Bonds shall not have been surrendered for payment, all obligations of the District with respect to all such designated outstanding Bonds shall cease and terminate, except only the obligation of the independent escrow agent selected by the District to pay or cause to be paid from funds deposited pursuant to paragraphs (a) or (b) above, to the Owners of such designated Bonds not so surrendered and paid all sums due with respect thereto. Government Obligations means direct and general obligations of the United States of America, or obligations that are unconditionally guaranteed as to principal and interest by the United States of America (which may consist of obligations of the Resolution Funding Corporation that constitute interest strips), or prerefunded municipal obligations rated in the highest rating category by Moody s Investors Service ( Moody s ) or Standard & Poor s Ratings Service, a Standard & Poor s Financial Services LLC business ( S&P ). In the case of direct and general obligations of the United States of America, Government Obligations shall include evidences of direct ownership of proportionate interests in future interest or principal payments of such obligations. Investments in such proportionate interests must be limited to circumstances where (a) a bank or trust company acts as custodian and holds the underlying United States obligations; (b) the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor of the underlying United States obligations; and (c) the underlying United States obligations are held in a special account, segregated from the custodian s general assets, and are not available to satisfy any claim of the custodian, any person claiming through the custodian, or any person to whom the custodian may be obligated; provided that such obligations are rated or assessed at least as high as direct general obligations of the United States of America by S&P or Moody s. 13

20 ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the Bonds are expected to be applied as follows: Sources of Funds Uses of Funds Principal Amount of Bonds $60,000, Net Original Issue Premium 3,466, Total Sources $63,466, Deposit to Building Fund 59,768, Deposit to Debt Service Fund 3,166, Costs of Issuance (1) $532, Total Uses $63,466, (1) Reflects all costs of issuance, including the underwriting discount, legal and financial advisory fees, printing costs, rating agency fees, and the costs and fees of the Paying Agent. TAX BASE FOR REPAYMENT OF BONDS The information in this section describes ad valorem property taxation, assessed valuation, and other measures of the tax base of the District. The Bonds are payable solely from ad valorem property taxes. The Board of Supervisors of the County is empowered and obligated to annually levy such ad valorem taxes, without limitation as to rate or amount, upon all property subject to taxation by the District (except certain personal property which is taxable at limited rates) for the payment of principal of and interest on the Bonds. The District s general fund is not a source for the repayment of the Bonds. Ad Valorem Property Taxation District property taxes are assessed and collected by the County at the same time and on the same rolls as special district property taxes. Assessed valuations are the same for both the District and the County s taxing purposes. Taxes are levied for each fiscal year on taxable real and personal property which is located in the District as of the preceding January 1. For assessment and collection purposes, property is classified either as secured or unsecured and is listed accordingly on separate parts of the assessment roll. The secured roll is that part of the assessment roll containing State assessed public utilities property and real property having a tax lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is assessed on the unsecured roll. A supplemental roll is developed when property changes hands or new construction is completed. The County levies and collects all property taxes for property falling within the County s taxing boundaries. The valuation of secured property is established as of January 1 and is subsequently enrolled in August. Property taxes on the secured roll are due in two installments, November 1 and February 1 of the calendar year. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a minimum 10% penalty attaches to any delinquent installment plus a $10 cost on the second installment, plus any additional amount determined by the Treasurer of the County. Property on the secured roll with 14

21 delinquent taxes declared tax-defaulted on or about June 30 of the calendar year. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus a minimum $15 redemption fee and a redemption penalty of 1.5% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is subject to sale by the Treasurer. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent if they are not paid by August 31. In the case of unsecured property taxes, a 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of 1.5% per month begins to accrue beginning November 1 of the fiscal year, and a lien may be recorded against the assessee. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the assessee; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on specific property of the assessee; (3) filing a certificate of delinquency for record in the County Recorder s office in order to obtain a lien on specified property of the assessee; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. See also Secured Tax Charges and Delinquencies herein. State law exempts from taxation $7,000 of the full cash value of an owner-occupied dwelling, but this exemption does not result in any loss of revenue to local agencies, since the State reimburses local agencies for the value of the exemptions. All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions. Assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, 2% inflation) is allocated on the basis of situs among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies, including school districts, share the growth of base revenues from the tax rate area. Each year s growth allocation becomes part of each agency s allocation in the following year. Assessed Valuations The assessed valuation of property in the District is established by the County Assessor, except for public utility property which is assessed by the State Board of Equalization ( SBE ). Assessed valuations are reported at 100% of the full cash value of the property, as defined in Article XIIIA of the California Constitution. For a discussion of how properties currently are assessed, see CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS herein. 15

22 The table below page shows a seven-year history of assessed valuations of the District. ASSESSED VALUATIONS Fiscal Years through Santa Monica-Malibu Unified School District Local Secured Utility Unsecured Total % Change $34,149,910,669 $743,365 $1,068,927,968 $35,219,582, ,503,955, ,365 1,013,023,685 36,517,722, % ,472,276, , ,337,416 36,397,355,982 (0.33) ,630,191, , ,862,922 37,576,796, ,076,707, ,365 1,024,110,696 39,101,560, ,617,029, ,365 1,019,369,137 41,637,140, ,675,355, ,365 1,015,391,498 43,691,489, Source: California Municipal Statistics, Inc. Economic and other factors beyond the District s control, such as general market decline in property values, disruption in financial markets that may reduce availability of financing for purchasers of property, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by the State and local agencies and property used for qualified education, hospital, charitable or religious purposes), or the complete or partial destruction of the taxable property caused by a natural or manmade disaster, such as earthquake, flood, drought or toxic contamination, could cause a reduction in the assessed value of taxable property within the District. Any such reduction would result in a corresponding increase in the annual tax rate levied by the County to pay the debt service with respect to the Bonds. See THE BONDS Security and Sources of Payment herein. Drought. On January 17, 2014, the Governor declared a State-wide Drought State of Emergency. As of such date, the State faced water shortfalls due to the driest year in recorded State history; California s river and reservoirs were below their record low levels, and manual and electronic readings recorded the water content of snowpack at the highest elevations in the State (chiefly in the Sierra Nevada mountain range) at about 20% of normal average for the winter season. As part of his State of Emergency declaration, the Governor directed State officials to assist agricultural producers and communities that may be economically impacted by dry conditions. Following the Governor s declaration, the California State Water Resources Control Board (the Water Board ) issued a statewide notice of water shortages and potential future curtailment of water right diversions. On April 1, 2015, the Governor issued an executive order mandating certain conservation measures including a requirement that the Water Board impose restrictions to achieve a statewide 25% reduction in urban water usage through February 28, The District cannot make any representation regarding the effects that the current drought has had, or, if it should continue, may have on the value of taxable property within the District, or to what extent the drought could cause disruptions to economic activity within the boundaries of the District Appeals and Adjustments of Assessed Valuations. Under California law, property owners may apply for a reduction of their property tax assessment by filing a written application, in form prescribed by the State Board of Equalization (the SBE ), with the appropriate county board of equalization or assessment appeals board. The County Assessor may independently reduce assessed values as well based upon the above factors or reductions in the fair market value of the taxable property. In most cases, an appeal is filed because the applicant believes that present market conditions (such as residential home prices) cause the property to be worth less than its current assessed value. Any reduction in the assessment ultimately granted as a result of such appeal applies to the year for which application is made 16

23 and during which the written application was filed. A second type of assessment appeal involves a challenge to the base year value of an assessed property. Appeals for reduction in the base year value of an assessment, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. The base year is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date. In addition to the above-described taxpayer appeals, county assessors may independently reduce assessed valuations based on changes in the market value of property, or for other factors such as the complete or partial destruction of taxable property caused by natural or man-made disasters such as earthquakes, floods, drought, fire, or toxic contamination pursuant to relevant provisions of the State Constitution. Whether resulting from taxpayer appeals or county assessor reductions, adjustments to assessed value are subject to yearly reappraisals by the county assessor and may be adjusted back to their original values when real estate market conditions improve. Once property has regained its prior assessed value, adjusted for inflation, it once again is subject to the annual inflationary growth rate factor allowed under Article XIIIA. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Article XIIIA of the California Constitution herein. No assurance can be given that property tax appeals currently pending or in the future will not significantly reduce the assessed valuation of property within the District. Assessed Valuation by Jurisdiction. The following table below shows an analysis of the distribution of taxable property in the District by jurisdiction, in terms of its fiscal year assessed valuation. ASSESSED VALUATION BY JURISDICTION Fiscal Year Santa Monica-Malibu Unified School District Assessed Valuation % of Assessed Valuation % of Jurisdiction Jurisdiction: in District District of Jurisdiction in District City of Malibu $12,876,085, % $12,876,085, % City of Santa Monica 29,045,399, ,046,341, Unincorporated Los Angeles County 1,770,005, ,355,630, Total District $43,691,489, % Los Angeles County $43,691,489, % $1,201,271,457, % Source: California Municipal Statistics, Inc. 17

24 Assessed Valuation of Single Family Homes and Condominiums. The following table shows a per-parcel analysis of single family residential homes and condominiums within the District, in terms of their fiscal year assessed valuation. PER PARCEL ASSESSED VALUATION OF SINGLE FAMILY HOMES/CONDOMINIUMS Fiscal Year Santa Monica-Malibu Unified School District No. of Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single Family Residential 12,771 $19,486,934,775 $1,525,874 $910,460 Condominiums 10,381 5,912,935,683 $569,592 $475,529 Total 23,152 $25,399,870,458 $1,097,092 $625,326 No. of SFR and Condo % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $99,999 1, % 4.470% $74,531, % 0.293% $100,000 - $199,999 1, ,025, $200,000 - $299,999 2, ,129, $300,000 - $399,999 2, ,423, $400,000 - $499,999 2, ,113, $500,000 - $599,999 1, ,020,205, $600,000 - $699,999 1, ,837, $700,000 - $799,999 1, ,024,600, $800,000 - $899,999 1, ,666, $900,000 - $999, ,834, $1,000,000 - $1,099, ,433, $1,100,000 - $1,199, ,767, $1,200,000 - $1,299, ,976, $1,300,000 - $1,399, ,937, $1,400,000 - $1,499, ,198, $1,500,000 - $1,599, ,451, $1,600,000 - $1,699, ,600, $1,700,000 - $1,799, ,978, $1,800,000 - $1,899, ,900, $1,900,000 - $1,999, ,090, $2,000,000 and greater 2, ,162,167, Total 23, % $25,399,870, % (1) Improved single family residential parcels and condominiums. Excludes parcels with multiple family units Source: California Municipal Statistics, Inc. 18

25 Assessed Valuation and Parcels by Land Use. The following table shows a per-parcel analysis of the distribution of taxable property within the District by principal use, and the fiscal year assessed valuation of such parcels. ASSESSED VALUATION AND PARCELS BY LAND USE Fiscal Year Santa Monica-Malibu Unified School District % of No. of % of Non-Residential: Assessed Valuation (1) Total Parcels Total Commercial $9,422,268, % 1, % Vacant Commercial 382,774, Industrial 715,929, Vacant Industrial 18,142, Recreational 119,828, Government/Social/Institutional 120,423, Miscellaneous 71,085, Subtotal Non-Residential $10,850,451, % 2, % Residential: Single Family Residence $19,486,934, % 12, % Condominium/Townhouse 5,912,935, , Mobile Home Park 27,522, Residential Units 1,447,878, , Residential Units/Apartments 3,589,475, , Vacant Residential 1,360,157, , Subtotal Residential $31,824,904, % 30, % Total $42,675,355, % 33, % (1) Local secured assessed valuation; excluding tax-exempt property. Source: California Municipal Statistics, Inc. 19

26 Secured Tax Charges and Delinquencies The following table shows secured ad valorem property tax levies within the District, and amounts delinquent as of June 30, for fiscal years through SECURED TAX CHARGES AND DELINQUENCIES Fiscal Years through Santa Monica-Malibu Unified School District Secured Tax Charge (1) Amt. Del. June 30 % Del. June $49,671, $2,483, % ,669, ,563, ,492, ,941, ,532, ,358, ,632, ,225, ,371, ,105, ,587, , (1) 1% General Fund apportionment. Excludes redevelopment agency impounds. Reflects county-wide delinquency rate. Source: California Municipal Statistics, Inc. Alternative Method of Tax Apportionment - Teeter Plan Certain counties in the State of California operate under a statutory program entitled Alternate Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the Teeter Plan ). Under the Teeter Plan local taxing entities receive 100% of their tax levies net of delinquencies, but do not receive interest or penalties on delinquent taxes collected by the county. The County has not adopted the Teeter Plan, and consequently the Teeter Plan is not available to local taxing entities within the County, such as the District. The District s receipt of property taxes is therefore subject to delinquencies. The District participates in the California Statewide Delinquent Tax Finance Authority ( CSDTFA ). CSDTFA is a joint exercise of powers agency formed for the purpose of purchasing delinquent ad valorem property taxes of its members in accordance with Section of the Government Code of the State of California. The District anticipates that CSDTFA will from time to time purchase delinquent ad valorem property tax receivables from the District at a purchase price equal to 108.5% of such receivable. Any penalty charges collected with respect to such delinquencies will be retained by CSDTFA. CSDTFA does not ensure that the District will receive the timely payment of ad valorem property taxes levied to secure the Bonds. See also Ad Valorem Property Taxation herein. 20

27 Tax Rates The following table shows total ad valorem property tax rates, as a percentage of assessed valuation, levied by all taxing entities in a typical tax rate area (a TRA ) within the District during the five-year fiscal year period from to : SUMMARY OF AD VALOREM PROPERTY TAX RATES (TRA 8604) (1) Fiscal Years through Santa Monica-Malibu Unified School District County General Rate % % % % % City of Santa Monica Santa Monica-Malibu Unified School District Santa Monica Community College District Metropolitan Water District Total % % % % % (1) Fiscal year assessed valuation of TRA 8604 is $15,579,852,449, representing 35.66% of the District s total assessed valuation. Source: California Municipal Statistics, Inc. Principal Taxpayers The following table shows the 20 largest local taxpayers in the District in terms of their secured assessed valuations: 20 LARGEST LOCAL SECURED TAXPAYERS Fiscal Year Santa Monica-Malibu Unified School District % of Property Owner Primary Land Use Assessed Valuation Total (1) 1. CA Colorado Center LLC Office Building $494,180, % 2. Water Garden Realty Holding LLC Office Building 479,461, SC Enterprises SMBP LLC Commercial 335,446, Douglas Emmett LLC Office Building 328,946, Macerich SMP LP Shopping Center 223,431, CREP 2700 Holdings LLC Office Building 220,600, Jamestown Lantana North LP Office Building 191,800, Hart Arboretum LLC Apartments 168,511, Ocean Avenue LLC Hotel 156,389, Equity Office Properties Trust Office Building 146,765, New Santa Monica Beach Hotel LLC Hotel 143,685, Jamestown Lantana South LP Office Building 136,600, Rand Corp. Office Building 136,110, Agensys Inc. Industrial 128,744, Ocean LLC Office Building 114,758, Shores Barrington LLC Apartments 114,731, CLPF Arboretum LP Office Building 110,360, Blue Devils Owner LLC Hotel 109,104, ASN Santa Monica LLC Apartments 103,153, Tishman Speyer Archstone Smith-Santa Monica Commercial 97,280, $3,940,061, % (1) Local Secured Assessed Valuation: $42,675,355,728. Source: California Municipal Statistics, Inc. 21

28 Statement of Direct and Overlapping Debt Set forth on the following page is a direct and overlapping debt report (the Debt Report ) prepared by California Municipal Statistics, Inc. dated as of April 14, 2015 for debt outstanding as of April 1, The Debt Report is included for general information purposes only. The District has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such longterm obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. The table shows the percentage of each overlapping entity s assessed value located within the boundaries of the District. The table also shows the corresponding portion of the overlapping entity s existing debt payable from property taxes levied within the District. The total amount of debt for each overlapping entity is not given in the table. The first column in the table names each public agency which has outstanding debt as of the date of the report and whose territory overlaps the District in whole or in part. The second column shows the percentage of each overlapping agency s assessed value located within the boundaries of the District. This percentage, multiplied by the total outstanding debt of each overlapping agency (which is not shown in the table) produces the amount shown in the third column, which is the apportionment of each overlapping agency s outstanding debt to taxable property in the District. [REMAINDER OF PAGE LEFT BLANK] 22

29 STATEMENT OF DIRECT AND OVERLAPPING DEBT Santa Monica-Malibu Unified School District Assessed Valuation: $43,691,489,591 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 4/1/15 Los Angeles County Flood Control District 3.763% $568,401 Metropolitan Water District ,083,625 Los Angeles Community College District ,985 Santa Monica Community College District ,547,636 Santa Monica-Malibu Unified School District ,824,194 (1) City of Santa Monica ,889,733 City of Malibu Community Facilities District No ,490,000 City of Malibu Community Facilities District No ,500,000 City of Malibu Broad Beach Assessment District ,080,000 Los Angeles County Regional Park and Open Space Assessment District ,014,346 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $778,354,920 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Los Angeles County General Fund Obligations 3.637% $69,032,643 Los Angeles County Superintendent of Schools Certificates of Participation ,114 Santa Monica Community College District Certificates of Participation ,275,000 Santa Monica-Malibu Unified School District Certificates of Participation ,391,501 City of Malibu Certificates of Participation ,040,000 City of Santa Monica General Fund Obligations ,967,721 Los Angeles County Sanitation District No. 27 Authority ,969 GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT $216,385,948 Less: Los Angeles County General Fund Obligations supported by landfill revenues 183,132 NET DIRECT AND OVERLAPPING GENERAL FUND DEBT $216,202,816 OVERLAPPING TAX INCREMENT DEBT: Santa Monica Redevelopment Agency (Successor Agency) % $94,840,000 TOTAL OVERLAPPING TAX INCREMENT DEBT $94,840,000 GROSS COMBINED TOTAL DEBT $1,089,580,868 (2) NET COMBINED TOTAL DEBT $1,089,397,736 Ratios to Assessed Valuation: Direct Debt ($310,824,194) % Total Direct and Overlapping Tax and Assessment Debt % Combined Direct Debt ($323,215,695) % Gross Combined Total Debt % Net Combined Total Debt % Ratios to Redevelopment Incremental Valuation ($9,484,193,009): Total Overlapping Tax Increment Debt % (1) Excludes the Bonds described herein. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Source: California Municipal Statistics, Inc. 23

30 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS The Bonds are payable solely from the proceeds of an ad valorem property tax required to be levied by the County on taxable property within the District in an amount sufficient for the payment thereof. (See THE BONDS Security and Sources of Payment herein) Articles XIIIA, XIIIB, XIIIC and XIIID of the Constitution, Propositions 98 and 111, and certain other provisions of law discussed below, are included in this section to describe the potential effect of these Constitutional and statutory measures on the ability of the County to levy taxes on behalf of the District and to the District to spend tax proceeds for operating and other purposes, and it should not be inferred from the inclusion of such materials that these laws impose any limitation on the ability of the County to levy taxes for payment of the Bonds. The tax levied by the County for payment of the Bonds was approved by the District s voters in compliance with Article XIIIA, Article XIIIC, and all applicable laws. Article XIIIA of the California Constitution Article XIIIA ( Article XIIIA ) of the State Constitution limits the amount of ad valorem property taxes on real property to 1% of full cash value as determined by the county assessor. Article XIIIA defines full cash value to mean the county assessor s valuation of real property as shown on the bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed or a change in ownership has occurred after the 1975 assessment, subject to exemptions in certain circumstances of property transfer or reconstruction. Determined in this manner, the full cash value is also referred to as the base year value. The full cash value is subject to annual adjustment to reflect increases, not to exceed 2% for any year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors. Article XIIIA has been amended to allow for temporary reductions of assessed value in instances where the fair market value of real property falls below the adjusted base year value described above. Proposition 8 approved by the voters in November of 1978 provides for the enrollment of the lesser of the base year value or the market value of real property, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property, or other factors causing a similar decline. In these instances, the market value is required to be reviewed annually until the market value exceeds the base year value. Reductions in assessed value could result in a corresponding increase in the annual tax rate levied by the County to pay debt service on the Bonds. See THE BONDS Security and Sources of Payment and TAX BASE FOR REPAYMENT OF BONDS herein. Article XIIIA requires a vote of two-thirds or more of the qualified electorate of a city, county, special district or other public agency to impose special taxes, while totally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. Article XIIIA exempts from the 1% tax limitation any taxes above that level required to pay debt service (a) on any indebtedness approved by the voters prior to July 1, 1978, or (b), as the result of an amendment approved by State voters on June 3, 1986, on any bonded indebtedness approved by two-thirds of the votes cast by the voters for the acquisition or improvement of real property on or after July 1, 1978, or (c) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by fifty-five percent or more of the votes cast on the proposition, but only if certain accountability measures are included in the proposition. The tax for payment of the Bonds falls within the exception described in (c) of the immediately preceding sentence. In addition, Article XIIIA requires the approval of two-thirds of all members of the state legislature to change any state taxes for the purpose of increasing tax revenues. 24

31 Legislation Implementing Article XIIIA Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to That portion of annual property tax revenues generated by increases in assessed valuations within each tax rate area within a county, subject to claims, if any, on tax increment and subject to changes in organizations, if any, of affected jurisdictions, is allocated to each jurisdiction within the tax rate area in the same proportion that the total property tax revenue from the tax rate area for the prior year was allocated to such jurisdictions. Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the annual adjustment not to exceed 2% are allocated among the various jurisdictions in the taxing area based upon their respective situs. Any such allocation made to a local agency continues as part of its allocation in future years. All taxable property value included in this Official Statement is shown at 100% of taxable value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value. Both the United States Supreme Court and the California State Supreme Court have upheld the general validity of Article XIIIA. Unitary Property Some amount of property tax revenue of the District is derived from utility property which is considered part of a utility system with components located in many taxing jurisdictions ( unitary property ). Under the State Constitution, such property is assessed by the SBE as part of a going concern rather than as individual pieces of real or personal property. State-assessed unitary and certain other property is allocated to the counties by SBE, taxed at special county-wide rates, and the tax revenues distributed to taxing jurisdictions (including the District) according to statutory formulae generally based on the distribution of taxes in the prior year. So long as the District is not a basic aid district, taxes lost through any reduction in assessed valuation will be compensated by the State as equalization aid under the State s school financing formula. See DISTRICT FINANCIAL INFORMATION herein. Article XIIIB of the California Constitution Article XIIIB ( Article XIIIB ) of the State Constitution, as subsequently amended by Propositions 98 and 111, respectively, limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and in population and for transfers in the financial responsibility for providing services and for certain declared emergencies. As amended, Article XIIIB defines: (a) change in the cost of living with respect to school districts to mean the percentage change in California per capita income from the preceding year, and 25

32 (b) change in population with respect to a school district to mean the percentage change in the ADA of the school district from the preceding fiscal year. For fiscal years beginning on or after July 1, 1990, the appropriations limit of each entity of government shall be the appropriations limit for the fiscal year adjusted for the changes made from that fiscal year pursuant to the provisions of Article XIIIB, as amended. The appropriations of an entity of local government subject to Article XIIIB limitations include the proceeds of taxes levied by or for that entity and the proceeds of certain state subventions to that entity. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to the entity from (a) regulatory licenses, user charges and user fees (but only to the extent that these proceeds exceed the reasonable costs in providing the regulation, product or service), and (b) the investment of tax revenues. Appropriations subject to limitation do not include (a) refunds of taxes, (b) appropriations for bonded debt service such as the Bonds, (c) appropriations required to comply with certain mandates of the courts or the federal government, (d) appropriations of certain special districts, (e) appropriations for all qualified capital outlay projects as defined by the State legislature, (f) appropriations derived from certain fuel and vehicle taxes and (g) appropriations derived from certain taxes on tobacco products. Article XIIIB includes a requirement that all revenues received by an entity of government other than the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years. Article XIIIB also includes a requirement that fifty percent of all revenues received by the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be transferred and allocated to the State School Fund pursuant to Section 8.5 of Article XVI of the State Constitution. See Propositions 98 and 111 herein. Proposition 26 On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution to expand the definition of tax to include any levy, charge, or exaction of any kind imposed by a local government except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) A fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the 26

33 governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor s burdens on, or benefits received from, the governmental activity. Article XIIIC and Article XIIID of the California Constitution On November 5, 1996, the voters of the State approved Proposition 218, popularly known as the Right to Vote on Taxes Act. Proposition 218 added to the California Constitution Articles XIIIC and XIIID (respectively, Article XIIIC and Article XIIID ), which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing and future taxes, assessments, fees and charges. According to the Title and Summary of Proposition 218 prepared by the California Attorney General, Proposition 218 limits the authority of local governments to impose taxes and property-related assessments, fees and charges. Among other things, Article XIIIC establishes that every tax is either a general tax (imposed for general governmental purposes) or a special tax (imposed for specific purposes), prohibits special purpose government agencies such as school districts from levying general taxes, and prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds vote; and also provides that the initiative power will not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. Article XIIIC further provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the California Constitution and special taxes approved by a two-thirds vote under Article XIIIA, Section 4. Article XIIID deals with assessments and propertyrelated fees and charges, and explicitly provides that nothing in Article XIIIC or XIIID will be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development. The District does not impose any taxes, assessments, or property-related fees or charges which are subject to the provisions of Proposition 218. It does, however, receive a portion of the basic 1% ad valorem property tax levied and collected by the County pursuant to Article XIIIA of the California Constitution. The provisions of Proposition 218 may have an indirect effect on the District, such as by limiting or reducing the revenues otherwise available to other local governments whose boundaries encompass property located within the District thereby causing such local governments to reduce service levels and possibly adversely affecting the value of property within the District. Propositions 98 and 111 On November 8, 1988, voters of the State approved Proposition 98, a combined initiative constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act (the Accountability Act ). Certain provisions of the Accountability Act have, however, been modified by Proposition 111, discussed below, the provisions of which became effective on July 1, The Accountability Act changed State funding of public education below the university level and the operation of the State s appropriations limit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (hereinafter referred to collectively as K-14 school districts ) at a level equal to the greater of (a) the same percentage of State general fund revenues as the percentage appropriated to such districts in the fiscal year, and (b) the amount actually appropriated to such districts from the State general fund in the previous fiscal year, adjusted for increases in enrollment and changes in the cost of living. The Accountability Act permits the State legislature to suspend this formula for a one-year period. The Accountability Act also changed how tax revenues in excess of the State appropriations limit are distributed. Any excess State tax revenues up to a specified amount are, instead of being returned to 27

34 taxpayers, is transferred to K-14 school districts. Any such transfer to K-14 school districts is excluded from the appropriations limit for K-14 school districts and the K-14 school district appropriations limit for the next year is automatically increased by the amount of such transfer. These additional moneys enter the base funding calculation for K-14 school districts for subsequent years, creating further pressure on other portions of the State budget, particularly if revenues decline in a year following an Article XIIIB surplus. The maximum amount of excess tax revenues which can be transferred to K-14 school districts is 4% of the minimum State spending for education mandated by the Accountability Act. Since the Accountability Act is unclear in some details, there can be no assurances that the Legislature or a court might not interpret the Accountability Act to require a different percentage of State general fund revenues to be allocated to K-14 school districts, or to apply the relevant percentage to the State s budgets in a different way than is proposed in the Governor s Budget. On June 5, 1990, the voters of the State approved Proposition 111 (Senate Constitutional Amendment No. 1) called the Traffic Congestion Relief and Spending Limitation Act of 1990 ( Proposition 111 ) which further modified Article XIIIB and Sections 8 and 8.5 of Article XVI of the State Constitution with respect to appropriations limitations and school funding priority and allocation. The most significant provisions of Proposition 111 are summarized as follows: a. Annual Adjustments to Spending Limit. The annual adjustments to the Article XIIIB spending limit were liberalized to be more closely linked to the rate of economic growth. Instead of being tied to the Consumer Price Index, the change in the cost of living is now measured by the change in California per capita personal income. The definition of change in population specifies that a portion of the State s spending limit is to be adjusted to reflect changes in school attendance. b. Treatment of Excess Tax Revenues. Excess tax revenues with respect to Article XIIIB are now determined based on a two-year cycle, so that the State can avoid having to return to taxpayers excess tax revenues in one year if its appropriations in the next fiscal year are under its limit. In addition, the Proposition 98 provision regarding excess tax revenues was modified. After any two-year period, if there are excess State tax revenues, 50% of the excess are to be transferred to K-14 school districts with the balance returned to taxpayers; under prior law, 100% of excess State tax revenues went to K-14 school districts, but only up to a maximum of 4% of the minimum funding level for such districts. Also, reversing prior law, any excess State tax revenues transferred to K-14 school districts are not built into K-14 school district base expenditures for calculating their entitlement for State aid in the next year, and the State s appropriations limit is not to be increased by this amount. c. Exclusions from Spending Limit. Two exceptions were added to the calculation of appropriations which are subject to the Article XIIIB spending limit. First, there are excluded all appropriations for qualified capital outlay projects as defined by the Legislature. Second, there are excluded any increases in gasoline taxes above the 1990 level (then nine cents per gallon), sales and use taxes on such increment in gasoline taxes, and increases in receipts from vehicle weight fees above the levels in effect on January 1, These latter provisions were necessary to make effective the transportation funding package approved by the Legislature and the Governor, which was expected to raise over $15 billion in additional taxes from 1990 through 2000 to fund transportation programs. 28

35 d. Recalculation of Appropriations Limit. The Article XIIIB appropriations limit for each unit of government, including the State, is to be recalculated beginning in fiscal year It is based on the actual limit for fiscal year , adjusted forward to as if Proposition 111 had been in effect. e. School Funding Guarantee. There is a complex adjustment in the formula enacted in Proposition 98 which guarantees K-14 school districts a certain amount of State general fund revenues. Under prior law, K-14 school districts were guaranteed the greater of (1) 40.9% of State general fund revenues ( Test 1 ) or (2) the amount appropriated in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to per capita personal income) and enrollment ( Test 2 ). Under Proposition 111, K-14 school districts will receive the greater of (1) Test 1, (2) Test 2, or (3) a third test ( Test 3 ), which will replace Test 2 in any year when growth in per capita State general fund revenues from the prior year is less than the annual growth in California per capital personal income. Under Test 3, K-14 school districts will receive the amount appropriated in the prior year adjusted for change in enrollment and per capita State general fund revenues, plus an additional small adjustment factor. If Test 3 is used in any year, the difference between Test 3 and Test 2 will become a credit to schools which will be paid in future years when State general fund revenue growth exceeds personal income growth. Proposition 39 On November 7, 2000, California voters approved an amendment (commonly known as Proposition 39) to the California Constitution. This amendment (1) allows school facilities bond measures to be approved by 55% (rather than two-thirds) of the voters in local elections and permits property taxes to exceed the current 1% limit in order to repay the bonds and (2) changes existing statutory law regarding charter school facilities. As adopted, the constitutional amendments may be changed only with another Statewide vote of the people. The statutory provisions could be changed by a majority vote of both houses of the Legislature and approval by the Governor, but only to further the purposes of the proposition. The local school jurisdictions affected by this proposition are K-12 school districts, including the District, community college districts, and county offices of education. As noted above, the California Constitution previously limited property taxes to 1% of the value of property, and property taxes could only exceed this limit to pay for (1) any local government debts approved by the voters prior to July 1, 1978 or (2) bonds to buy or improve real property that receive two-thirds voter approval after July 1, The 55% vote requirement applies only if the local bond measure presented to the voters includes: (1) a requirement that the bond funds can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities; (2) a specific list of school projects to be funded and certification that the school board has evaluated safety, class size reduction, and information technology needs in developing the list; and (3) a requirement that the school board conduct annual, independent financial and performance audits until all bond funds have been spent to ensure that the bond funds have been used only for the projects listed in the measure. Legislation approved in June 2000 placed certain limitations on local school bonds to be approved by 55% of the voters. These provisions require that the tax rate per $100,000 of taxable property value projected to be levied as the result of any single election be no more than $60 (for a unified school district), $30 (for a high school or elementary school district), or $25 (for a community college district), per $100,000 of taxable property value, when assessed valuation is projected to increase in accordance with Article XIIIA of the Constitution. These requirements are not part of Proposition 39 and can be changed with a majority vote of both houses of the Legislature and approval by the Governor. 29

