SANTA CLARA UNIFIED SCHOOL DISTRICT Santa Clara, California. FINANCIAL STATEMENTS June 30, 2013

Transcription

1 SANTA CLARA UNIFIED SCHOOL DISTRICT Santa Clara, California FINANCIAL STATEMENTS June 30, 2013

2 SANTA CLARA UNIFIED SCHOOL DISTRICT FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION For the Year Ended June 30, 2013 TABLE OF CONTENTS Page Independent Auditor's Report Management's Discussion and Analysis 1 4 Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Position Statement of Activities Fund Financial Statements: Balance Sheet - Governmental Funds Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position Statement of Revenues, Expenditures and Change in Fund Balances - Governmental Funds Reconciliation of the Statement of Revenues, Expenditures and Change in Fund Balances - Governmental Funds - to the Statement of Activities Statement of Net Position - Internal Service Fund - Self-Insurance Fund Statement of Change in Net Position - Internal Service Fund - Self-insurance Fund Statement of Cash Flows - Internal Service Fund - Self-Insurance Fund Statement of Fiduciary Net Position - Trust and Agency Funds Statement of Change in Fiduciary Net Position - Trust Funds Notes to Basic Financial Statements

3 SANTA CLARA UNIFIED SCHOOL DISTRICT FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION For the Year Ended June 30, 2013 TABLE OF CONTENTS (Continued) Page Required Supplementary Information: General Fund Budgetary Comparison Schedule Adult Education Fund Budgetary Comparison Schedule Schedule of Other Postemployment Benefits (OPEB) Funding Progress Notes to Required Supplementary Information Supplementary Information: Combining Balance Sheet - All Non-Major Funds Combining Statement of Revenues, Expenditures and Change in Fund Balances - All Non-Major Funds Combining Statement of Changes in Assets and Liabilities - Agency Fund Organization Schedule of Average Daily Attendance Schedule of Instructional Time Schedule of Expenditure of Federal Awards Reconciliation of Unaudited Actual Financial Report with Audited Financial Statements Schedule of Financial Trends and Analysis - Unaudited Schedule of Charter Schools Notes to Supplementary Information

4 SANTA CLARA UNIFIED SCHOOL DISTRICT FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION For the Year Ended June 30, 2013 TABLE OF CONTENTS (Continued) Page Supplementary Information (Continued): Independent Auditor's Report on Compliance with State Laws and Regulations Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor's Report on Compliance For Each Major Program and Report on Internal Control Findings and Recommendations: Schedule of Audit Findings and Questioned Costs Status of Prior Year Findings and Recommendations 82 86

5 Crowe Horwath. Crowe Horwath LLP Independent Member Crowe Horwath International INDEPENDENT AUDITOR'S REPORT Board of Education Santa Clara Unified School District Santa Clara, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Santa Clara Unified School District, as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise Santa Clara 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 conducted our audit in accordance \vith auditing standards generally accepted in the United States of Ameiica and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Santa Clara Unified School District, as of June 30, 2013, 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.

6 Emphasis of Matter As discussed in Note 1 to the financial statements, in March 2012, the GASB issued Statement No. 65, "items Previously Reported as Assets and Liabilities." The provisions of this Statement are effective for the District's fiscal year ended June 30, 2014, with earlier application being encouraged. The District has implemented this Statement retroactively for the year ended June 30, 2013 resulting in restated net position at July 1, 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. This Statement also provides other financial reporting guidance related to the impact of the financial statement elements deferred outflows of resources and deferred inflows of resources, such as changes in the determination of the major fund calculations and limiting the use of the term deferred in financial statement presentations. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Managemenfs Discussion and Analysis on pages 4 to 19 and the Required Supplementary Information, such as the General Fund and Adult Education Fund Budgetary Comparison Schedules and Schedule of Other Postemployment Benefits (OPEB) Funding Progress on pages 58 to 60 be presented to supplement the financial statements. Such information, although not a part of the financial statements, is required by Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economic, or historical context We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the financial statements, and other knowledge we obtained during our audit of the 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 Santa Clara Unified School District's financial statements. The accompanying schedule of expenditures of federal awards as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and the other supplementary information listed in the table of contents are presented for purposes of additional analysis and are not a required part of the financial statements. The schedule of expenditures of federal awards and other supplementary information as listed in the table of contents is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. Such information, except for the Schedule of Financial Trends and Analysis, has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generaliy accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards and other supplementary information as listed in the table of contents, except for the Schedule of Financial Trends and Analysis, are fairly stated, in all material respects, in relation to the financial statements as a whole. The Schedule of Financial Trends and Analysis has not been subjected to the auditing procedures applied in the audit of the financial statements, and accordingly, we do not express an opinion or provide any assurance on them.

7 Report 011 Other Legal and Regulatory Requirements In accordance with Government Auditing Standards, we have also issued our report dated December 9, 2013 on our consideration of Santa Clara Unified School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is 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 Clara Unified School District's internal control over financial reporting and compliance. Sacramento, California December 9, 2013 ~~~ Crowe Horwath LLP

8 SA A CLARA UNIFIED SCHOOL DISTRICT SANTA CLARA UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 DISTRICT PROFILE The Santa Clara Unified School District (the "District") was established on July 1, 1966 by unifying the Jefferson Union School District, Santa Clara Elementary School District, Alviso Elementary School District and Santa Clara High School District. The District operates 16 elementary schools, 1 K-8 school, 3 middle schools, 2 high schools, Wilson Independent High School, New Valley Continuation High School and Santa Clara Community Day School. The District serves nearly 15,300 K-12 students and an additional 11,500 Preschool and Adult Education students. The District encompasses 90 percent of the City of Santa Clara as well as portions of the City of Sunnyvale, the City of San Jose and a slight portion of the City of Cupertino. The District's boundaries contain an area of approximately 56 square miles, located in the heart of Silicon Valley. The student population is 36% Hispanic, 31 % ASian, 23% White, 4% African American, 1% Pacific Island, 1% American Indian or Alaska and 4% others and or not reported. FINANCIAL HIGHLIGHTS Basic Aid School District The District has been a Basic Aid School District since the fiscal year. The defining characteristic of the District's finances is its basic aid status. The local property taxes of most school districts are not sufficient to fund the State "revenue limit" and so the state backfills the balance of the revenue limit amount with State Aid. These "revenue limit" districts have little concern about property tax levels due to the backfill. On the other hand, approximately 130 of the 1,000 school districts in the state have local property tax revenues which, given their enrollment levels, result in dollars per Average Daily Attendance (ADA) which exceed the revenue limit. These districts under current state law are allowed to keep all of their property tax revenue. This results in an extremely high degree of dependence on local property taxes. (See Chart -1) CHART 1 Total General Fund Revenue other State Revenues Other Local Revenues 5% General Purpose (Rev limit! Property Taxes) Sources 82% 4

9 2013 Results of Operations The District's general fund revenue and other sources exceeded expenditures and other outgo by $6,482,101, resulting in an ending fund balance of $23,906,583. Of this amount, $20,543,396 IS unrestricted and $3,363,187 is restricted for categorical programs. For a District this size, the state recommends the reserve for economic uncertainties be at least 3% of general fund expenditures and other uses. Other assignments and designations total $3,968,339, leaving $16,360,594 unassigned/undesignated. General Fund Ending Balance Construction Projects The District expended approximately $69.4 million on facilities and construction during fiscal year Funding for this activity came from four sources: Fund 210 (formerly the Measure B General Obligation Bond); Fund 211 Measure J General Obligation Bond; Fund 212 Measure H General Obligation Bond; and Fund 250 Capital Facilities. The District's annual debt service on General Obligation Bonds for the year ended June 30, 2013, was approximately $30.2 million. Future debt service payments range between $29 million to $31 million each year. The General Obligation Bond debt service amount is funded primarily from property tax assessments authorized by each General Obligation Bond measure. The major construction projects during the fiscal year were: Mariposa Campus (new location of Millikin Basics + Elementary School: Construct new replacement Administration Building Commission solar power arrays to offset most of the campus electrical use. Cabrillo Middle School: Complete front parking lot and traffic modifications. Demolish Administration Building and commence construction on new replacement building. Buchser Middle School: Complete major renovation of the Auxiliary Gymnasium constructed in Complete new replacement Girl's locker and health classroom building. Commission solar power arrays to offset a significant amount of the campus electrical use. 5

10 Peterson Middle School: Complete major renovation of the Multipurpose Building including kitchen and food service facility. Commence re-roofing and seismic strengthening of Main and Auxiliary Gymnasiums. Commenced replacement of the last concrete covered walkway structures with new steel canopies. Commission solar power arrays to offset the majority of the campus electrical use. Santa Clara High School: Completed last phase of permanent classroom modernization program. Commenced reconstruction of front parking lots including vehicle and pedestrian pathways. Major renovation and seismic strengthening of the former shops building at 90% complete. Commence major renovation of the Multipurpose Building including new food service facilities. Integrate solar power shade structures in the parking lot renovation project sufficient to offset a majority of the campus electrical use. Wilcox High School: Completed major renovation and seismic strengthening of the two-story classroom and administration wing (largest building in the District). Integrated new solar power arrays into front parking lot to provide a significant portion of campus electrical use. e Commenced major renovation and seismic strengthening of the Multipurpose Building including food service facilities. Wilson Education Options Campus Completed major renovation and seismic strengthening of the Gymnasium, Multipurpose Building and former Library Building. Completed driveway and pedestrian walkway re-construction Commission solar power arrays to provide a significant portion of the campus electrical use. Substantially complete video surveillance systems on all elementary school campus. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of three parts - management's discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements that present different views of the District: The first tvvo statements are district-wide financial statements that provide both shorl-ter,71 and!ongterm information about the District's overall financial status. The remaining statements are fund financial statements that focus on individual parts of the District, reporting the District's operations in more detail than the district-wide statements. The governmental funds statements tell how basic services like instruction and pupil services were financed in the short term as well as what remains for future spending. Proprietary fund statements offer financial information about the activities the District operates on a cost reimbursement basis, such as the self-insurance fund. Fiduciary funds statements provide information about the financial relationships in which the District acts solely as a trustee or agent for the benefit of others to whom the resources belong. Fiduciary fund activity is excluded from the district-wide financial statements. 6

11 The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements with a comparison of the District's general fund budget, both the adopted and final version, with actual year end information. 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 assets includes all of the District'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 was received or paid. The two statements report the District's net position and how they have changed. Net position - the difference between the District's assets and liabilities - are 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 position is improving or deteriorating. To assess the overall health of the District, one needs to consider additional non-financial factors such as changes in the District's property tax base and the condition of school buildings and other facilities. Fund Financial Statements The fund financial statements provide more detailed information about the District's most significant funds - not the District as a whole. Funds are accounting devices the District uses to keep track of specific sources of funding and spending on particular programs: Some funds are required by State law and by bond covenants. The District establishes other funds to control and manage money for particular purposes (like repaying its long-term debt) or to show that it is properly using certain revenues (like federal grants). The District has three kinds of funds: Governmental funds - Most of the District's basic services are included in governmental funds, which generally focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out, and (2) the balances left at year-end that are available for spending. Consequently, the governmental fund statements provide a detailed short-term view that helps one determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. Because this information does not encompass the additional longterm focus of the district-wide statements, additional information is provided in separate reconciliation statements that explains the relationship (or differences) between them. e Proprietary funds - Services for which the District charges a fee are generally reported in proprietary funds. Proprietary funds are reported in the same way as the district-wide statements. Internal service funds (one kind of proprietary fund) are used to report activities that provide supplies and services for the District's other programs and activities. The District currently has one internal service fund - the employee self-insurance fund, Fiduciary funds -The District is the trustee, or fiduciary, for assets that belong to others, such as the scholarship fund and the student activities funds, All of the District's fiduciary activities are reported in separate fiduciary statements. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance their operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes, 7

12 FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Net Position Net position represents the difference between assets and liabilities. 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. Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. The District applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available. The District's combined net position was $227.9 million for the fiscal year ended June 30, The net increase is $11.1 million compared to prior year. Restricted net position is reported separately to show legal constraints from debt covenants and enabling legislation that limit the School Board's ability to use that net position for day-to-day operations. The analysis below (Table 1) focuses on the net position of the governmental activities. Table 1 Santa Clara Unified School District Net Position (in millions) Governmental Activities Change Assets: Current and other assets (68.68) I Capital assets Total Current Assets (3.35) Deferred Outflow: Deferred loss on refunding Liabilities: Current liabilities (6.27) Long-term debt (5.51) Total Current liabilities (11.78) Net Position: Net investment in capital assets (121.36) Restricted Unrestricted (4.10) Total Net Position

13 Table 2 presents the cost of the District's largest functions - regular program instruction, other instructional programs, pupil services, general administration, plant services, community services, enterprise services, interest on long-term debt and other outgo. Providing this information allows our citizens to consider the cost of each function in comparison on the benefits they believe are provided by that function. Table 2 Santa Clara Unified School District Statement of Activities REVENUES: Program Revenues: Charges for Services Grants and Contributions General Revenues: I Property Taxes Other Federal and State Other Revenues EXPENSES: Total Revenues Instruction Instruction Related Activities: Supervision of Instruction Inst. Library, Media and Technology School Site Administration Pupil Services: Home to School Transportation Food Services All Other Pupil Services General Administration: Data Processing All Other Genera! Administration Plant Services Community Services Enterprise Services Interest on long-term Debt Other Outgo Change in Position Total Expenditures $ 2,732,309 $ 6,030,021 26,405,398 25,766, ,223, ,298,150 7,237,198 9,856,766 30,575,539 11,533,943 $ 188,173,852 $ 185,485,118 $95,079,746 $93,755,514 7,887,146 7,667,265 1,108,085 1,123,657 12,281,601 12,428,628 6,824,904 6,147,477 4,890,020 5,050,938 5,272,781 5,640,359 1,593,278 1,488,035 t: ""1 r:::.01 4,892,559...,'-'v...,-'-'... 13,190,718 9,985, , ,412 97,854 15,531,849 24,857, ,802 1,117,407 $ 169,202,828 $ 174,361,347 $ 18,971,024 $ 11,123,771 Change $ 3,297,712 (639,160) 11,074,742 2,619,568 ( 19,041,596) $ (2,688,734) ($1,324,232) (219, , ,027 (677,427) 160, ,578 (105,243) (109,032). (3,205,457) 53,959 (97,854) 9,325, ,605 $ 5,158,519 $ (7,847,253) 9

14 GOVERNMENTAL FUNDS OF THE DISTRICT Major Governmental Funds: General Fund General Fund Activities breakdown by Objects and Functions Charts 2 and 3 provide a breakdown of the general fund expenditures, both by Object code and by Function. As is common with all school districts, the majority of expenditures in the general fund are for salaries and benefits (approximately 79%). The District must spend at least 55% of its total certificated salaries and benefits on classroom instruction activities. For the current fiscal year, the District spent approximately 63.32% of certificated salaries and benefits on classroom instruction activity. CHART 2 - Total General Fund Expenditures Books and Other Services & Opel'. Capital Outlay 0% Certificated 10% 16% salaries 15% CHART 3 EXPENDITURES BY function Interest on Community Long-term Debt Other Outgo Services 14% 0% 0% Plant Services 6% General Admin Pupil Services 12% Instruction 54% 10

15 Available Reserves In , property tax growth was 7% due to the recovering economy. The District's unrestricted available reserves decreased during the year by $4.1 million from $12.4 million to $8.3 million. Available reserves are a measure of the District's unrestricted net current position, exclusive of capital assets and long-term debt, which can be used to finance District operations in the succeeding fiscal year. This measure is a critical amount that is used by the State as one measure of the District's financial solvency. Districts of similar size are typically required to maintain available reserves of 3% of total general fund expenditures. The District maintained a 9.7% reserve level at June 30, Post-employment Benefits Fund GASB 45 regulates how districts account for and report their costs and obligations relating to postemployment benefits other than pensions. Santa Clara Unified School District implemented GASB 45 effective July 1, On April 26, 2007, the Board approved Resolution #07-10 regarding the establishment of a new fund (Fund 200) to account separately for amounts held from salary reduction and to report the costs and obligations relating to Post-employment Benefits. On May 24, 2007, the District Governing Board approved a one-time transfer of $2,000,000 to fund GASB 45 liabilities. The net fund balance as of June 30, 2013 is $361,507. For financial statement purposes, the Special Reserve Fund for Postemployment Benefits (Fund 20), is included with the General Fund. Adult Education Fund This fund is used to track revenues and expenditures related to the operation of an Adult Education program. The funding for adult education was part of the flexibility provided by the State in , however, the District chose to continue operating the program and tracking the expenditures outside the genera! fund. The District transfers the former apportionment to the Adult Education fund at the beginning of the year, and books a contribution back at the end of the year to help with operating the general fund. Table 3 Santa Clara Unified School District Adult Education Fund I Change Beginning Balance $ 2,043,581 $ 1,436,062 $ (607,519) Revenues Federal Sources 441, ,411 (4,736) State Sources 457, ,876 3,408 Local Sources 2,104,996 2,038,168 (66,828) Total Revenues 3,003,611 2,935,455 (68,156) Expenditures 4,018,133 3,917,659 (100,474) Othe r sources and uses 407, , ,170 Fund Balance $ 1,436,062 $ 1,110,031 $ (326,031) 11

16 Capital Facilities Fund This fund is primarily used to track the fees earned by the District from developers or other agencies who build, improve, or construct development projects within the boundaries of the District. Table 4 presents the cost of the District's Capital Facilities Fund Table 4 Santa Clara Unified School District Capital Facilities Fund \ Change Beginning Balance $ 9,203,760 $ 22,279,203 $ 13,075,443 Revenues Federal Sources - - State Sources Local Sources 13,783,544 6,695,568 (7,087,976) Total Revenues 13,783,544 6,695,568 (7,087,976) Expenditures 708, ,097 (494,004) Fund Balance $ 22,279,203 $ 28,760,674 $ 6,481,471 Building Fund On June 3, 1997, the voters of the Santa Clara Unified School District approved the issuance of $145 million in General Obligation Bonds (Measure B) for the construction and improvement of District school facilities. On November 2, 2004, qualified voters approved the issuance of $315 million in General Obligation Bonds (Measure J, approval rate 72.04%). The first series of Measure J Bonds totaling $78.86 million were issued in July The second series totaling $120 million were issued in July The final series totaling $ million were issued in June Measure B Projects have been completed. The District is on track to complete projects in the Measure J Master Plan approved by the Board of Trustees. On November 2, 2010, qualified voters approved the issuance of $81.1 million in General Obligation Bonds (Measure H, approval rate 64.44%). The entire authorization was issued in June During the fiscal year, Building Fund construction projects included all of the projects listed above. Projects currently in design and permitting include: Buchser Middle School: Replace the Multipurpose Building, "A" Wing Classrooms and special education portable building. Improve Bellomy Street to integrate into school campus plan. Peterson Middle School: Site grading and drainage improvement around Science/Shops Building E. Santa Clara High School: Quad site improvements Repave West parking lot Disposition of temporary portables used during modernization Wilcox High School: Integrate ASB into new three-story classroom building. 12