36 Proposition 1A and Proposition 22 On November 2, 2004, California voters approved Proposition 1A, which amends the State constitution to significantly reduce the State s authority over major local government revenue sources. Under Proposition 1A, the State cannot (i) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (ii) shift property taxes from local governments to schools or community colleges, (iii) change how property tax revenues are shared among local governments without two-third approval of both houses of the State Legislature or (iv) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also amends the State Constitution to require the State to suspend certain State laws creating mandates in any year that the State does not fully reimburse local governments for their costs to comply with the mandates. This provision does not apply to mandates relating to schools or community colleges or to those mandates relating to employee rights. Proposition 22, The Local Taxpayer, Public Safety, and Transportation Protection Act, approved by the voters of the State on November 2, 2010, prohibits the State from enacting new laws that require redevelopment agencies to shift funds to schools or other agencies and eliminates the State s authority to shift property taxes temporarily during a severe financial hardship of the State. In addition, Proposition 22 restricts the State s authority to use State fuel tax revenues to pay debt service on state transportation bonds, to borrow or change the distribution of state fuel tax revenues, and to use vehicle license fee revenues to reimburse local governments for state mandated costs. Proposition 22 impacts resources in the State s general fund and transportation funds, the State s main funding source for schools and community colleges, as well as universities, prisons and health and social services programs. According to an analysis of Proposition 22 submitted by the Legislative Analyst s Office (the LAO ) on July 15, 2010, the reduction in resources available for the State to spend on these other programs as a consequence of the passage of Proposition 22 was expected to be approximately $1 billion in fiscal year , with an estimated immediate fiscal effect equal to approximately 1% of the State s total general fund spending. The longer-term effect of Proposition 22, according to the LAO analysis, will be an increase in the State s general fund costs by approximately $1 billion annually for several decades. Jarvis vs. Connell On May 29, 2002, the California Court of Appeal for the Second District decided the case of Howard Jarvis Taxpayers Association, et al. v. Kathleen Connell (as Controller of the State of California). The Court of Appeal held that either a final budget bill, an emergency appropriation, a selfexecuting authorization pursuant to state statutes (such as continuing appropriations) or the California Constitution or a federal mandate is necessary for the State Controller to disburse funds. The foregoing requirement could apply to amounts budgeted by the District as being received from the State. To the extent the holding in such case would apply to State payments reflected in the District s budget, the requirement that there be either a final budget bill or an emergency appropriation may result in the delay of such payments to the District if such required legislative action is delayed, unless the payments are self-executing authorizations or are subject to a federal mandate. On May 1, 2003, the California Supreme Court upheld the holding of the Court of Appeal, stating that the Controller is not authorized under State law to disburse funds prior to the enactment of a budget or other proper appropriation, but under federal law, the Controller is required, notwithstanding a budget impasse and the limitations imposed by State law, to timely pay those State employees who are subject to the minimum wage and overtime compensation provisions of the federal Fair Labor Standards Act. 30

37 Proposition 30 On November 6, 2012, voters of the State of California approved the Temporary Taxes to Fund Education, Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment (also known as Proposition 30 ), which temporarily increases the State Sales and Use Tax and personal income tax rates on higher incomes. Proposition 30 temporarily imposes an additional tax on all retailers, at the rate of 0.25% of gross receipts from the sale of all tangible personal property sold in the State from January 1, 2013 to December 31, Proposition 30 also imposes an additional excise tax on the storage, use, or other consumption in the State of tangible personal property purchased from a retailer on and after January 1, 2013 and before January 1, 2017, for storage, use, or other consumption in the State. This excise tax will be levied at a rate of 0.25% of the sales price of the property so purchased. For personal income taxes imposed each taxable year beginning in the taxable year commencing January 1, 2012 and ending in the taxable year ending December 31, 2018, Proposition 30 increases the marginal personal income tax rate by: (i) 1% for taxable income over $250,000 but less than $300,000 for single filers (over $340,000 but less than $408,000 for joint filers), (ii) 2% for taxable income over $300,000 but less than $500,000 for single filers (over $408,000 but less than $608,000 for joint filers), and (iii) 3% for taxable income over $500,000 for single filers (over $608,000 for joint filers). The revenues generated from the temporary tax increases will be included in the calculation of the Proposition 98 minimum funding guarantee for school districts and community college districts. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Propositions 98 and 111 herein. From an accounting perspective, the revenues generated from the temporary tax increases are being deposited into the State account created pursuant to Proposition 30 called the Education Protection Account (the EPA ). Pursuant to Proposition 30, funds in the EPA will be allocated quarterly, with 89% of such funds provided to schools districts and 11% provided to community college districts. The funds will be distributed to school districts and community college districts in the same manner as existing unrestricted per-student funding, except that no school district will receive less than $200 per unit of ADA and no community college district will receive less than $100 per full time equivalent student. The governing board of each school district and community college district is granted sole authority to determine how the moneys received from the EPA are spent, provided that, the appropriate governing board is required to make these spending determinations in open session at a public meeting and such local governing boards are prohibited from using any funds from the EPA for salaries or benefits of administrators or any other administrative costs. Proposition 2 On November 4, 2014, voters approved the Rainy Day Budget Stabilization Fund Act (also known as Proposition 2 ). Proposition 2 is a legislatively-referred constitutional amendment which makes certain changes to State budgeting practices, including substantially revising the conditions under which transfers are made to and from the State s Budget Stabilization Account (the BSA ) established by the California Balanced Budget Act of 2004 (also known as Proposition 58). Under Proposition 2, and beginning in fiscal year and each fiscal year thereafter, the State will generally be required to annually transfer to the BSA an amount equal to 1.5% of estimated State general fund revenues (the Annual BSA Transfer ). Supplemental transfers to the BSA (a Supplemental BSA Transfer ) are also required in any fiscal year in which the estimated State general fund revenues that are allocable to capital gains taxes exceed 8% of total estimated general fund tax revenues. Such excess capital gains taxes net of any portion thereof owed to K-14 school districts pursuant to Proposition 98 will be transferred to the BSA. Proposition 2 also increases the maximum size of the BSA to an amount equal to 10% of estimated State general fund revenues for any given fiscal year. In any fiscal year in which a required transfer to the BSA would result in an amount in excess of the 31

38 10% threshold, Proposition 2 requires such excess to be expended on State infrastructure, including deferred maintenance. For the first 15-year period ending with the fiscal year, Proposition 2 provides that half of any required transfer to the BSA, either annual or supplemental, must be appropriated to reduce certain State liabilities, including making certain payments owed to K-14 school districts, repaying State interfund borrowing, reimbursing local governments for State mandated services, and reducing or prefunding accrued liabilities associated with State-level pension and retirement benefits. Following the initial 15-year period, the Governor and the Legislature are given discretion to apply up to half of any required transfer to the BSA to the reduction of such State liabilities. Any amount not applied towards such reduction must be transferred to the BSA or applied to infrastructure, as described above. Proposition 2 changes the conditions under which the Governor and the Legislature may draw upon or reduce transfers to the BSA. The Governor does not retain unilateral discretion to suspend transfers the BSA, nor does the Legislature retain discretion to transfer funds from the BSA for any reason, as previously provided by law. Rather, the Governor must declare a budget emergency, defined as an emergency within the meaning of Article XIIIB of the Constitution or a determination that estimated resources are inadequate to fund State general fund expenditures, for the current or ensuing fiscal year, at a level equal to the highest level of State spending within the three immediately preceding fiscal years. Any such declaration must be followed by a legislative bill providing for a reduction or transfer. Draws on the BSA are limited to the amount necessary to address the budget emergency, and no draw in any fiscal year may exceed 50% of funds on deposit in the BSA unless a budget emergency was declared in the preceding fiscal year. Proposition 2 also requires the creation of the Public School System Stabilization Account (the PSSSA ) into which transfers will be made in any fiscal year in which a Supplemental BSA Transfer is required (as described above). Such transfer will be equal to the portion of capital gains taxes above the 8% threshold that would be otherwise paid to K-14 school districts as part of the minimum funding guarantee. A transfer to the PSSSA will only be made if certain additional conditions are met, as follows: (i) the minimum funding guarantee was not suspended in the immediately preceding fiscal year, (ii) the operative Proposition 98 formula for the fiscal year in which a PSSSA transfer might be made is Test 1, (iii) no maintenance factor obligation is being created in the budgetary legislation for the fiscal year in which a PSSSA transfer might be made, (iv) all prior maintenance factor obligations have been fully repaid, and (v) the minimum funding guarantee for the fiscal year in which a PSSSA transfer might be made is higher than the immediately preceding fiscal year, as adjusted for ADA growth and cost of living. Proposition 2 caps the size of the PSSSA at 10% of the estimated minimum guarantee in any fiscal year, and any excess funds must be paid to K-14 school districts. Reductions to any required transfer to the PSSSA, or draws on the PSSSA, are subject to the same budget emergency requirements described above. However, Proposition 2 also mandates draws on the PSSSA in any fiscal year in which the estimated minimum funding guarantee is less than the prior year s funding level, as adjusted for ADA growth and cost of living. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID of the California Constitution and Propositions 22, 26, 30, 39 and 98 were each adopted as measures that qualified for the ballot pursuant to the State s initiative process. From time to time other initiative measures could be adopted further affecting District revenues or the District s ability to expend revenues. The nature and impact of these measures cannot be anticipated by the District. 32

39 DISTRICT FINANCIAL INFORMATION The information in this section concerning the District s general fund finances is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Bonds is payable from the general fund of the District. The Bonds are not payable from the general fund of the District. The Bonds are payable solely from the proceeds of an ad valorem property tax required to be levied by the County on taxable property within the District in an amount sufficient for the payment thereof. See THE BONDS Security and Sources of Payment herein. State Funding of Education School district revenues consist primarily of guaranteed State moneys, local property taxes and funds received from the State in the form of categorical aid under ongoing programs of local assistance. All State aid is subject to the appropriation of funds in the State s annual budget. Revenue Limit Funding. Previously, school districts operated under general purpose revenue limits established by the State Department of Education. In general, revenue limits were calculated for each school district by multiplying the ADA for such district by a base revenue limit per unit of ADA. Revenue limit calculations were subject to adjustment in accordance with a number of factors designed to provide cost of living adjustments ( COLAs ) and to equalize revenues among school districts of the same type. Funding of a school district s revenue limit was provided by a mix of local property taxes and State apportionments of basic and equalization aid. Beginning in fiscal year , school districts have been funded based on uniform system of funding grants assigned to certain grade spans. See Local Control Funding Formula herein. The following table shows the District s historical ADA and the revenue limit rates per unit of ADA for fiscal years through (1) Year AVERAGE DAILY ATTENDANCE AND REVENUE LIMIT Fiscal Years through Santa Monica-Malibu Unified School District Average Daily Attendance (1) Annual Change in ADA Base Revenue Limit Per ADA (2) Deficit Revenue Limit per ADA (2) , $5, $5, ,055 (28) 6, , , , , ,976 (130) 6, , ,948 (28) 6, , ,878 (70) 6, , Reflects ADA as of the second principal reporting period (P-2 ADA), ending on or before the last attendance month prior to April 15 of each school year. An attendance month is each four-week period of instruction beginning with the first day of school for any school district. (2) Deficit revenue limit funding, if provided for in State budgetary legislation, reduced the revenue limit allocations received by school districts by applying a deficit factor to the base revenue limit for a given fiscal year, and resulted from an insufficiency of appropriation funds in the State budget to provide for State aid owed to school districts. The State s practice of deficit limit funding was most recently reinstated beginning in fiscal year and eliminated with the implementation of the LCFF (defined herein). Source: Santa Monica-Malibu Unified School District. 33

40 Local Control Funding Formula. State Assembly Bill 97 (Stats. 2013, Chapter 47) ( AB 97 ), enacted as part of the State budget, established a new system for funding school districts, charter schools and county offices of education. Certain provisions of AB 97 were amended and clarified by Senate Bill 91 (Stats. 2013, Chapter 49). The primary component of AB 97 is the implementation of the Local Control Funding Formula ( LCFF ), which replaced the revenue limit funding system for determining State apportionments, as well as the majority of categorical program funding. State allocations are now provided on the basis of target base funding grants per unit of ADA (a Base Grant ) assigned to each of four grade spans. Each Base Grant is subject to certain adjustments and add-ons, as discussed below. Full implementation of the LCFF is expected to occur over a period of several fiscal years. Beginning in fiscal year , an annual transition adjustment has been calculated for each school district, equal to such district s proportionate share of appropriations included in the State budget to close the gap between the prior-year funding level and the target allocation following full implementation of the LCFF. In each year, school districts will have the same proportion of their respective funding gaps closed, with dollar amounts varying depending on the size of a district s funding gap. The Base Grants per unit of ADA for each grade span are as follows: (i) $6,845 for grades K-3; (ii) $6,947 for grades 4-6; (iii) $7,154 for grades 7-8; and (iv) $8,289 for grades Beginning in fiscal year , the Base Grants are to be adjusted for COLAs by applying the implicit price deflator for government goods and services. Following full implementation of the LCFF, the provision of COLAs will be subject to appropriation for such adjustment in the annual State budget. The differences among Base Grants are linked to differentials in statewide average revenue limit rates by district type, and are intended to recognize the generally higher costs of education at higher grade levels. See also State Budget Measures for information on the adjusted Base Grants provided by current budgetary legislation. The Base Grants for grades K-3 and 9-12 are subject to adjustments of 10.4% and 2.6%, respectively, to cover the costs of class size reduction in early grades and the provision of career technical education in high schools. Following full implementation of the LCFF, and unless otherwise collectively bargained for, school districts serving students in grades K-3 must maintain an average class enrollment of 24 or fewer students in grades K-3 at each school site in order to continue receiving the adjustment to the K-3 Base Grant. Such school districts must also make progress towards this class size reduction goal in proportion to the growth in their funding over the implementation period. AB 97 also provides additional add-ons to school districts that received categorical block grant funding pursuant to the Targeted Instructional Improvement and Home-to-School Transportation programs during fiscal year School districts that serve students of limited English proficiency ( EL students), students from low income families that are eligible for free or reduced priced meals ( LI students) and foster youth are eligible to receive additional funding grants. Enrollment counts are unduplicated, such that students may not be counted as both EL and LI (foster youth automatically meet the eligibility requirements for free or reduced priced meals, and are therefore not discussed herein separately). AB 97 authorizes a supplemental grant add-on (each, a Supplemental Grant ) for school districts that serve EL/LI students, equal to 20% of the applicable Base Grant multiplied by such districts percentage of unduplicated EL/LI student enrollment. School districts whose EL/LI populations exceed 55% of their total enrollment are eligible for a concentration grant add-on (each, a Concentration Grant ) equal to 50% of the applicable Base Grant multiplied the percentage of such district s unduplicated EL/LI student enrollment in excess of the 55% threshold. 34

41 The following table shows a breakdown of the District s ADA by grade span, total enrollment, and the percentage of EL/LI student enrollment for fiscal years through (1) ADA, ENROLLMENT AND EL/LI ENROLLMENT PERCENTAGE Fiscal Years through Santa Monica-Malibu Unified School District Average Daily Attendance (1) Enrollment Fiscal Year K Total ADA Total Enrollment (2) % of EL/LI Enrollment (2) ,176 2,427 1,650 3,588 10,837 11,417 N/A ,194 2,449 1,663 3,503 10,808 11, % ,174 2,440 1,630 3,551 10,795 11, Reflects P-2 ADA. (2) Fiscal year enrollment as of October report submitted to the California Basic Educational Data System ( CBEDS ). Fiscal years and reflect certified enrollment as of the fall census day (the first Wednesday in October), which is reported to the California Longitudinal Pupil Achievement Data System ( CALPADS ) in each school year and used to calculate each school district s unduplicated EL/LI student enrollment. Adjustments may be made to the certified EL/LI counts by the California Department of Education. CALPADS figures generally exclude preschool and adult transitional students. For purposes of calculating Supplemental and Concentration Grants, a school district s fiscal year percentage of unduplicated EL/LI students will be expressed solely as a percentage of its total fiscal year total enrollment. For fiscal year , the percentage of unduplicated EL/LI enrollment will be based on the two-year average of EL/LI enrollment in fiscal years and Beginning in fiscal year , a school district s percentage of unduplicated EL/LI students will be based on a rolling average of such district s EL/LI enrollment for the then-current fiscal year and the two immediately preceding fiscal years. Source: Santa Monica-Malibu Unified School District. For certain school districts that would have received greater funding levels under the prior revenue limit system, the LCFF provides for a permanent economic recovery target ( ERT ) add-on, equal to the difference between the revenue limit allocations such districts would have received under the prior system in fiscal year , and the target LCFF allocations owed to such districts in the same year. To derive the projected funding levels, the LCFF assumes the discontinuance of deficit revenue limit funding, implementation of a 1.94% COLA in fiscal years through , and restoration of categorical funding to pre-recession levels. The ERT add-on will be paid incrementally over the implementing period of the LCFF. The District does not qualify for the ERT add-on. The sum of a school district s adjusted Base, Supplemental and Concentration Grants will be multiplied by such district s P-2 ADA for the current or prior year, whichever is greater (with certain adjustments applicable to small school districts). This funding amount, together with any applicable ERT or categorical block grant add-ons, will yield a district s total LCFF allocation. Generally, the amount of annual State apportionments received by a school district will amount to the difference between such total LCFF allocation and such district s share of applicable local property taxes. Most school districts receive a significant portion of their funding from such State apportionments. As a result, decreases in State revenues may significantly affect appropriations made by the Legislature to school districts. Certain schools districts, known as basic aid districts, have allocable local property tax collections that equal or exceed such districts total LCFF allocation, and result in the receipt of no State apportionment aid. Basic aid school districts receive only special categorical funding, which is deemed to satisfy the basic aid requirement of $120 per student per year guaranteed by Article IX, Section 6 of the State Constitution. The implication for basic aid districts is that the legislatively determined allocations to school districts, and other politically determined factors, are less significant in determining their primary funding sources. Rather, property tax growth and the local economy are the primary determinants. During fiscal year , the District qualified as basic aid due to an influx of additional property tax revenues resulting from the dissolution of redevelopment agencies. See Other Revenue Sources Redevelopment Revenue herein. The District does not currently qualify as basic aid, and does 35

42 not expect to in future fiscal years. Accountability. Regulations adopted by the State Board of Education require that school districts increase or improve services for EL/LI students in proportion to the increase in funds apportioned to such districts on the basis of the number and concentration of such EL/LI students, and detail the conditions under which school districts can use supplemental or concentration funding on a school-wide or districtwide basis. School districts are also required to adopt local control and accountability plans ( LCAPs ) disclosing annual goals for all students, as well as certain numerically significant student subgroups, to be achieved in eight areas of State priority identified by the LCFF. LCAPs may also specify additional local priorities. LCAPs must specify the actions to be taken to achieve each goal, including actions to correct identified deficiencies with regard to areas of State priority. LCAPs are required to be adopted every three years, beginning in fiscal year , and updated annually thereafter. The State Board of Education has adopted a template LCAP for use by school districts. Support and Intervention. AB 97, as amended by SB 91, establishes a new system of support and intervention to assist school districts meet the performance expectations outlined in their respective LCAPs. School districts must adopt their LCAPs (or annual updates thereto) in tandem with their annual operating budgets, and not later than five days thereafter submit such LCAPs or updates to their respective county superintendents of schools. On or before August 15 of each year, a county superintendent may seek clarification regarding the contents of a district s LCAP (or annual update thereto), and the district is required to respond to such a request within 15 days. Within 15 days of receiving such a response, the county superintendent can submit non-binding recommendations for amending the LCAP or annual update, and such recommendations must be considered by the respective school district at a public hearing within 15 days. A district s LCAP or annual update must be approved by the county superintendent by October 8 of each year if the superintendent determines that (i) the LCAP or annual update adheres to the State template, and (ii) the district s budgeted expenditures are sufficient to implement the actions and strategies outlined in the LCAP. A school district is required to receive additional support if its respective LCAP or annual update thereto is not approved, if the district requests technical assistance from its respective county superintendent, or if the district does not improve student achievement across more than one State priority for one or more student subgroups. Such support can include a review of a district s strengths and weaknesses in the eight State priority areas, or the assignment of an academic expert to assist the district identify and implement programs designed to improve outcomes. Assistance may be provided by the California Collaborative for Educational Excellence, a state agency created by the LCFF and charged with assisting school districts achieve the goals set forth in their LCAPs. On or before October 1, 2015, the State Board of Education is required to develop rubrics to assess school district performance and the need for support and intervention. The State Superintendent of Public Instruction (the State Superintendent ) is further authorized, with the approval of the State Board of Education, to intervene in the management of persistently underperforming school districts. The State Superintendent may intervene directly or assign an academic trustee to act on his or her behalf. In so doing, the State Superintendent is authorized (i) to modify a district s LCAP, (ii) impose budget revisions designed to improve student outcomes, and (iii) stay or rescind actions of the local governing board that would prevent such district from improving student outcomes; provided, however, that the State Superintendent is not authorized to rescind an action required by a local collective bargaining agreement. 36

43 Other Revenue Sources Other State Sources. In addition to State allocations determined pursuant to the LCFF, the District receives other State revenues consisting primarily of restricted revenues designed to implement State mandated programs. Beginning in fiscal year , categorical spending restrictions associated with a majority of State mandated programs were eliminated, and funding for these programs was folded into the LCFF. Categorical funding for certain programs was excluded from the LCFF, and school districts will continue to receive restricted State revenues to fund these programs. Other Sources. The federal government provides funding for several school district programs, including specialized programs such as No Child Left Behind, special education programs, and programs under the Educational Consolidation and Improvement Act. In addition, portions of a school district s budget can come from local sources other than unrestricted property taxes, including but not limited to interest income, leases and rentals, foundations, donations and sales of property. With respect to the District, see also Parcel Tax, and Foundation below. Parcel Tax. Parcel taxes are special taxes for purposes of the State Constitution, as and such must be approved by at least two-thirds of the voters voting on the relevant proposition. In February 2008, the voters of the District approved an extension to an existing parcel tax to raise funds to augment the District s operating budget. As extended the measure provides for a levy of tax of $346 per parcel, adjusted annually for inflation by reference to the Consumer Price Index. The parcel tax provides an exemption for property owners who are 65 years or older and occupy the parcel subject to the tax as their principal residence. The parcel tax is expected to generate approximately $10.3 million in revenues annually, and does not contain a sunset provision. Redevelopment Revenue. The District has historically received pass-through tax increment revenue (the Redevelopment Revenues ) from the City of Santa Monica Redevelopment Agency as part of the Earthquake Recovery Redevelopment Project Area (the Redevelopment Project ). The Redevelopment Project was established in 1994 and includes areas of the City of Santa Monica damaged in the January 1994 Northridge Earthquake. The following table shows Redevelopment Revenues received by the District for the past seven years, together with a projection for the current year. REDEVELOPMENT REVENUE (1) Fiscal Years through Santa Monica-Malibu Unified School District Fiscal Year Capital Facilities Fund Deposit General Fund Deposit $1,164,955 $880, ,547,571 1,174, ,743,916 1,323, ,822,827 1,383, ,564,579 3,571, ,512,975 11,575, ,133,667 13,157, (2) 2,500,960 14,000,000 (1) The District deposits a portion of the redevelopment revenue it received into its capital facilities fund (Fund 40). The balance is deposited into the District s general fund, and counts towards its total local property tax collections for purposes of determining the level of State equalization aid owed to the District. (2) Projected. Source: Santa Monica-Malibu Unified School District. 37

44 On December 30, 2011, the California Supreme Court issued its decision in the case of California Redevelopment Association v. Matosantos ( Matosantos ), finding ABx1 26, a trailer bill to the State budget, to be constitutional. As a result, all Redevelopment Agencies in California ceased to exist as a matter of law on February 1, ABx1 26 was modified by Assembly Bill No (Chapter 26, Statutes of ) ( AB 1484 ), which, together with ABx1 26, is referred to herein as the Dissolution Act. The Dissolution Act provides that all rights, powers, duties and obligations of a redevelopment agency under the California Community Redevelopment Law that have not been repealed, restricted or revised pursuant to ABx1 26 will be vested in a successor agency, generally the county or city that authorized the creation of the redevelopment agency (each, a Successor Agency ). All property tax revenues that would have been allocated to a redevelopment agency, less the corresponding county auditor-controller s cost to administer the allocation of property tax revenues, are now allocated to a corresponding Redevelopment Property Tax Trust Fund ( Trust Fund ), to be used for the payment of pass-through payments to local taxing entities, and thereafter to bonds of the former redevelopment agency and any enforceable obligations of the Successor Agency, as well as to pay certain administrative costs. The Dissolution Act defines enforceable obligations to include bonds, loans, legally required payments, judgments or settlements, legal binding and enforceable obligations, and certain other obligations. Among the various types of enforceable obligations, the first priority for payment is tax allocation bonds issued by the former redevelopment agency; second is revenue bonds, which may have been issued by the host city, but only where the tax increment revenues were pledged for repayment and only where other pledged revenues are insufficient to make scheduled debt service payments; third is administrative costs of the Successor Agency, not to exceed $250,000 in any year, to the extent such costs have been approved in an administrative budget; then, tax revenues in the Trust Fund in excess of such amounts, if any, will be allocated as residual distributions to local taxing entities in the same proportions as other tax revenues. Moreover, all unencumbered cash and other assets of former redevelopment agencies will also be allocated to local taxing entities in the same proportions as tax revenues. Notwithstanding the foregoing portion of this paragraph, the order of payment is subject to modification in the event a Successor Agency timely reports to the Controller and the Department of Finance that application of the foregoing will leave the Successor Agency with amounts insufficient to make scheduled payments on enforceable obligations. If the county auditor-controller verifies that the Successor Agency will have insufficient amounts to make scheduled payments on enforceable obligations, it shall report its findings to the Controller. If the Controller agrees there are insufficient funds to pay scheduled payments on enforceable obligations, the amount of such deficiency shall be deducted from the amount remaining to be distributed to taxing agencies, as described as the fourth distribution above, then from amounts available to the Successor Agency to defray administrative costs. In addition, if a taxing agency entered into an agreement pursuant to Health and Safety Code Section for payments from a redevelopment agency under which the payments were to be subordinated to certain obligations of the redevelopment agency, such subordination provisions shall continue to be given effect. As noted above, the Dissolution Act expressly provides for continuation of pass-through payments to local taxing entities. Per statute, 100% of contractual and statutory two percent passthroughs, and 56.7% of statutory pass-throughs authorized under the Community Redevelopment Law Reform Act of 1993 (AB 1290, Chapter 942, Statutes of 1993) ( AB 1290 ), are restricted to educational facilities without offset against revenue limit apportionments by the State. Only 43.3% of AB 1290 passthroughs are offset against State aid so long as the District uses the moneys received for land acquisition, facility construction, reconstruction, or remodeling, or deferred maintenance as provided under Education Code Section 42238(h). 38

45 ABX1 26 states that in the future, pass-throughs shall be made in the amount which would have been received had the redevelopment agency existed at that time, and that the County Auditor-Controller shall determine the amount of property taxes that would have been allocated to each redevelopment agency had the redevelopment agency not been dissolved pursuant to the operation of ABx1 26 using current assessed values and pursuant to statutory formulas and contractual agreements with other taxing agencies. Successor Agencies continue to operate until all enforceable obligations have been satisfied and all remaining assets of the Successor Agency have been disposed of. AB 1484 provides that once the debt of the Successor Agency is paid off and remaining assets have been disposed of, the Successor Agency shall terminate its existence and all pass-through payment obligations shall cease. While the District currently expects to continue receiving pass through tax increment revenues from the Successor Agency to the City of Santa Monica Redevelopment Agency pursuant to its passthrough agreement, the District can make no representations as to the extent to which its State apportionments may be offset by the future receipt of residual distributions or from unencumbered cash and assets of former redevelopment agencies any other surplus property tax revenues pursuant to the Dissolution Act. Developer Fees. The District maintains a separate fund, apart from the general fund, for the deposit of school impact fees paid pursuant to Section of the California Education Code. The District currently collects fees of $2.63 per square foot on residential development within the District. The following table shows the annual developer fees received by the District during fiscal years through , and a projection for the current year. DEVELOPER FEES Fiscal Years through Santa Monica-Malibu Unified School District 39 Developer Fees Collected Fiscal Year $1,371, , , , ,479, ,071, , (1) 800,000 (1) Projected. Source: Santa Monica-Malibu Unified School District. Foundation. The Santa Monica-Malibu Education Foundation (the Foundation ) is an independent, tax-exempt component unit of the District. The Foundation was established in 1982 by a coalition of parents, community leaders and local business owners to enhance and supplement the curriculum of the District. Under applicable Governmental Accountability Standards Board ( GASB ) rules, the Foundation is considered a component unit of the District for financial reporting purposes, and is discretely presented in the District s financial statements. See APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT herein. For fiscal years , and , the Foundation contributed $233,420, $239,000 and $150,045, respectively, to the District. For fiscal year , the District projects the Foundation to contribute approximately $3,499,042 to the District. This year-to-year increase is due to changes in

46 District Board policies which have centralized personnel and professional development fundraising by parent-teacher associations and booster clubs, and now require such fundraising to be conducted through the Foundation rather than at individual school sites. Accounting Practices The accounting practices of the District conform to generally accepted accounting principles in accordance with policies and procedures of the California School Accounting Manual. This manual, according to Section of the California Education Code, is to be followed by all California school districts. The District s expenditures are accrued at the end of the fiscal year to reflect the receipt of goods and services in that year. Revenues generally are recorded on a cash basis, except for items that are susceptible to accrual (measurable and/or available to finance operations). Current taxes are considered susceptible to accrual. Delinquent taxes not received after the fiscal year end are not recorded as revenue until received. Revenues from specific state and federally funded projects are recognized when qualified expenditures have been incurred. State block grant apportionments are accrued to the extent that they are measurable and predictable. The State Department of Education sends the District updated information from time to time explaining the acceptable accounting treatment of revenue and expenditure categories. The District s accounting is organized on the basis of fund groups, with each group consisting of a separate set of self-balancing accounts containing assets, liabilities, fund balances, revenues and expenditures. The major fund classification is the general fund which accounts for all financial resources not requiring a special type of fund. The District s fiscal year begins on July 1 and ends on June 30. Comparative Financial Statements The District s general fund finances the legally authorized activities of the District for which restricted funds are not provided. General fund revenues are derived from such sources as State school fund apportionments, taxes, use of money and property, and aid from other governmental agencies. Audited financial statements for the District for the fiscal year ended June 30, 2014, and prior fiscal years are on file with the District and available for public inspection at the Office of the Associate Superintendent, Business and Fiscal Services/Chief Financial Officer, th Street, Santa Monica, California 90404, telephone: (310) The audited financial statements for the year ended June 30, 2014, are included in APPENDIX B hereto. The table on the following page shows the District s audited general fund revenues, expenditures and fund balances from fiscal year to fiscal year

47 GENERAL FUND REVENUES, EXPENDITURES AND FUND BALANCES Fiscal Years and Santa Monica-Malibu Unified School District REVENUES Fiscal Year Fiscal Year Fiscal Year Fiscal Year Revenue Limit/LCFF Sources $59,740,088 $57,786,232 $67,465,046 $69,622,777 Federal Sources 8,205,707 5,577,471 4,649,349 4,336,823 Other State sources 13,155,815 12,605,050 13,147,436 7,844,697 Other Local Revenue 37,360,494 41,075,171 42,230,978 43,171,067 Total Revenues 118,462, ,043, ,492, ,975,364 EXPENDITURES Instruction 72,130,573 75,019,165 72,809,374 77,229,692 Instruction-Related Services: Instructional supervisions and administration 4,565,833 4,740,313 4,345,716 4,353,524 Instructional library, media and technology 1,072,130 1,191,498 1,248,666 1,340,311 School site administration 8,555,675 8,979,737 8,721,093 9,165,051 Pupil Services: Home-to-school transportation 1,638,290 1,793,427 1,852,938 1,953,176 Food services 12, ,605 23,765 All other pupil services 7,591,492 8,652,308 8,561,595 8,928,933 General Administration: Centralized data processing 740, , , ,031 All other general administration 6,546,784 6,170,638 6,461,957 6,838,018 Plant Services 11,563,054 12,068,541 12,377,946 12,617,154 Facility Acquisition and Maintenance -- 15, Ancillary Services 759, , , ,991 Community Services 786,376 1,197,650 1,312,367 1,580,805 Transfers to Other Agencies -- 6, Debt Service: Principal ,353 Interest and other 65, , , Total Expenditures 116,027, ,416, ,570, ,773,041 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 2,434,192 (4,372,272) 7,922,679 (797,677) OTHER FINANCING SOURCES (USES) Transfers In 1,278 1,560, Other sources , Transfers out (1,756,060) -- (200,000) (307,452) Other uses Total Other Financing Sources and Uses (1,754,782) 1,560,873 (82,845) (307,452) Net Change in Fund Balances 679,410 (2,811,399) 7,839,834 (1,105,129) Beginning Fund Balances, July 1 20,935,764 23,354,109 20,542,710 28,382,544 Adjustments for Restatement 1,738,935 (1) Ending Fund Balances, June 30 $23,354,109 $20,542,710 $28,382,544 $27,277,415 (1) Reflects a positive restatement of the District s general fund beginning balance from the prior year in order to conform to changes in GASB Statement No. 54 s definition of governmental funds. For financial reporting purposes, the Special Reserve Fund for Post-Employment Benefits was reported as part of the District s general fund. Source: Santa Monica-Malibu Unified School District. Budget Process State Budgeting Requirements. The District is required by provisions of the State Education Code to maintain a balanced budget each year, in which the sum of expenditures and the ending fund balance cannot exceed the sum of revenues and the carry-over fund balance from the previous year. The 41

48 State Department of Education imposes a uniform budgeting and accounting format for school districts. The budget process for school districts was substantially amended by Assembly Bill 1200 ( AB 1200 ), which became State law on October 14, Portions of AB 1200 are summarized below. Additional amendments to the budget process were made by Assembly Bill 2585, effective as of September 9, 2014, including the elimination of the dual budget cycle option for school districts. All school districts must now be on a single budget cycle. School districts must adopt a budget on or before July 1 of each year. The budget must be submitted to the county superintendent within five days of adoption or by July 1, whichever occurs first. The county superintendent will examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical corrections necessary to bring the budget into compliance, and will determine if the budget allows the district to meet its current obligations, if the budget is consistent with a financial plan that will enable the district to meet its multi-year financial commitments, whether the budget includes the expenditures necessary to implement a local control and accountability plan, and whether the budget s ending fund balance exceeds the minimum recommended reserve for economic uncertainties. On or before August 15, the county superintendent will approve, conditionally approve or disapprove the adopted budget for each school district. Budgets will be disapproved if they fail the above standards. The district board must be notified by August 15 of the county superintendent s recommendations for revision and reasons for the recommendations. The county superintendent may assign a fiscal advisor or appoint a committee to examine and comment on the superintendent s recommendations. The committee must report its findings no later than August 20. Any recommendations made by the county superintendent must be made available by the district for public inspection. No later than September 22, the county superintendent must notify the State Superintendent of Public Instruction of all school districts whose budget may be disapproved. For districts whose budgets have been disapproved, the district must revise and readopt its budget by September 8, reflecting changes in projected income and expense since July 1, including responding to the county superintendent s recommendations. The county superintendent must determine if the budget conforms with the standards and criteria applicable to final district budgets and not later than October 8, will approve or disapprove the revised budgets. If the budget is disapproved, the county superintendent will call for the formation of a budget review committee pursuant to Education Code Section No later than October 8, the county superintendent must notify the State Superintendent of Public Instruction of all school districts whose budget has been disapproved. Until a district s budget is approved, the district will operate on the lesser of its proposed budget for the current fiscal year or the last budget adopted and reviewed for the prior fiscal year. Interim Financial Reports. Under the provisions of AB 1200, each school district is required to file interim certifications with the county office of education as to its ability to meet its financial obligations for the remainder of the then-current fiscal year and, based on current forecasts, for the subsequent fiscal year. The county office of education reviews the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that will be unable to meet its financial obligations for the remainder of the fiscal year or subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations for the current fiscal year or two subsequent fiscal years. The District self-designated as qualified its second interim financial report for fiscal year For all reporting periods thereafter the District has designated, and the County office of education has accepted, its interim financial reports as positive. 42

49 Budgeting Trends. The following table shows the District s general fund adopted budgets for fiscal years through , ending results for fiscal years through , and projected results from fiscal year GENERAL FUND BUDGETING Fiscal Years through Santa Monica-Malibu Unified School District Fiscal Year (1) Fiscal Year (1) Fiscal Year (1) Fiscal Year (2) Budgeted Audited Budgeted Audited Budgeted Ending Budgeted Projected REVENUES Revenue Limit/LCFF Sources $59,699,931 $57,786,232 $59,196,698 $67,465,046 $69,422,635 $69,622,777 $75,907,894 $75,609,284 Federal Sources 4,697,237 5,577,471 4,663,983 4,649,349 4,508,458 4,336,823 4,037,468 4,775,614 Other State Sources 9,795,538 10,204,157 9,667,383 11,209,280 3,676,940 5,066,579 2,806,595 3,524,947 Other Local Sources 36,472,141 41,075,171 36,537,721 42,230,978 38,220,223 43,171,067 41,674,789 44,073,432 Total Revenues 110,664, ,643, ,065, ,554, ,828, ,197, ,426, ,983,277 EXPENDITURES Certificated Salaries 53,907,702 54,731,933 53,224,889 52,905,530 53,991,777 55,708,988 58,824,690 59,394,629 Classified Salaries 21,481,276 22,479,450 21,441,659 22,867,073 22,205,139 23,675,412 24,776,182 25,470,646 Employee Benefits 25,152,383 25,115,709 26,053,490 25,956,747 26,007,266 26,600,601 28,674,526 27,968,703 Books & Supplies 2,353,903 3,289,464 2,394,485 2,891,224 2,588,170 3,931,972 5,116,551 7,056,406 Services & Other Operating Expenses 12,327,117 13,272,727 12,742,958 13,147,975 12,378,465 13,213,536 13,849,708 15,748,710 Capital Outlay 167, , , ,843 75, , , ,145 Indirect Costs (448,352) (445,322) (604,255) (486,283) (467,081) (480,002) (501,758) (512,601) Other Outgo -- 6,949 7, ,590 24,590 62,000 60,400 Total Expenditures 114,941, ,015, ,388, ,514, ,810, ,112, ,010, ,623,038 Excess (Deficiency) of Revenues Over (4,276,201) (4,372,272) (5,323,171) 8,039,834 (982,570) (914,832) (6,583,563) (7,639,761) Expenditures Total Other Financing Sources (Uses) -- 1,560, (200,000) (369,214) (190,297) (185,494) (308,375) NET CHANGE IN FUND BALANCES (4,276,201) (2,811,399) (5,323,171) 7,839,834 (1,351,784) (1,105,129) (6,769,057) (7,948,136) Fund Balance Beginning 23,354,109 23,354,109 20,542,710 20,542,710 28,382,544 28,382,544 27,277,415 27,277,415 Fund Balance Ending $19,077,908 $20,542,710 $15,219,539 $28,382,544 $27,030,760 $27,277,415 $20,508,358 $19,329,279 (1) From the District s audited financial statements for each fiscal year. (2) From the District s second interim financial report for fiscal year , dated March 5, Source: Santa Monica-Malibu Unified School District. 43

50 State Budget Measures The following information concerning the State s budgets has been obtained from publicly available information which the District believes to be reliable; however, the District does not guarantee the accuracy or completeness of this information and has not independently verified such information Budget. On June 20, 2014, the Governor signed into law the State budget for fiscal year (the Budget ). The following information is drawn from the State Department of Finance s summary of the Budget and the LAO report entitled The Budget: California Spending Plan, and certain other sources relating to Proposition 2. The Budget is based on revenue projections previously included in the Governor s May revision to the proposed budget for fiscal year For fiscal year , the Budget projects total State general fund revenues of $102.2 billion, and total State general fund expenditures of $100.7 billion. The Budget projects that the State will end the fiscal year with a $2.9 billion general fund surplus. For fiscal year , the Budget projects total State general fund revenues of $109.5 billion and total State general fund expenditures of $108 billion, leaving the State with a projected general fund surplus for fiscal year of approximately $2.1 billion. This projected reserve is a combination of $449 million in the State s general fund traditional reserve, and an authorized deposit of $1.6 billion into the Budget Stabilization Account (the BSA ) established by the California Balanced Budget Act of 2004 (also known as Proposition 58). As part of implementing certain provisions of the Budget, a legislatively-referred constitutional amendment (Proposition 2) was placed on the ballot, and ultimately approved by the voters at the November 4, 2014 statewide election. Among other things, Proposition 2 will create a reserve account that is expected to smooth spikes in education funding. See also CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Proposition 2 herein. As a result of changes in State general fund revenues, local property tax collections and changes in student attendance, the Budget includes revised estimates to the minimum funding guarantees for fiscal years and The minimum guarantee is revised upward to $57.8 billion, an increase of $1.3 billion over the estimate included in the State budget. For fiscal year , the Budget revises the minimum guarantee at $58.3 billion, approximately $3 billion higher than that included in the State budget. The Budget sets the Proposition 98 minimum funding guarantee for fiscal year at $60.9 billion, including $44.5 billion of support from the State general fund. This represents an increase of $2.6 billion over the estimates included in the Governor s May revision. The Budget also authorizes certain payments to reduce the State s outstanding maintenance factor, including $5.2 billion allocable to fiscal year and $2.6 billion allocable to fiscal year The State is expected to end fiscal year with an outstanding maintenance factor of approximately $4 billion. Significant features of the Budget related to the funding of K-12 education include the following: State Pensions The Budget includes a plan to reduce the $74.4 billion unfunded STRS liability in approximately 30 years by increasing contribution rates among the State, K-14 school districts, and participating employees. For fiscal year , these increases are expected to result in $276 million of additional contributions from all three entities. The plan also provides the STRS Board (as defined herein) with limited authority to (i) increase 44

51 State and K-14 school district contributions based on changing conditions, and (ii) reduce K-14 school district contributions if they are no longer necessary. For additional information, see SANTA MONICA-MALIBU UNIFIED SCHOOL DISTRICT District Retirement Programs herein. Local Control Funding Formula An increase of $4.7 billion in Proposition 98 funding to continue the transition to the LCFF. This includes a 0.85% COLA to prior-year Base Grants, and results in per-pupil funding that is 12% higher than the prior-year. This increase is projected to close the remaining funding implementation gap between prior year funding levels and the LCFF target levels by approximately 29%. As a result, the adjusted Base Grants are as follows: (i) $7,011 for grades K-3, (ii) $7,116 for grades 4-6, (iii) $7,328 for grades 7-8, and (iv) $8,491 for grades The LAO estimates that the funding levels are approximately 80% of the full implementation cost. The Budget also provides $26 million towards implementing the LCFF for county offices of education, sufficient to fully fund their LCFF funding target in fiscal year See also State Funding of Education Local Control Funding Formula herein. School Reserves Senate Bill 858 (Stats. 2014, Chapter 32) ( SB 858 ), trailer legislation to the Budget, creates new disclosure requirements effective beginning fiscal year for school districts that have general fund reserves in excess of the State minimum. Existing minimum reserve levels vary between one to five percent of general fund expenditures, depending on the size of the district, and generally require higher reserves for smaller school districts. SB 858 would require school districts to identify amounts in excess of their required reserves and explain the need for higher levels. This information must be disclosed at a public meeting and in each budget submitted to a county office of education. The LAO indicates that available data shows that virtually all school districts maintain excess reserves. As a result of the passage of Proposition 2 (discussed above), certain additional provisions of SB 858 have gone into effect that will cap school district reserve levels. Reserves will be capped in any fiscal year following a State deposit into the PSSSA created by Proposition 2. See also CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Proposition 2 herein. Caps for most school districts will range between three to ten percent of annual general fund expenditures. SB 858 permits a county office of education to grant an exemption from the reserve cap for up to two years if a school district demonstrates that it would face extraordinary fiscal circumstances justifying a higher reserve. Categorical Programs The Budget provides $33 million to fund a 0.85% COLA for select K-12 categorical programs, including foster youth services, American Indian American Indian Childhood Education, special education and child nutrition. K-12 Deferrals The Budget provides $5.2 billion to reduce outstanding apportionment deferrals, including $4.7 billion for school districts. Under the budget plan, $992 million in deferrals, including $897 million for school districts, are expected to remain outstanding at the end of fiscal year The Budget also provides for a trigger mechanism whereby potentially all outstanding deferrals would be repaid if the Proposition 98 minimum guarantee increases as a result of additional funding sources. Effectively, the Budget earmarks the first $992 million of additional State spending allocable to fiscal years and to the pay down of deferrals. Student Assessments The Budget provides $54 million to continue the implementation of new student assessments. Independent Study The Budget streamlines the existing independent study program, reducing administrative burdens and freeing up time for teachers to spend on 45

52 student instruction and support, while making it easier for schools to offer and expand instructional opportunities available to students through non-classroom based instruction. Mandates The Budget provides $400 million, including $287 million of Proposition 98 funding and $113 million from unspent prior-year funds, to reduce a backlog of unpaid reimbursement claims to school districts for the cost of State-mandated programs. Funds will be distributed to school districts on a per-student basis. The Budget also adds six new K-12 reimbursable mandates to the existing block grant program. The Budget does not increase funding for the block grant program as the added costs are expected to be minimal. Proposition 39 Passed by voters in November 2012, Proposition 39 increases State corporate tax revenues and requires a five-year period, starting in fiscal year , that a portion of these additional revenues be used to improve energy efficiency and expand the use of alternative energy in public buildings. The Budget provides $279 million of Proposition 98 funding for qualifying school district energy programs and $28 million for a revolving loan program for K-14 school districts. Quality Education Investment Act The Budget authorizes a final payment of $410 million to retire the State s obligation under the Quality Education Investment Act (Stats. 2006, Chapter 751), which required the State to provide additional annual funding payments to K-14 school districts, charter schools and other local education agencies. Of this amount, $316 million is for continued funding of the QEIA program (including $268 million for school districts) and $94 million is to pay down a separate State obligation related to school facility repairs. Emergency Repair Program $189 million of funding towards the Emergency Repair Program ( ERP ), which was created in 2004 to fund critical repair projects at certain lowperforming schools. Funds will be allocated to school districts that have unfunded claims for emergency repairs from the most recent ERP award cycle, which occurred in School Infrastructure The Budget shifts existing bonding authority under the Career Technical Education ($4.1 million) and High Performance Initiative ($32.9 million) school facility programs to the New Construction and Modernization facility programs. Bonding authority will be split equally between new construction and modernization. K-12 High- Speed Internet Access An increase of $27 million in one-time Proposition 98 funding for the K-12 High Speed Network to provide technical assistance and grants to K-12 local educational agencies required to successfully implement Common Core. These funds will be targeted to those K-12 local educational agencies most in need of help with securing internet connectivity and infrastructure required to implement the new computer adaptive tests under Common Core. Career Technical Education Pathways Program An increase of $250 million in one-time Proposition 98 funding to support competitive grants for participating local educational agencies. The Career Pathways Trust Program provides grant awards to improve career technical education ( CTE ) programs and linkages between employers, schools, and community colleges. For additional information regarding the State s Budget, see the State Department of Finance website at and the LAO s website at However, the information presented on such websites is not incorporated herein by reference. 46

53 Governor s Proposed Budget. On January 9, 2015, the Governor released his proposed State budget for fiscal year (the Proposed Budget ). The following information is taken from the LAO s overview of the Proposed Budget, dated January 13, The Proposed Budget assumes, for fiscal year , total general fund revenues and transfers of $108 billion and authorizes total expenditures of $111.7 billion. The State is projected to end the fiscal year with a general fund surplus of $2.1 billion, composed of a balance of $452 million in the State s traditional budget reserve and balance of $1.6 billion in the BSA. For fiscal year , the Proposed Budget assumes total general fund revenues of $113.4 billion and authorizes expenditures of $113.3 billion. The State is projected to end the fiscal year with a $3.4 billion general fund surplus, composed of a $534 million balance in the budget reserve and $2.8 billion in the BSA. The balance in the BSA includes a $1.2 billion deposit mandated by the provisions of Proposition 2. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Proposition 2 herein. This $1.2 billion deposit to the BSA reflects half of the total Annual BSA Transfer required by Proposition 2, and the Proposed Budget allocates the other $1.2 billion towards paying down special fund loans and certain Proposition 98 settle up obligations created by previous budgetary legislation that understated the minimum funding guarantee. Under the Proposed Budget, outstanding Proposition 98 settle up obligations at the end of fiscal year total $1.3 billion. The Proposed Budget provides no deposit into the PSSSA, and the Governor does not project that such a deposit will need to be made at any point during the current budgetary forecast period (running through fiscal year ). As a result of projected increases to State general fund revenues, as well as certain revisions to student attendance, the Proposed Budget includes revised estimates of the minimum funding guarantees for fiscal years and The minimum funding guarantee is revised upward to $58.7 billion, an increase of $371 million from the estimate included in the Budget. For fiscal year , the minimum funding guarantee is revised at $63.2 billion, approximately $2.3 billion higher than that included in the Budget. For fiscal year , the Proposed Budget sets the minimum funding guarantee at $65.7 billion, including $47 billion from the State general fund, and reflects an increase of $2.6 billion (or 4%) from the revised level for fiscal year Despite the increase in the minimum guarantee, the State general fund share is only $371 million. A projected growth in available local property tax collections accounts for the balance, and results primarily from the Governor s assumption that the triple flip legislation, which diverts local property tax revenues from school districts and community colleges to local governments, will sunset. For purposes of Proposition 98, fiscal year is a Test 2 year, and changes in the minimum guarantee are driven primarily by an increase in per-capita personal income. Under the Proposed Budget, total per-student Proposition 98 funding increases to $9,571, an increase of $640 (or 7.2%) from the prior year. Significant features of the Proposed Budget with respect to K-12 education include the following: Maintenance Factor The Proposed Budget authorizes a maintenance factor payment in fiscal year of $725 million owed to school districts and community college districts, leaving an outstanding maintenance factor of $1.9 billion. Local Control Funding Formula An additional $4 billion to school districts and charter schools to continue the implementation of the LCFF, reflecting a year-to-year increase of 9%. This amount is estimated to close approximately 32% of the remaining funding gap between fiscal year funding levels and the LCFF target rates. Under the Proposed Budget, the LAO estimates that the LCFF target rates will be approximately 85% funded. The 47

54 Proposed Budget also provides $109,000 of Proposition 98 funds to support a cost of living adjustment for county offices of education at their target LCFF funding levels. Apportionment Deferrals $897 million to eliminate all outstanding K-12 apportionment deferrals. Categorical Programs An increase of $71 million to support a 1.58% COLA for selected categorical programs outside of the LCFF. Adult Education $500 million in ongoing funding for adult education. This proposal would build on prior budgetary legislation which mandated the establishment of regional adult education consortia composed of school districts, community college districts and certain other stakeholders to for delivery of adult education services. Under the Governor s proposal, the ongoing funding would support programs in elementary and secondary basic skills, citizenship and English as a second language for immigrants, educational programs for disabled adults, short-term CTE and apprenticeship programs. For fiscal year only, these funds would replace, on a dollar-for-dollar basis, LCFF funds currently allocated to school district-run adult education programs in these five areas. Career Technical Education $250 million in funding in each of the next three fiscal years to fund a competitive grant initiative the supports CTE programs that lead to industryrecognized credentials or postsecondary training. Participating school districts, county offices of education and charter schools would be required to match grant contributions dollar-for-dollar, collect accountability data and commit to providing ongoing support to CTE programs after the expiration of grant funding. Applicants would also be expected to partner with local postsecondary institutions, labor organizations and businesses in applying for the grant funds. The Proposed Budget also includes $48 million to extend the Career Technical Education Pathways Grant Program, created as part of the State budgetary legislation. The primary purpose of the program is to improve linkages between CTE programs and schools and community colleges, as well as between K-14 education and local businesses. The California Department of Education and the California Community Colleges Chancellor s Office jointly administer the program and allocate funding through an interagency agreement. Technology Infrastructure $100 million in one-time funding to support additional broadband infrastructure improvement grants, and builds on prior funding provided in the Budget for such grants. Emergency Repair Program $273 million in one-time funding for the State ERP. See also Budget herein. This additional payment is expected to fully retire the State s ERP obligation. Mandates $1.1 billion to reduce a backlog of unpaid reimbursement claims to school districts for the cost of State-mandated programs. Funds will be distributed to school districts on a per-student basis. For additional information regarding the Proposed Budget, see the Department of Finance s website at and the LAO s website at However, the information presented on such website is not incorporated herein by reference. May Revision. On May 14, 2015, the Governor released his May revision (the May Revision ) to the Proposed Budget. The following information is drawn from the Department of Finance s summary of May Revision and the LAO report entitled Analysis of the Proposition 98 May Revision Budget Package. 48

55 The May Revision continues to project the expansion of the State and national economies, as well as an overall increase to State general fund revenues attributable primarily to higher personal income tax collections. Over the three-fiscal year period covering through , the May Revision estimates that State general fund revenues are approximately $6.7 million higher than the levels assumed by the Budget. The May Revision allocates only a small portion of these additional revenues to new spending areas, and instead allocates the bulk towards K-14 education funding, an additional deposit to the BSA of $633 million, and additional payments towards outstanding State special fund loans. After accounting for transfers to the BSA, the May Revision projects year-end general fund revenues for fiscal year to be $111.3 billion, approximately $3.3 billion higher than projected in the Proposed Budget. State general fund expenditures are also expected to increase by approximately $2.8 billion, for a year-end total of $114.5 billion. The May Revision projects that the State will end fiscal year with a $3 billion surplus, composed of a $1.4 billion balance in the general fund reserve and a $1.6 billion balance in the BSA. For fiscal year , the May Revision projects State general fund revenues of $115 billion, approximately $1.7 billion higher than previously projected. The May Revision would authorize State general fund expenditures of $115.3 billion, an increase of $2 billion from that in the Proposed Budget. The State is projected to end fiscal year with a $4.6 billion general fund surplus, composed of a $1.1 billion balance in the general fund reserve and $3.5 billion in the BSA. The May Revision includes revised estimates of the minimum funding guarantees for fiscal years and The fiscal year minimum funding guarantee is set at $58.9 billion, an increase of $241 million above the revised level included the Proposed Budget. The fiscal year minimum funding guarantee is set at $66.3 billion, an increase of $3.1 billion from the revised level included in the Proposed Budget. For fiscal year , the May Revision revises the Proposition 98 minimum funding guarantee at $68.4 billion, an increase of approximately $2.7 billion from the level included in the Proposed Budget. Significant adjustments made to K-12 education funding in the May Revision include the following: LCFF An additional $2.1 billion in funding above that provided in the Proposed Budget to continue implementation of the LCFF, for a total of $6.1 billion. The May Revision estimates that this would close approximately 53% of the remaining funding gap. Maintenance Factor The May Revision estimates that the State will make a $5.4 billion maintenance factor payment allocable to fiscal year , an increase of $2.8 billion over the amount estimated in the Budget. The May Revision no longer projects a maintenance factor payment during fiscal year because State general fund revenues are projected to grow more slowly than per capita personal income. The May Revision estimates that the State will end the fiscal year with an outstanding maintenance factor of $772 million. Career Technical Education An additional $150 million, for a total of $400 million, for first-year implementation of the competitive grant initiative supporting CTE programs that lead to industry-recognized credentials or postsecondary training. The May Revision also provides additional funding of $50 million for this initiative in fiscal year , and reduces the amount provided in the Proposed Budget for fiscal year by a like amount. The May Revision maintains the dollar-for-dollar match requirement for the first year of the initiative, but would increase the match requirement to $1.50 and $2, respectively, for fiscal years and Quality Education Investment Act An increase of $4.6 million in one-time Proposition 98 funding to provide half of the final apportionment of QEIA funding for selected school 49

56 districts in fiscal year that do not qualify for concentration grant funding under the LCFF. The funding is intended to ease the transition for those districts with concentrations of EL/LI students that will no longer receive funds under the QEIA. Categorical Programs A reduction of $18.4 million in Proposition 98 funding for selected categorical programs, based on updated ADA growth estimates. The May Revision also decreases Proposition 98 funding by $25 million for selected categorical programs, to reflect a change in the COLA for such programs from 1.58% (as provided in the Proposed Budget) to 1.02%. Mandates an additional $2.5 billion, for a total of $3.6 billion, to reduce a backlog of unpaid reimbursement claims to school districts for the cost of State-mandated programs. Funds will be distributed to school districts on a per-student basis. Special Education The May Revision proposes $64 million of funding, including $60 million of Proposition 98 funds, to implement selected programmatic changes in special education services. The changes are intended to implement recommendations issued by a State taskforce formed in 2013, as well as to make targeted investments designed to improve the delivery of services for disabled students. For additional information regarding the May Revision, see the Department of Finance website at and the LAO s website at However, the information presented on such website is not incorporated herein by reference. Future Actions. The District cannot predict what actions will be taken in the future by the State legislature and the Governor to address changing State revenues and expenditures. The District also cannot predict the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and State economic conditions and other factors over which the District will have no control. Certain actions or results could produce a significant shortfall of revenue and cash, and could consequently impair the State s ability to fund schools. State budget shortfalls in future fiscal years may also have an adverse financial impact on the financial condition of the District. However, the obligation to levy ad valorem property taxes upon all taxable property within the District for the payment of principal of and interest on the Bonds would not be impaired. SANTA MONICA-MALIBU UNIFIED SCHOOL DISTRICT The information in this section concerning the operations of the District and the District s finances are provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Bonds is payable from the general fund of the District. The Bonds are payable solely from the proceeds of an ad valorem property tax required to be levied by the County on taxable property within the District in an amount sufficient for the payment thereof. See THE BONDS Security and Sources of Payment herein. Introduction The Santa Monica-Malibu Unified School District was established in 1875 and includes the Cities of Santa Monica and Malibu, as well as a portion of unincorporated Los Angeles County. The District currently operates 10 elementary schools, two middle schools, one K-8 school, one 6-12 school, one high school, one continuation high school, a regional occupation program and an adult education program, as well as child care and development centers. For fiscal year , the District s projected ADA is 10,795 students, and taxable property within the District has an assessed valuation of $43,691,489,

57 Unless otherwise indicated, the following financial, statistical and demographic data has been provided by the District. Additional information concerning the District and copies of subsequent audited financial reports of the District may be obtained by contacting: Santa Monica-Malibu Unified School District, Attention: Associate Superintendent, Business and Fiscal Services/Chief Financial Officer, 1651 Sixteenth Street, Santa Monica, California Possible Reorganization of the District Certain residents of the District have begun efforts to initiate a reorganization of the District which would result in the creation of new unified school district covering the portion of the District located in the City of Malibu. Such efforts have included petitioning the District to explore the feasibility of such a reorganization. Any reorganization of the District would be subject to statutory and regulatory requirements, including the approval of the Los Angeles County Office of Education, the State Department of Education, and a majority vote of the District s electors. Such a reorganization would also need to include a method for allocating the then-existing bonded indebtedness of the District among the resulting school districts. The District has taken no formal action in support of, or to initiate, a reorganization of the District. The District can make no representations as to whether any such reorganization would meet all necessary legal requirements or receive all necessary approvals. The District can also make no representation as to when any such reorganization could become effective, or if it became effective, what the financial consequences might be. Administration The District is governed by its Board of Education. The District Board includes seven voting members elected by the voters of the District, each of which is elected to a four-year term. Elections for positions to the District Board are held every two years, alternating between three and four available positions. Current members of the District Board, together with their offices and the dates their terms expire, are listed below: BOARD OF EDUCATION Santa Monica-Malibu Unified School District Board Member Office Term Expires Laurie Lieberman President December 2018 Dr. Jose Escarce Vice President December 2016 Craig Foster Member December 2018 Maria Leon-Vazquez Member December 2016 Ralph Mechur Member December 2016 Dr. Richard Tahvildaran-Jesswein Member December 2018 Oscar de la Torre Member December 2018 The Superintendent of the District is responsible for administering the affairs of the District in accordance with the policies of the Board. Sandra Lyon is the District Superintendent. Janece L. Maez is the Associate Superintendent, Business and Fiscal Services/Chief Financial Officer. Brief biographies follow on the next page: 51

58 Sandra Lyon, Superintendent. Ms. Lyon became the District Superintendent in May of Her previous experience includes the roles of Chief Leadership Officer of the Palmdale School District, Principal/Superintendent of the Hughes-Elizabeth Lakes School District, various administrative roles for the Lancaster School District, and a teacher in the Antelope Valley Union High School District. Ms. Lyon received her Bachelor s degree in Journalism from San Francisco State University, and a Master s degree in Curriculum and Instruction from California State University, Bakersfield. Janece L. Maez, Associate Superintendent, Business and Fiscal Services/Chief Financial Officer. Ms. Maez was hired by the District as Associate Superintendent, Business and Fiscal Services/Chief Financial Officer in October of Prior to joining the District, she spent 17 years at Pleasant Valley School District in Camarillo, California as Assistant Superintendent, Business and Fiscal Services. Ms. Maez received her Bachelor of Arts degree in Business Administration from the University of Washington. Ms. Maez is also a member of the California Association of School Business Officials (CASBO), from which she has received a school business official certification. District Growth The following table shows enrollment and ADA figures for the District for the years indicated. AVERAGE DAILY ATTENDANCE AND ENROLLMENT (1) Fiscal Years through Santa Monica-Malibu Unified School District Fiscal Year Average Daily Attendance (1) Enrollment (2) ,055 11, ,106 11, ,976 11, ,948 11, ,837 11, ,808 11, ,795 11,295 (1) Reflects P-2 ADA. (2) Enrollment for years prior to fiscal is as of October CBEDS report. Fiscal years and certified enrollment as of the fall census day (the first Wednesday in October) reported to CALPADS. See also DISTRICT FINANCIAL INFORMATION State Funding of Education Local Control Funding Formula herein. Source: Santa Monica-Malibu Unified School District. Labor Relations District employees, except management and some part-time employees, are represented by two bargaining units as noted below: BARGAINING UNITS Santa Monica-Malibu Unified School District (1) Contract Labor Organization Expiration Date Santa Monica-Malibu Classroom Teachers Association June 30, 2015 (1) Service Employees International Union June 30, 2016 The District has begun negotiations with the Santa Monica-Malibu Classroom Teachers Association for a new contract. Employees are expected to work under the terms of their existing contract until a new labor contract is negotiated. Source: Santa Monica-Malibu Unified School District. 52