17 Quad site improvements and removal of C Wing Building. New pedestrian bridge over Calabazas Creek Disposition of temporary portables used during modernization Wilson Education Options: Replace Administration Building with new structure. Storm drainage system improvements. Bond Interest and Redemption Fund (BI&R) This fund is used for the repayment of bonds issued for the District. The board of the supervisor of the county issues bonds. The proceeds of premiums or accrued interest received from the sale of the bonds must be deposited in BI&R fund. The county auditor maintains control over the District BI&R fund. The principal and interest on the bonds must be paid by the county treasure from tax levied by the county auditor-controller. Table 5 presents the cost of the District's Bond Interest and Redemption Fund. At year-end the District had $23,194,043 in fund balance - an increase of 6% from last year. Table 5 Santa Clara Unified School District Bond Interest and Redemption Fund I Change Beginning Balance $ 18,072,585 $ 21,897,029 $ 3,824,444 Revenues Federal Sources 1,190,615 1,138,823 (51,792) State Sources 120, ,091 (4,431) Local Sources 26,696,375 30,194,710 3,498,335 Expenditures Total Revenues 28,007,512 31,449,624 3,442,112 Debt Service - Principal 8,405,000 10,560,000 2,155,000 Debt Service - Interest 15,778,068 19,592,610 3,814,542 Total Expenditures 24,183,068 30,152,610 5,969,542 Fund Balance $ 21,897,029 $ 23,194,043 $ 1,297,014 13

18 Non-Major Governmental Funds: The District's non-major Governmental Funds have not changed significantly in the fiscal year, except the fund mentioned below, Special Reserve for Capital Outlay Fund The District's Board in 1988 authorized $16,888,895 from the sale of Brown Elementary and Montgomery Elementary to be invested in a special reserve fund, The original investment was reduced in by the purchase of 25 kindergarten and second grade portables for a cost of $1,603,526, The District governing Board approved using a onetime $4 million transfer from this fund to balance the District's budget shortfall; the District received a waiver from the state (SB1906) allowing this one time transfer. In , the District governing Board again asked the state to allow using the proceeds from sale of property flexibility to approve a onetime $4 million transfer from this fund to balance the budget shortfall. The District received a waiver from the Office of Public School Construction to allow this additional onetime transfer. In , the District governing Board asked the state to allow using the proceeds from sale of property flexibility to approve a onetime $2,6 million transfer from this fund to balance the budget shortfall, The District received a waiver from the Office of Public School Construction allowing this one time transfer. In , the District governing Board asked the state to allow using the proceeds from sale of property flexibility to approve a onetime $2 million transfer from this fund to balance the budget shortfall, The District received a waiver from the Office of Public School Construction allowing this one time transfer. The net fund balance is $4,734,992 at June 30, 2013, PROPRIETARY FUNDS OF THE DISTRICT Self Insurance Fund The District's maintains a self insurance fund to account for workers' compensation and dental/vision insurance activities, The District ordered an actuarial review of the Worker's Compensation Program in April of 2013, The review determined that the District has a projected $5,400,000 liability for unpaid losses, After this actuarially estimated incurred-but-not-reported (IBNR) liability, the fund shows a positive $1,903,596 balance, 14

19 CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets The Measure B Bond Program was completed in The Measure J Bond Program began with the first sale of bonds in mid 2005 and is scheduled to be complete in late early Both bond programs have been augmented by funding from the State Facility Program. Bond program projects have focused on modernizing the District's elementary and secondary schools and completing the new Don Callejon K- 8 school. The Measure J Program scope is based on the Bond Project List approved by the voters and monitored by the Measure J Citizens' Independent Oversight Committee. Table 6 Santa Clara Unified School District Capital Assets (in millions) Land $ 3.26 $ 3.31 Construction in Progress Buildings and Improvements Equipment Less Accumulated Depreciation: Construction in Progress (0.34) (0.37) Buildings and Improvements (58.03) (65.92) Equipment (5.60) (6.01) Total Capital Assets $ $ Change $ 0.05 (1.60) $ Long-Term Debt At year-end, the District had $462.6 million in general obligation bonds and other long-term debt outstanding - a decrease of approximately 2% from last year. (More detailed information about the District's long-term liabilities is presented in Note 6 to the financial statements.) The District issued the first series of Measure "J" General Obligation Bond totaling $78.86 million in July 2005, and issued the second series totaling $120 minion in July The third series of bonds in the amount of $ million was sold in June The funds are mainly for modernizing the secondary schools. In 2012, the bonds were refunded for savings. The District continued to pay down its debt, retiring $9.9 million of outstanding bonds. The District issued a $7,575,000 Certificates of Participation (COPs) to finance the District's 40 unit teacher apartment complex project in 2001, and issued the second COPs on September 1, 2006 in the amount of $5,405,000 to construct the additional 30 units to the teacher apartment complex. The 2001 COPs were refinanced in for savings. The total annual debt services payments are $520,000 to $564,

20 Table 7 Santa Clara Unified School District Outstanding Long-Term Debt at Year-end Changes General obligation bonds $ 441,095,000 $ 426,805,000 $ (14,290,000) Premium on GO bond refunding 13,006,775 16,046,378 3,039,603 Certificates of participation 12,916,868 13,430, ,132 Compensated Absences 630, ,298 (113,527) Net OPEB obligation 4,610,330 5,786,184 1,175,854 STRS golden handshake 192,431 (192,431) Total $ 472,452,229 $ 462,584,860 $ (9,867,369) Measure B - General Obligation Bonds In June 1997 the voters of the Santa Clara Unified School District approved the issuance of $145 million in general obligation bonds for the construction and improvement of District school facilities. The successful bond measure triggered a capital improvement program that has included additional funding from the State Facility Program, Developer Fees, joint use participation with the Cities of Santa Clara and Sunnyvale, donations from local corporations, and utility energy efficiency rebates. Major project categories include the renovation and modernization of all District occupied school facilities, district-wide replacement of the communications infrastructure, reconstruction of the high school outdoor athletic facilities, replacement of non-conforming temporary classroom buildings, new classrooms for reduced elementary class size, new science buildings at the two high schools, new performing arts buildings at the two high schools. Approximately $185 million was expended or budgeted for capital improvement projects from 1997 to An additional $24 million has been obtained from the State Facility Program. Measure J - General Obligation Bonds Measure J was passed at the November 2, 2004 general election. The measure authorized $315 million of general obligation bonds. The first series of bonds in the amount of $78.86 million was sold in July The second series of bonds in the amount of $120 million was sold in July The third and final series of bond in the amount of $ million was sold in June The third series included $25 million in Qualified School Construction Bonds under Federal program authorizing issuance of tax-reimbursement bonds. This portion of the third series has resulted in substantial savings in debt service costs for District taxpayers over the life of these bonds. Major expenditures in this program have included the completion of the Don Callejon School, modernization of Braly Elementary School, and major modernization projects on the District's three middle school campuses, two comprehensive high schools and the Wilson Education Options campus. The Measure J Bond initiative included a Projects List that directs scope development for all projects. A Citizens Oversight Committee has been established and meets quarterly to review the direction and progress of the program. 16

21 Measure H - General Obligation Bonds Measure H was passed at the November 2, 2010 general election. The measure authorized $81.1 million of general obligation bonds. The entire series of bonds were sold in June The major projects of this bond include acquisition of the former Agnews Development Center site for new schools, modernization of the Mariposa Carnpus to relocate the Millikin Basics Plus Elementary School, solar power generating facilities on seven campuses and a District-wide video surveillance system. Teacher Housing Apartment and Teacher Mortgage Assistance Program (TMAP) The District has developed two housing programs to help recruit and retain qualified teachers. The teacher apartment complex "Casa del Maestro" was completed in April This forty-unit complex was built on the site of the closed Curtis School - property owned by the school district. The cost of construction was financed through Certificates of Participation (COPs), which will be repaid through rental revenues from the apartments. Teacher rents are about fifty percent of market rents in the area but are sufficient to cover interest only debt service (COPs) and ongoing operating expenses. The District will not incur any costs related to the construction or operation of the apartment building. The District recently completed construction of Phase II of Casa del Maestro. Phase II was also financed using Certificates of Participation and will not infringe upon the General Fund for interest payments. There is not a plan for the repayment of the balloon principal payments when they come due. A local property management firm was hired to oversee the day-to-day operation of Casa del Maestro, however, the bookkeeping portion of their work will be brought back into the district. The other housing program, the Intel Teacher Mortgage Assistance Program (TMAP) was initiated in late 1999 to assist teachers in buying a house. Intel Corporation bought a $10 million bond from the District, which was reinvested. The arbitrage, or difference between the rate invested and the rate paid Intel, was used to fund the program. TMAP contributes $500 a month towards the teachers' mortgage payment for five years. At the end of the five years, each teacher begins repayment of the $30,000 loan and this money gets recycled to help future teachers with their mortgages. The $10 million bond was repaid to Intel Corporation in August The TMAP program sustains itself from the accrued interest earned on the original investment and by repayments from teachers as they complete their five-years program participation. FACTORS BEARING ON THE DISTRICT'S FUTURE At the time these financial statements were prepared and audited, the District was aware of the following existing circumstances that could significantly affect its financial health in the future: The State Budget For the first time in over thirty years, the methodology and formulae for funding schools has had a complete makeover. There will be no more revenue limits or COLAs or deficits. The LCFF is intended to correct historical inequities and increase flexibiiity, but it also brings new challenges, as districts across the State must quickly adapt to a new funding model. In addition, many of the details of the new accountability structure are yet to be determined. Key components, including regulations on the use of Supplemental and Concentration Grants and the format for Local Control Accountability Plans (LCAP), will be determined by the State Board of Education, which will take action on these items in the first quarter of the 2014 calendar year. 17