59 District Retirement Systems The information set forth below regarding the STRS and PERS programs, other than the information provided by the District regarding its annual contributions thereto, has been obtained from publicly available sources which are believed to be reliable but are not guaranteed as to accuracy or completeness, and should not to be construed as a representation by either the District or the Underwriters. STRS. All full-time certificated employees, as well as certain classified employees, are members of the State Teachers Retirement System ( STRS ). STRS provides retirement, disability and survivor benefits to plan members and beneficiaries under a defined benefit program (the STRS Defined Benefit Program ). The STRS Defined Benefit Program is funded through a combination of investment earnings and statutorily set contributions from three sources: employees, employers, and the State. Benefit provisions and contribution amounts are established by State statutes, as legislatively amended from time to time. Prior to fiscal year , and unlike typical defined benefit programs, neither the employee, employer or State contribution rate to the STRS Defined Benefit Program varied annually to make up funding shortfalls or assess credits for actuarial surpluses. In recent years, the combined employer, employee and State contributions to the STRS Defined Benefit Program have not been sufficient to pay actuarially required amounts. As a result, and due to significant investment losses, the unfunded actuarial liability of the STRS Defined Benefit Program has increased significantly in recent fiscal years. In September 2013, STRS projected that the STRS Defined Benefit Program would be depleted in 31 years assuming existing contribution rates continued, and other significant actuarial assumptions were realized. In an effort to reduce the unfunded actuarial liability of the STRS Defined Benefit Program, the State recently passed legislation described below to increase contribution rates. Prior to July 1, 2014, K-14 school districts were required by such statutes to contribute 8.25% of eligible salary expenditures, while participants contributed 8% of their respective salaries. On June 24, 2014, the Governor signed AB 1469 ( AB 1469 ) in to law as a part of the State Budget. AB 1469 seeks to fully fund the unfunded actuarial obligation with respect to service credited to members of the STRS Defined Benefit Program before July 1, 2014 (the 2014 Liability ), within 32 years, by increasing member, K-14 school district and State contributions to STRS. Commencing on July 1, 2014, the employee contribution rates will increase over a three year phase in period in accordance with the following schedule: MEMBER CONTRIBUTION RATES STRS (Defined Benefit Program) Effective Date STRS Members Hired Prior to January 1, 2013 STRS Members Hired After January 1, 2013 July 1, % 8.150% July 1, July 1, Source: AB

60 Pursuant to AB 1469, K-14 school districts contribution rate will increase over a seven year phase in period in accordance with the following schedule: K-14 SCHOOL DISTRICT CONTRIBUTION RATES STRS (Defined Benefit Program) Source: AB Effective Date K-14 school districts July 1, % July 1, July 1, July 1, July 1, July 1, July 1, Based upon the recommendation from its actuary, for fiscal year and each fiscal year thereafter, the STRS Teachers Retirement Board (the STRS Board ) is required to increase or decrease the K-14 school districts contribution rate to reflect the contribution required to eliminate the remaining 2014 Liability by June 30, 2046; provided that the rate cannot change in any fiscal year by more than 1% of creditable compensation upon which members contributions to the STRS Defined Benefit Program are based; and provided further that such contribution rate cannot exceed a maximum of 20.25%. In addition to the increased contribution rates discussed above, AB 1469 also requires the STRS Board to report to the State legislature every five years (commencing with a report due on or before July 1, 2019) on the fiscal health of the STRS Defined Benefit Program and the unfunded actuarial obligation with respect to service credited to members of that program before July 1, The reports are also required to identify adjustments required in contribution rates for K-14 school districts and the State in order to eliminate the 2014 Liability. The District s contribution to STRS were $4,641,990 in fiscal year , $4,495,038 in fiscal year , and $4,728,018 in fiscal year The District has projected its contribution for fiscal year to be $5,536,459. The State also contributes to STRS, currently in an amount equal to 3.454% of teacher payroll for fiscal year The State s contribution reflects a base contribution rate of 2.017%, and a supplemental contribution rate that will vary from year to year based on statutory criteria. Pursuant to AB 1469, the State contribution rate will increase over the next three years to a total of 6.328% in fiscal year Based upon the recommendation from its actuary, for fiscal year and each fiscal year thereafter, the STRS Board is required, with certain limitations, to increase or decrease the State s contribution rates to reflect the contribution required to eliminate the unfunded actuarial accrued liability attributed to benefits in effect before July 1, In addition, the State is currently required to make an annual general fund contribution up to 2.5% of the fiscal year covered STRS member payroll to the Supplemental Benefit Protection Account (the SBPA ), which was established by statute to provide supplemental payments to beneficiaries whose purchasing power has fallen below 85% of the purchasing power of their initial allowance. PERS. Classified employees working four or more hours per day are members of the Public Employees Retirement System ( PERS ). PERS provides retirement and disability benefits, annual costof-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by the State statutes, as legislatively amended from time to time. PERS operates a number of 54

61 retirement plans including the Public Employees Retirement Fund ( PERF ). PERF is a multipleemployer defined benefit retirement plan. In addition to the State, employer participants at June 30, 2013 included 1,580 public agencies and schools (representing more than 2,500 entities). PERS acts as the common investment and administrative agent for the member agencies. The State and school districts (for classified employees, which generally consist of school employees other than teachers) are required by law to participate in PERF. Employees participating in PERF generally become fully vested in their retirement benefits earned to date after five years of credited service. One of the plans operated by PERS is for school districts throughout the State (the Schools Pool ). Contributions by employers to the PERS Schools Pool are based upon an actuarial rate determined annually and contributions by plan members vary based upon their date of hire. The District is currently required to contribute to PERS at an actuarially determined rate, which is % of eligible salary expenditures for fiscal year Participants enrolled in PERS prior to January 1, 2013 contribute 7% of their respective salaries, while participants enrolled after January 1, 2013 contribute at an actuarially determined rate, which is 6% of their respective salaries for fiscal year See California Public Employees Pension Reform Act of 2013 herein. The District s contributions to PERS were $2,530,071 in fiscal year , $2,691,403 in fiscal year , and $2,781,066 in fiscal year The District has projected its contribution for fiscal year to be $3,246,333. State Pension Trusts. Each of STRS and PERS issues a separate comprehensive financial report that includes financial statements and required supplemental information. Copies of such financial reports may be obtained from each of STRS and PERS as follows: (i) STRS, P.O. Box 15275, Sacramento, California ; (ii) PERS, P.O. Box , Sacramento, California Moreover, each of STRS and PERS maintains a website, as follows: (i) STRS: (ii) PERS: However, the information presented in such financial reports or on such websites is not incorporated into this Official Statement by any reference. Both STRS and PERS have substantial statewide unfunded liabilities. The amount of these unfunded liabilities will vary depending on actuarial assumptions, returns on investments, salary scales and participant contributions. The following table summarizes information regarding the actuariallydetermined accrued liability for both STRS and PERS. Actuarial assessments are forward-looking information that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or be changed in the future. Actuarial assessments will change with the future experience of the pension plans. 55

62 The following table shows information regarding the actuarially-determined accrued liabilities of both STRS and PERS. (1) Amounts may not add due to rounding. (2) FUNDED STATUS STRS (Defined Benefit Program) and PERS (Dollar Amounts in Millions) (1) Fiscal Years through Value of Trust Assets (MVA) (2) STRS 56 Value of Trust Assets (AVA) (3)(4) Unfunded Unfunded Fiscal Year Accrued Liability Liability (MVA) (2)(3) Liability (AVA) (4) $208,405 $147,140 $68,365 $143,930 $64, , ,118 80, ,232 70, , ,176 74, ,614 73,667 Value of Trust Assets (MVA) (2) PERS Value of Trust Assets (AVA) (4) Unfunded Unfunded Fiscal Year Accrued Liability Liability (MVA) (2) Liability (AVA) (4) $58,358 $45,901 $12,457 $51,547 $6, ,439 44,854 14,585 53,791 5, ,487 49,481 12,005 56,250 5,237 Reflects market value of assets. (3) Excludes SBPA reserve. (4) Reflects actuarial value of assets. Source: PERS State & Schools Actuarial Valuation; STRS Defined Benefit Program Actuarial Valuation. Over the past two years, the PERS Board of Administration (the PERS Board ) has taken several steps, as described below, intended to reduce the amount of the unfunded accrued actuarial liability of its plans, including the Schools Pool. On March 14, 2012, the PERS Board voted to lower the PERS rate of expected price inflation and its investment rate of return (net of administrative expenses) (the PERS Discount Rate ) from 7.75% to 7.5%. As one consequence of such decrease, the annual contribution amounts paid by PERS member public agencies, including the District, have been increased by 1 to 2% for miscellaneous plans and by 2 to 3% for safety plans beginning in fiscal year On February 18, 2014, the PERS Board voted to keep the PERS Discount Rate unchanged at 7.5%. On April 17, 2013, the PERS Board approved new actuarial policies aimed at returning PERS to fully-funded status within 30 years. The policies include a rate smoothing method with a 30-year amortization period for gains and losses, a five-year increase of public agency contribution rates, including the contribution rate at the onset of such amortization period, and a five year reduction of public agency contribution rates at the end of such amortization period. The PERS Board has delayed the implementation of the new actuarial policies until fiscal year for the State, K-14 school districts and all other public agencies. Also, on February 20, 2014, the PERS Board approved new demographic assumptions reflecting (i) expected longer life spans of public agency employees and related increases in costs for the PERS system and (ii) trends of higher rates of retirement for certain public agency employee classes, including

63 police officers and firefighters. The cost of the revised assumptions shall be amortized over a 20-year period and related increases in public agency contribution rates shall be affected over a three year period, beginning in fiscal year The new demographic assumptions affect each of: the State, K-14 school districts and all other public agencies. The District can make no representations regarding the future program liabilities of STRS, or whether the District will be required to make additional contributions to STRS in the future above those amounts required under AB The District can also provide no assurances that the District s required contributions to PERS will not increase in the future. California Public Employees Pension Reform Act of On September 12, 2012, the Governor signed into law the California Public Employee s Pension Reform Act of 2013 (the Reform Act ), which makes changes to both STRS and PERS, most substantially affecting new employees hired after January 1, 2013 (the Implementation Date ). For STRS participants hired after the Implementation Date, the Reform Act changes the normal retirement age by increasing the eligibility for the 2% age factor (the age factor is the percent of final compensation to which an employee is entitled to for each year of service) from age 60 to 62 and increasing the eligibility of the maximum age factor of 2.4% from age 63 to 65. Similarly, for non-safety PERS participants hired after the Implementation Date, the Reform Act changes the normal retirement age by increasing the eligibility for the 2% age factor from age 55 to 62 and increases the eligibility requirement for the maximum age factor of 2.5% to age 67. Among the other changes to PERS and STRS, the Reform Act also: (i) requires all new participants enrolled in PERS and STRS after the Implementation Date to contribute at least 50% of the total annual normal cost of their pension benefit each year as determined by an actuary, (ii) requires STRS and PERS to determine the final compensation amount for employees based upon the highest annual compensation earnable averaged over a consecutive 36-month period as the basis for calculating retirement benefits for new participants enrolled after the Implementation Date (previously 12 months for STRS members who retire with 25 years of service), and (iii) caps pensionable compensation for new participants enrolled after the Implementation Date at 100% of the federal Social Security contribution (to be adjusted annually based on changes to the Consumer Price Index for all Urban Consumers) and benefit base for members participating in Social Security or 120% for members not participating in social security (to be adjusted annually based on changes to the Consumer Price Index for all Urban Consumers), while excluding previously allowed forms of compensation under the formula such as payments for unused vacation, annual leave, personal leave, sick leave, or compensatory time off. Other Post-Employment Benefits Benefits Plan. The District provides post-employment health care benefits, in accordance with District employment contracts, to all employees (and their beneficiaries) who retire from the District with at least 10 years of service to the District. Certified employees are eligible after the age of 55, while classified employees are eligible after the age of 50. The District contributes 100% of the amount of premiums incurred by retirees for five years, or until they reach the age of 65, whichever occurs first. Retirees are also eligible to receive a lifetime monthly supplement of $115 towards the cost of medical premiums. Currently, there are 369 retirees and beneficiaries receiving benefits, and 1,094 active plan members. Funding Policy. Expenditures for the Benefits are recognized on a pay-as-you-go basis to cover the cost of benefits for current retirees. For fiscal year , expenditures of $1,058,939 were recognized for the Benefits. The District contributed $1,023,562 for such expenditures in fiscal year , and has budgeted $2,657,815 for such expenditures in fiscal year

64 Accrued Liability. The District has implemented Governmental Accounting Standards Board Statement #45, Accounting and Financial Reporting by Employers for Postemployment Benefit Plans Other Than Pension Plans, pursuant to which the District has commissioned and received several actuarial studies of its outstanding liabilities with respect to the Benefits. The most recent of these studies estimated the unfunded actuarial accrued liability (the AAL ) for the Benefits to be $22,091,051. The study also estimated the annual required contribution ( ARC ) to be $2,556,977. The ARC is the amount that would be necessary to fund the value of future benefits earned by current employees during each fiscal year (the Normal Cost ) and the amount necessary to amortize the UAAL, in accordance with the GASB Statements Nos. 43 and 45. The ARC is expected to increase each year based on covered payroll. As of June 30, 2014, the District recognized a net long-term balance sheet liability (the Net OPEB Obligation ) of $8,786,641, based on its contributions towards the ARC during fiscal year , as adjusted for interest on the prior fiscal year s Net OPEB Obligation and any adjustments to the actuarially determined ARC. See also District Debt Structure Long Term Debt and APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT Note 10 herein. Risk Management The District is exposed to various risks of loss related to property, general liability, workers compensation and employee benefits. These risks are addressed through a combination of commercial insurance and participation in certain public entity risk pools. The District participates in three joint ventures (each a JPA ) under joint powers agreements with each of: the Schools Excess Liability Fund; the Alliance of Schools for Cooperative Insurance Programs; and Schools Linked for Insurance Management. The JPAs provide for property and liability insurance and workers compensation insurance for its member districts and vocational educational classes. Each of the JPAs is governed by a board consisting of a representative from each member district. The governing board controls the operations of its JPAs independent of any influence by the member districts beyond their representation on a the governing board. Each member district pays a premium commensurate with the level of coverage requested and shares surpluses and deficits proportionately to its participation in the JPAs. The JPAs are not considered component units of the District for financial reporting purposes. There are a number of claims pending against the District. In the opinion of the District, the related liability, if any, stemming from these claims will not materially affect the financial condition of the District. Settled claims have not exceeded available insurance coverages in the past three fiscal years. Based upon prior claims experience, the District believes that it has adequate insurance coverage. See also also APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT Note 13 herein. 58

65 District Debt Structure Long-Term Debt. A schedule of changes in long-term debt for the year ended June 30, 2014, is shown below: Balance July 1, 2013 Accretions/ Additions Deductions Balance June 30, 2014 General Obligation Bond $325,249,149 $2,842,609 $12,710,000 $315,381,758 Unamortized premium 12,800, ,849 12,207,468 Deferral amount on refunding (7,309,944) -- (7,309,944) -- Total general obligation bonds 330,739,522 2,842,609 5,992, ,589,226 Certificates of Participation 17,133, ,601 1,090,000 16,473,255 Unamortized premium 474, , ,476 Total certificates of participation 17,608, ,601 1,135,208 16,902,731 Capital leases 117, ,353 92,802 Compensated absences 887,502 29, ,886 Net OPEB Obligation 7,193,811 2,616,392 1,023,562 8,786,641 Totals $356,546,328 $5,917,986 $8,176,028 $354,288,286 Source: Santa Monica-Malibu Unified School District. Certificates of Participation. On November 29, 2001, the District executed and delivered (i) $4,755,000 of Santa Monica-Malibu Unified School District Certificates of Participation, 2001 Series B (Federally Taxable), and (ii) $15,206, of Santa Monica-Malibu Unified School District Certificates of Participation, 2001 Series C, (collectively, the 2001 Certificates ), the proceeds of which were used for the modernization of school facilities. On December 15, 2010, the District executed and delivered (i) $3,215,000 of Santa Monica-Malibu Unified School District 2010 Refunding Certificates of Participation, Series A (Federally Taxable) and (ii) $8,015,000 of Santa Monica-Malibu Unified School District 2010 Refunding Certificates of Participation, Series B (Tax-Exempt) (collectively, the 2010 Certificates, and, together with the 2001 Certificates, the Certificates ). Proceeds from the sale of the 2010 Certificates were used to refund portion of the outstanding 2001 Certificates, and to finance the modernization of school facilities. Principal and interest represented by the Certificates is payable from lease payments to be made by the District pursuant to lease agreements entered into by the District for the use and possession of certain school facilities of the District. The table below shows the annual lease payments due from the District with respect to the Certificates. Year Ending May Certificates 2010 Certificates Total $1,867, $1,867, ,869, ,869, ,863, ,863, $1,500, , ,869, ,500, , ,867, ,940, , ,310, ,945, , ,313, ,945, , ,317, ,940, , ,310, (1) 1,945, ,945, Totals $12,715, $7,819, $20,534, (1) Final payment does reflect the application of any funds on deposit in the debt service reserve fund established therefor. 59

66 General Obligation Bonds. The District has issued general obligation bonds pursuant to several voter-approved authorizations. The proceeds of such bonds have been used to acquire, construct and equip District sites and facilities. The District has also sold general obligation refunding bonds to refinance certain of its bonded indebtedness. The following table summarizes the outstanding general obligation bond issuances by the District (not including the Bonds). Initial Principal Amount Principal Outstanding (1) Issuance Date of Delivery 1998 Authorization Election of 1998, Series 1999 Bonds $38,000, $17,498, June 17, Authorization Election of 2006, Series A Bonds 60,000, ,335, October 16, 2007 Election of 2006, Series B Bonds 11,875, ,295, August 5, 2009 Election of 2006, Series B-1 Bonds 48,125, ,125, August 5, 2009 Election of 2006, Series C Bonds 10,690, ,310, July 27, 2010 Election of 2006, Series C-1 Bonds 54,310, ,310, July 27, 2010 Election of 2006, Series D Bonds 82,995, ,205, April 3, Authorization Election of 2012, Series A $30,000, $30,000, August 13, 2014 Refunding Issuances 1998 Refunding Bonds 68,145, ,220, July 30, Refunding Bonds 3,285, ,535, March 7, Refunding Bonds 45,425, ,990, February 7, 2013 (1) As of June 1, Authorization. On November 3, 1998, the voters of the District approved the issuance of $42,000,000 of bonds (the 1998 Authorization ). The following table shows the annual debt service requirements of the outstanding bonds issued pursuant to the 1998 Authorization. Year Ending Aug. 1 Election of 1998 Series 1999 Bonds (1) 2015 $3,645, ,865, ,885, ,120, ,210, ,215, ,280, ,300, ,340, Total $52,860, (1) Interest payments thereon payable semi-annually on February 1 and August 1 of each year. Principal due on August 1 of each year. Payments shown include February 1 interest payment. 60

67 2006 Authorization. On November 7, 2006, the voters of the District approved the issuance of $268,000,000 of general obligation bonds (the 2006 Authorization). The following table shows the annual debt service requirements of the outstanding bonds issued pursuant to the 2006 Authorization. Year Ending Aug. 1 Election of 2006 Series A Bonds (1) Election of 2006 Series B Bonds (1) Election of 2006 Series B-1 Bonds (1)(2) Election of 2006 Series C Bonds (1) Election of 2006 Series C-1 Bonds (1)(2) Election of 2006 Series D Bonds (1) 2015 $778, $1,219, $3,470, $793, $3,528, $3,347, , ,324, ,470, , ,528, ,526, , ,481, ,470, ,019, ,528, ,661, ,593, ,470, ,164, ,528, ,785, ,711, ,470, ,307, ,528, ,905, ,340, ,443, ,528, ,019, ,409, ,632, ,528, ,183, ,468, ,823, ,528, ,350, ,517, ,021, ,528, ,523, ,562, ,668, ,788, ,599, ,864, ,887, ,622, ,051, ,216, ,639, ,242, ,427, ,651, ,429, ,647, ,655, ,625, ,877, ,653, ,819, ,113, ,642, ,820, ,574, ,619, ,022, ,838, ,362, ,696, ,373, , ,445, ,293, ,629, ,178, ,553, ,242, Total $2,527, $7,331, $97,490, $12,038, $114,074, $153,312, (1) Interest payments thereon payable semi-annually on February 1 and August 1 of each year. Principal due on August 1 of each year. Payments shown include February 1 interest payment. (2) Represents gross debt service thereon. The Election of 2006, Series B-1 Bonds and the Election of 2006, Series C-1 Bonds were each designated as federally-taxable Build America Bonds pursuant to an irrevocable election by the District to have Sections 54AA and Section 54AA(g) of the Code apply thereto. The District expects to receive cash subsidy payments ( Subsidy Payments ) from the United States Department of the Treasury equal to 35% of the interest payable on such bonds on or about each respective semi-annual interest payment date. Such Subsidy Payments are required to be deposited, as and when received, in the respective debt service funds for such bonds, to be used as a credit against future debt service thereon. Subsidy Payments are subject to reduction (each, a Sequestration Reduction ) pursuant to the federal Balanced Budget and Emergency Deficit Control Act of 1985, as amended, which currently includes provisions reducing the Subsidy Payments by 7.3% through the end of the current federal fiscal year (September 30, 2015). In the absence of action by the U.S. Congress, the rate of the Sequestration Reduction is subject to change in the following federal fiscal year. The District cannot predict whether or how subsequent sequestration actions may affect Subsidy Payments currently scheduled for receipt in future federal fiscal years. However, notwithstanding any such reduction, the County is empowered to levy an ad valorem property tax sufficient to pay principal of and interest on such bonds. 61

68 2012 Authorization. The following table shows the annual debt service requirements of the outstanding bonds issued pursuant to the 2012 Authorization, including the Bonds. Election of 2012 Series A Bonds (1) 62 Election of 2012 Series B Bonds Year Ending July $22,726, , ,556, , ,713, , ,596, , ,596, , ,596, , ,596, , ,596, , ,596, , ,596, , ,596, , ,466, , ,588, , ,711, , ,840, , ,980, , ,125, ,273, ,138, ,351, ,286, ,431, ,437, ,518, ,595, ,604, ,766, ,700, ,940, ,378, ,584, ,804, Total $36,305, $92,686, (1) Interest payments thereon payable semi-annually on January 1 and July 1 of each year. Principal due on July 1 of each year. Payments shown include January 1 interest payment. Refunding Bonds. The following table shows the annual debt service requirements of the outstanding refunding bond issuances by the District. Year Ending Aug Refunding Bonds (1) 2006 Refunding Bonds (1) 2013 Refunding Bonds (1) 2015 $5,531, $299, $1,906, ,541, , ,906, ,758, , ,907, ,762, , ,887, , ,023, , ,156, , ,297, , ,444, , ,593, , ,752, , ,921, ,091, ,270, ,456, ,644, ,848, ,050, ,272, Total $20,593, $3,143, $65,431, (1) Interest payments thereon payable semi-annually on February 1 and August 1 of each year. Principal due on August 1 of each year. Payments shown include February 1 interest payment

69 TAX MATTERS In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California ( Bond Counsel ), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest on the Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the Bonds may be included as an adjustment in the calculation of alternative minimum taxable income which may affect the alternative minimum tax liability of corporations. The difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of the same series and maturity is to be sold to the public) and the stated redemption price at maturity with respect to such Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Bond Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by the Bond Owner will increase the Bond Owner s basis in the Bond. In the opinion of Bond Counsel, the amount of original issue discount that accrues to the owner of the Bond is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. Bond Counsel s opinion as to the exclusion from gross income of interest (and original issue discount) on the Bonds is based upon certain representations of fact and certifications made by the District and others and is subject to the condition that the District complies with all requirements of the Internal Revenue Code of 1986, as amended (the Code ), that must be satisfied subsequent to the issuance of the Bonds to assure that interest (and original issue discount) on the Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause the interest (and original issue discount) on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The District has covenanted to comply with all such requirements. The amount by which a Bond Owner s original basis for determining loss on sale or exchange in the applicable Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Bond premium, which must be amortized under Section 171 of the Code; such amortizable Bond premium reduces the Bond Owner s basis in the applicable Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Bond premium may result in a Bond Owner realizing a taxable gain when a Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the Owner. Purchasers of the Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable Bond premium. The Internal Revenue Service (the IRS ) has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds (or by an audit of similar bonds). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the Bonds to the extent that it adversely affects the exclusion from gross income of interest on the Bonds or their market value. 63

70 SUBSEQUENT TO THE ISSUANCE OF THE BONDS, THERE MIGHT BE FEDERAL, STATE OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY INTERPRETATIONS OF FEDERAL, STATE OR LOCAL LAW) THAT AFFECT THE FEDERAL, STATE OR LOCAL TAX TREATMENT OF THE INTEREST ON THE BONDS OR THE MARKET VALUE OF THE BONDS. LEGISLATIVE CHANGES HAVE BEEN PROPOSED IN CONGRESS, WHICH, IF ENACTED, WOULD RESULT IN ADDITIONAL FEDERAL INCOME TAX BEING IMPOSED ON CERTAIN OWNERS OF TAX-EXEMPT STATE OR LOCAL OBLIGATIONS SUCH AS THE BONDS. THE INTRODUCTION OR ENACTMENT OF ANY SUCH CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE BONDS. NO ASSURANCE CAN BE GIVEN THAT, SUBSEQUENT TO THE ISSUANCE OF THE BONDS, SUCH CHANGES (OR OTHER CHANGES) WILL NOT BE INTRODUCED OR ENACTED OR INTERPRETATIONS WILL NOT OCCUR. BEFORE PURCHASING ANY OF BONDS, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE BONDS. Bond Counsel s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Resolution and the Tax Certificate relating to the Bonds permit certain actions to be taken or to be omitted if a favorable opinion of bond counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income of interest (and original issue discount) on the Bonds for federal income tax purposes with respect to any Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth. Although Bond Counsel has rendered an opinion that interest (and original issue discount) on the Bonds is excluded from gross income for federal income tax purposes provided that the District continues to comply with certain requirements of the Code, the ownership of the Bonds and the accrual or receipt of interest (and original issue discount) with respect to the Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the Bonds. Copies of the proposed forms of opinions of Bond Counsel are attached hereto as APPENDIX A. Legality for Investment in California LEGAL MATTERS Under provisions of the California Financial Code, the Bonds are legal investments for commercial banks in California to the extent that the Bonds, in the informed opinion of the bank, are prudent for the investment of funds of depositors, and, under provisions of the Government Code of the State, are eligible for security for deposits of public moneys in the State. Expanded Reporting Requirements On May 17, 2006, the President signed the Tax Increase Prevention and Reconciliation Act of 2005 ( TIPRA ). Under Section 6049 of the Internal Revenue Code of 1986, as amended by TIPRA, interest paid on tax-exempt obligations will be subject to information reporting in a manner similar to 64

71 interest paid on taxable obligations. The effective date for this provision is for interest paid after December 31, 2005, regardless of when the tax-exempt obligations were issued. The purpose of this change was to assist in relevant information gathering for the IRS relating to other applicable tax provisions. TIPRA provides that backup withholding may apply to such interest payments made after March 31, 2007 to any bondholder who fails to file an accurate Form W-9 or who meets certain other criteria. The information reporting and backup withholding requirements of TIPRA do not affect the excludability of such interest from gross income for federal income tax purposes. Continuing Disclosure Current Undertaking. The District has covenanted for the benefit of Owners and Beneficial Owners of the Bonds to provide certain financial information and operating data relating to the District (the Annual Report ) by not later than nine months following the end of the District s fiscal year (which currently ends June 30), commencing with the report for the Fiscal Year, and to provide notices of the occurrence of certain listed events. The Annual Report and notices of listed events will be filed by the District in accordance with the requirements of S.E.C. Rule 15c2-12(b)(5) (the Rule ). The specific nature of the information to be contained in the Annual Report or the notices of listed events is included in APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE. These covenants have been made in order to assist the Underwriters in complying with the Rule. Prior Undertakings. Within the past five years, the District has not failed to comply in any material respect with its prior continuing disclosure undertakings pursuant to the Rule. Litigation No Litigation Regarding the Bonds. No litigation is pending or threatened concerning the validity of the Bonds, and a certificate to that effect will be furnished to purchasers at the time of the original delivery of the Bonds. The District is not aware of any litigation pending or threatened questioning the political existence of the District or contesting the District s ability to receive ad valorem property taxes or to collect other revenues or contesting the District s ability to issue and retire the Bonds. Environmental Litigation. The District is currently a defendant in a citizens suit filed in Federal court by two associations representing parents and employees of the District under the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.) ( TSCA ). The plaintiffs are seeking enforcement of the TSCA by requiring the District to investigate and remediate polychlorinated biphenyls ( PCBs ) present in building materials at the District s Malibu High School campus. Under the oversight of the Federal Environmental Protection Agency and the State Department of Toxic Substances Control, the District previously undertook an investigation of building materials, school building conditions and soil conditions at Malibu High School. Certain cleanup efforts at Malibu High School to remove caulking containing PCBs above the TSCA threshold are expected to occur during the summer of After the EPA determines that these cleanup efforts are satisfactory, the EPA will require no further actions by the District to investigate or remediate PCBs. PCB remediation efforts at Malibu High School will be funded from the District s capital projects fund, and are not currently covered by the District s insurance policies. Plaintiffs are seeking a Federal court order requiring the District to undertake remediation efforts beyond those required by the EPA. The District has filed a motion to dismiss the plaintiff s complaint, and the District expects to court to render its decision in or about June of The District can make no representation as to how the presiding judge will rule on the current motion, or whether the plaintiffs will be successful in their suit. To the extent the District is required to undertake any further remedial efforts, the District does not believe its financial condition or operations would be adversely affected. 65

72 Financial Statements The financial statements with supplemental information for the year ended June 30, 2014, the independent auditor s report of the District, and the related statements of activities and of cash flows for the year then ended, and the report dated December 15, 2014 of Christy White, an Accountancy Corporation (the Auditor ), are included in this Official Statement as Appendix B. In connection with the inclusion of the financial statements and the report of the Auditor herein, the District did not request the Auditor to, and the Auditor has not undertaken to, update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by the Auditor with respect to any event subsequent to the date of its report. Legal Opinion The legal opinions of Bond Counsel, approving the validity of each respective series of the Bonds, will be supplied to the respective original purchasers thereof without cost. Copies of the proposed forms of such legal opinions are attached to this Official Statement as APPENDIX A. Ratings MISCELLANEOUS The Bonds have been assigned ratings of Aa1 by Moody s and AA by S&P. The ratings reflect only the views of the rating agencies, and any explanation of the significance of such ratings should be obtained from the rating agencies at the following addresses: Moody s, 7 World Trade Center at 250 Greenwich, New York, NY and Standard & Poor s Ratings Services, 55 Water Street, 45th Floor, New York, NY There is no assurance that the ratings will be retained for any given period of time or that the same will not be revised downward or withdrawn entirely by the rating agencies if, in the judgment of the rating agencies, circumstances so warrant. The District undertakes no responsibility to oppose any such revision or withdrawal. Any such downward revision or withdrawal of the ratings obtained may have an adverse effect on the market price of the Bonds. The District has covenanted in a Continuing Disclosure Certificate to file on the Municipal Securities Rulemaking Board s Electronic Municipal Market Access website ( EMMA ) notices of any ratings changes on the Bonds. See APPENDIX C - FORM OF CONTINUING DISCLOSURE attached hereto. Notwithstanding such covenant, information relating to ratings changes on the Bonds may be publicly available from the rating agencies prior to such information being provided to the District and prior to the date the District is obligated to file a notice of rating change on EMMA. Purchasers of the Bonds are directed to the ratings agencies and their respective websites and official media outlets for the most current ratings changes with respect to the Bonds after the initial issuance of the Bonds. 66