22 Under the new Local Control Funding Formula (LCFF), districts start with base funding per-student then add supplemental grants based on the percent of students who are English Learners, qualify for Free & Reduced meals or are foster youth. There are additional "concentration" grants for those districts with> 55% of these qualifying students. A Local Control Accountability Plan (LCAP) must be adopted along with the budget each year. The LCAP will communicate how the district intends to allocate resources to serve those students generating the supplemental and concentration grant funds. However, in Santa Clara's case, local property taxes, or community funding, exceed the new, increased LCFF funding level. Just as was the case with revenue limits, the District remains a locally funded district, or Basic Aid. In fact, it is projected that property taxes will continue to exceed the State's calculated LCFF funding level for the foreseeable future. There is a time, given certain circumstances, when the LCFF formula could generate more revenue for the District than the Basic Aid property tax method. The District will monitor these calculations regularly to be sure to optimize funding for the District. AB 1290 Tax Pass-Through from Bayshore North Redevelopment Area 4gers Stadium Project When the City of Santa Clara adopted a SB 211 amendment in April 2011, the District started receiving approximately $1.4 million in Assembly Bill (AB) 1290 pass-through tax money. This passthrough tax money will increase as the neighborhood assessed property values go up. Property Tax Growth The Santa Clara Unified School District is a basic aid school district. The increase and decrease of local property taxes will impact the District's general fund balance dramatically. Based on the County Assessment Data released June 28, 2012, the County Tax Assessor - Larry Stone said, "After three years of minimal or negative growth in assessed property values, the Santa Clara County, Assessor's Office is reporting the first solid increase in assessed values since Economists often describe economies in curves, but Silicon Valley's economy looks more like a check mark". For , the increase in property taxes was approximately 7%. ABX1 26 Redevelopment Agencies (RDA) Elimination Redevelopment Agencies (RDA) were eliminated by AB 26 of the First Extraordinary Session. Locally organized "successor agencies" are tasked with retiring the former RDAs' outstanding debts and other legal obligations, including pass-through funds for school facilities. School districts and community college districts are represented on the successor agency boards. After ensuring that the outstanding obligations of the former RDAs are covered, the successor agencies are responsible for determining the allocation of the remaining property tax revenues among the cities, counties, special districts, and K-12 and community college districts. A number of lawsuits and unexpected slowdowns in the distribution of residual increments and asset liquidation dollars have occurred in Santa Clara. The District stands to gain a significant amount of money in future years, both on-going and one-time in nature. Academic Achievement Santa Clara Unified School District has been on a steady course of continuous improvement in academic achievement, closing the achievement gap, improving and modernizing its facilities, and meeting the needs and priorities of the Board and community. 18

23 North San Jose and the Santa Clara Mitigated Developer Fee Agreement In June 2005, the City of San Jose announced plans to build 21 million square feet of commercial office space and 32,000 living units in the Redevelopment Agency area of North San Jose. A little over seven million square feet of commercial space and 16,000 living units are planned for within the SCUSD boundaries by the year This plan did not include a provision for any school facilities. As of September 2010, two of the original builders indicated that they were ready to commence construction of about 1,800 units in the spring or summer of The District began the fiscal year with a new Superintendent. There has been a new effort to reassess the situation and develop a strategy to deal with enrollment growth in the North San Jose area. It is anticipated that there will be a concerted effort to work collaboratively with developers and the City of San Jose. With the passage the Measure "H" general obligation bond, the district set aside $45 million for acquiring a piece of property in north San Jose area to build a K-8 and a high school in the near future. Currently, the District is making a proposal to the State of California for the 59.4 acres Agnews property located in north San Jose. CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers and investors and creditors with a general overview of the District's finances and to demonstrate the District's accountability for the money it receives. If you have questions about this report or need additional financial information, please contact the Business Services department, Santa Clara Unified School District, 1889 Lawrence Road, Santa Clara, CA

24 BASIC FiNANCIAL STATEMENTS

25 SANTA CLARA UNIFIED SCHOOL DISTRICT STATEMENT OF NET POSITION June 30, 2013 Governmental Activities ASSETS Cash and investments (Note 2) Receivables Due from other funds (Note 3) Stores inventory Prepaid expenditures Non-depreciable capital assets (Note 4) Depreciable capital assets, net of accumulated depreciation (Note 4) Total assets $ 212,051,446 11,330, , , , ,211, ,306, ,359,943 DEFERRED OUTFLOWS Deferred loss from refunding of debt 3,939,896 LIABILITIES Accounts payable Unearned revenue Unpaid claims and claim adjustment expenses (Note 5) Long-term liabilities (Note 6): Due within one year Due after one year Total liabilities 17,258,798 2,163,120 5,400,000 10,737, ,778 NET POSITION Net investment in capital assets Restricted (Note 7) Unrestricted Total net position 31,236, ,356, ,042 $ 227,893,061 The accompanying notes are an integral part of these financial statements. 20

26 SANTA CLARA UNIFIED SCHOOL DISTRICT STATEMENT OF ACTIVITIES For the Year Ended June 30, 2013 Program Revenues Charges Operating for Grants and Expenses Services Contributions Capital Grants and Contributions Net (Expense) Revenues and Changes in Net Position Governmental Activities Governmental activities (Note 4): Instruction Instruction-related services: Supervision of instruction Instructional library, media and technology Schoo! site administration Pupil services; Horne-to-school transportation Food services All other pupil services General administration: Data processing All other general administration Plant services Ancillary services Community services Interest on long-term liabillties Other outgo $ 93,755,514 $ 245,787 $ 10,362,129 7,667,265 13,476 2,999,764 1,123, ,361 12,428,628 21, ,949 6,147, , ,955 5,050,938 1,656,102 3,366,245 5,640,359 4, ,572 1,488,035 1,026 1,418 4,892,559 64, ,650 9,985,261 5,281 1,252, ,410 24,857, $ (83,147,598) (4,654,025) (1,121,981) (11,676,902) (5,531,243) (28,591) (4,830,256) (1,485,591 ) (4,435,375) (8,727,896) (2) (206,410) (24,857,835) Total governmental activities l! l! 6, l! l! ( ) General revenues: Taxes and subventions: Taxes levied for general purposes Taxes levied for debt service Taxes levied for other specific purposes Federal and state aid not restricted to specific purposes Interest and investment earnings Interagency revenues Miscellaneous 98,774, ,254,415 9,856, ,322 91, Total general revenues Change in net position 11, Net position, July 1, 2012, originally stated Cumulative effect of change in accounting principle Net position, July 1, 2012, as restated Net position, June 30, ,467,310 ( ) l! The accompanying notes are an integral part of these financial statements. 21

27 SANTA CLARA UNIFIED SCHOOL DISTRICT BALANCE SHEET GOVERNMENTAL FUNDS June 30, 2013 General Fund Adult Capital Education Building Facilities Fund Fund Fund Bond Interest and All Total Redemption Non-Major Governmental Fund Funds Funds ASSETS Cash and investments: Cash in County Treasury $ 19,385,128 $ Cash awaiting deposit 315,187 Cash in revolving fund 40,000 Cash with fiscal agent Receivab!es 7,309,929 Due from grantor government 1,154,097 Prepaid expenditures Due from other funds 4,389,667 Stores inventory ,982,922 $ 121,382,469 $ 28,926,169 7,881 1,232 12,794 2,046, ,495 25,357 48, ,782 $ 23,182,271 $ 7,457,205 $ 203,316,164 89, ,667 40, , ,999 11, ,188 10,168,635 1,154, , ,901 1,062,265 5,842, T ctal assets , LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 5,870,434 $ Due to grantor governments 65,670 Unearned revenue 1,734,456 Due to other funds 1,191,328 54,231 $ 823,021 $ 2, , $ $ 187,235 $ 6,937,700 65, ,272 2,155, , Total liabilities 8861, , Fund balances: Nonspendable 214,463 Restricted 3,363,187 Assigned 3,968,339 Unassigned ,110, ,691,898 28,760, , ,779 23,194,043 9,431, ,551,814 3,968,339 16, Total fund balances ,526 Total liabilities and fund balances $ i i $ The accompanying notes are an jntegral part of these financial statements. 22

28 SANTA CLARA UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION June 30, 2013 Total fund balances - Governmental Funds $ 207,265,526 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used for governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of the assets is $559,820,789 and the accumulated depreciation is $72,303,275 (Note 4). 487,517,514 Long-term liabilities are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. Long-term liabilities at June 30, 2013 consisted of (Note 6): General Obligation Bonds Premium on bonds Certificates of Participation (COPs) Net OPEB obligation (Note 9) Compensated absences $ (426,805,000) (16,046,378) (13,430,000) (5,786,184) (517,298) (462,584,860) Unmatured interest is not recognized un!ii it is due and, therefore, is not accrued as a payable in governmental funds. In governmental funds, deferred inflows and deferred outflows of resources resulting from defeasance of debt are not recorded. In governmental activities, for advance refundings resulting in defeasance of debt reported in governmental activities, the difference between reacquisition price and the net carrying amount of the retired debt are reported as a deferred inflows and deferred outflows of resources. Internal service funds are used to conduct certain activities for which costs are charged to other funds on a full cost-recovery basis. Restricted net position for the Self-Insurance Fund is: Total net position - governmental activities (9,879,768) 3,939,896 1,634,753 $ 227,893,061 The accompanying notes are an integral part of these financial statements. 23

29 SANTA CLARA UNIFIED SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES GOVERNMENTAL FUNDS For the Year Ended June 30, 2013 General Fund Adult Capital Education Building Facilities Fund Fund Fund Bond Interest and All Total Redemption Non-Major Governmental Fund Funds Funds Revenues: Revenue limit sources: State apportionment $ 2,568,292 Local sources $ $ $ $ $ $ 2,568, Total revenue limit Federal sources 6,344,395 Other state sources 13,091,064 Other local sources , , ,138,823 3,219,294 11,138, ,091 2,447,420 16,115, Total revenues , , Expenditures: Certificated salaries 66,346,765 Classified salaries 19,757,956 Employee benefits 21,695,772 Books and supplies 4,456,918 Contract services and operating expenditures 15,959,705 Capital outlay 71,543 Other outgo 123,516 Debt service: Principal retirement Interest 1,674,107 1,016, , , ,Q38 142,721 1,147,943 3, ,140 4,121, ,096 63,598, ,226 68,979,098 4,361,407 25,617,539 1,778,985 24,280,064 3,003,439 8,754, ,620 21,504, ,775 63,899, ,516 10,560,000 7,575,000 18,135,000 19,592, ,381 20,242,991 Total expenditures ,175 3, , Excess (deficiency) of revenues over {under} expenditures 5059,004 (982204) ( ) 6481, ( ) ( ) Other financing sources (uses): Operating transfers in 5,816,898 Operating transfers out (4,393,801) Proceeds from issuance of debt Other financing sources Refundings of debt Other financing uses 4,208,400 (3,552,227) 45,520,000 4,612,745 (49,250,000) (757220) 100,000 10,125,298 (2,364,671 ) (10,310,699) 8,025,000 53,545,000 4,612,745 (49,250,000) (757220) Total other financing sources (uses) Net change in fund balances 6,482,101 (326,031) (68,435,409) 6,481,471 1,297,014 (248,673) (54,749,527) Fund balances, July 1, , , Fund balances, June 30, ,031 $ , $ ,526 The accompanying notes are an integral part of these financial statements. 24