73 Underwriting Stifel, Nicolaus & Company, Incorporated, as representative on behalf of itself and RBC Capital Markets, LLC (collectively, the Underwriters ) have agreed, pursuant to a purchase contract by and between the District and the Underwriters, to purchase all of the Bonds for a purchase price of $63,166, (which is equal to the principal amount of the Bonds of $60,000,000.00, plus net original issue premium of $3,466,584.70, and less an underwriting discount of $300,000.00). The purchase contract for the Bonds provide that the Underwriters will purchase all of the Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in such purchase contract, the approval of certain legal matters by bond counsel and certain other conditions. The initial offering prices stated on the inside cover of this Official Statement may be changed from time to time by the Underwriters. The Underwriters may offer and sell Bonds to certain dealers and others at prices lower than such initial offering prices. Underwriter Disclosures. The Underwriters have provided the following information for inclusion in this Official Statement: While Stifel, Nicolaus & Company, Incorporated ( Stifel ) does not believe that the following represents a potential or actual conflict of interest, Stifel notes that it (1) made a contribution towards the bond ballot initiative authorizing the Bonds, and (2) has sponsored event(s) for the District s Foundation. RBC Capital Markets, LLC made a voluntary contribution to the committee that was formed to support the election authorizing the Bonds. RBC Capital Markets, LLC and its affiliates are full-service financial institutions engaged in various activities, that may include securities trading, commercial and investment banking, municipal advisory, brokerage, and asset management. In the ordinary course of business, RBC Capital Markets, LLC and its affiliates may actively trade debt and, if applicable, equity securities (or related derivative securities) and provide financial instruments (which may include bank loans, credit support or interest rate swaps). RBC Capital Markets, LLC and its affiliates may engage in transactions for their own accounts involving the securities and instruments made the subject of this securities offering or other offering of the District. RBC Capital Markets, LLC and its affiliates may make a market in credit default swaps with respect to municipal securities in the future. RBC Capital Markets, LLC and its affiliates may also communicate independent investment recommendations, market color or trading ideas and publish independent research views in respect of the offering of the Bonds or other offerings of the District; provided, however, that potential investors are advised that the offering of the Bonds is made only by means of the Official Statement. No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representation other than as contained in the Official Statement. 67

74 Additional Information The purpose of this Official Statement is to supply information to prospective buyers of the Bonds. Quotations from and summaries and explanations of the Bonds, the Resolution providing for issuance of the Bonds, and the constitutional provisions, statutes and other documents referenced herein, do not purport to be complete, and reference is made to said documents, constitutional provisions and statutes for full and complete statements of their provisions. All data contained herein has been taken or constructed from District records. Appropriate District officials, acting in their official capacities, have reviewed this Official Statement and have determined that, as of the date hereof, the information contained herein is, to the best of their knowledge and belief, true and correct in all material respects and does not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made herein, in light of the circumstances under which they were made, not misleading. This Official Statement has been approved by the District. SANTA MONICA-MALIBU UNIFIED SCHOOL DISTRICT By: /s/ Janece Maez Associate Superintendent, Business and Fiscal Services/CFO 68

75 APPENDIX A FORMS OF OPINIONS OF BOND COUNSEL Upon issuance and delivery of the Bonds, Stradling Yocca Carlson & Rauth, Bond Counsel, proposes to render its final approving opinion with respect to the Bonds substantially in the following form: Board of Education Santa Monica-Malibu Unified School District Members of the Board of Education: July 7, 2015 We have examined a certified copy of the record of the proceedings relative to the issuance and sale of $60,000,000 Santa Monica-Malibu Unified School District Election of 2012 General Obligation Bonds, Series B (the Bonds ). As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation. Based on our examination as bond counsel of existing law, certified copies of such legal proceedings and such other proofs as we deem necessary to render this opinion, we are of the opinion, as of the date hereof and under existing law, that: 1. Such proceedings and proofs show lawful authority for the issuance and sale of the Bonds pursuant to Article 4.5 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code of the State of California (the Act ), commencing with Section et seq., a fifty-five percent vote of the qualified electors of the Santa Monica-Malibu Unified School District (the District ) voting at an election held on November 6, 2012, and a resolution of the Board of Education of the District (the Resolution ). 2. The Bonds constitute valid and binding general obligations of the District, payable as to both principal and interest from the proceeds of a levy of ad valorem property taxes on all property subject to such taxes in the District, which taxes are unlimited as to rate or amount. 3. Under existing statutes, regulations, rulings and judicial decisions, interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. It should be noted that, with respect to corporations, such interest may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the federal income tax liability of corporations. 4. Interest on the Bonds is exempt from State of California personal income tax. 5. The difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity with respect to such Bonds constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Bond Owner before receipt of cash attributable to such excludable income. The A-1

76 amount of original issue discount deemed received by a Bond Owner will increase the Bond Owner s basis in the applicable Bond. Original issue discount that accrues to the Bond Owner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. 6 The amount by which a Bond Owner s original basis for determining loss on sale or exchange in the applicable Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Bond premium, which must be amortized under Section 171 of the Code; such amortizable Bond premium reduces the Bond Owner s basis in the applicable Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Bond premium may result in a Bond Owner realizing a taxable gain when a Bond is sold by the Bond Owner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the Bond Owner. Purchasers of the Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable Bond premium. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Resolution and the Tax Certificate relating to the Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. No opinion is expressed herein as to the effect on the exclusion from gross income of interest (and original issue discount) for federal income tax purposes with respect to any Bond if any such action is taken or omitted based upon the advice of counsel other than ourselves. Other than expressly stated herein, we express no opinion regarding tax consequences with respect to the Bonds. The opinions expressed herein as to the exclusion from gross income of interest (and original issue discount) on the Bonds are based upon certain representations of fact and certifications made by the District and others and are subject to the condition that the District complies with all requirements of the Internal Revenue Code of 1986, as amended (the Code ), that must be satisfied subsequent to the issuance of the Bonds to assure that such interest (and original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The District has covenanted to comply with all such requirements. It is possible that subsequent to the issuance of the Bonds there might be federal, state, or local statutory changes (or judicial or regulatory interpretations of federal, state, or local law) that affect the federal, state, or local tax treatment of the Bonds or the market value of the Bonds. No assurance can be given that subsequent to the issuance of the Bonds such changes or interpretations will not occur. The rights of the owners of the Bonds and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights heretofore or hereafter enacted to the extent constitutionally applicable and their enforcement may also be subject to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against public agencies in the State of California. Respectfully submitted, Stradling Yocca Carlson & Rauth A-2

77 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT B-1

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79 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT AUDIT REPORT JUNE 30, 2014

80 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT OF LOS ANGELES COUNTY SANTA MONICA, CALIFORNIA JUNE 30, 2014 The Santa Monica Malibu Unified School District was established in The District s boundaries encompass all of the City of Santa Monica and part of Los Angeles County from the Ventura County line on the west: the Malibu area to approximately the top of the Santa Monica Mountains on the north. The boundaries exclude those portions of the north section that are included in the Las Virgenes Unified School District and those portions of Pacific Palisades that are included in the Los Angeles Unified School District. There was no change in the boundaries of the District during the current year. The District is currently operating ten elementary schools, two middle schools, two high schools, one continuation high school, one alternative school, one adult education center, and fifteen child care and development centers. GOVERNING BOARD Member Office Term Expires Maria Leon Vazquez President December 2016 Ralph Mechur Vice President December 2014 Ben Allen Member December 2016 Oscar de la Torre Member December 2014 Jose Escarce Member December 2016 Laurie Lieberman Member December 2014 Nimish Patel Member December 2014 DISTRICT ADMINISTRATORS Sandra Lyon Superintendent Jan Maez Associate Superintendent, Business & Fiscal Services Chief Financial Officer Debra Moore Washington Assistant Superintendent, Human Resources Dr. Terry Deloria Assistant Superintendent, Educational Services

81 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT TABLE OF CONTENTS FOR THE YEAR ENDED JUNE 30, 2014 FINANCIAL SECTION Independent Auditors Report... 1 Management s Discussion and Analysis... 4 Basic Financial Statements Government wide Financial Statements Statement of Net Position Statement of Activities Fund Financial Statements Governmental Funds Balance Sheet Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities Proprietary Funds Statement of Net Position Proprietary Funds Statement of Revenues, Expenses, and Changes in Net Position Proprietary Funds Statement of Cash Flows Fiduciary Funds Statement of Net Position Notes to Financial Statements REQUIRED SUPPLEMENTARY INFORMATION General Fund Budgetary Comparison Schedule Schedule of Funding Progress Notes to Required Supplementary Information SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards Schedule of Average Daily Attendance (ADA) Schedule of Instructional Time Schedule of Financial Trends and Analysis Reconciliation of Annual Financial and Budget Report with Audited Financial Statements Combining Statements Non Major Governmental Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Notes to Supplementary Information... 64

82 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT TABLE OF CONTENTS FOR THE YEAR ENDED JUNE 30, 2014 OTHER INDEPENDENT AUDITORS REPORTS Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance For Each Major Federal Program; and Report on Internal Control Over Compliance Required by OMB Circular A Report on State Compliance SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditors Results Financial Statement Findings Federal Award Findings and Questioned Costs State Award Findings and Questioned Costs Summary Schedule of Prior Audit Findings... 77

83 FINANCIAL SECTION

84 INDEPENDENT AUDITORS REPORT Christy White, CPA Michael Ash, CPA Tanya M. Rogers, CPA, CFE John Whitehouse, CPA Heather Rubio SAN DIEGO LOS ANGELES SAN FRANCISCO/BAY AREA Corporate Office: 2727 Camino Del Rio South Suite 219 San Diego, CA toll-free: tel: fax: Governing Board Santa Monica Malibu Unified School District Santa Monica, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, the discretely presented component unit, and the aggregate remaining fund information of the Santa Monica Malibu Unified School District, as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the Santa Monica Malibu Unified School District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Santa Monica Malibu Education Foundation, which represent the discretely presented component unit. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Santa Monica Malibu Education Foundation, is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 1

85 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditorʹs judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entityʹs preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entityʹs internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audit and the report of the other auditors, 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 Santa Monica Malibu Unified School District, as of June 30, 2014, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the required supplementary information, such as management s discussion and analysis on pages 4 through 11, the budgetary comparison information on page 54, and the schedule of funding progress on page 55 be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in 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. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Santa Monica Malibu Unified School District s basic financial statements. The supplementary information listed in the table of contents, including the schedule of expenditures of Federal awards, which is required by the U.S. Office of Management and Budget Circular A 133, Audits of State, Local Governments, and Non Profit Organizations, is presented for purposes of additional analysis and is not a required part of the basic financial statements. 2

86 The supplementary information listed in the table of contents is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 15, 2014 on our consideration of Santa Monica Malibu Unified School Districtʹs internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Santa Monica Malibu Unified School District s internal control over financial reporting and compliance. San Diego, California December 15,

87 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS INTRODUCTION Our discussion and analysis of Santa Monica Malibu Unified School District s (District) financial performance provides an overview of the District s financial activities for the fiscal year ended June 30, It should be read in conjunction with the District s financial statements, which follow this section. FINANCIAL HIGHLIGHTS Total net position for the primary government was $136,577,912 at June 30, This was an increase of $6,717,740 from the prior year. Overall revenues were $173,460,909 which exceeded expenses of $164,073,832. OVERVIEW OF FINANCIAL STATEMENTS Components of the Financials Section Management's Discussion & Analysis Basic Financial Statements Required Supplementary Information Government-Wide Financial Statements Fund Financial Statements Notes to the Financial Statements Summary Detail 4

88 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 This annual report consists of three parts Management s Discussion and Analysis (this section), the basic financial statements, and required supplementary information. The three sections together provide a comprehensive overview of the District. The basic financial statements are comprised of two kinds of statements that present financial information from different perspectives: Government wide financial statements, which comprise the first two statements, provide both short term and long term information about the entity s overall financial position. Fund financial statements focus on reporting the individual parts of District operations in more detail. The fund financial statements comprise the remaining statements. Governmental Funds provide a detailed short term view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the District s programs. Proprietary Funds report services for which the District charges customers a fee. Like the government wide statements, they provide both long and short term financial information. Fiduciary Funds report balances for which the District is a custodian or trustee of the funds, such as Associated Student Bodies and pension funds. The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The basic financial statements are followed by a section of required and other supplementary information that further explain and support the financial statements. Government Wide Statements The government wide statements report information about the District as a whole using accounting methods similar to those used by private sector companies. The statement of net position includes all of the government s assets and liabilities. 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. The two government wide statements report the District s net position and how it has changed. Net position is one way to measure the District s financial health or position. Over time, increases or decreases in the District s net position are an indicator of whether its financial health is improving or deteriorating, respectively. The government wide financial statements of the District include governmental activities. All of the District s basic services are included here, such as regular education, food service, maintenance and general administration. Revenue limit funding and federal and state grants finance most of these activities. 5

89 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 FINANCIAL ANALYSIS OF THE ENTITY AS A WHOLE Net Position The District s combined net position was $136,577,912 at June 30, 2014, as reflected in Table A 1 below. Of this amount, $7,858,308 was unrestricted deficit. Restricted net position is reported separately to show legal constraints from debt covenants and enabling legislation that limit the Governing Board s ability to use that net position for day to day operations. Table A 1 Santa Monica Malibu Unified School District s Net Position Governmental Activities Net Change ASSETS Current and other assets $ 178,449,058 $ 216,813,988 $ (38,364,930) Capital assets 337,853, ,440,068 39,413,904 Total Assets 516,303, ,254,056 1,048,974 DEFERRED OUTFLOWS OF RESOURCES 6,944,447 7,309,944 (365,497) LIABILITIES Current liabilities 43,243,311 41,278,855 1,964,456 Long term liabilities 343,426, ,115,029 (688,775) Total Liabilities 386,669, ,393,884 1,275,681 NET POSITION Net investment in capital assets 87,311,739 89,726,329 (2,414,590) Restricted 57,124,481 47,695,999 9,428,482 Unrestricted (7,858,308) (7,562,156) (296,152) Total Net Position $ 136,577,912 $ 129,860,172 $ 6,717,740 6

90 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 FINANCIAL ANALYSIS OF THE ENTITY AS A WHOLE (continued) Changes in Net Position The results of this year s operations for the District as a whole are reported in the Statement of Activities. Table A 2 takes the information from the Statement, rounds off the numbers, and rearranges them slightly, so you can see our total revenues, expenses, and special items for the year. Table A 2 Santa Monica Malibu Unified School District s Changes in Net Position Governmental Activities Net Change REVENUES Program revenues Charges for services $ 6,802,917 $ 6,360,895 $ 442,022 Operating grants and contributions 26,685,250 30,546,687 (3,861,437) General revenues Property taxes 110,328, ,245,265 7,082,980 Unrestricted federal and state aid 9,050,356 13,430,119 (4,379,763) Other 20,594,141 15,782,974 4,811,167 Total Revenues 173,460, ,365,940 4,094,969 EXPENSES Instruction 86,586,592 81,499,781 5,086,811 Instruction related services 16,696,200 16,044, ,094 Pupil services 14,925,665 14,426, ,452 General administration 11,409,561 8,251,664 3,157,897 Plant services 16,649,696 14,627,067 2,022,629 Ancillary and community services 2,496,301 2,153, ,991 Debt service 15,582,377 15,103, ,704 Other Outgo (272,560) 182,703 (455,263) Total Expenses 164,073, ,288,517 11,785,315 Transfers & special items Change in net position 9,387,077 17,077,423 (7,690,346) Net Position Beginning, as Restated* 127,190, ,782,749 14,408,086 Net Position Ending $ 136,577,912 $ 129,860,172 $ 6,717,740 * Restatement to Beginning Net Position relates to the 2014 year only 7

91 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 FINANCIAL ANALYSIS OF THE ENTITY AS A WHOLE (continued) Changes in Net Position (continued) The total cost of all our governmental activities this year was $164,073,832 and the net cost of activities was $130,585,665 (refer to Table A 3). The amount that our taxpayers ultimately financed for these activities through taxes was only $110,328,245 because the cost was paid by other governments and organizations who subsidized certain programs with grants and contributions ($26,685,250). Table A 3 Santa Monica Malibu Unified School District s Cost of Services Cost of Services Total Net Instruction $ 86,586,592 $ 65,620,757 Instruction related services 16,696,200 14,985,642 Pupil services 14,925,665 9,466,001 General administration 11,409,561 10,762,640 Plant services 16,649,696 15,948,352 Ancillary and community services 2,496,301 2,301,810 Debt service 15,582,377 15,582,377 Transfers to other agencies (272,560) (4,081,914) Total Expenses $ 164,073,832 $ 130,585,665 FINANCIAL ANALYSIS OF THE DISTRICT S MAJOR FUNDS The financial performance of the District as a whole is reflected in its governmental funds as well. As the District completed this year, its governmental funds reported a combined fund balance of $145,011,760, which is less than last year s ending fund balance of $186,008,707. The District s General Fund had $797,677 less in operating revenues than expenditures for the year ended June 30, The District s Building Fund had $47,315,345 less in operating revenues than expenditures due to significant increase in expenditures towards facilities acquisition and maintenance during the year ended June 30, Also for the year ended June 30, 2014, the District s Bond Interest & Redemption Fund had $7,852,900 more in operating revenues than expenditures. CURRENT YEAR BUDGET During the fiscal year, budget revisions and appropriation transfers are presented to the Board for their approval on a monthly basis to reflect changes to both revenues and expenditures that become known during the year. In addition, the Board of Education approves financial projections included with the Adopted Budget, First Interim, and Second Interim financial reports. The Unaudited Actuals reflect the District s financial projections and current budget based on State and local financial information 8

92 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets By the end of the District had invested $337,853,972 in capital assets, net of accumulated depreciation. Table A 4 Santa Monica Malibu Unified School District s Capital Assets Governmental Activities Net Change CAPITAL ASSETS Land $ 10,128,802 $ 10,128,802 $ Construction in progress 181,044, ,790,180 27,254,026 Land improvements 16,812,343 14,590,080 2,222,263 Buildings & improvements 210,244, ,349,541 8,894,673 Furniture & equipment 20,107,255 12,683,990 7,423,265 Accumulated depreciation (100,482,848) (94,102,525) (6,380,323) Total Capital Assets $ 337,853,972 $ 298,440,068 $ 39,413,904 Long Term Liabilities At year end, the District had $343,426,254 in long term liabilities, a decrease of 4% from last year as shown in Table A 5. (More detailed information about the District s long term liabilities is presented in footnotes to the financial statements.) Table A 5 Santa Monica Malibu Unified School District s Long Term Liabilities Governmental Activities Net Change LONG TERM LIABILITIES Total general obligation bonds $ 327,589,226 $ 330,739,522 $ (3,150,296) Total certificates of participation 16,902,731 17,608,338 (705,607) Capital leases 92, ,155 (24,353) Compensated absences 916, ,502 29,384 Net OPEB obligation 8,786,641 7,193,811 1,592,830 Less: current portion of long term debt (10,862,032) (12,431,299) 1,569,267 Total Long term Liabilities $ 343,426,254 $ 344,115,029 $ (688,775) 9

93 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 ECONOMIC FACTORS AND NEXT YEAR S BUDGET At the time these financial statements were prepared and audited, the District was aware of several circumstances that could affect its future financial health. Landmark legislation passed in Year 2013 reformed California school district finance by creating the new Local Control Funding Formula (LCFF). The District continues to analyze the impact of the LCFF on funding for our program offerings and services. The LCFF is designed to provide a flexible funding mechanism that links student achievement to state funding levels. The LCFF provides a per pupil base grant amount, by grade span, that is augmented by supplemental funding for targeted student groups in low income brackets, those that are English language learners and foster youth. The State anticipates all school districts to reach the statewide targeted base funding levels by , but the annual amount funded to meet the target is uncertain. Factors related to LCFF that the District is monitoring include: (1) estimates of funding in the next budget year and beyond; (2) the Local Control and Accountability Plan (LCAP) that aims to link student accountability measurements to funding allocations; (3) ensuring the integrity of reporting student data through the California Longitudinal Pupil Achievement Data System (CALPADs); and, (4) meeting new compliance and audit requirements. The State s economy is expected to grow at a modest rate of about 3% annually over the next two years, according to the UCLA Anderson Economic Forecast for September In the California forecast, Senior Economist Jerry Nickelsburg writes, ʺThe California economy is moving forward in an expansion from the depths of the Great Recession. But, even though the number of jobs is now higher than any time in the past, the state remains below its potential in output and employment. That we are entering the sixth year of expansion illustrates just how painfully plodding this recovery process has been.ʺ The ability of the State to fund the LCFF and other programs is largely dependent on the strength of the State s economy and remains uncertain. GASB 68, Accounting and Financial Reporting for Pensions, will be effective in the following fiscal year, The new standard requires the reporting of annual pension cost using an actuarially determined method and a net pension liability is expected to result. The District participates in state employee pensions plans, PERS and STRS, and both are underfunded. The District s proportionate share of the liability will be reported in the Statement of Net Position as of June 30, The amount of the liability is unknown at this time but is anticipated to be material to the financial position of the District. To address the underfunding issues, the pension plans intend to raise employer rates in future years and the increased costs could be significant. Enrollment can fluctuate due to factors such as population growth, competition from private, parochial, interdistrict transfers in or out, economic conditions and housing values. Losses in enrollment will cause a school district to lose operating revenues without necessarily permitting the district to make adjustments in fixed operating costs. All of these factors were considered in preparing the District s budget for the fiscal year. 10

94 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of the District s finances and to show the District s accountability for the money it receives. If you have questions about this report or need any additional financial information, contact the District s Business Office at (310) or by mail at th Street, Santa Monica, California

95 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT STATEMENT OF NET POSITION JUNE 30, 2014 Primary Government June 30, 2013 Governmental Discretely Presented Activities Component Unit ASSETS Cash and cash equivalents $ 164,382,244 $ 237,312 Investments 8,805,781 Accounts receivable 11,436,222 44,120 Inventory 33,679 Prepaid expenses 72,311 25,086 Other current assets 2,524,602 Capital assets, not depreciated 191,173,008 Capital assets, net of accumulated depreciation 146,680,964 14,975 Total Assets 516,303,030 9,127,274 DEFERRED OUTFLOWS OF RESOURCES Deferred amount on refunding 6,944,447 LIABILITIES Accrued liabilities 31,312, ,116 Unearned revenue 1,068,705 Long term liabilities, current portion 10,862,032 Long term liabilities, non current portion 343,426,254 Total Liabilities 386,669, ,116 NET POSITION Net investment in capital assets 87,311,739 Restricted: Capital projects 17,782,456 Debt service 33,773,115 Educational programs 5,502,053 5,283,262 All other programs 66,857 Unrestricted (7,858,308) 2,147,982 Total Net Position $ 136,577,912 $ 8,202,158 The accompanying notes are an integral part of these financial statements. 12

96 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2014 Net (Expenses) Revenues and Changes in June 30, 2013 Program Revenues Net Position Discretely Operating Presented Charges for Grants and Governmental Component Function/Programs Expenses Services Contributions Activities Unit GOVERNMENTAL ACTIVITIES Instruction $ 86,586,592 $ 3,355,237 $ 17,610,598 $ (65,620,757) Instruction related services Instructional supervision and administration 4,970,277 90, ,910 (3,972,831) Instructional library, media, and technology 1,389, ,137 (1,293,854) School site administration 10,336, , ,941 (9,718,957) Pupil services Home to school transportation 2,022, (2,022,373) Food services 3,523,389 1,516,944 1,653,062 (353,383) All other pupil services 9,379,882 2,359 2,287,278 (7,090,245) General administration Centralized data processing 907,583 (907,583) All other general administration 10,501, , ,960 (9,855,057) Plant services 16,649, , ,011 (15,948,352) Ancillary services 865,724 13,714 25,831 (826,179) Community services 1,630,577 53, ,212 (1,475,631) Interest on long term debt 15,582,377 (15,582,377) Other Outgo (272,560) 1,321,058 2,488,296 4,081,914 Total Governmental Activities $ 164,073,832 $ 6,802,917 $ 26,685,250 (130,585,665) DISCRETELY PRESENTED COMPONENT UNIT Santa Monica Malibu Education Foundation $ 1,754,613 $ $ 6,488,512 $ 4,733,899 Total $ 1,754,613 $ $ 6,488,512 4,733,899 General revenues Taxes and subventions Property taxes, levied for general purposes 65,814,146 Property taxes, levied for debt service 31,024,112 Property taxes, levied for other specific purposes 13,489,987 Federal and state aid not restricted for specific purposes 9,050,356 Interest and investment earnings 169, ,773 Miscellaneous 20,424,579 Subtotal, General Revenue 139,972, ,773 CHANGE IN NET POSITION 9,387,077 4,845,672 Net Position Beginning, as Restated 127,190,835 3,356,486 Net Position Ending $ 136,577,912 $ 8,202,158 The accompanying notes are an integral part of these financial statements. 13

97 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2014 General Fund Building Fund Bond Interest & Redemption Fund Non Major Governmental Funds Total Governmental Funds ASSETS Cash and cash equivalents $ 36,874,095 $ 71,434,162 $ 33,773,115 $ 19,014,726 $ 161,096,098 Accounts receivable 10,153, , ,765 11,429,959 Stores inventory 14,570 19,109 33,679 Prepaid expenditures 72,311 72,311 Other current assets 2,524,602 2,524,602 Total Assets $ 49,639,462 $ 71,718,472 $ 33,773,115 $ 20,025,600 $ 175,156,649 LIABILITIES Accrued liabilities $ 21,418,119 $ 6,070,670 $ $ 1,587,395 $ 29,076,184 Unearned revenue 943, ,777 1,068,705 Total Liabilities 22,362,047 6,070,670 1,712,172 30,144,889 FUND BALANCES Nonspendable 106,881 19, ,990 Restricted 5,502,053 65,647,802 33,773,115 17,849, ,772,283 Committed 438, ,725 Assigned 6,182,613 6,281 6,188,894 Unassigned 15,485,868 15,485,868 Total Fund Balances 27,277,415 65,647,802 33,773,115 18,313, ,011,760 Total Liabilities and Fund Balances $ 49,639,462 $ 71,718,472 $ 33,773,115 $ 20,025,600 $ 175,156,649 The accompanying notes are an integral part of these financial statements. 14

98 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2014 Total Fund Balance Governmental Funds $ 145,011,760 Amounts reported for assets and liabilities for governmental activities in the statement of net position are different from amounts reported in governmental funds because: Capital assets: In governmental funds, only current assets are reported. In the statement of net position, all assets are reported, including capital assets and accumulated depreciation: Capital assets $ 438,336,820 Accumulated depreciation (100,482,848) 337,853,972 Deferred amount on refunding: In governmental funds, the net effect of refunding bonds is recognized when debt is issued, whereas this amount is deferred and amortized in the government wide financial statements: 6,944,447 Unmatured interest on long term debt: In governmental funds, interest on long term debt is not recognized until the period in which it matures and is paid. In the government wide statement of activities, it is recognized in the period that it is incurred. The additional liability for unmatured interest owing at the end of the period was: (2,236,390) Long term liabilities: In governmental funds, only current liabilities are reported. In the statement of net position, all liabilities, including long term liabilities, are reported. Long term liabilities relating to governmental activities consist of: Total general obligation bonds $ 327,589,226 Total certificates of participation 16,902,731 Capital leases 92,802 Compensated absences 916,886 (345,501,645) Internal service funds: Internal service funds are used to conduct certain activities for which costs are charged to other funds on a full cost recovery basis. Because internal service funds are presumed to operate for the benefit of governmental activities, assets and liabilities of internal service funds are reported with governmental activities in the statement of net position. Net position for internal service funds is: (5,494,232) Total Net Position Governmental Activities $ 136,577,912 The accompanying notes are an integral part of these financial statements. 15

99 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2014 General Fund Building Fund Bond Interest & Redemption Fund Non Major Governmental Funds Total Governmental Funds REVENUES LCFF sources $ 69,622,777 $ $ $ 262,628 $ 69,885,405 Federal sources 4,336,823 2,254,908 2,833,613 9,425,344 Other state sources 7,844, ,512 2,993,990 10,992,199 Other local sources 43,171,067 1,044,250 31,063,810 7,866,140 83,145,267 Total Revenues 124,975,364 1,044,250 33,472,230 13,956, ,448,215 EXPENDITURES Current Instruction 77,229,692 5,669,484 82,899,176 Instruction related services Instructional supervision and administration 4,353, ,251 4,766,775 Instructional library, media, and technology 1,340,311 1,340,311 School site administration 9,165, ,125 9,968,176 Pupil services Home to school transportation 1,953,176 1,953,176 Food services 23,765 3,373,939 3,397,704 All other pupil services 8,928, ,518 9,045,451 General administration Centralized data processing 882, ,031 All other general administration 6,838, ,003 7,318,021 Plant services 12,617, ,149,950 14,767,317 Facilities acquisition and maintenance 48,359, ,825 48,582,207 Ancillary services 835, ,991 Community services 1,580,805 1,580,805 Enterprise activities Transfers to other agencies Debt service Principal 24,353 11,044,386 1,090,000 12,158,739 Interest and other ,574, ,101 14,949,282 Total Expenditures 125,773,041 48,359,595 25,619,330 14,693, ,445,162 Excess (Deficiency) of Revenues Over Expenditures (797,677) (47,315,345) 7,852,900 (736,825) (40,996,947) Other Financing Sources (Uses) Transfers in 307, ,452 Transfers out (307,452) (307,452) Net Financing Sources (Uses) (307,452) 307,452 NET CHANGE IN FUND BALANCE (1,105,129) (47,315,345) 7,852,900 (429,373) (40,996,947) Fund Balance Beginning 28,382, ,963,147 25,920,215 18,742, ,008,707 Fund Balance Ending $ 27,277,415 $ 65,647,802 $ 33,773,115 $ 18,313,428 $ 145,011,760 The accompanying notes are an integral part of these financial statements. 16

100 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2014 Net Change in Fund Balances Governmental Funds $ (40,996,947) Amounts reported for governmental activities in the statement of activities are different from amounts reported in governmental funds because: Capital outlay: In governmental funds, the costs of capital assets are reported as expenditures in the period when the assets are acquired. In the statement of activities, costs of capital assets are allocated over their estimated useful lives as depreciation expense. The difference between capital outlay expenditures and depreciation expense for the period is: Expenditures for capital outlay: $ 48,704,588 Depreciation expense: (6,380,323) 42,324,265 Debt service: In governmental funds, repayments of long term debt are reported as expenditures. In the government wide statements, repayments of long term debt are reported as reductions of liabilities. Expenditures for repayment of the principal portion of long term debt were: 13,824,353 Deferred amounts on refunding: In governmental funds, deferred amounts on refundings are recognized in the period they are incurred. In the government wide statements, the deferred amounts on refundings are amortized over the life of the debt. The net effect of the deferred amounts on refundings during the period was: (365,497) Unmatured interest on long term debt: In governmental funds, interest on long term debt is recognized in the period that it becomes due. In the government wide statement of activities, it is recognized in the period it is incurred. Unmatured interest owing at the end of the period, less matured interest paid during the period but owing from the prior period, was: 973,501 Accreted interest on long term debt: In governmental funds, accreted interest on capital appreciation bonds is not recorded as an expenditure from current sources. In the government wide statement of activities, however, this is recorded as interest expense for the period. (3,272,210) Compensated absences: In governmental funds, compensated absences are measured by the amounts paid during the period. In the statement of activities, compensated absences are measured by the amount earned. The difference between compensated absences paid and compensated absences earned, was: (29,384) The accompanying notes are an integral part of these financial statements. 17

101 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES, continued FOR THE YEAR ENDED JUNE 30, 2014 Cost write off for canceled capital projects: If a planned capital project is canceled and will not be completed, costs previously capitalized as Work in progress must be written off to expense. Costs written off for canceled projects were: (2,910,361) Amortization of debt issuance premium or discount: In governmental funds, if debt is issued at a premium or at a discount, the premium or discount is recognized as an Other Financing Source or an Other Financing Use in the period it is incurred. In the government wide statements, the premium or discount is amortized over the life of the debt. Amortization of premium or discount for the period is: 638,057 Internal Service Funds: Internal service funds are used to conduct certain activities for which costs are charged to other funds on a full cost recovery basis. Because internal service funds are presumed to benefit governmental activities, internal service activities are reported as governmental in the statement of activities. The net increase or decrease in internal service funds was: (798,700) Change in Net Position of Governmental Activities $ 9,387,077 The accompanying notes are an integral part of these financial statements. 18