30 SANTA CLARA UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES - GOVERNMENTAL FUNDS - TO THE STATEMENT OF ACTIVITIES For the Year Ended June 30, 2013 Net change in fund balances - Total Governmental Funds $ (54,749,527) Amounts reported for governmental activities in the statement of activities are different because: Acquisition of capital assets is an expenditure in the governmental funds, but increases capital assets in the statement of net position (Note 4). $ 69,723,658 Depreciation of capital assets is an expense that is not recorded in the governmental funds (Note 4). Repayment of principal on long-term liabilities is an expenditure in the governmental funds, but decreases the long-term liabilities in the statement of net position (Note 6). Issuance of long-term liabilities is an other financing source in the governmental funds, but increases the long-term liabilities in the statement of net position (Note 6). Premiums associated with the issuance of debt are not financial resources and therefore are not reported as revenue in the governmental funds (Note 6). Amortization of premiums and discounts are revenue and expense that are not recorded in the governmental funds (Note 6). In the government-wide statements, the retirement incentive program is reported as a liability in the year of the contract setup and the liability is reduced in the year the payments are made. In the governmental funds, the payments are recorded as expenditures in the year paid (Note 6). In the statement of activities, expenses related to Other Postemployment Benefits (OPEB) are measured by the amounts earned during the year. In the Governmental funds, expenditures are measured by the amount of financial resources used (Note 6 and Note 9). In the statement of activities, expenses related to compensated absences are measured by the amounts earned during the year. In the governmental funds, expenditures are measured by the amount of financial resources used (Note 6). In governmental funds, deferred inflows and deferred outflows of resources are not recognized. In the government-wide statements, deferred inflows and deferred outflows of resources are amortized over the life of the debt. (8,334,220) 67,385,000 (53,545,000) (4,612,745) 1,510, ,431 (1,175,854) 113,527 (816,393) The accompanying notes are an integral part of these financial statements. 25

31 SANTA CLARA UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES - GOVERNMENTAL FUNDS - TO THE STATEMENT OF ACTIVITIES (Continued) For the Year Ended June 30, 2013 Unmatured interest on long-term liabilities is not recorded in the governmental funds until it becomes due, but increases the liabilities in the statement of net assets. (4,551,711) 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, internal service activities are reported as governmental in the statement of activities. Change in net position, excluding acquisition of capital assets of $3,485 and depreciation expense of $1,111 was: Change in net position of governmental activities... (-'.:15"",4""0,,,,5) 65,873,298 $ 11,123,771 The accompanying notes are an integral part of these financial statements. 26

32 SANTA CLARA UNIFIED SCHOOL DISTRICT STATEMENT OF NET POSITION -INTERNAL SERVICE FUND SELF-INSURANCE FUND June 30, 2013 ASSETS Current assets: Cash and investments: Cash in County Treasury Cash awaiting deposit Cash on hand and in banks Cash with fiscal agent Receivables Due from other funds Total current assets Net investment in capital assets Total assets $ 7,141, , ,254 7,385 1,534 7,420, , LIABILITIES Current liabilities: Accounts payable Due to other funds Unearned revenue Total current I'!abilities Self insurance claims liabilities Total liabilities 375,660 2, ,782 5, ,785,782 NET POSITION Net investment in capital assets (Note 4) Restricted (Note 7) Total net position $ 3, ,638,093 The accompanying notes are an integral part of these financial statements. 27

33 SANTA CLARA UNIFIED SCHOOL DISTRICT STATEMENT OF CHANGE IN NET POSITION -INTERNAL SERVICE FUND SELF-INSURANCE FUND For the Year Ended June 30, 2013 Operating revenues: Self-insurance premiums Operating expenses: Classified salaries Employee benefits Books and supplies Contract services and operating expenses Depreciation Total operating expenses Operating loss Non-operating income: Interest income Change in net position Net position, July 1,2012 Net position, June 30, 2013 $ ~ 3.482,751 78,683 27, ,425, , (50,744) 37,713 (13,031) 1,651,124 1,638,093 The accompanying notes are an integral part of these financial statements. 28

34 SANTA CLARA UNIFIED SCHOOL DISTRICT STATEMENT OF CASH FLOWS -INTERNAL SERVICE FUND SELF-INSURANCE FUND For the Year Ended June 30, 2013 Cash flows used in operating activities: Cash received from premiums and other income Cash paid for employee benefits and operating expenses Net cash used in operating activities Cash flows provided by financing activities: Purchase of capital assets Cash flows provided by investing activities: Interest income Increase in cash and investments Cash and investments, July 1,2012 Cash and investments, June 30, 2013 Reconciliation of operating loss to net cash used in operating activities: Operating loss Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation Decrease (increase) in: Receivables Amounts due from other funds Increase (decrease) in: Accounts payable Amounts due to other funds Unpaid claims and adjustment expenses Unearned revenue Total adjustments Net cash used in operating activities $ 3,485,104 (3.564,381) (79,277) (3,485) (45,049) ~ 7411,616 $ (50,744) I,' I, 4,808 (1,534) 374,534 2,455 (4,881 ) (405026) (28,533) ~ (79,277) The accompanying notes are an integral part of these financial statements. 29

35 SANTA CLARA UNIFIED SCHOOL DISTRICT STATEMENT OF FIDUCIARY NET POSITION TRUST AND AGENCY FUNDS June 30, 2013 ASSETS Retiree Benefits Fund Trust Scholarship Trust Funds Agenc~ Student Body Accounts Total Cash in County Treasury (Note 2) $ 477,123 $ $ Cash on hand and in banks (Note 2) 594,581 Receivables $ 477, ,397 1,336, Total assets 477, , ,397 1,814,572 LIABILITIES Due to other funds Due to student groups 116, , , ,397 Total liabilities 116, , ,484 NET POSITION r"i "'_:_.l._...l ''''_.1._ "7' r\.t;:::)lill,..lt:::u \1... Ult::: f) $ 361,507 ii! 594,581 ii! '" > The accompanying notes are an integral part of these financial statements. 30

36 SANTA CLARA UNIFIED SCHOOL DISTRICT STATEMENT OF CHANGE IN FIDUCIARY NET POSITION TRUST FUNDS For the Year Ended June 30, 2013 Retiree Benefits Fund Revenues: Local sources $ 2,549 Expenditures Contract services and operating expenses 220,583 Scholarship Trust Funds $ 101,070 85,494 Total $ 103, ,077 Operating income (loss) (218,034) 15,576 (202,458) Non-operating income: Operating transfers in 185, ,401 Change in net position (32,633) 15,576 (17,057) Net position, July 1, , , ,145 Net position, June 30, 2013 $ 361,507 ~ 594,581 ~ 956,088 The accompanying notes are an integral part of these financial statements. 31

37 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Santa Clara Unified School District (the "District") accounts for its financial transactions in accordance with the policies and procedures of the California Department of Education's California School Accounting Manual. The accounting policies of the District conform to accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board. The following is a summary of the more significant policies: Reporting Entity The Board of Education is the level of government which has governance responsibilities over all activities related to public school education in the District. The Board is not included in any other governmental "reporting entity" as defined by the Governmental Accounting Standards Board since Board members have decision-making authority, the power to designate management, the responsibility to significantly influence operations and primary accountability for fiscal matters. The District receives funding from local, state and federal governmental sources and must comply with all the requirements of these funding source entities. Basis of Presentation - Financial Statements The basic financial statements include a Management's Discussion and Analysis (MD & A) section providing an analysis of the District's overall financial position and results of operations, financial statements prepared using full accrual accounting for ali of the District's activities, including infrastructure, and a focus on the major funds. Basis of Presentation - Government-Wide Financial Statements The Statement of Net Position and the Statement of Activities display information about the reporting government as a whole. Fiduciary funds are not included in the government-wide financial statements. Fiduciary funds are reported only in the Statement of Fiduciary Net Position and the Statement of Change in Fiduciary Net Position at the fund financial statement level. The Statement of Net Position and the Statement of Activities are prepared using the economic resources measurement focus and the accrual basis of accounting. Revenues, expenses, gains, losses, assets and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. Revenues, expenses, gains, losses, assets and liabilities resulting from nonexchange transactions are recognized in accordance with the requirements of Government Accounting Standards Board Codification Section (GASB Cod. Sec.) NSO Program revenues: Program revenues included in the Statement of Activities derive directly from the program itself or from parties outside the District's taxpayers or citizenry, as a whole; program revenues reduce the cost of the function to be financed from the District's general revenues. 32

38 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Presentation - Government-Wide Financial Statements (Continued) Allocation of indirect expenses: The District reports all direct expenses by function in the Statement of Activities. Direct expenses are those that are clearly identifiable with a function. Depreciation expense is specifically identified by function and is included in the direct expense of each function. Interest on general long-term liabilities is considered an indirect expense and is reported separately on the Statement of Activities. Basis of Presentation - Fund Accounting The accounts of the District are organized on the basis of funds or account groups, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund balance, revenues, and expenditures. District resources are allocated to and accounted for in individual funds based upon the purpose for which they are to be spent and the means by which spending activities are controiled. A Major Funds 1 - General Fund: The General Fund is the general operating fund of the District and accounts for all revenues and expenditures of the District not encompassed within other funds. All general tax revenues and other receipts that are not allocated by law or contractual agreement to some other fund are accounted for in this fund. General operating expenditures and the capital improvement costs that are not paid through other funds are paid from the General Fund. For financial reporting purposes, the balance of the Special Reserve Fund for Postemployment Benefits is included in the General Fund. 2 - Adult Education Fund: The Adult Education Fund is used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for adult education programs. 3 - Building Fund: The Building Fund is used to account for resources used for the acquisition or construction of major capital facilities and equipment, and primarily includes proceeds from the sale of bonds. 33

39 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Presentation - Fund Accounting (Continued) A Major Funds (Continued) 4 - Capital Facilities Fund: The Capital Facilities Funds is used to account for resources used for the acquisition or construction of major capital facilities and equipment, and primarily includes funds received from fees levied on developers or other agencies as a condition of approving a development project. 5 - Bond Interest and Redemption Fund: The Bond Interest and Redemption Fund is used to account for the accumulation of resources for, and the repayment of, general long-term debt principal, interest, and related costs. B Other Funds 1 - Special Revenue Funds: The Special Revenue Funds are used to account for the proceeds of specific revenue sources that are!egally restricted to expenditures for specified purposes. This classification includes the Child Development, Cafeteria, and Deferred Maintenance Funds. 2 - Special Reserve for Capital Outlay Projects Fund: The Special Reserve for Capital Outlay Projects Fund is used to account for resources used for the acquisition or construction of major capital facilities and equipment. 3 - Self-Insurance Fund: The Self-Insurance Fund is an internal service fund which is used to account for the District's self-insured workers' compensation claims and dental and vision insurance claims program. 34

40 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Presentation - Fund Accounting (Continued) A Other Funds (Continued) 4 - Trust Funds: The Trust Funds are used to account for assets held by the District as Trustee. This classification includes the Retiree Benefits and Scholarship Trust Funds. 5 - Agency Fund: Basis of Accounting The Agency Fund is used to account for the various funds for which the District acts as an agent. This classification consists of the Student Body Accounts. Basis of accounting refers to when revenues and expenditures or expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurement made, regardless of the measurement focus applied. Accrual Governmental activities in the government-wide financial statements and the fiduciary fund financial statements are presented on the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when incurred. Modified Accrual The governmental funds financial statements are presented on the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual; i.e., both measurable and available. "Available" means collectible within the current period or within 60 days after year end. Expenditures are generally recognized under the modified accrual basis of accounting when the related liability is incurred. The exception to this general rule is that principal and interest on general obligation long-term liabilities, if any, is recognized when due. Budgets and Budgetarv Accounting By state law, the Board of Education must adopt a final budget by July 1. A public hearing is conducted to receive comments prior to adoption. The Board of Education complied with these requirements. 35

41 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Receivables Receivables are made up principally of amounts due form the State of California for Revenue Limit funding or Categorical programs. The District has determined that no allowance for doubtful accounts was needed as of June 30, Stores Inventory Inventory recorded in the General and Cafeteria Funds are valued at average cost and consists mainly of consumable supplies. Inventories are recorded as expenditures at the time items are transferred from the warehouse to the schools and offices. Capital Assets Capital assets purchased or acquired, with an original cost of $10,000 or more, are recorded at historical cost or estimated historical cost. Contributed assets are reported at fair market value as of the date received. Additions, improvements and other capital outlay that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. Capital assets are depreciated using the straight-line method over 5-50 years depending on asset types. Compensated Absences Compensated absences benefits totaling $517,298 are recorded as a liability of the District. The liability is for the earned but unused benefits. Accumulated Sick Leave Accumulated sick leave benefits are not recognized as liabilities of the District. The District's policy is to record sick leave as an operating expenditure or expense in the period taken since 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 for all STRS employees and certain PERS employees, when the employee retires. Unearned Revenue Revenue from federal, state, and local special projects and programs is recognized when qualified expenditures have been incurred. Funds received but not earned are recorded as unearned revenue until earned. 36

42 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Restricted Net Position Restrictions of the ending net position indicate the portions of net position not appropriable for expenditure or amounts legally segregated for a specific future use. The restriction for unspent categorical revenues represents the portion of net position restricted to specific program expenditures. The restriction for special revenue programs represents the portion of net position restricted for special purposes. The restriction for capital projects represents the portion of net position restricted for capital projects. The restriction for debt service represents the portion of net position available for the retirement of debt. The restriction for foundation represents net position which is to be used to provide scholarships and financial assistance to students of the District. The restriction for retiree benefits represents net position restricted for payment of retiree benefits. It is the District's policy to use restricted net position first, when allowable expenditures are incurred. Fund Balance Classifications Governmental Accounting Standards Board Codification Sections 1300 and 1800, Fund Balance Reporting and Governmental Fund Type Definitions (GASB Cod. Sec and 1800) implements a five-tier fund balance classification hierarchy that depicts the extent to which a government is bound by spending constraints imposed on the use of its resources. The five classifications, discussed in more detail below, are nonspendable, restricted, committed, assigned and unassigned. A - Nonspendable Fund Balance: The nonspendable fund balance classification reflects amounts that are not in spendable form, such as revolving fund cash, prepaid expenditures and stores inventory. B - Restricted Fund Balance: 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. These are the same restrictions used to determine restricted net position as reported in the government-wide and fiduciary trust fund statements. C - Committed Fund Balance: The committed fund balance classification reflects amounts subject to internal constraints self-imposed by formal action of the Board of Education. 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. Formal action by the Board of Education is required to remove any commitment from any fund balance. At June 30, 2013, the District had no committed fund balances. 37

43 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fund Balance Classifications (Continued) D - Assigned Fund Balance: The assigned fund balance classification reflects amounts that the District's Board of Education has approved to be used for specific purposes, based on the District's intent related to those specific purposes. The Board of Education can designate personnel within the District to assign fund balances, however, as of June 30, 2013, no such designation has occurred. E - Unassigned Fund Balance: 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. In any fund other than the General Fund, a positive unassigned fund balance is never reported because amounts in any other fund are assumed to have been assigned, at least, to the purpose of that fund. 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. Fund Balance Policy The District has an expenditure policy relating to fund balances. For purposes of fund balance classifications, expenditures are to be spent from restricted fund balances first, followed in order by committed fund balances (if any), assigned fund balances and lastly unassigned fund balances. While GASB Cod. Sec and 1800 do not require Districts to establish a minimum fund balance policy or a stabilization arrangement, GASB Cod. Sec and 1800 do require the disclosure of a minimum fund balance policy and stabilization arrangements, if they have been adopted by the Board of Education. At June 30, 2013, the District has not established a minimum fund balance policy nor has it established a stabilization arrangement. Custodial Relationships The Agency Fund represents the assets and liabilities of various student organizations within the District. As the funds are custodial in nature, no measurement of operating results is involved. 38

44 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property Taxes Secured property taxes are attached as an enforceable lien on property as of March 1. Taxes are due in two installments on or before December 10 and April 10. Unsecured property taxes are due in one installment on or before August 31. The County of Santa Clara bills and collects taxes for the District. Tax revenues are recognized by the District when received. Encumbrances Encumbrance accounting is used in all budgeted funds to reserve portions of applicable appropriations for which commitments have been made. Encumbrances are recorded for purchase orders, contracts, and other commitments when they are written. Encumbrances are liquidated when the commitments are paid. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Accordingly, actual results may differ from those estimates. Eliminations and Reclassifications In the process of aggregating data for the Statement of Net Position and the statement of Activities, some amounts reported as interfund activity and balances in the funds were eliminated or reclassified. Interfund receivables and payables were eliminated to minimize the "grossing up" effect on assets and liabilities within the governmental activities column. New Accounting Pronouncements In November 2010, the GASB issued Statement No. 61, The Financial Reporting Entity: Omnibus. The Statement improves financial reporting for a governmental financial reporting entity. The requirements of Statement No. 14, The Financial Reporting Entity, and the related financial reporting requirements of Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments, were amended to better meet user needs and to address reporting entity issues. This statement was adopted for the District's fiscal year ended June 30, 2013 with no material impact on the District. 39

45 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) New Accounting Pronouncements (Continued) In December 2010, the GASB issued Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. The Statement incorporates into the GASB's authoritative literature certain accounting and financial reporting guidance that is included in the following pronouncements issued on or before November 30, 1989, which does not conflict with or contradict GASB pronouncements: (1) Financial Accounting Standards Board (FASB) Statements and Interpretations; (2) Accounting Principles Board Opinions; and (3) Accounting Research Bulletins of the American Institute of Certified Public Accountants' (AICPA) Committee on Accounting Procedure. This statement was adopted for the District's fiscal year ended June 30, 2013 with no material impact on the District. In June 2011, the GASB issued Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. This Statement provides a new statement of net position format to report all assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position (which is the net residual amount of the other elements). This Statement requires that deferred outflows of resources and deferred inflows of resources be reported separately from assets and liabilities. This Statement also amends certain provisions of GASS Statement No. 34, Basic Financial Statement - and Management's Discussion and Analysis - for State and Local Governments, and related pronouncements to reflect the residual measure in the statement of financial position as net position, rather than net assets. This statement was adopted for the District's fiscal year ended June 30, 2013 with no material impact on financial statements of the District. In March 2012, the 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. This Statement also provides other financial reporting guidance related to the impact of the financial statement elements deferred outflows of resources and deferred inflows of resources, such as changes in the determination of the major fund calculations and limiting the use of the term deferred in financial statement presentations. The provisions of this Statement are effective for the District's fiscal year ended June 30, 2014, with earlier application being encouraged. Based on the implementation of Statement No. 65 the District's 2013 beginning net position was restated by $2,698,020 because bond issuance costs were no longer capitalized. The District also established a Deferred Outflow category to report the prior and current year deferred losses on refundings of debt, which had been previously reported with long-term liabilities. 40