102 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT PROPRIETARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2014 Governmental Activities Internal Service Fund ASSETS Current assets Cash and cash equivalents $ 3,286,146 Accounts receivable 6,263 Total current assets 3,292,409 Total Assets 3,292,409 LIABILITIES Non current liabilities 8,786,641 Total Liabilities 8,786,641 NET POSITION Unrestricted (5,494,232) Total Net Position $ (5,494,232) The accompanying notes are an integral part of these financial statements. 19

103 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEAR ENDED JUNE 30, 2014 Governmental Activities Internal Service Fund OPERATING REVENUE Charges for services $ 1,770,575 Other local revenues 34,423 Total operating revenues 1,804,998 OPERATING EXPENSE Professional services 2,616,392 Total operating expenses 2,616,392 Operating income/(loss) (811,394) NON OPERATING REVENUES/(EXPENSES) Interest income 12,694 Total non operating revenues/(expenses) 12,694 CHANGE IN NET POSITION (798,700) Net Position Beginning (4,695,532) Net Position Ending $ (5,494,232) The accompanying notes are an integral part of these financial statements. 20

104 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2014 Governmental Activities Internal Service Fund Cash flows from operating activities Cash received (paid) from assessments made to (from) other funds $ 1,800,842 Cash payments for payroll, insurance, and operating costs (1,023,562) Net cash provided by (used for) operating activities 777,280 Cash flows from investing activities Interest received 12,694 Net cash provided by (used for) investing activities 12,694 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 789,974 CASH AND CASH EQUIVALENTS Beginning of year 2,496,172 End of year $ 3,286,146 Reconciliation of operating income (loss) to cash provided by (used for) operating activities Operating income (loss) $ (811,394) Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Changes in assets and liabilities: (Increase) decrease in accounts receivable (4,156) Increase (decrease) in non current liabilities 1,592,830 Net cash provided by (used for) operating activities $ 777,280 The accompanying notes are an integral part of these financial statements. 21

105 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT FIDUCIARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2014 Agency Funds Warrant/Passthrough Fund Student Body Fund ASSETS Cash and cash equivalents $ $ 344,621 Stores inventory 19,743 Prepaid expenses 409,575 3,548 Total Assets $ 409,575 $ 367,912 LIABILITIES Deficit cash $ 409,575 $ Accrued liabilities 53,501 Due to student groups 314,411 Total Liabilities $ 409,575 $ 367,912 The accompanying notes are an integral part of these financial statements. 22

106 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Financial Reporting Entity The Santa Monica Malibu Unified School District was established in 1875, under the laws of the State of California. The District operates under a locally elected seven member Board form of government and provides educational services to grades K 12 as mandated by the State and/or Federal agencies. The District operates ten elementary schools, two middle schools, two high schools, one continuation high school, one alternative school, one adult education center, and fifteen child care and development centers. The District operates under a locally elected Board form of government and provides educational services to grades K 12 as mandated by the state. A reporting entity is comprised of the primary government, component units, and other organizations that are included to ensure the financial statements are not misleading. The primary government of the District consists of all funds, departments and agencies that are not legally separate from the District. For the District, this includes general operations, food service, and student related activities. B. Component Units Component units are legally separate organizations for which the District is financially accountable. Component units may also include organizations that are fiscally dependent on the District in that the District approves their budget, the issuance of their debt or the levying of their taxes. In addition, component units are other legally separate organizations for which the District is not financially accountable but the nature and significance of the organization s relationship with the District is such that exclusion would cause the District s financial statements to be misleading or incomplete. The District has the following discretely presented component unit: The Santa Monica Malibu Education Foundation (Foundation) is a legally separate, tax exempt component unit of the District. The Foundation was established in 1982 in response to devastating federal and state education budget cuts. The Foundation was founded by a dedicated group of parents, community leaders, and local business owners to enhance and supplement the curriculum of the District. The Foundation is run by a fourteen member Board of Directors. Although the District does not control the timing or amount of receipts from the Foundation, the majority of resources, or income thereon, that the Foundation holds and invests are restricted to the activities of the District by the donors. Because these restricted resources held by the Foundation can be used only by, or for the benefit of, the District, the Foundation is considered a component unit of the District and is discretely presented in the District s financial statements. 23

107 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. Basis of Presentation Government Wide Statements. The statement of net position and the statement of activities display information about the primary government (the District). These statements include the financial activities of the overall government, except for fiduciary activities. Eliminations have been made to minimize the doublecounting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenue, and other non exchange transactions. The statement of activities presents a comparison between direct expenses and program revenue for each function of the District s governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expense allocations that have been made in the funds have been reserved for the statement of activities. Program revenues include charges paid by the recipients of the goods or services offered by the programs and grants and contributions that are restricted to meeting of operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each program or business segment is selffinancing or draws from the general revenues of the District. Fund Financial Statements. The fund financial statements provide information about the District s funds, including its proprietary and fiduciary funds. Separate statements for each fund category governmental, proprietary and fiduciary are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as non major funds. Governmental funds are used to account for activities that are governmental in nature. Governmental activities are typically tax supported and include education of pupils, operation of food service and child development programs, construction and maintenance of school facilities, and repayment of long term debt. Proprietary funds are used to account for activities that are more business like than government like in nature. Business type activities include those for which a fee is charged to external users or to other organizational units of the District, normally on a full cost recovery basis. Proprietary funds are generally intended to be selfsupporting. Fiduciary funds are used to account for assets held by the District in a trustee or agency capacity for others that cannot be used to support the Districtʹs own programs. 24

108 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. Basis of Presentation (continued) Major Governmental Funds General Fund: The General Fund is the main operating fund of the District. It is used to account for all activities except those that are required to be accounted for in another fund. In keeping with the minimum number of funds principle, all of the Districtʹs activities are reported in the General Fund unless there is a compelling reason to account for an activity in another fund. A District may have only one General Fund. Building Fund: This fund exists primarily to account separately for proceeds from the sale of bonds (Education Code Section 15146) and may not be used for any purposes other than those for which the bonds were issued. Other authorized revenues to the Building Fund are proceeds from the sale or lease with option to purchase of real property (Education Code Section 17462) and revenue from rentals and leases of real property specifically authorized for deposit into the fund by the governing board (Education Code Section 41003). Bond Interest and Redemption Fund: This fund is used for the repayment of bonds issued for the District (Education Code Sections ). The board of supervisors of the county issues the bonds. The proceeds from the sale of the bonds are deposited in the county treasury to the Building Fund of the District. Any premiums or accrued interest received from the sale of the bonds must be deposited in the Bond Interest and Redemption Fund of the District. The county auditor maintains control over the Districtʹs Bond Interest and Redemption Fund. The principal and interest on the bonds must be paid by the county treasurer from taxes levied by the county auditor controller. Non Major Governmental Funds Special Revenue Funds: Special revenue funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditures for specified purposes other than debt service or capital projects. The District maintains the following special revenue funds: Adult Education Fund: This fund is used to account separately for federal, state, and local revenues for adult education programs. Money in this fund shall be expended for adult education purposes only. Moneys received for programs other than adult education shall not be expended for adult education (Education Code Sections 52616[b] and [a]). Child Development Fund: This fund is used to account separately for federal, state, and local revenues to operate child development programs. All moneys received by the District for, or from the operation of, child development services covered under the Child Care and Development Services Act (Education Code Section 8200 et seq.) shall be deposited into this fund. The moneys may be used only for expenditures for the operation of child development programs. The costs incurred in the maintenance and operation of child development services shall be paid from this fund, with accounting to reflect specific funding sources (Education Code Section 8328). 25

109 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. Basis of Presentation (continued) Special Revenue Funds (continued) Cafeteria Special Revenue Fund: This fund is used to account separately for federal, state, and local resources to operate the food service program (Education Code Sections ). The Cafeteria Special Revenue Fund shall be used only for those expenditures authorized by the governing board as necessary for the operation of the Districtʹs food service program (Education Code Sections and 38100). Deferred Maintenance Fund: This fund is used to account separately for state apportionments and the Districtʹs contributions for deferred maintenance purposes (Education Code Sections ). In addition, whenever the state funds provided pursuant to Education Code Sections and (apportionments from the State Allocation Board) are insufficient to fully match the local funds deposited in this fund, the governing board of a school district may transfer the excess local funds deposited in this fund to any other expenditure classifications in other funds of the District (Education Code Sections and 17583). Capital Project Funds: Capital project funds are established to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary funds and trust funds). Capital Facilities Fund: This fund is used primarily to account separately for moneys received from fees levied on developers or other agencies as a condition of approving a development (Education Code Sections ). The authority for these levies may be county/city ordinances (Government Code Sections ) or private agreements between the District and the developer. Interest earned in the Capital Facilities Fund is restricted to that fund (Government Code Section 66006). Special Reserve Fund for Capital Outlay Projects: This fund exists primarily to provide for the accumulation of General Fund moneys for capital outlay purposes (Education Code Section 42840). Proprietary Funds Internal Service Funds: Internal service funds are created principally to render services to other organizational units of the District on a cost reimbursement basis. These funds are designed to be self supporting with the intent of full recovery of costs, including some measure of the cost of capital assets, through user fees and charges. Self Insurance Fund: Self insurance funds are used to separate moneys received for self insurance activities from other operating funds of the District. Separate funds may be established for each type of self insurance activity, such as workersʹ compensation, health and welfare, and deductible property loss (Education Code Section 17566). 26

110 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. Basis of Presentation (continued) Fiduciary Funds Trust and Agency Funds: Trust and agency funds are used to account for assets held in a trustee or agent capacity for others that cannot be used to support the Districtʹs own programs. The key distinction between trust and agency funds is that trust funds are subject to a trust agreement that affects the degree of management involvement and the length of time that the resources are held. Warrant/Pass Through Fund: The Warrant/Pass Through Fund is an agency fund that exists primarily to account separately for amounts collected from employees for federal taxes, state taxes, transfers to credit unions, and other contributions. It is also used to account for those receipts for transfer to agencies which the LEA is acting simply as a cash conduit. Student Body Fund: The Student Body Fund is an agency fund and, therefore, consists only of accounts such as cash and balancing liability accounts, such as due to student groups. The student body itself maintains its own general fund, which accounts for the transactions of that entity in raising and expending money to promote the general welfare, morale, and educational experiences of the student body (Education Code Sections ). D. Basis of Accounting Measurement Focus Government Wide, Proprietary, and Fiduciary Financial Statements The government wide, proprietary, and fiduciary fund financial statements are reported using the economic resources measurement focus. The government wide, proprietary, and fiduciary fund financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Net Position equals assets and deferred outflows of resources minus liabilities and deferred inflows of resources. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. The net position should be reported as restricted when constraints placed on its use are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. The net position restricted for other activities results from special revenue funds and the restrictions on their use. Proprietary funds distinguish operating revenues and expenses from non operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the internal service fund are charges to other funds for self insurance costs. Operating expenses for internal service funds include the costs of insurance premiums and claims related to self insurance. 27

111 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) D. Basis of Accounting Measurement Focus (continued) Governmental Funds Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Governmental funds use the modified accrual basis of accounting. Revenues Exchange and Non Exchange Transactions Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded under the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. Generally, available means collectible within the current period or within 60 days after year end. However, to achieve comparability of reporting among California school districts and so as not to distort normal revenue patterns, with specific respect to reimbursements grants and corrections to State aid apportionments, the California Department of Education has defined available for school districts as collectible within one year. Non exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, grants, and entitlements. Under the accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from the grants and entitlements is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are to be used or the fiscal year when use is first permitted; matching requirements, in which the District must provide local resources to be used for a specific purpose; and expenditure requirements, in which the resources are provided to the District on a reimbursement basis. Under the modified accrual basis, revenue from non exchange transactions must also be available before it can be recognized. Unearned Revenue Unearned revenue arises when potential revenue does not meet both the ʺmeasurableʺ and ʺavailableʺ criteria for recognition in the current period or when resources are received by the District prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for unearned revenue is removed from the balance sheet and revenue is recognized. Certain grants received that have not met eligibility requirements are recorded as unearned revenue. On the governmental fund financial statements, receivables that will not be collected within the available period are also recorded as unearned revenue. 28

112 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) D. Basis of Accounting Measurement Focus (continued) Expenses/Expenditures On the accrual basis of accounting, expenses are recognized at the time a liability is incurred. On the modified accrual basis of accounting, expenditures are generally recognized in the accounting period in which the related fund liability is incurred, as under the accrual basis of accounting. However, under the modified accrual basis of accounting, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Allocations of cost, such as depreciation and amortization, are not recognized in the governmental funds. When both restricted and unrestricted resources are available for use, it is the District s policy to use restricted resources first, then unrestricted resources as they are needed. E. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, Fund Balance and Net Position Cash and Cash Equivalents The District s cash and cash equivalents consist of cash on hand, demand deposits and short term investments with original maturities of three months or less from the date of acquisition. Cash held in the county treasury is recorded at cost, which approximates fair value. Investments Investments with original maturities greater than one year are stated at fair value. Fair value is estimated based on quoted market prices at year end. All investments not required to be reported at fair value are stated at cost or amortized cost. Fair values of investments in county and State investment pools are determined by the program sponsor. Inventories Inventories are valued at average cost. The costs of governmental fund type inventories are recorded as expenditures when consumed rather than when purchased. Capital Assets The accounting and reporting treatment applied to the capital assets associated with a fund is determined by its measurement focus. Capital assets are reported in the governmental activities column of the governmentwide statement of net position, but are not reported in the fund financial statements. Capital assets are capitalized at cost (or estimated historical cost) and updated for additions and retirements during the year. Donated fixed assets are recorded at their fair market values as of the date received. The District maintains a capitalization threshold of $5,000. The District does not own any infrastructure as defined in GASB Statement No. 34. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset s life are not capitalized. All reported capital assets, except for land and construction in progress, are depreciated. Improvements are depreciated over the remaining useful lives of the related capital assets. 29

113 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) E. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, Fund Balance and Net Position (continued) Capital Assets, continued Depreciation is computed using the straight line method over the following estimated useful lives: Asset Class Buildings and Improvements Furniture and Equipment Vehicles Estimated Useful Life years 5 15 years 8 years Interfund Balances On fund financial statements, receivables and payables resulting from short term interfund loans are classified as ʺDue from other funds/due to other funds. These amounts are eliminated in the governmental activities columns of the statement of net position. Compensated Absences Accumulated unpaid employee vacation benefits are accrued as a liability as the benefits are earned. The entire compensated absence liability is reported on the government wide financial statements. For governmental funds, the current portion of unpaid compensated absences is recognized upon the occurrence of relevant events such as employee resignations and retirements that occur prior to year end that have not yet been paid with expendable available financial resource. These amounts are recorded in the fund from which the employees who have accumulated leave are paid. Accumulated sick leave benefits are not recognized as liabilities of the District. The Districtʹs policy is to record sick leave as an operating expense in the period taken because such benefits do not vest, nor is payment probable; however, unused sick leave is added to the creditable service period for calculation of retirement benefits when the employee retires. Accrued Liabilities and Long Term Obligations All payables, accrued liabilities, and long term obligations are reported in the government wide and proprietary fund financial statements. In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources are reported as obligations of the funds. Premiums and Discounts In the government wide and proprietary fund financial statements, long term obligations are reported as liabilities in the applicable governmental activities or proprietary fund statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight line method. 30

114 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) E. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, Fund Balance and Net Position (continued) Deferred Outflows/Deferred Inflows of Resources In addition to assets, the District will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period and so will not be recognized as an outflow of resources (expense/expenditure) until then. In addition to liabilities, the District will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period and so will not be recognized as an inflow of resources (revenue) until that time. Fund Balance Fund balance is divided into five classifications based primarily on the extent to which the District is bound to observe constraints imposed upon the use of the resources in the governmental funds. The classifications are as follows: Nonspendable The nonspendable fund balance classification reflects amounts that are not in spendable form. Examples include inventory, prepaid items, the long term portion of loans receivable, and nonfinancial assets held for resale. This classification also reflects amounts that are in spendable form but that are legally or contractually required to remain intact, such as the principal of a permanent endowment. Restricted The restricted fund balance classification reflects amounts subject to externally imposed and legally enforceable constraints. Such constraints may be imposed by creditors, grantors, contributors, or laws or regulations of other governments, or may be imposed by law through constitutional provisions or enabling legislation. Committed The committed fund balance classification reflects amounts subject to internal constraints selfimposed by formal action of the Governing Board. The constraints giving rise to committed fund balance must be imposed no later than the end of the reporting period. The actual amounts may be determined subsequent to that date but prior to the issuance of the financial statements. In contrast to restricted fund balance, committed fund balance may be redirected by the government to other purposes as long as the original constraints are removed or modified in the same manner in which they were imposed, that is, by the same formal action of the Governing Board. 31

115 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) E. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, Fund Balance and Net Position (continued) Assigned The assigned fund balance classification reflects amounts that the government intends to be used for specific purposes. Assignments may be established either by the Governing Board or by a designee of the governing body, and are subject to neither the restricted nor committed levels of constraint. In contrast to the constraints giving rise to committed fund balance, constraints giving rise to assigned fund balance are not required to be imposed, modified, or removed by formal action of the Governing Board. The action does not require the same level of formality and may be delegated to another body or official. Additionally, the assignment need not be made before the end of the reporting period, but rather may be made any time prior to the issuance of the financial statements. Unassigned In the General Fund only, the unassigned fund balance classification reflects the residual balance that has not been assigned to other funds and that is not restricted, committed, or assigned to specific purposes. However, deficits in any fund, including the General Fund that cannot be eliminated by reducing or eliminating amounts assigned to other purposes are reported as negative unassigned fund balance. The District applies restricted resources first when expenditures are incurred for purposes for which either restricted or unrestricted (committed, assigned and unassigned) amounts are available. Similarly, within unrestricted fund balance, committed amounts are reduced first followed by assigned, and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used. F. Interfund Activity Exchange transactions between funds are reported as revenues in the seller funds and as expenditures/expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in governmental funds and after non operating revenues/expenses in proprietary funds. Repayments from funds responsible for particular expenditures/expenses to the funds that initially paid for them are not presented in the financial statements. Interfund transfers are eliminated in the governmental activities columns of the statement of activities. G. Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 32

116 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) H. Budgetary Data The budgetary process is prescribed by provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an operating budget no later than July 1 of each year. The District governing board satisfied these requirements. The adopted budget is subject to amendment throughout the year to give consideration to unanticipated revenue and expenditures primarily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriations by major object account. The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all budget amendments have been accounted for. For purposes of the budget, on behalf payments have not been included as revenue and expenditures as required under generally accepted accounting principles. I. Property Tax Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are payable in two installments on November 1 and February 1 and become delinquent on December 10 and April 10, respectively. Unsecured property taxes are payable in one installment on or before August 31. The County Auditor Controller bills and collects the taxes on behalf of the District. Local property tax revenues are recorded when received. J. New Accounting Pronouncements GASB Statement No. 61 In November 2010, GASB issued Statement No. 61, The Financial Reporting Entity: Omnibus an amendment of GASB Statement No.14 and No. 34. The objective of this Statement is to improve financial reporting for a governmental financial reporting entity and modifies certain requirements for inclusion of component units in the financial reporting entity. The Statement is effective for periods beginning after June 15, The District has implemented GASB Statement No. 61 for the year ended June 30, GASB Statement No. 65 In March 2012, GASB issued Statement No. 65, Items Previously Reported as Assets and Liabilities. This Statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. The Statement is effective for periods beginning after December 15, The District has implemented GASB Statement No. 65 for the year ended June 30,

117 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) J. New Accounting Pronouncements (continued) GASB Statement No. 68 In June 2012, GASB issued Statement No. 68, Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for pensions with regard to providing decision useful information, supporting assessments of accountability and interperiod equity, and creating additional transparency. The Statement is effective for periods beginning after June 15, The District has not yet determined the impact on the financial statements. GASB Statement No. 71 In November 2013, GASB issued Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date an amendment of GASB Statement No. 68. This standard seeks to clarify certain implementation issues related to amounts that are deferred and amortized at the time GASB 68 is first adopted. It applies to situations in which the measurement date of an actuarial valuation differs from the governmentʹs fiscal year. The Statement is effective for periods beginning after June 15, The District has not yet determined the impact on the financial statements 34

118 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 2 CASH AND INVESTMENTS A. Summary of Cash and Investments Total Governmental Internal Service Governmental Fiduciary Funds Funds Activities Funds Cash in county $ 159,531,571 $ 3,286,146 $ 162,817,717 $ Cash on hand and in banks 1,544,527 1,544, ,621 Cash in revolving fund 20,000 20,000 Total $ 161,096,098 $ 3,286,146 $ 164,382,244 $ 344,621 B. Policies and Practices The District is authorized under California Government Code to make direct investments in local agency bonds, notes, or warrants within the state; U.S. Treasury instruments; registered state warrants or treasury notes; securities of the U.S. Government, or its agencies; bankers acceptances; commercial paper; certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companies, certificates of participation, obligations with first priority security; collateralized mortgage obligations; and the County Investment Pool. Investment in County Treasury The District maintains substantially all of its cash in the County Treasury in accordance with Education Code Section The Los Angeles County Treasurer s pooled investments are managed by the County Treasurer who reports on a monthly basis to the board of supervisors. In addition, the function of the County Treasury Oversight Committee is to review and monitor the County s investment policy. The committee membership includes the Treasurer and Tax Collector, the Auditor Controller, Chief Administrative Officer, Superintendent of Schools Representative, and a public member. The fair value of the Districtʹs investment in the pool is based upon the Districtʹs pro rata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis. 35

119 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 2 CASH AND INVESTMENTS (continued) C. General Authorizations Except for investments by trustees of debt proceeds, the authority to invest District funds deposited with the county treasury is delegated to the County Treasurer and Tax Collector. Additional information about the investment policy of the County Treasurer and Tax Collector may be obtained from its website. The table below identifies the investment types permitted by California Government Code. Authorized Investment Type Maximum Remaining Maturity Maximum Percentage of Portfolio Maximum Investment in One Issuer Local Agency Bonds, Notes, Warrants 5 years None None Registered State Bonds, Notes, Warrants 5 years None None U. S. Treasury Obligations 5 years None None U. S. Agency Securities 5 years None None Banker s Acceptance 180 days 40% 30% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days 20% of base None Medium Term Corporate Notes 5 years 30% None Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 10% Mortgage Pass Through Securities 5 years 20% None County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAIF) N/A None None Joint Powers Authority Pools N/A None None D. Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The District manages its exposure to interest rate risk by investing in the County Treasury. The District maintains a pooled investment with the County Treasury with a fair value of approximately $162,817,717 and an amortized book value of $162,103,380. The average weighted maturity for this pool is 741 days. 36

120 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 2 CASH AND INVESTMENTS (continued) E. Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The investments in the County Treasury are not required to be rated. As of June 30, 2014, the pooled investments in the County Treasury were not rated. F. Custodial Credit Risk Deposits This is the risk that in the event of a bank failure, the Districtʹs deposits may not be returned to it. The District does not have a policy for custodial credit risk for deposits. However, the California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law. The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited by the public agencies. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105 percent of the secured deposits. As of June 30, 2014, the Districtʹs bank balance was not exposed to custodial credit risk. NOTE 3 ACCOUNTS RECEIVABLE Accounts receivable at June 30, 2014 consisted of the following: General Fund Building Fund Non Major Governmental Funds Internal Service Funds Total Governmental Activities Federal Government Categorical aid $ 2,713,959 $ $ 267,745 $ $ 2,981,704 State Government Apportionment 2,732,654 2,732,654 Categorical aid 1,984, ,271 2,100,282 Lottery 505, ,920 Local Government Other local sources 2,217, , ,749 6,263 3,115,662 Total $ 10,153,884 $ 284,310 $ 991,765 $ 6,263 $ 11,436,222 37

121 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 4 CAPITAL ASSETS Capital asset activity for the year ended June 30, 2014 was as follows: Balance Balance July 1, 2013 Additions Deletions June 30, 2014 Governmental Activities Capital assets not being depreciated Land $ 10,128,802 $ $ $ 10,128,802 Construction in progress 153,790,180 48,211,219 20,957, ,044,206 Total Capital Assets not Being Depreciated 163,918,982 48,211,219 20,957, ,173,008 Capital assets being depreciated Land improvements 14,590,080 2,222,263 16,812,343 Buildings & improvements 201,349,541 8,894, ,244,214 Furniture & equipment 12,683,990 7,423,265 20,107,255 Total Capital Assets Being Depreciated 228,623,611 18,540, ,163,812 Less Accumulated Depreciation Land improvements 10,944, ,994 11,342,461 Buildings & improvements 72,500,239 4,849,366 77,349,605 Furniture & equipment 10,657,819 1,132,963 11,790,782 Total Accumulated Depreciation 94,102,525 6,380, ,482,848 Governmental Activities Capital Assets, net $ 298,440,068 $ 60,371,097 $ 20,957,193 $ 337,853,972 Total depreciation expense of $6,380,323 is allocated by function as follows: Instruction $ 3,279,437 Instruction related services Instructional supervision and administration 177,229 Instructional library, media, and technology 38,339 School site administration 317,269 Pupil services Home to school transportation 58,425 Food services 112,654 All other pupil services 279,488 General administration Centralized data processing 22,387 All other general administration 214,824 Plant services 1,815,941 Ancillary services 25,319 Community services 39,011 Total $ 6,380,323 38

122 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 5 INTERFUND TRANSACTIONS Operating Transfers Interfund transfers for the year ended June 30, 2014 consisted of $307,452 transferred from the General Fund to the Child Development Fund to cover deficit spending. NOTE 6 ACCRUED LIABILITIES Accrued liabilities at June 30, 2014 consisted of the following: General Fund Building Fund Non Major Governmental Funds District Wide Total Governmental Activities Total Fiduciary Payroll $ 12,026,942 $ 41,652 $ 613,305 $ $ 12,681,899 $ Construction 6,029, ,600 6,898,618 Vendors payable 2,343, ,424 2,447,558 53,501 Unmatured interest 2,236,390 2,236,390 Apportionment overpayment 7,042,374 7,042,374 State sales and use tax 5, ,735 Total $ 21,418,119 $ 6,070,670 $ 1,587,395 $ 2,236,390 $ 31,312,574 $ 53,501 NOTE 7 UNEARNED REVENUE Unearned revenue at June 30, 2014, consisted of the following: General Fund Non Major Governmental Funds Total Governmental Activities Federal sources $ 96,052 $ $ 96,052 Local sources 847, , ,653 Total $ 943,928 $ 124,777 $ 1,068,705 39

123 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 8 LONG TERM DEBT A schedule of changes in long term debt for the year ended June 30, 2014 consisted of the following: Balance Balance Balance Due July 1, 2013 Additions Deductions June 30, 2014 In One Year Governmental Activities General obligation bonds $ 325,249,149 $ 2,842,609 $ 12,710,000 $ 315,381,758 $ 10,244,593 Unamortized premium 12,800, ,849 12,207, ,849 Deferred amount on refunding (7,309,944) (7,309,944) Total general obligation bonds 330,739,522 2,842,609 5,992, ,589,226 10,837,442 Certificates of participation 17,133, ,601 1,090,000 16,473,255 Unamortized premium 474,684 45, ,476 Total certificates of participation 17,608, ,601 1,135,208 16,902,731 Capital leases 117,155 24,353 92,802 24,590 Compensated absences 887,502 29, ,886 Net OPEB obligation 7,193,811 2,616,392 1,023,562 8,786,641 Total $ 356,546,328 $ 5,917,986 $ 8,176,028 $ 354,288,286 $ 10,862,032 A. Bonded Debt Bonds Bonds Issue Maturity Interest Original Outstanding Outstanding Series Date Date Rate Issue July 1, 2013 Additions Deductions June 30, Refunding Bonds 6/18/1998 8/1/ % 5.25% $ 68,145,000 $ 26,655,000 $ $ 4,105,000 $ 22,550,000 Election 1998, Series /26/1999 8/1/ % 5.38% 38,000,034 43,758,822 2,253,241 3,230,000 42,782, Refunding Bonds 2/23/2006 8/1/ % 4.15% 3,285,000 2,915, ,000 2,730,000 Election 2006, Series A 10/2/2007 8/1/ % 5.50% 60,000,000 3,325, ,000 2,890,000 Election 2006, Series B 7/23/2009 8/1/ % 5.00% 11,875,000 7,710, ,000 7,065,000 Election 2006, Series B 1 7/23/2009 8/1/ % 7.56% 48,125,000 48,125,000 48,125,000 Election 2006, Series C 7/14/2010 7/1/ % 5.00% 10,690,000 10,030, ,000 9,675,000 Election 2006, Series C 1 7/14/2010 7/1/ % 6.63% 54,310,000 54,310,000 54,310, Refunding Bonds 1/8/2013 8/1/ % 5.00% 45,425,000 45,425, ,000 45,215,000 Election 2006, Series D 3/19/2013 7/1/ % 5.00% 82,995,327 82,995, ,368 3,545,000 80,039,695 $ 325,249,149 $ 2,842,609 $ 12,710,000 $ 315,381,758 Series 1998 Refunding Bonds On June 18, 1998, the District issued $68,145,000 of General Obligation Refunding Bonds Series 1998, with interest rates ranging from 3.75% to 5.25%. The bonds were issued to refund and defease all of the 1991A Bonds and 1993 Bonds maturing after August 1, The original issuance consisted entirely of current interest serial bonds. Interest on the bonds is payable semi annually each February 1 and August 1, commencing February 1, 1999, principal on the bonds is payable annually each August 1, commencing August 1, 1999 through the final maturity date of August 1, The principal balance outstanding on Santa Monica Malibu Unified School DistrictJune 30, 2014 amounted to $22,550,

124 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 8 LONG TERM DEBT (continued) A. Bonded Debt (continued) Election 1998 In an election held November 3, 1998, the voters authorized the District to issue and sale $42,000,000 of principal amount of general obligation bonds. These bonds were issued for the purpose of financing the rehabilitation, construction, and renovation of school facilities to improve learning conditions, removing asbestos, making earthquake safety improvements and providing handicapped access, as well as paying the costs of issuance incurred in connection with the issuance of the bonds. There is one issuance outstanding under this election: Series 1999, which was issued on May 26, 1999 for $38,000,034 with interest rates ranging from 3.20% to 4.50%. The original issuance consisted of $15,825,000 in current interest serial bonds and $22,175,034 in capital appreciation serial bonds. Interest on the current interest bonds accrues from its dated date and is payable semi annually each February 1 and August 1, commencing February 1, 2000, principal on the bonds is payable annually each August 1, commencing August 1, 2000 through the final maturity date of August 1, The capital appreciation bonds accrue interest from its dated date, compounded semi annually on February 1 and August 1 of each year, principal on the bonds is payable annually each August 1, commencing August 1, 2012 through the final maturity date of August 1, The principal balance outstanding on June 30, 2014 amounted to $42,782, General Obligation Refunding Bonds On February 23, 2006, the District issued $3,285,000 of 2006 General Obligation Refunding Bonds, with interest rates ranging from 3.50% to 4.00%. The bonds were issued to refund all or a portion of the District s outstanding General Obligation Bonds, Election of 1998, Series 2001 and pay costs of issuance of the bonds. The original issuance consisted of $605,000 in current interest serial bonds and $2,680,000 in current interest term bonds. Interest on the bonds is payable semi annually each February 1 and August 1, commencing August 1, 2006, principal on the bonds is payable annually each August 1, commencing August 1, 2006 through the final maturity date of August 1, The principal balance outstanding on June 30, 2014 amounted to $2,730,000. Election 2006 In an election held November 7, 2006, the voters authorized the District to issue and sale $268,000,000 of principal amount of general obligation bonds. These bonds were issued for the purpose of financing the construction, renovation, modernization, and equipping of school facilities and to pay costs of issuance associated with the bonds. There were six issuances under this election: Series A, which was issued on October 2, 2007 for $60,000,000 with interest rates ranging from 4.00% to 5.00%. The original issuance consisted of $45,835,000 in current interest serial bonds and $14,165,000 in current interest term bonds. Interest on the bonds is payable semi annually each February 1 and August 1, commencing February 1, 2008, principal on the bonds is payable annually each August 1, commencing August 1, 2008 through the final maturity date of August 1, The principal balance outstanding on June 30, 2014 amounted to $2,890,

125 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 8 LONG TERM DEBT (continued) A. Bonded Debt (continued) Election 2006, continued Series B, which was issued on July 23, 2009 for $11,875,000 with interest rates ranging from 1.50% to 5.00%. The original issuance consisted entirely of current interest serial bonds. Interest on the bonds is payable semiannually each February 1 and August 1, commencing February 1, 2010, principal on the bonds is payable annually each August 1, commencing August 1, 2010 through the final maturity date of August 1, The principal balance outstanding on June 30, 2014 amounted to $7,065,000. Series B 1 (Build America Bonds Direct Payment to District Federally Taxable), which was issued on July 23, 2009 for $48,125,000 with interest rates ranging from 5.645% to 7.556%. The bonds are designated Build America Bonds for purposes of the American Recovery and Reinvestment Act of Pursuant to the Recovery Act, the District expects to receive a cash subsidy payment from the United States Treasury equal to 35% of the interest payable on the bonds on or about each interest payment date. The original issuance consisted of $6,140,000 in current interest serial bonds and $41,985,000 in current interest term bonds. Interest on the bonds is payable semi annually each February 1 and August 1, commencing February 1, 2010, principal on the bonds is payable annually each August 1, commencing August 1, 2020 through the final maturity date of August 1, As of June 30, 2014, the full principal balance of $48,125,000 remained outstanding. Series C, which was issued on July 14, 2010 for $10,690,000 with interest rates ranging from 3.00% to 5.00%. The original issuance consisted entirely of current interest serial bonds. Interest on the bonds is payable semiannually each January 1 and July 1, commencing January 1, 2011, principal on the bonds is payable annually each July 1, commencing July 1, 2011 through the final maturity date of July 1, The principal balance outstanding on June 30, 2014 amounted to $9,675,000. Series C 1 (Build America Bonds Direct Payment to District Federally Taxable), which was issued on July 14, 2010 for $54,310,000 with interest rates ranging from 5.796% to 6.634%. The bonds are designated Build America Bonds for purposes of the American Recovery and Reinvestment Act of Pursuant to the Recovery Act, the District expects to receive a cash subsidy payment from the United States Treasury equal to 35% of the interest payable on the bonds on or about each interest payment date. The original issuance consisted entirely of current interest term bonds. Interest on the bonds is payable semi annually each January 1 and July 1, commencing January 1, 2011, principal on the bonds is payable annually each July 1, commencing July 1, 2025 through the final maturity date of July 1, As of June 30, 2014, the full principal balance of $54,310,000 remained outstanding. Series D, which was issued on March 19, 2013 for $82,995,327 with interest rates ranging from 0.17% to 5.00%. The original issuance consisted of $42,780,000 in current interest serial bonds, $24,200,000 in current interest term bonds and $16,015,327 in capital appreciation serial bonds. Interest on the current interest bonds is payable semi annually each January 1 and July 1, commencing July 1, 2013, principal on the bonds is payable annually each July 1, commencing July 1, 2013 through the final maturity date of July 1, The principal balance outstanding on June 30, 2014 amounted to $80,039,

126 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 8 LONG TERM DEBT (continued) A. Bonded Debt (continued) 2013 General Obligation Refunding Bonds On January 8, 2013, the District issued $45,425,000 of 2013 General Obligation Refunding Bonds, with interest rates ranging from 2.00% to 5.00%. The bonds were issued to refund all or a portion of the District s outstanding General Obligation Bonds, Election of 2006, Series A and pay costs of issuance of the bonds. The original issuance consisted entirely of current interest serial bonds. Interest on the bonds is payable semiannually each February 1 and August 1, commencing August 1, 2013, principal on the bonds is payable annually each August 1, commencing August 1, 2013 through the final maturity date of August 1, The principal balance outstanding on June 30, 2014 amounted to $45,215,000. The net proceeds of $49,131,456 (after issuance costs of $526,513 and premium of $4,232,970) were used to refund a portion of the District s Election 2006, Series A general obligation bonds and to pay certain costs of issuance associated with the Refunding Bonds. The net proceeds were used to purchase U.S. government securities. Those securities were deposited into an irrevocable trust with an escrow agent to provide future debt service payments on the refunded bonds. As a result, the refunded bonds are considered to be defeased, and the related liability for the bonds has been removed from the District s liabilities. This advanced refunding was undertaken to reduce total debt service payments and results in an economic gain Amounts paid to the refunded bond escrow agent in excess of the outstanding debt at the time of payment are recorded as deferred outflows of resources on the statement of net position and are amortized to interest expense over the life of the liability. See Note 14 on deferred outflows of resources. B. Debt Service Requirements to Maturity Bonds The bonds mature through 2038 as follows: Year Ended June 30, Principal Interest Total 2015 $ 10,244,593 $ 14,541,734 $ 24,786, ,331,050 14,294,652 23,625, ,127,107 14,048,503 23,175, ,465,096 14,286,062 23,751, ,321,117 14,031,230 24,352, ,039,497 71,876, ,915, ,415,000 32,821,335 88,236, ,243,373 23,691, ,934, ,881,954 27,108,724 89,990,678 Accretion 24,312,971 (24,312,971) Total $ 315,381,758 $ 202,386,826 $ 517,768,584 43

127 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 8 LONG TERM DEBT (continued) C. Certificates of Participation (COPs) Certificates Certificates Issue Maturity Interest Original Outstanding Outstanding Series Date Date Rate Issue July 1, 2013 Additions Deductions June 30, Series C 11/15/2001 5/1/ % 5.40% $ 15,206,501 $ 8,118,654 $ 429,601 $ $ 8,548, Series A 12/1/2010 5/1/ % 3.04% 3,215,000 1,000,000 1,000, Series B 12/1/2010 2/1/ % 5.00% 8,015,000 8,015,000 90,000 7,925,000 $ 17,133,654 $ 429,601 $ 1,090,000 $ 16,473, Series C On November 15, 2001, the District and the Los Angeles County Schools Regionalized Business Services Corporation entered a sublease in which the Corporation leased to the District certain real property and building and improvements situated thereon. The 2001 Series C Certificates of Participation were executed and delivered to finance payments relating to acquisition of certain interests in real property, fund a reserve fund and pay costs of execution and delivery of the certificates. Series C Certificates consisted of $10,740,000 of current interest serial certificates and $4,466,501 of capital appreciation serial certificates for a total issuance of $15,206,501. The certificates have interest rates ranging from 3.50% to 5.40%. Interest on the current interest certificates is payable semi annually each May 1 and November 1, commencing May 1, 2002, principal on the certificates is payable annually each May 1, commencing May 1, 2002 through the final maturity date of May 1, Interest on the capital appreciation certificates accretes from the dated date, compounded semi annually on each May 1 and November 1, commencing May 1, 2002, principal and interest payments are payable semi annually each May 1 and November 1, commencing November 1, 2018 through the final maturity date of May 1, A portion of the outstanding certificates were refunded with proceeds from the 2010 Refunding Certificates. The outstanding principal balance at June 30, 2014 amounted to $8,548, Refunding, Series A (Federally Taxable) On December 1, 2010, the District and the California School Boards Association Finance Corporation entered a sublease in which the Corporation leased to the District certain real property and building and improvements situated thereon. The 2010 Refunding Certificates of Participation, Series A were executed and delivered to refund a portion of the District s outstanding Certificates of Participation, 2001 Series B (Federally Taxable) and pay the costs related to the execution and delivery of the Certificates. Series A Certificates consisted of $3,215,000 in current interest serial certificates. The certificates have interest rates ranging from 1.093% to 3.042%. Interest on the certificates is payable semi annually each May 1 and November 1, commencing May 1, 2011, principal on the certificates is payable annually each May 1, commencing May 1, 2011 through the final maturity date of May 1, As of June 30, 2014, there was no outstanding principle balance. 44

128 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 8 LONG TERM DEBT (continued) C. Certificates of Participation (COPs) (continued) 2010 Refunding, Series B (Tax Exempt) On December 1, 2010, the District and the California School Boards Association Finance Corporation entered a sublease in which the Corporation leased to the District certain real property and building and improvements situated thereon. The 2010 Refunding Certificates of Participation, Series B were executed and delivered to refund a portion of the District s outstanding Certificates of Participation, 2001 Series C, finance the construction, renovation, and modernization of school sites and facilities, and pay the costs related to the execution and delivery of the Certificates. Series B Certificates consisted of $8,015,000 in current interest serial certificates. The certificates have interest rates ranging from 2.00% to 5.00%. Interest on the certificates is payable semi annually each May 1 and November 1, commencing May 1, 2011, principal on the certificates is payable annually each May 1, commencing May 1, 2014 through the final maturity date of May 1, The principal balance outstanding at June 30, 2014 amounted to $7,925,000. D. Debt Service Requirements to Maturity COPs The certificates mature through 2025 as follows: Year Ended June 30, Principal Interest Total 2015 $ 1,120,000 $ 341,881 $ 1,461, ,570, ,081 1,867, ,635, ,281 1,869, ,695, ,881 1,863, , ,948 1,869, ,883,350 6,236,906 11,120, ,969 1,376,031 1,945,000 Accretion 4,081,753 (4,081,753) Total $ 16,473,255 $ 5,523,256 $ 21,996,511 E. Compensated Absences Total unpaid employee compensated absences as of June 30, 2014 amounted to $916,886. This amount is included as part of long term liabilities in the government wide financial statements. F. Other Postemployment Benefits (OPEB) The District follows GASB Statement No, 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. The ending OPEB balance at June 30, 2014 was $8,786,641. See Note 10 for additional information regarding the net OPEB Obligation and the postemployment benefit plan 45

129 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 9 FUND BALANCES Fund balances were composed of the following elements at June 30, 2014: Bond Interest & Non Major Total Redemption Governmental Governmental General Fund Building Fund Fund Funds Funds Non spendable Revolving cash $ 20,000 $ $ $ $ 20,000 Stores inventory 14,570 19,109 33,679 Prepaid expenditures 72,311 72,311 Total non spendable 106,881 19, ,990 Restricted Educational programs 5,502,053 5,502,053 Capital projects 65,647,802 17,782,456 83,430,258 Debt service 33,773,115 33,773,115 All others 66,857 66,857 Total restricted 5,502,053 65,647,802 33,773,115 17,849, ,772,283 Committed Other commitments 438, ,725 Total committed 438, ,725 Assigned Encumber/Carryovers 500, , Positions Added 400, , General Fund Transfers 200, , Deficit Spending 5,082,613 5,082,613 Other Assignment 6,281 6,281 Total assigned 6,182,613 6,281 6,188,894 Unassigned Reserve for economic uncertainties 3,702,586 3,702,586 Remaining unassigned 11,783,282 11,783,282 Total unassigned 15,485,868 15,485,868 Total $ 27,277,415 $ 65,647,802 $ 33,773,115 $ 18,313,428 $ 145,011,760 The District is committed to maintaining a prudent level of financial resources to protect against the need to reduce service levels because of temporary revenue shortfalls or unpredicted expenditures. The District s Minimum Fund Balance Policy requires a Reserve for Economic Uncertainties, consisting of unassigned amounts, equal to no less than three (3) percent of General Fund expenditures and other financing uses. 46

130 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 10 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) A. Plan Description and Contribution Information The District administers a single employer defined benefit other postemployment benefit (OPEB) plan that provides medical, dental, and vision insurance benefits to eligible retirees and their spouses. The District implemented Governmental Accounting Standards Board Statement #45, Accounting and Financial Reporting by Employers for Postemployment Benefit Plans Other Than Pension Plans, in The District provides postemployment health care benefits, in accordance with District employment contracts, to all employees who retire from the District on or after attaining age 55 (certificated)/ age 50 (classified) with at least 10 years of service. The District provides medical benefits at the same level they are receiving at the time of retirement for a period of up to 5 years or to age 65, whichever occurs first. In addition, all retirees over the age of 65 receive a lifetime monthly supplement of $115 per month. Membership of the plan consisted of the following: Retirees and beneficiaries receiving benefits 369 Active plan members 1,094 Total* 1,463 Number of participating employers 1 *As of July 1, 2013 actuarial study B. Funding Policy The contribution requirements of Plan members and the District are established and may be amended by the District and District s bargaining units. The required contribution is based on projected pay as you go financing requirements. For the fiscal year 2014, the District contributed $1,023,562 to the Plan, all of which was used for current premiums. As of June 30, 2014, the District has not established a plan or equivalent that contains an irrevocable transfer of assets dedicated to providing benefits to retirees in accordance with the terms of the plan and that are legally protected from creditors. C. Annual OPEB Cost and Net OPEB Obligation The District s annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (UAAL) (or funding excess) over a period not to exceed thirty years. 47

131 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 10 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (continued) C. Annual OPEB Cost and Net OPEB Obligation (continued) The following table shows the components of the District s annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the District s net OPEB obligation to the Plan: Annual required contribution $ 2,744,658 Interest on net OPEB obligation 287,753 Adjustment to annual required contribution (416,019) Annual OPEB cost (expense) 2,616,392 Contributions made (1,023,562) Increase (decrease) in net OPEB obligation 1,592,830 Net OPEB obligation, beginning of the year 7,193,811 Net OPEB obligation, end of the year $ 8,786,641 The annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation for the year ended June 30, 2014 and the preceding two years were as follows: Annual OPEB Percentage Net OPEB Year Ended June 30, Cost Contributed Obligation 2014 $ 2,616,392 39% $ 8,786, $ 2,469,937 43% $ 7,193, $ 2,259,052 43% $ 4,358,801 D. Funded Status and Funding Progress The funded status of the plan as of the most recent actuarial evaluation consists of the following: Actuarial Actuarial Actuarial Accrued Unfunded UAAL as a Valuation Valuation Liability AAL Covered Percentage of Date of Assets (AAL) (UAAL) Funded Ratio Payroll Covered Payroll July 1, 2013 $ $ 25,587,443 $ 25,587,443 0% $ 74,764,220 34% 48

132 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 10 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (continued) D. Funded Status and Funding Progress (continued) Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, investment returns, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. 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 of the calculations. A summary of the most recent actuarial study is as follows: Valuation Date July 1, 2013 Actuarial Cost Method Amortization Method Projected Unit Credit 30 year level dollar, open Remaining Amortization Period 29 Asset Valuation $ Actuarial Assumptions: Investment rate of return 4.0% Discount rate 4.0% Health care trend rate Medical 8.0% Dental 4.0% Inflation rate 4.0% 49

133 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 11 EMPLOYEE RETIREMENT SYSTEMS Qualified employees are covered under multiple employer retirement plans maintained by agencies of the State of California. Certificated employees are members of the California State Teachersʹ Retirement System (CalSTRS), and classified employees are members of the California Public Employeesʹ Retirement System (CalPERS). California State Teachers Retirement System (CalSTRS) Plan Description The District contributes to the California State Teachersʹ Retirement System (CalSTRS); a cost sharing multiple employer public employee retirement system defined benefit pension plan administered by CalSTRS. The plan provides retirement and disability benefits and survivor benefits to beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the State Teachersʹ Retirement Law. CalSTRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalSTRS annual financial report may be obtained from CalSTRS, 7919 Folsom Blvd., Sacramento, CA Funding Policy Active plan members are required to contribute 8.0% of their salary for fiscal year 2014 and the District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by CalSTRS Teachersʹ Retirement Board. The required employer contribution rate for fiscal year 2014 was 8.25% of annual payroll. The contribution requirements of the plan members are established by state statute. The District s contributions to CalSTRS for the last three fiscal years were as follows: Percent of Required Contribution Contribution $ 4,728, % $ 4,495, % $ 4,641, % On Behalf Payments The District was the recipient of on behalf payments made by the State of California to CalSTRS for K 12 education. These payments consist of state general fund contributions of approximately $2,928,112 to CalSTRS 5.204% of creditable compensation subject to CalSTRS). 50

134 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 11 EMPLOYEE RETIREMENT SYSTEMS (continued) California Public Employees Retirement System (CalPERS) Plan Description The District contributes to the School Employer Pool under the California Public Employeesʹ Retirement System (CalPERS); a cost sharing multiple employer public employee retirement system defined benefit pension plan administered by CalPERS. The plan provides retirement and disability benefits, annual cost of living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the Public Employeesʹ Retirement Laws. CalPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalPERS annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, CA Funding Policy Active plan members who entered into the plan prior to January 1, 2013 are required to contribute 7.0% of their salary. The California Public Employees Pension Reform Act (PEPRA) specifies that new members entering into the plan on or after January 1, 2013, shall pay the higher of fifty percent of normal costs or 6.0% of their salary. Additionally, for new members entering the plan on or after January 1, 2013, the employer is prohibited from paying any of the employee contribution to CalPERS unless the employer payment of the member s contribution is specified in an employment agreement or collective bargaining agreement that expires after January 1, The District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the CalPERS Board of Administration. The required employer contribution rate for fiscal year 2014 was % of annual payroll. The District s contributions to CalPERS for the last three fiscal years were as follows: : Percent of Required Contribution Contribution $ 2,781, % $ 2,691, % $ 2,530, % 51

135 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 12 COMMITMENTS AND CONTINGENCIES A. Grants The District received financial assistance from federal and state agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the General Fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material adverse effect on the overall financial position of the District at June 30, B. Litigation The District is involved in various litigation arising from the normal course of business. In the opinion of management and legal counsel, the disposition of all litigation pending is not expected to have a material adverse effect on the overall financial position of the District at June 30, C. Construction Commitments As of June 30, 2014, the District had commitments with respect to unfinished capital projects of $19,761,119. NOTE 13 PARTICIPATION IN JOINT POWERS AUTHORITIES The District is a member of three joint powers authorities (JPAs). The first is the Alliance of Schools for Cooperative Insurance Programs (ASCIP) to provide property and liability insurance coverage, the next is the Schools Excess Liability Fund (SELF) to provide excess property and liability insurance coverage, and the final is the Schools Linked for Insurance Management (SLIM) to provide workers compensation insurance coverage. The relationship is such that the JPAs are not component units of the District for financial reporting purposes. These entities have budgeting and financial reporting requirements independent of member units and their financial statements are not presented in these financial statements; however, fund transactions between the entities and the District are included in these financial statements. Audited financial statements are available from the respective entities. NOTE 14 DEFERRED OUTFLOWS OF RESOURCES Pursuant to GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position and GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, the District recognized deferred outflows of resources in the District wide financial statements. The deferred outflow of resources pertains to the difference in the carrying value of the refunded debt and its reacquisition price (deferred amount on refunding). Previous financial reporting standards require this to be presented as part of the District s long term debt. This deferred outflow of resources is recognized as a component of interest expense in a systematic and rational manner over the remaining life of the old debt or the new debt, whichever is shorter. At June 30, 2014, the deferred amount on refunding was $6,944,

136 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 15 RESTATEMENT OF NET POSITION The beginning net position of Governmental Activities has been restated in order to reflect the elimination of amortization of debt issuance costs in accordance with GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. The effect on beginning net position is presented as follows: Governmental Activities Net Position Beginning, as Previously Reported $ 129,860,172 Restatement (2,669,337) Net Position Beginning, as Restated $ 127,190,835 NOTE 16 SUBSEQUENT EVENT On November 6, 2012, the voter s in the District approved Measure ES, a bond proposition whereby the District is authorized to borrow $385 million. In August 2014, $30 million in general obligation bonds under the Election 2012, Series A was issued to the District as part of Measure ES. 53

137 REQUIRED SUPPLEMENTARY INFORMATION

138 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2014 Budgeted Amounts Actual* Variances Original Final (Budgetary Basis) Final to Actual REVENUES LCFF sources $ 69,422,635 $ 69,606,796 $ 69,622,777 $ 15,981 Federal sources 4,508,458 4,814,087 4,336,823 (477,264) Other state sources 3,676,940 5,111,894 5,066,579 (45,315) Other local sources 38,220,223 41,836,092 43,171,067 1,334,975 Total Revenues 115,828, ,368, ,197, ,377 EXPENDITURES Certificated salaries 53,991,777 56,266,751 55,708, ,763 Classified salaries 22,205,139 24,132,757 23,675, ,345 Employee benefits 26,007,266 26,405,067 26,600,601 (195,534) Books and supplies 2,588,170 5,739,822 3,931,972 1,807,850 Services and other operating expenditures 12,378,465 14,822,754 13,213,536 1,609,218 Capital outlay 75, , , ,566 Other outgo Excluding transfers of indirect costs 31,590 31,590 24,590 7,000 Transfers of indirect costs (467,081) (490,395) (480,002) (10,393) Total Expenditures 116,810, ,712, ,112,078 4,600,815 Excess (Deficiency) of Revenues Over Expenditures (982,570) (6,344,024) (914,832) 5,429,192 Other Financing Sources (Uses) Other sources 117, ,155 Transfers out (369,214) (307,452) (307,452) Net Financing Sources (Uses) (369,214) (307,452) (190,297) 117,155 NET CHANGE IN FUND BALANCE (1,351,784) (6,651,476) (1,105,129) 5,546,347 Fund Balance Beginning 28,382,544 28,382,544 28,382,544 Fund Balance Ending $ 27,030,760 $ 21,731,068 $ 27,277,415 $ 5,546,347 * The actual amounts reported on this schedule do not agree with the amounts reported on the Statement of Revenues, Expenditures, and Changes in Fund Balance for the following reason: STRS on behalf payments of $2,928,112, as discussed in the Notes to the Financial Statements #11, are not included in the actual revenues and expenditures reported in this schedule. See accompanying note to required supplementary information. 54

139 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT SCHEDULE OF FUNDING PROGRESS FOR THE YEAR ENDED JUNE 30, 2014 Actuarial Actuarial Accrued Unfunded UAAL as a Valuation Valuation Liability AAL Covered Percentage of Date of Assets (AAL) (UAAL) Funded Ratio Payroll Covered Payroll July 1, 2013 $ $ 25,587,443 $ 25,587,443 0% $ 74,764,220 34% July 1, 2011 $ $ 22,091,051 $ 22,091,051 0% $ 71,650,000 31% July 1, 2009 $ $ 19,679,640 $ 19,679,640 0% 32,275,084 61% See accompanying note to required supplementary information. 55

140 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO REQUIRED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED JUNE 30, 2014 NOTE 1 PURPOSE OF SCHEDULES Budgetary Comparison Schedule This schedule is required by GASB Statement No. 34 as required supplementary information (RSI) for the General Fund and for each major special revenue fund that has a legally adopted annual budget. The budgetary comparison schedule presents both (a) the original and (b) the final appropriated budgets for the reporting period as well as (c) actual inflows, outflows, and balances, stated on the District s budgetary basis. A separate column to report the variance between the final budget and actual amounts is also presented, although not required. Schedule of Funding Progress This schedule is required by GASB Statement No. 45 for all sole and agent employers that provide other postemployment benefits (OPEB). The schedule presents, for the most recent actuarial valuation and the two preceding valuations, information about the funding progress of the plan, including, for each valuation, the actuarial valuation date, the actuarial value of assets, the actuarial accrued liability, the total unfunded actuarial liability (or funding excess), the actuarial value of assets as a percentage of the actuarial accrued liability (funded ratio), the annual covered payroll, and the ratio of the total unfunded actuarial liability (or funding excess) to annual covered payroll. NOTE 2 EXCESS OF EXPENDITURES OVER APPROPRIATIONS For the year ended June 30, 2014, the District incurred an excess of expenditures over appropriations of $195,534 in the General Fund presented in the Budgetary Comparison Schedule by major object code as employee benefits. 56

141 SUPPLEMENTARY INFORMATION

142 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2014 Federal Grantor/Pass Through Grantor/Program or Cluster CFDA Number Pass Through Entity Identifying Number Federal Expenditures U. S. DEPARTMENT OF EDUCATION: Passed through California Department of Education: Title I, Part A, Basic School Support [1] $ 1,016,483 Title I, Part G, Advanced Placement Test Fee Reimbursement Program ,795 Adult Education Cluster Adult Education: Basic Education & ESL A ,617 Adult Education: Adult Secondary Education A ,201 Adult Education: English Literacy and Civics Education A ,232 Subtotal Adult Education Cluster 61,050 Title II, Part A, Teacher Quality A ,283 Title III Cluster Title III, Limited English Proficient (LEP) Student Program ,447 Title III, Immigrant Education Program ,915 Subtotal Title III Cluster 102,362 Department of Rehab: Workability II, Transition Partnership ,392 Special Education Cluster [1] IDEA Basic Local Assistance Entitlement, Part B, Sec ,004,022 Part B, Preschool Grants ,168 IDEA Preschool Local Entitlement, Part B, Sec A ,974 Subtotal Special Education Cluster 2,174,164 Total U. S. Department of Education 3,695,529 U. S. DEPARTMENT OF AGRICULTURE: Passed through California Department of Education: Child Nutrition Cluster School Breakfast Program Basic School Breakfast Program Needy ,972 National School Lunch Program ,039,067 Subtotal Child Nutrition Cluster 1,233,943 Child and Adult Food Programs ,587 Total U. S. Department of Agriculture 1,451,530 U. S. DEPARTMENT OF HEALTH AND HUMAN SERVICES: Passed through California Department of Health Services: Medi Cal Billing Option [1] ,060 Passed through Los Angeles County Office of Education: Head Start Cluster [2] Head Start, Basic ,315,433 Head Sart, Training & Technical Assistance ,600 Subtotal Head Start Cluster 1,321,033 Total U. S. Department of Health & Human Services 1,902,093 Total Federal Expenditures $ 7,049,152 [1] Major Program [2] In Kind Contribution $766,165 * PCS Number not available or not applicable See accompanying note to supplementary information. 57

143 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT SCHEDULE OF AVERAGE DAILY ATTENDANCE (ADA) FOR THE YEAR ENDED JUNE 30, 2014 Second Period Annual Report Report SCHOOL DISTRICT TK/K through Third Regular ADA 3, , Extended Year Special Education Special Education Nonpublic Schools Extended Year Special Education Nonpublic Schools Total TK/K through Third 3, , Fourth through Sixth Regular ADA 2, , Extended Year Special Education Special Education Nonpublic Schools Extended Year Special Education Nonpublic Schools Total Fourth through Sixth 2, , Seventh through Eighth Regular ADA 1, , Extended Year Special Education Special Education Nonpublic Schools Extended Year Special Education Nonpublic Schools Total Seventh through Eighth 1, , Ninth through Twelfth Regular ADA 3, , Extended Year Special Education Special Education Nonpublic Schools Extended Year Special Education Nonpublic Schools Total Ninth through Twelfth 3, , TOTAL SCHOOL DISTRICT 10, , See accompanying note to supplementary information. 58

144 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT SCHEDULE OF INSTRUCTIONAL TIME FOR THE YEAR ENDED JUNE 30, 2014 Minutes Minutes Requirement Actual Number Grade Level Requirement Reduced Minutes of Days Status Kindergarten 36,000 35,000 41, Complied Grade 1 50,400 49,000 53, Complied Grade 2 50,400 49,000 53, Complied Grade 3 50,400 49,000 53, Complied Grade 4 54,000 52,500 54, Complied Grade 5 54,000 52,500 54, Complied Grade 6 54,000 52,500 55, Complied Grade 7 54,000 52,500 55, Complied Grade 8 54,000 52,500 55, Complied Grade 9 64,800 63,000 64, Complied Grade 10 64,800 63,000 64, Complied Grade 11 64,800 63,000 64, Complied Grade 12 64,800 63,000 64, Complied See accompanying note to supplementary information. 59

145 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE YEAR ENDED JUNE 30, (Budget) General Fund Budgetary Basis** Revenues And Other Financing Sources $ 124,426,836 $ 122,314,401 $ 125,554,653 $ 116,203,904 Expenditures And Other Financing Uses 131,195, ,419, ,714, ,015,303 Net change in Fund Balance $ (6,769,057) $ (1,105,129) $ 7,839,834 $ (2,811,399) Ending Fund Balance $ 20,508,358 $ 27,277,415 $ 28,382,544 $ 20,542,710 Available Reserves* $ 11,571,222 $ 15,485,868 $ 13,898,617 $ 7,018,164 Available Reserves As A Percentage Of Outgo 8.82% 12.55% 11.81% 5.90% Long term Debt $ 343,426,254 $ 354,288,286 $ 356,546,328 $ 273,251,030 Average Daily Attendance At P 2 10,937 10,846 10,878 10,924 The General Fund balance has increased by $6,734,705 over the past two years. The fiscal year budget projects a decrease of $6,769,057. For a District this size, the State recommends available reserves of at least three percent of General Fund expenditures, transfers out, and other uses (total outgo). The District has incurred operating deficits in two of the past three years and anticipates incurring an operating deficit during the fiscal year. Total long term obligations have increased by $81,037,256 over the past two years. Average daily attendance has decreased by 78 ADA over the past two years. An increase of 91 ADA is anticipated during the fiscal year. *Available reserves consist of all unassigned fund balance within the General Fund. **The actual amounts reported in this schedule are for the General Fund only, and do not agree with the amounts reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances because the amounts on that schedule include on behalf payments of $2,928,112. See accompanying note to supplementary information. 60

146 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014 There were no adjustments to the Unaudited Actual Financial Report, which required reconciliation to the audited financial statements at June 30, See accompanying note to supplementary information. 61

147 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT COMBINING BALANCE SHEET JUNE 30, 2014 Adult Education Fund Child Development Fund Cafeteria Fund Deferred Maintenance Fund Capital Facilities Fund Special Reserve Fund for Capital Outlay Projects Non Major Governmental Funds ASSETS Cash and cash equivalents $ 305,107 $ 384,591 $ 105,861 $ 132,658 $ 9,172,298 $ 8,914,211 $ 19,014,726 Accounts receivable 37, ,285 62, ,265 21, ,765 Stores inventory 19,109 19,109 Total Assets $ 342,476 $ 710,876 $ 187,061 $ 133,131 $ 9,716,563 $ 8,935,493 $ 20,025,600 LIABILITIES Accrued liabilities $ 23,572 $ 557,855 $ 135,178 $ 1,190 $ 854,642 $ 14,958 $ 1,587,395 Unearned revenue 124, ,777 Total Liabilities 23, , ,178 1, ,642 14,958 1,712,172 FUND BALANCES Non spendable 19,109 19,109 Restricted 12,120 21,963 32,774 8,861,921 8,920,535 17,849,313 Committed 306, , ,725 Assigned 6,281 6,281 Total Fund Balances 318,904 28,244 51, ,941 8,861,921 8,920,535 18,313,428 Total Liabilities and Fund Balance $ 342,476 $ 710,876 $ 187,061 $ 133,131 $ 9,716,563 $ 8,935,493 $ 20,025,600 See accompanying note to supplementary information. 62

148 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2014 Adult Education Fund Child Development Fund Cafeteria Fund Deferred Maintenance Fund Capital Facilities Fund Special Reserve Fund for Capital Outlay Projects Non Major Governmental Funds REVENUES LCFF sources $ 262,628 $ $ $ $ $ $ 262,628 Federal sources 61,050 1,538,620 1,233,943 2,833,613 Other state sources 9,110 2,750,458 91, ,269 2,993,990 Other local sources 51,719 3,033,503 1,612,583 1, ,701 2,173,570 7,866,140 Total Revenues 384,507 7,322,581 2,937,679 1, ,701 2,316,839 13,956,371 EXPENDITURES Current Instruction 136,829 5,532,655 5,669,484 Instruction related services Instructional supervision and administration 413, ,251 School site administration 192, , ,125 Pupil services Food services 401,837 2,972,102 3,373,939 All other pupil services 20,288 96, ,518 General administration All other general administration 322, , ,003 Plant services 50, ,633 98,119 1,582, ,642 2,149,950 Facilities acquisition and maintenance 205,015 17, ,825 Debt service Principal 1,090,000 1,090,000 Interest and other 374, ,101 Total Expenditures 400,201 7,627,045 3,129,921 98,119 1,787,357 1,650,553 14,693,196 Excess (Deficiency) of Revenues Over Expenditures (15,694) (304,464) (192,242) (97,055) (793,656) 666,286 (736,825) Other Financing Sources (Uses) Transfers in 307, ,452 Net Financing Sources (Uses) 307, ,452 NET CHANGE IN FUND BALANCE (15,694) 2,988 (192,242) (97,055) (793,656) 666,286 (429,373) Fund Balance Beginning 334,598 25, , ,996 9,655,577 8,254,249 18,742,801 Fund Balance Ending $ 318,904 $ 28,244 $ 51,883 $ 131,941 $ 8,861,921 $ 8,920,535 $ 18,313,428 See accompanying note to supplementary information. 63