46 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) New Accounting Pronouncements (Continued) In March 2012, the GASB issued Statement No. 66, Technical Corrections , an amendment of GASB Statements No. 10 and No. 61. The objective of this Statement is to improve accounting and financial reporting for a governmental financial reporting entity by resolving conflicting guidance that resulted from the issuance of two pronouncements, Statements No. 64, Fund Balance Reporting and Governmental Fund Type Definitions, and No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. This Statement amends Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, by removing the provision that limits fundbased reporting of an entity's risk financing activities to the general fund and the internal service fund type. As a result, Districts should base their decisions about fund type classification on the nature of the activity to be reported, as required in Statement No. 54 and Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments. This Statement also amends Statement No. 62 by modifying the specific guidance on accounting for (1) operating lease payments that vary from a straight line basis, (2) the difference between the initial investment (purchase price) and the principal amount of a purchased loan or group of loans, and (3) servicing fees related to mortgage loans that are sold when the stated service fee rate differs significantly from a current (normal) servicing fee rate. These changes clarify how to apply Statement No. 13, Accounting for Operating Leases with Scheduled Rent Increases, and result in guidance that is consistent with the requirements in Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues, respectively. The provisions of this Statement are effective for the District's fiscal year ended June 30, 2014, with earlier application encouraged. Management has not determined what impact, if any, this statement will have on the District's financial statements. In June 2012, the GASB issued Statement No. 67, Financial Reporting for Pension Plans. This Statement replaces the requirements of Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans and Statement No. 50 as they relate to pension plans that are administered through trusts or similar arrangements meeting certain criteria. The Statement builds upon the existing framework for financial reports of defined benefit pension plans, which includes a statement of fiduciary net position (the amount held in a trust for paying retirement benefits) and a statement of changes in fiduciary net position. Statement No. 67 enhances note disclosures and RSI for both defined benefit and defined contribution pension plans. Statement No. 67 also requires the presentation of new information about annual money-weighted rates of return in the notes to the financial statements and in 10-year RSI schedules. This Statement is effective for the District's financial period beginning June 30, Management has not determined what impact, if any, this GASB statement might have on its financial statements. 41

47 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) New Accounting Pronouncements (Continued) In June 2012, the GASB issued Statement No. 68, Accounting and Financial Reporting for Pensions. This Statement replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers and Statement No. 50, Pension Disclosures, as they relate to governments that provide pensions through pension plans administered as trusts or similar arrangements that meet certain criteria. Statement No. 68 requires governments providing defined benefit pensions to recognize their long-term obligation for pension benefits as a liability for ihe firsi time, and to more comprehensively and comparably measure the annual costs of pension benefits. The Statement also enhances accountability and transparency through revised and new note disclosures and required supplementary information (RSI). This statement is effective for the District's financial period beginning June 30, Management has not determined what impact, if any, this statement might have on its financial statements. 2. CASH AND INVESTMENTS Cash and investments at June 30, 2013 consisted of the following: Govemmental Activities Fiduciary Activities Pooled Funds: Cash in County Treasury $ 210,457,380 $ 477,123 Cash awaiting deposit 427,498 Deposits: Cash on hand and in banks 1,315 1,336,978 Cash in revolving fund 40,000 Investments: Cash with fiscal agent 1.125,253 Total $ 212,051,446 ~ 1,814,101 Pooled Funds In accordance with Education Code Section 41001, the District maintains substantially all of its cash in the Santa Clara County Treasury. The County pools and invests the cash. These pooled funds are carried at fair value, which approximates cost. Because the District's deposits are maintained in a recognized pooled investment fund under the care of a third party and the District's share of the pool does not consist of specific, identifiable investment securities owned by the District, no disclosure of the individual deposits and investments or related custodial risk classifications is required. 42

48 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 2. CASH AND INVESTMENTS (Continued) Pooled Funds (Continued) The District's deposits in the fund are considered to be highly liquid. Interest earned is deposited quarterly into participating funds. Any investment losses are proportionately shared by all funds in the pool. The Santa Clara County Treasurer represented that it had no funds invested in derivative securities at June 30, Deposits The District limits custodial credit risk by ensuring uninsured balances are co!lateralized by the respective financial institution. Cash balances held in banks are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) and are collateralized by the respective financial institution. At June 30, 2013, the carrying amount of the District's accounts totaled $1,378,293 and the bank balances were $1,446,911. The total uninsured bank balances at June 30, 2013 were $795,921. Cash with Fiscal Agent Cash with Fiscal Agent represents amounts held by a third party custodian in the District's name. I nterest Rate Risk The District does not have a formal investment policy that limits cash and investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. At June 30, 2013, the District had no significant interest rate risk related to cash and investments held. Credit Risk The District does not have a formal investment policy that limits its investment choices other than the limitations of state law. Concentration of Credit Risk The District does not place limits on the amount it may invest in anyone issuer. At June 30, 2013, the District had no concentration of credit risk. 43

49 3. INTERFUND TRANSACTIONS i nterfund Activity SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) Transactions between funds of the District are recorded as interfund transfers. The unpaid balances at year end, as a result of such transactions, are shown as due to and due from other funds. Interfund Receivables/Payables Individual fund interfund receivable and payable balances at June 30, 2013 were as follows: Interfund Interfund Fund Receivables Payables Major Funds: General $ 4,389,667 $ 1,191,328 Adult Education 48,873 3,602,535 Building 341, ,059 Capital Facilities 200,867 Non-Major Funds: Child Development 119, ,669 Cafeteria ,073 Deferred Maintenance 300,000 Special Reserve for Capital Outlay 622,195 Proprietary Fund: Self Insurance 1,534 2,503 Fiduciary Fund: Retiree Benefits 116,087 Totals $ 5.844,121 ~ 5,844,121 44

50 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 3. INTERFUND TRANSACTIONS (Continued) Interfund Transfers Interfund transfers consist of operating transfers from funds receiving revenue to funds through which the resources are to be expended. Interfund transfers for the fiscal year were as follows: Transfer from the General Fund to the Adult Education Fund for the replenishment of fair share payments. Transfer from the General Fund to the Retiree Benefits Fund for annual contribution. Transfer from the Adult Education Fund to the General Fund for flexibility provision. Transfer from the Adult Education Fund to the General Fund for indirect cost support. Transfer from Child Development fund to General Fund for indirect cost support. Transfer from the Cafeteria Fund to the General Fund for indirect costs support. Transfer from the Special Reserve for Capital Outlay Fund to the General Fund Fund for support of operations. Transfer from the Special Reserve for Capital Outlay Fund to Deferred Maintenance Fund for support of operations. $ ~ 4,208, ,401 3,500,000 52, , ,698 1,900, ,000 10,310,699 45

51 4. CAPITAL ASSETS SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) A schedule of changes in capital assets for the year ended June 30, 2013 is shown below: Balance Additions Deletions July 1, and and 2012 Transfers Transfers Non-depreciable: Land $ 3,256,280 $ 58,183 $ Construction in progress 199,503,362 69,366,593 (70,973,260) Depreciable: Land improvements 995,238 Buildings 277,693,053 70,973,260 Equipment 8,649, ,882 Totals, at cost 490,097,131 69,723,658 Less accumulated depreciation: Land improvements (342,527) (28,435) Buildings (58,028,669) (7,889,541 ) Equipment (5,597,859) (416244) Total accumulated depreciation (63,969,055) (8,334,220) Capital assets, net ~426, ~ 61,389,438 ~ Balance June 30, 2013 $ 3,314, ,896, , ,666, , ,820,789 (370,962) (65,918,210) (6,014,103) (72,303,275) ~487,517,514 Depreciation expense was charged to governmental activities as follows: Instruction Supervision of instruction Instructional library, media and technology School site administration Home-to-school transportation Food services Other pupil services Community services All other general administration Data processing Plant services Total depreciation expense $ 5,206, ,100 62, , , , ,230 8, ,972 90, ,055 $ 8,334,220 46

52 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 5. RISK MANAGEMENT I SELF-INSURANCE The District is self-insured for workers' compensation, dental, and vision claims. The District has established a separate Self-Insurance Fund for accounting and reporting purposes. The District participates in joint powers authorities with other entities for property and liability insurance coverage, and for workers' compensation claims in excess of coverage provided by the Fund (Note 10). Settled claims have not exceeded this commercial coverage in any of the past three fiscal years. There has not been a significant reduction in coverage from the prior year. Property and Liability The District is exposed to various risks of loss related to torts, theft of, damage to, and destruction of District assets, errors and omissions; injuries to employees, and natural disasters. For the year ended June 30, 2013, the District participated in South Bay Area School Insurance Authority for property and liability insurance coverage. Workers' Compensation The District's workers' compensation activities are recorded in the Internal Service Fund. The purpose of the Fund is to administer employee's compensation on a cost reimbursement basis. The program accounts for the risk financing activities of the District, but does not constitute a transfer of risk from the District. The following is a summary of coverage provided for workers' compensation and property and liability: Insurance Program / Company Santa Clara USD Self-Insurance Program Schools Alliance for Workers' Compensation Excess II South Bay Area Schools Insurance Authority Dental and Vision Type of Coverage Workers' Compensation Excess Workers' Compensation Property, General & Automotive Liability Limits Statutory Limits $1,000,000 $700,000 The activities for the District's dental and vision programs are recorded in the District's Self-Insurance Fund. Employee dental and vision medical benefits are administered on a cost,eimbursement basis. The program accounts for the risk financing activities of the District, but does not constitute a transfer of risk from the District. 47