149 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO SUPPLEMENTARY INFORMATION JUNE 30, 2014 NOTE 1 PURPOSE OF SCHEDULES Schedule of Expenditures of Federal Awards The accompanying Schedule of Expenditures of Federal Awards includes the Federal grant activity of the District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of the United States Office of Management and Budget Circular A 133, Audits of States, Local Governments, and Non Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the financial statements. The following schedule provides reconciliation between revenues reported on the Statement of Revenue, Expenditures, and Changes in Fund Balance, and the related expenditures reported on the Schedule of Expenditures of Federal Awards. The reconciling amounts represent Federal funds that have been recorded as revenues in a prior year that have been expended by June 30, 2014 or Federal funds that have been recorded as revenues in the current year and were not expended by June 30, CFDA Number Amount Total Federal Revenues reported in the Statement of Revenues, Expenditures, and Changes in Fund Balance $ 9,425,344 Medi Cal Billing Option [1] (121,284) Buld America Bonds * (2,254,908) Total Expenditures reported in the Schedule of Expenditures of Federal Awards $ 7,049,152 Schedule of Average Daily Attendance (ADA) Average daily attendance (ADA) is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of state funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs. Schedule of Instructional Time This schedule presents information on the amount of instructional time offered by the District and whether the District complied with the provisions of Education Code Sections through During the year ended June 30, 2014, the district participated in the Longer Day incentive funding program. As of June 30, 2014, the district had not yet met its target funding. Through , the instructional day and minute requirements have been reduced pursuant to Education Code Section Schedule of Financial Trends and Analysis This schedule discloses the Districtʹs financial trends by displaying past yearsʹ data along with current year budget information. These financial trend disclosures are used to evaluate the Districtʹs ability to continue as a going concern for a reasonable period of time. 64

150 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT NOTES TO SUPPLEMENTARY INFORMATION, continued JUNE 30, 2014 NOTE 1 PURPOSE OF SCHEDULES (continued) Reconciliation of Annual Financial and Budget Report with Audited Financial Statements This schedule provides the information necessary to reconcile the fund balance of all funds reported on the Annual Financial and Budget Report Unaudited Actuals to the audited financial statements. Combining Statements Non Major Funds These statements provide information on the District s non major funds. Local Education Agency Organization Structure This schedule provides information about the Districtʹs boundaries and schools operated, members of the governing board, and members of the administration. (Located in the front of the audit report) 65

151 OTHER INDEPENDENT AUDITORS REPORTS

152 Christy White, CPA Michael Ash, CPA 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 Independent Auditors Report Tanya M. Rogers, CPA, CFE John Whitehouse, CPA Heather Rubio SAN DIEGO LOS ANGELES SAN FRANCISCO/BAY AREA Corporate Office: 2727 Camino Del Rio South Suite 219 San Diego, CA toll-free: tel: fax: Governing Board Santa Monica Malibu Unified School District Santa Monica, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, the discretely presented component unit, and the aggregate remaining fund information of Santa Monica Malibu Unified School District, as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the Santa Monica Malibu Unified School District s basic financial statements, and have issued our report thereon dated December 15, Our report includes a reference to other auditors who audited the financial statements of the Santa Monica Malibu Education Foundation, as described in our report on Santa Monica Malibu Unified School District s financial statements. This report does not include the results of the other auditor s testing of internal control over financial reporting or compliance and other matters that are report on separately by those auditors. The financial statements of the Santa Monica Malibu Education Foundation were not audited in accordance with Government Auditing Standards and accordingly, this report does not include reporting on internal control over financial reporting or instances of reportable noncompliance associated with this entity. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Santa Monica Malibu Unified School District s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Santa Monica Malibu Unified School District s internal control. Accordingly, we do not express an opinion on the effectiveness of Santa Monica Malibu Unified School District s internal control. 66

153 A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entityʹs financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether Santa Monica Malibu Unified School Districtʹs 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. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entityʹs internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entityʹs internal control and compliance. Accordingly, this communication is not suitable for any other purpose. San Diego, California December 15,

154 Christy White, CPA Michael Ash, CPA Tanya M. Rogers, CPA, CFE John Whitehouse, CPA Heather Rubio REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A 133 Governing Board Santa Monica Malibu Unified School District Santa Monica, California Independent Auditors Report Report on Compliance for Each Major Federal Program SAN DIEGO LOS ANGELES SAN FRANCISCO/BAY AREA We have audited Santa Monica Malibu Unified School District s compliance with the types of compliance requirements described in the OMB Circular A 133 Compliance Supplement that could have a direct and material effect on each of Santa Monica Malibu Unified School District s major federal programs for the year ended June 30, Santa Monica Malibu Unified School Districtʹs major federal programs are identified in the summary of auditorʹs results section of the accompanying schedule of findings and questioned costs. Corporate Office: 2727 Camino Del Rio South Suite 219 San Diego, CA toll-free: tel: fax: Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Santa Monica Malibu Unified School Districtʹs major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A 133, Audits of States, Local Governments, and Non Profit Organizations. Those standards and OMB Circular A 133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Santa Monica Malibu Unified School Districtʹs compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Santa Monica Malibu Unified School Districtʹs compliance. 68

155 Opinion on Each Major Federal Program In our opinion, Santa Monica Malibu Unified School District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Report on Internal Control Over Compliance Management of Santa Monica Malibu Unified School District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Santa Monica Malibu Unified School District s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with 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 Santa Monica Malibu Unified School District s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A 133. Accordingly, this report is not suitable for any other purpose. San Diego, California December 15,

156 REPORT ON STATE COMPLIANCE Christy White, CPA Michael Ash, CPA Tanya M. Rogers, CPA, CFE John Whitehouse, CPA Heather Rubio SAN DIEGO LOS ANGELES SAN FRANCISCO/BAY AREA Corporate Office: 2727 Camino Del Rio South Suite 219 San Diego, CA toll-free: tel: fax: Governing Board Santa Monica Malibu Unified School District Santa Monica, California Report on State Compliance Independent Auditors Report We have audited Santa Monica Malibu Unified School District s compliance with the types of compliance requirements described in the Standards and Procedures for Audits of California K 12 Local Education Agencies , issued by the California Education Audit Appeals Panel that could have a direct and material effect on each of Santa Monica Malibu Unified School District s state programs for the fiscal year ended June 30, 2014, as identified below. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its state programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Santa Monica Malibu Unified School Districtʹs state programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Standards and Procedures for Audits of California K 12 Local Education Agencies , issued by the California Education Audit Appeals Panel as regulations. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on the state programs noted below occurred. An audit includes examining, on a test basis, evidence about Santa Monica Malibu Unified School Districtʹs compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance with the requirements referred to above. However, our audit does not provide a legal determination of Santa Monica Malibu Unified School Districtʹs compliance with those requirements. 70

157 Opinion on State Compliance In our opinion, Santa Monica Malibu Unified School District complied, in all material respects, with the types of compliance requirements referred to above that are applicable to the state programs noted in the table below for the year ended June 30, Procedures Performed In connection with the audit referred to above, we selected and tested transactions and records to determine Santa Monica Malibu Unified School Districtʹs compliance with the state laws and regulations applicable to the following items: PROGRAM NAME PROCEDURES IN AUDIT GUIDE PROCEDURES PERFORMED Attendance Reporting 6 Yes Teacher Certification and Misassignments 3 Yes Kindergarten Continuance 3 Yes Independent Study 23 No Continuation Education 10 No Instructional Time for school districts 10 Yes Instructional Materials, general requirements 8 Yes Ratios of Administrative Employees to Teachers 1 Yes Classroom Teacher Salaries 1 Yes Early Retirement Incentive 4 Not Applicable Gann Limit Calculation 1 Yes School Accountability Report Card 3 Yes Juvenile Court Schools 8 Not Applicable Local Control Funding Formula Certification 1 Yes California Clean Energy Jobs Act 3 No After School Education and Safety Program: General requirements 4 Not Applicable After school 5 Not Applicable Before school 6 Not Applicable Education Protection Account Funds 1 Yes Common Core Implementation Funds 3 Yes Unduplicated Local Control Funding Formula Pupil Counts 3 Yes Contemporaneous Records of Attendance; for charter schools 8 Not Applicable Mode of Instruction; for charter schools 1 Not Applicable Nonclassroom Based Instruction/Independent Study; for charter schools 15 Not Applicable Determination of Funding for Nonclassroom Based Instruction; for charter schools 3 Not Applicable Annual Instructional Minutes Classroom Based; for charter schools 4 Not Applicable Charter School Facility Grant Program 1 Not Applicable 71

158 We did not perform testing for Independent Study or Continuation Education because total ADA claimed is below the materiality threshold required for testing. We did not perform testing over California Clean Energy Act as there were no funds expended in San Diego, California December 15,

159 SCHEDULE OF FINDINGS AND QUESTIONED COSTS

160 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT SUMMARY OF AUDITORS RESULTS FOR THE YEAR ENDED JUNE 30, 2014 FINANCIAL STATEMENTS Type of auditorsʹ report issued: Internal control over financial reporting: Material weakness(es) identified? Significant deficiency(ies) identified? Non compliance material to financial statements noted? Unmodified No None Reported No FEDERAL AWARDS Internal control over major program: Material weakness(es) identified? Significant deficiency(ies) identified? Type of auditorsʹ report issued: Any audit findings disclosed that are required to be reported in accordance with section.510(a) of OMB Circular A 133? Identification of major programs: No None Reported Unmodified No CFDA Number(s) Name of Federal Program of Cluster , A, Special Education Cluster Title I Part A Cluster Medi Cal Billing Option Dollar threshold used to distinguish between Type A and Type B programs: $ 300,000 Auditee qualified as low risk auditee? Yes STATE AWARDS Internal control over state programs: Material weaknesses identified? Significant deficiency(ies) identified? Type of auditorsʹ report issued on compliance for state programs: No None Reported Unmodified 73

161 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT FINANCIAL STATEMENT FINDINGS FOR THE YEAR ENDED JUNE 30, 2014 FIVE DIGIT CODE AB 3627 FINDING TYPE Inventory of Equipment Internal Control There were no financial statement findings for the fiscal year

162 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT FEDERAL AWARD FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2014 FIVE DIGIT CODE AB 3627 FINDING TYPE Federal Compliance There were no federal award findings and questioned costs for the fiscal year

163 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT STATE AWARD FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2014 FIVE DIGIT CODE AB 3627 FINDING TYPE Attendance State Compliance CalSTRS Miscellaneous Classroom Teacher Salaries Instructional Materials Teacher Misassignments School Accountability Report Card There were no state award findings and questioned costs for the fiscal year

164 SANTA MONICA MALIBU UNIFIED SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2014 There were no financial statement findings for the year ended June 30,

165 APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the Santa Monica-Malibu Unified School District (the District ) in connection with the issuance of $60,000,000 of the District s Election of 2012 General Obligation Bonds, Series B (the Bonds ). The Bonds are being issued pursuant to a resolution of the Board of Education of the District adopted on May 7, 2015 (the Resolution ). The District covenants and agrees as follows: SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriters in complying with the Rule. SECTION 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Beneficial Owner shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. Dissemination Agent shall mean initially Keygent LLC, or any successor Dissemination Agent designated in writing by the District (which may be the District) and which has filed with the District a written acceptance of such designation. Holders shall mean registered owners of the Bonds. Listed Events shall mean any of the events listed in Section 5(a) or 5(b) of this Disclosure Certificate. Official Statement shall mean the Official Statement dated as of June 23, 2015 and relating to the Bonds. Participating Underwriters shall mean the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. Repository shall mean the Municipal Securities Rulemaking Board, which can be found at or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Rule shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. State shall mean the State of California. C-1

166 SECTION 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than nine months after the end of the District s fiscal year (presently ending June 30), commencing with the report for the Fiscal Year, provide to the Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the District s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(b). (b) Not later than 30 days (nor more than 60 days) prior to said date the Dissemination Agent shall give notice to the District that the Annual Report shall be required to be filed in accordance with the terms of this Disclosure Certificate. Not later than 15 Business Days prior to said date, the District shall provide the Annual Report in a format suitable for reporting to the Repository to the Dissemination Agent (if other than the District). If the District is unable to provide to the Repository an Annual Report by the date required in subsection (a), the District shall send in a timely manner a notice to the Repository in substantially the form attached as Exhibit A with a copy to the Dissemination Agent. The Dissemination Agent shall not be required to file a Notice to Repository of Failure to File an Annual Report. (c) The Dissemination Agent shall file a report with the District stating it has filed the Annual Report in accordance with its obligations hereunder, stating the date it was provided to the Repository. SECTION 4. Content and Form of Annual Reports. (a) The District s Annual Report shall contain or include by reference the following: 1. The audited financial statements of the District for the prior fiscal year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. 2. Material financial information and operating data with respect to the District of the type included in the Official Statement in the following categories (to the extent not included in the District s audited financial statements): (a) (b) (c) (d) State funding received by the District for the last completed fiscal year; average daily attendance of the District for the last completed fiscal year; outstanding District indebtedness; summary financial information on revenues, expenditures and fund balances for the District s general fund reflecting adopted budget for the current fiscal year; C-2

167 (e) (f) The assessed valuation of taxable property within the District for the last completed fiscal year; and Secured tax levy collections and delinquencies within the District for the last completed fiscal year, except to the extent the Teeter Plan, if adopted by Los Angeles County, applies to both the 1% general purpose ad valorem property tax levy and to the tax levy for general obligation bonds of the District. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been submitted to the Repository or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The District shall clearly identify each such other document so included by reference. (b) The Annual Report shall be filed in an electronic format accompanied by identifying information prescribed by the Municipal Securities Rulemaking Board. SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5(a), the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not in excess of 10 business days after the occurrence of the event: 1. principal and interest payment delinquencies. 2. tender offers. 3. defeasances. 4. rating changes. 5. adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, or Notices of Proposed Issue (IRS Form 5701-TEB). 6. unscheduled draws on the debt service reserves reflecting financial difficulties. 7. unscheduled draws on credit enhancement reflecting financial difficulties. 8. substitution of the credit or liquidity providers or their failure to perform. 9. bankruptcy, insolvency, receivership or similar event of the District. For the purposes of the event identified in this Section 5(a)(9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for the District in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District. C-3

168 (b) Pursuant to the provisions of this Section 5(b), the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: 1. non-payment related defaults. 2. modifications to rights of Bondholders. 3. optional, contingent or unscheduled Bond calls. 4. unless described under Section 5(a)(5) above, material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds. 5. release, substitution or sale of property securing repayment of the Bonds. 6. the consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms. 7. Appointment of a successor or additional trustee or paying agent with respect to the Bonds or the change of name of such a trustee or paying agent. (c) Whenever the District obtains knowledge of the occurrence of a Listed Event under Section 5(b) hereof, the District shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the District determines that knowledge of the occurrence of a Listed Event under Section 5(b) hereof would be material under applicable federal securities laws, the District shall (i) file a notice of such occurrence with the Repository in a timely manner not in excess of 10 business days after the occurrence of the event or (ii) provide notice of such reportable event to the Dissemination Agent in format suitable for filing with the Repository in a timely manner not in excess of 10 business days after the occurrence of the event. The Dissemination Agent shall have no duty to independently prepare or file any report of Listed Events. The Dissemination Agent may conclusively rely on the District s determination of materiality pursuant to Section 5(c). SECTION 6. Termination of Reporting Obligation. The District s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(a). SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent (or substitute Dissemination Agent) to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign upon 15 days written notice to the District. Upon such resignation, the District shall act as its own Dissemination Agent until it appoints a successor. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate and shall not be responsible to verify the accuracy, completeness or materiality of any continuing disclosure information provided by the District. The District shall compensate the Dissemination Agent for its fees and expenses hereunder as agreed by the parties. Any entity succeeding to all or substantially all of the Dissemination Agent s corporate trust C-4

169 business shall be the successor Dissemination Agent without the execution or filing of any paper or further act. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a) or 5(b), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; (c) The amendment or waiver does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds; and (d) No duties of the Dissemination Agent hereunder shall be amended without its written consent thereto. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(a), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an event of default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance. C-5

170 SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate. The Dissemination Agent acts hereunder solely for the benefit of the District; this Disclosure Certificate shall confer no duties on the Dissemination Agent to the Participating Underwriters, the Holders and the Beneficial Owners. The District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s gross negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. The Dissemination Agent shall have no liability for the failure to report any event or any financial information as to which the District has not provided an information report in format suitable for filing with the Repository. The Dissemination Agent shall not be required to monitor or enforce the District s duty to comply with its continuing disclosure requirements hereunder. SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriters and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Dated: July 7, 2015 SANTA MONICA-MALIBU UNIFIED SCHOOL DISTRICT By: Authorized Officer C-6

171 EXHIBIT A NOTICE TO REPOSITORY OF FAILURE TO FILE ANNUAL REPORT Name of District: SANTA MONICA-MALIBU UNIFIED SCHOOL DISTRICT Name of Bond Issue: Election of 2012 General Obligation Bonds, Series B Date of Issuance: July 7, 2015 NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Certificate relating to the Bonds. The District anticipates that the Annual Report will be filed by. Dated: SANTA MONICA-MALIBU UNIFIED SCHOOL DISTRICT By [form only; no signature required] C-A-1

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173 APPENDIX D ECONOMIC AND DEMOGRAPHIC INFORMATION FOR THE CITY OF MALIBU, THE CITY OF SANTA MONICA AND LOS ANGELES COUNTY The District encompasses all of the Cities of Santa Monica ( Santa Monica ) and Malibu ( Malibu, and together with Santa Monica, the Cities ), as well as a portion of unincorporated Los Angeles County (the County ). The following economic data for Santa Monica, Malibu and the County are presented for information purposes only. The Bonds are not a debt or obligation of Santa Monica, Malibu or the County. General Los Angeles County. Los Angeles County was incorporated on February 18, 1850 and is one of the original counties of California. With 4,061 square miles, Los Angeles County borders 70 miles of coast on the Pacific Ocean. The County is home to 88 incorporated cities and many unincorporated areas. In between the large desert portions of the county which make up around 40 percent of its land area and the heavily urbanized central and southern portions sits the San Gabriel Mountains containing Angeles National Forest. All of southern Los Angeles County, north to about the center of the county, is heavily urbanized. The City of Malibu. Malibu was incorporated on March 28, Located in northwest Los Angeles County, Malibu has 21 miles of coastline along the Pacific Ocean and encompasses over 20 square miles. Malibu operates under a Council-Manager form of government. The City of Santa Monica. Santa Monica is situated in the western portion of the County, bordered by the City of Los Angeles on three sides and by the Pacific Ocean to the west. Santa Monica was incorporated in 1886 and became a charter city in In 1947 a council-manager form of government was established following a vote of Santa Monica s residents and approval by the California Legislature. Santa Monica encompasses an area slightly greater than eight square miles. Population The following table shows population figures for the City of Malibu, the City of Santa Monica, the County and the State from 2005 through POPULATION City of Malibu, City of Santa Monica, County of Los Angeles and State of California (1) Year (1) City of Malibu City of Santa Monica County of Los Angeles State of California ,022 88,692 9,816,153 35,869, ,907 88,181 9,798,609 36,116, ,823 87,860 9,780,808 36,399, ,713 88,170 9,785,474 36,704, ,672 89,295 9,801,096 36,966, ,659 89,494 9,822,121 37,223, ,671 90,082 9,847,712 37,427, ,706 90,269 9,889,467 37,668, ,774 91,094 9,963,811 37,984, ,865 92,185 10,041,797 38,340,074 As of January 1. Source: California Department of Finance. D-1

174 Income The following tables summarize personal income and per capita personal income for the County, the State and the United States from 2005 through PERSONAL INCOME County of Los Angeles, State of California, and the United States Year County of Los Angeles State of California United States 2005 $357,594,039 $1,395,992,214 $10,605,595, ,722,373 1,499,308,841 11,376,405, ,281,877 1,564,289,335 11,990,104, ,482,294 1,596,229,973 12,429,234, ,372,354 1,537,094,676 12,080,223, ,473,004 1,578,553,439 12,417,659, ,673,042 1,685,635,498 13,189,935, ,788,782 1,805,193,769 13,873,161, ,098,988 1,856,614,186 14,151,427,000 Source: U.S. Department of Commerce, Bureau of Economic Analysis. (1) PER CAPITA PERSONAL INCOME (1) County of Los Angeles, State of California and the United States Year County of Los Angeles State of California United States 2005 $36,540 $38,964 $35, ,508 41,623 38, ,058 43,152 39, ,165 43,608 40, ,396 41,587 39, ,163 42,282 40, ,062 44,749 42, ,800 47,505 44, ,530 48,434 44,765 Per capita personal income is the total personal income divided by the total mid-year population estimates of the U.S. Bureau of the Census. All dollar estimates are in current dollars (not adjusted for inflation). Source: U.S. Department of Commerce, Bureau of Economic Analysis. D-2

175 Employment The following table summarizes the labor force, employment and unemployment figures for the City of Malibu, the City of Santa Monica, the County and State from 2010 through LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT City of Malibu, City of Santa Monica, County of Los Angeles and the State of California Year (1) Area Labor Force Employment (2) Unemployment Unemployment Rate (3) 2010 City of Malibu 5,900 5, % City of Santa Monica 54,200 48,400 5, County of Los Angeles 4,917,400 4,302, , State of California 18,336,300 16,091,900 2,244, City of Malibu 5,900 5, City of Santa Monica 54,300 48,600 5, County of Los Angeles 4,929,500 4,326, , State of California 18,419,500 16,260,100 2,159, City of Malibu 6,000 5, City of Santa Monica 54,300 49,200 5, County of Los Angeles 4,914,500 4,378, , State of California 18,554,800 16,630,100 1,924, City of Malibu 6,100 5, City of Santa Monica 55,100 50,500 4, County of Los Angeles 4,982,300 4,495, , State of California 18,671,600 17,002,900 1,668, City of Malibu 6,200 5, City of Santa Monica 55,700 51,800 3, County of Los Angeles 5,025,900 4,610, , State of California 18,811,400 17,397,100 1,414, Note: Data is not seasonally adjusted. (1) Annual averages, unless otherwise specified. (2) Includes persons involved in labor-management trade disputes. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table. Source: U.S. Department of Labor Bureau of Labor Statistics, California Employment Development Department. March 2014 Benchmark. D-3

176 Industry The City of Malibu and the City of Santa Monica are included in the Los Angeles-Long Beach- Glendale Metropolitan Division (the MD ). The distribution of employment in the MD is presented in the following table from 2010 through LABOR FORCE AND INDUSTRY EMPLOYMENT ANNUAL AVERAGES Los Angeles-Long Beach-Glendale Metropolitan Division Type of Employment Farm 6,200 5,600 5,400 5,500 5,300 Mining and Logging 4,100 4,100 4,300 4,600 4,700 Construction 104, , , , ,200 Manufacturing 373, , , , ,900 Wholesale Trade 203, , , , ,500 Retail Trade 386, , , , ,500 Transportation, Warehousing and Utilities 150, , , , ,700 Information 191, , , , ,900 Financial Activities 209, , , , ,700 Professional and Business Services 528, , , , ,400 Educational and Health Services 637, , , , ,000 Leisure and Hospitality 384, , , , ,600 Other Services 136, , , , ,700 Government 579, , , , ,700 Total All Industries 3,896,300 3,917,200 4,015,900 4,135,200 4,231,700 Note: Items may not add to total due to independent rounding. Source: California Employment Development Department, Labor Market Information Division. March 2014 Benchmark. D-4

177 Major Employers The following tables rank the major employers located in the County and the City of Santa Monica. Rank Company LARGEST PRIVATE-SECTOR EMPLOYERS County of Los Angeles 2014 Los Angeles County Employees Description 1. Kaiser Permanente 35,991 Non-profit health plan 2. Northrop Grumman Corp. 17,000 Systems and products in aerospace, electronics and information systems 3. Target Corp. 15,000 Retailer 4. Providence Health & Services Southern California 15,000 Health care 5. University of Southern California 14,722 Private university 6. Bank of America Corp. 13,500 (1) Banking and financial services 7. Ralphs/Food 4 Less (Kroger Co. division) 13,500 (1) Grocery retailer 8. Home Depot 10,600 (1) Home improvement specialty retailer 9. Boeing Co. 10,500 (1) Aerospace and defense contractor 10. Cedars-Sinai Medical Center 10,243 Medical center 11. Walt Disney Co. 10,200 (2) Entertainment 12. Wells Fargo 10,000 (1) Diversified financial services 13. UPS 8,984 Logistics, transportation and freight 14. AT&T Inc. 8,900 Telecommunications 15. ABM Industries Inc. 8,400 (1) Facility services, energy solutions, commercial cleaning, maintenance and repair 16. California Institute of Technology 8,094 Private university, operator of Jet Propulsion Laboratory 17. Vons 7,781 Retail grocer 18. Edison International 7,700 (1) Electric utility 19. FedEx Corp. 7,600 (1) Shipping and logistics 20. Warner Brothers. Entertainment Inc. 7,400 (2) Entertainment (1) (2) Business Journal estimate. Information provided by the City of Burbank. Source: Los Angeles Business Journal, The Lists 2015 (originally published September 1, 2014). D-5

178 (1) (2) Rank Employer LARGEST PUBLIC-SECTOR EMPLOYERS County of Los Angeles 2014 Los Angeles County Employees 1. Los Angeles County 103, Los Angeles Unified School District 60, U.S. Government Federal Executive Board (1) 46, City of Los Angeles (2) 31, University of California, Los Angeles 31, State of California (3) 29, Los Angeles County Metropolitan Transportation Authority 9, Department of Water and Power of the City of Los Angeles (LADWP) 8, Los Angeles Community College District 6, Long Beach Unified School District 6, City of Long Beach 5, California State University, Long Beach 4, California State University, Northridge 3, Department of Airports of the City of Los Angeles (LAWA) 3, City of Santa Monica 2, City of Pasadena 2, California State Polytechnic University, Pomona 2, California State University, Los Angeles 2, Santa Monica Community College District 1, Mt. San Antonio Community College District 1,882 Excludes law enforcement and judiciary employees. Excludes proprietary departments (LADWP, LAWA). (3) Excludes education employees. Source: Los Angeles Business Journal, The Lists 2015 (originally published September 1, 2014). Rank Company LARGEST EMPLOYERS City of Santa Monica As of June 30, 2014 Los Angeles County Employees Description 1. City of Santa Monica 2,559 City Government 2. Santa Monica-UCLA Hospital 2,113 Hospital 3. Santa Monica College 1,851 College 4. Saint John s Hospital Medical Center 1,790 Hospital 5. Santa Monica-Malibu Unified School District 1,657 Primary & Secondary Education 6. Activision Blizzard, Inc. 899 Digital Entertainment 7. RAND Corporation 817 Think Tank 8. Universal Music Group 787 Media Corporation 9. Riot Games 712 Game Developer 10. Lion s Gate Entertainment Corporation 608 Entertainment Source: City of Santa Monica Comprehensive Annual Financial Report for Fiscal Year Ended June 30, D-6

179 Commercial Activity Summaries of annual taxable sales for the County, the City of Malibu and the City of Santa Monica are shown in the following tables from 2008 through TAXABLE SALES County of Los Angeles (Dollars in Thousands) Retail Stores Taxable Transactions D-7 Total Outlets Taxable Transactions Year Retail Permits Total Permits ,999 $89,810, ,802 $131,881, ,461 78,444, , ,744, ,491 82,175, , ,942, ,872 89,251, , ,440, ,359 95,318, , ,295, ,370 99,641, , ,079,708 Note: In 2009, retail permits expanded to include permits for food services. Source: Taxable Sales in California (Sales & Use Tax), California State Board of Equalization. TAXABLE SALES City of Malibu (Dollars in Thousands) Retail Stores Taxable Transactions Total Outlets Taxable Transactions Year Retail Permits Total Permits $196, $228, , , , , , , , , , ,580 Note: In 2009, retail permits expanded to include permits for food services. Source: Taxable Sales in California (Sales & Use Tax), California State Board of Equalization. TAXABLE SALES City of Santa Monica (Dollars in Thousands) Retail Stores Taxable Transactions Total Outlets Taxable Transactions Year Retail Permits Total Permits ,698 $2,051,501 4,803 $2,737, ,059 1,796,573 4,468 2,387, ,086 1,915,351 4,476 2,532, ,147 2,188,259 4,515 2,850, ,340 2,256,205 4,712 2,949, ,489 2,309,281 4,860 3,046,641 Note: In 2009, retail permits expanded to include permits for food services. Source: Taxable Sales in California (Sales & Use Tax), California State Board of Equalization.

180 Building Activity In addition to annual building permit valuations, the numbers of permits for new dwelling units issued each year from 2009 through 2013 are shown in the following tables for the County, the City of Malibu and the City of Santa Monica. BUILDING PERMITS AND VALUATIONS County of Los Angeles (Dollars in Thousands) Valuation ($000 s) Residential $2,393,257 $2,824,463 $3,415,434 $3,821,324 $4,743,955 Non-Residential 2,673,544 2,699,913 3,126,956 3,682,730 4,326,366 Total $5,066,801 $5,524,376 $6,542,390 $7,504,054 $9,070,321 Units Single Family 2,120 2,417 2,370 2,820 3,607 Multiple Family 3,521 5,056 8,098 8,895 13,243 Total 5,641 7,473 10,468 11,715 16,850 Note: Totals may not add to sum due to rounding. Source: Construction Industry Research Board. BUILDING PERMITS AND VALUATIONS City of Malibu (Dollars in Thousands) Valuation ($000 s) Residential $38,789 $38,208 $48,164 $25,695 $34,152 Non-Residential 10,335 20,598 10,949 8,232 24,376 Total $49,124 $58,806 $59,113 $33,927 $58,528 Units Single Family Multiple Family Total Note: Totals may not add to sum due to rounding. Source: Construction Industry Research Board. D-8

181 BUILDING PERMITS AND VALUATIONS City of Santa Monica (Dollars in Thousands) Valuation ($000 s) Residential $70,103 $82,086 $139,673 $199,209 $51,018 Non-Residential 77, , ,991 85,619 73,120 Total $147,381 $291,435 $281,664 $284,828 $124,138 Units Single Family Multiple Family Total Note: Totals may not add to sum due to rounding. Source: Construction Industry Research Board. D-9

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183 APPENDIX E LOS ANGELES COUNTY TREASURY POOL The following information concerning the Los Angeles County Treasury Pool (the Treasury Pool ) has been provided by the Treasurer, and has not been confirmed or verified by the District or the Underwriters. The District and the Underwriters have not made an independent investigation of the investments in the Treasury Pool and have made no assessment of the current County investment policy. The value of the various investments in the Treasury Pool will fluctuate on a daily basis as a result of a multitude of factors, including generally prevailing interest rates and other economic conditions. Additionally, the Treasurer, with the consent of the County Board of Supervisors may change the County investment policy at any time. Therefore, there can be no assurance that the values of the various investments in the Treasury Pool will not vary significantly from the values described herein. Finally, neither the District nor the Underwriters make any representation as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof, or that the information contained or incorporated hereby by reference is correct as of any time subsequent to its date. Additional information regarding the Treasury Pool may be obtained from the Treasurer at however, the information presented on such website is not incorporated herein by any reference. [REMAINDER OF PAGE LEFT BLANK] E-1

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