53 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 5. RISK MANAGEMENT I SELF-INSURANCE (Continued) Claims Liabilities The District records an estimated liability for indemnity torts and other claims against the District. Claims liabilities are based on estimates of the ultimate cost of reported claims (including future claim adjustment expenses) and an estimate for claims incurred, but not reported based on historical experience. Unpaid Claims Liabilities The Fund establishes a liability for both reported and unreported events, which includes estimates of both future payments of losses and related claim adjustment expenses. The following represents the changes in approximate aggregate liabilities for the District from July 1, 2011 to June 30, 2013: June 30, June 30, Unpaid claim and claim adjustment expenses, beginning of year $ 5,805,026 $ 5,293,835 Total incurred claims and claim adjustment expenses 2,863,379 3,724,201 Total payments ,405) 13,213,010) Total unpaid claims and claim adjustment expenses at end of year $ 5,400,000 ~ 5,805, LONG-TERM LIABILITIES General Obligation Bonds Amount of Date of Interest Maturity Originai Outstanding Issued Redeemed Outstanding Issuance Rate % Date Issuance July Current Year Current Year June ~ 5.0% 2030 $ 78,860,000 $ 51,090,000 $ $ 51,090,000 $ % ,000, ,640,000 1,000, ,640, % ,625,000 54,770,000 3,255,000 51,515, % ,160,000 33,355,000 1,615,000 31,740, % ,100,000 81,100,000 1,250,000 79,850, % ,140,000 91,140,000 1,600,000 89,540, ,15. 5,30% ,000,000 25,000,000 25,000, % , , ,805,000 48

54 6. LONG TERM LIABILITIES SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) General Obligation Bonds (Continued) In August 2012, the District issued 2012 General Obligation Refunding Bonds totaling $45,520,000, for the purpose of refunding previous District General Obligation Bonds. As of June 30, 2013, $49,250,000 of bonds outstanding are considered defeased. Although the 2012 refundings resulted in the recognition of an accounting loss of $86,256 for the year ended June 30, 2013, the District in effect reduced its aggregate debt service payments by $8.4 million over the next twenty-eight years, and obtained an economic gain of $5.4 million. Calculation of difference in cash flow requirements and economic gain are as follows: Old debt service cash flows $ 71,051,893 New debt service cash flows 62,649,638 Cash flow difference $ 8.402,255 Present value of old debt service cash flows $ 55,803,402 Present value of new debt service cash flows 50,361,808 Economic gain $ 5,441,594 The annual requirements to amortize the General Obligation Bonds payable outstanding as of June 30, 2013 are as follows: Year Ending June 30, Principal Interest Total 2014 $ 9,895,000 $ 19,187,029 $ 29,082, ,690,000 18,812,391 30,502, ,455,000 18,386,206 30,841, ,245,000 17,878,472 31,123, ,105,000 17,285,517 31,390, ,990,000 75,898, ,888, ,275,000 55,504, ,779, ,425,000 34,448, ,873, , , ,583,675 Totals $ 426,805,000 ~ 266,258,800 ~ 693,063,800 49

55 6. LONG-TERM LIABILITIES (Continued) Certificates of Participation SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) In June of 2001, the District issued 2001 Certificates of Participation (COPs) in the amount of $7,575,000, at an interest rate of 5.375%, and maturing July The proceeds from the COPs were used to finance the 2001 Teacher Housing Project (Phase I) where the District, through the Santa Clara Teacher Housing Foundation, constructed apartment housing for certain eligible teachers of the District. In September of 2006, the District issued 2006 Certificates of Participation (COPs) in the amount of $5,405,000, at an interest rate of 4.0%. The proceeds from the COPs were used to finance the 2006 Teacher Housing Project (Phase II) through the Santa Clara Teacher Housing Foundation. On January 31, 2013, the District issued 2013 Refunding Certificates of Participation (COPs) in the amount of $8,025,000. The refunding COPs bear interest at rates ranging from 3.0% to 4.1 % and mature on August 1, The proceeds from the COPs were used to current-refund the outstanding balance of the 2001 Certificates of Participation. As of June 30, 2013, the outstanding COPs are scheduled to mature as follows through 2038: Year Ending June 30, Princioal Interest Total 2014 $ $ 519,642 $ 519, , , , , , , , , ,821,125 2,821, ,821,125 2,821, ,025,000 2,339,625 10,364, ,405, , Totals $ 13,430,000 ~ 17,014,704 ~ 30,444,704 50

56 6. long-term LIABILITIES (Continued) SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FiNANCIAL STATEMENTS (Continued) A schedule of changes in long-term liabilities for the year ended June 30, 2013 is shown below: Balance Balance Amounts July 1 June 30, Due Within 2012 Additions Deductions 2013 One Year General Obligation Bonds $ 441,095,000 $ 45,520,000 $ 59,810,000 $ 426,805,000 $ 9,895,000 Unamortized Premiums on Genera! Obligation Bonds 13,006,775 4,612,745 1,573,142 16,046, ,939 Certificates of Participation 12,980,000 8,025,000 7,575,000 13,430,000 Discount on COPs (63,132) (63,132) Early retirement Incentive 192, ,431 Net OPES obligation (Note 9) 4,610,330 2,027, ,383 5,786,184 Compensated absences ~ ~ ~ ~ ~ Payments on the General Obligation Bonds are made from the Bond Interest and Redemption Funds with local revenue, Payments for Certificates of Participation are made by the Special Reserve for Capital Outlay Fund, Payments on the net OPEB obligations, compensated absences, and early retirement incentive are made from the fund for which the related employee worked, 7. NET POSITION I FUND BALANCES The restricted net position consisted of the follovjing at June 30, 2013: Governmental Activities unspent categorical revenues Special revenue programs Capital projects Debt service Self-Insurance $ 3,363,187 5,977, ,187,564 23,194,043 1,634,753 $ 188,356,883 Fiduciary Activities Retiree benefits Scholarship Trust $ 361, ,612 ~ 956,119 51

57 7. NET POSITION I FUND BALANCES (Continued) SANTA CLARA UNlIFIED SCHOOL DISTRICT NlOTES TO BASIC IFINANCIAL STATEMENTS (Continued) Fund balances, by category, at June 30,2013 consisted of the following: Bond Adult Capital Interest and All General Education Building Facilities Redemption Non-Major Fund Fund Fund Fund Fund Funds Total Nonspendable: Revolving cash fund $ 40,000 $ $ $ $ $ 40,000 Stores inventory 174,463 54, ,878 Prepaid expenditures 115, ,901 Subtotal nonspendable , ,779 Restricted: Unspent categorical revenues 3,363,187 3,363,187 Special revenues 1,110,031 4,812,890 5,922,921 Capital projects 120,691,898 28,760,674 4,619, ,071,663 Debt service 23,194,043 23,194,043 Subtotal restricted 3,363,187 1,110, ,691,898 28,760,674 23,194, , ,551,814 Assigned: Postemployment benefits 2,118,339 2,118,339 Other assignments 1,850,000 1,850,000 Subtotal unassigned 3,968,339 3,968,339 Unassigned: Designated for economic uncertainty 3,870,000 3,870,000 Undesignated , ,594 Subtotal unassigned 16,360,594 16,360,594 Total fund balances $ 23,906,583 $ 1,110, :1 20,691,898 $ 28,760,674 $ 23,194,043 $ 9, $ ,526 52

58 8. EMPLOYEE RETIREMENT SYSTEMS SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the State Teachers' Retirement System (STRS), and classified employees are members of the California Public Employees' Retirement System (CaIPERS). Plan Description and Provisions California Public Employees' Retirement System (CaIPERS) Pian Description The District contributes to the School Employer Pool under the California Public Employees' Retirement System (CaIPERS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CaIPERS. 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 Employees' Retirement Law. 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 Q Street, Sacramento, California Funding Policy Active plan members are required to contribute 7.0% of their salary, 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 the CalPERS Board of Administration. The required employer contribution rate for fiscal year was % of annual payroll. The contribution requirements of the plan members are established by state statute. The District's contributions to CalPERS for the fiscal years ending June 30, 2011, 2012, and 2013 were $2,826,513, $2,667,452, and $2,782,848 respectively, and equal 100% of the required contributions for each year. State Teachers' Retirement System (STRS) Plan Description The District contributes to the State Teachers' Retirement System (STRS), a costsharing multiple-employer public employee retirement system defined benefit pension plan administered by STRS. The plan provides retirement, disability and survivor benefits to beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the State Teachers' Retirement Law. STRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the STRS annual financial report may be obtained from the STRS Executive Office, 100 Waterfront Place, West Sacramento, California

59 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 8. EMPLOYEE RETIREMENT SYSTEMS (Continued) Plan Description and Provisions (Continued) State Teachers' Retirement System (STRS) (Continued) Funding Policy Active plan members are required to contribute 8.0% of their salary. The required employer contribution rate for fiscal year was 8.25% of annual payroll. The contribution requirements of the plan members are established by state statute. The District's contributions to STRS for the fiscal years ending June 30, 2011, 2012, and 2013 were $5,715,873, $5,417,754, and $5,472,079 respectively, and equal 100% of the required contributions for each year. 9. OTHER POSTEMPLOYMENT BENEFITS The District's annual other postemployment benefit (OPES) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASS Cod. Sec. P 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 liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the District's annual OPES cost for the year, the amount actually contributed to the plan, and changes in the District's net OPES obligation: Annual required contribution $ 2,115,823 Interest on net OPES obligation 177,646 Adjustment to annual required contribution 1266,232) Annual OPES cost (expense) 2,027,237 Contributions made 1851,383) increase in net OPE8 obligation 1,175,854 Net OPES obligation - beginning of year 4,610,330 Net OPES obligation - end of year $ 5,786,184 54

60 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 9. OTHER POSTEMPLOYMENT BENEFITS (Continued) The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the year ended June 30, 2013 and preceding two years were as follows: Percentage of Annual Fiscal Year Annual OPEB Cost Net OPEB Ended OPEB Cost Contributed Obligation June 30, 2011 $ 890,262 98% $ 3,424,024 June 30, 2012 $ 1,953,448 39% $ 4,610,330 June 30, 2013 $ 2,027, % $ 5,786,184 As of July 1, 2011, the most recent actuarial valuation date, the plan was unfunded. The actuarial accrued liability for benefits was $14,816,319, and the actuarial value of assets was $0, resulting in an unfunded actuarial accrued liability (UAAL) of $14,816,319. The covered payroll (annual payroll of active employees covered by the Plan) was $91,188,901, and the ratio of the UAAL to the covered payroll was 16 percent. The OPEB plan is currently operated as a pay-as-you-go plan. 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, 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, shown as Required Supplementary Information, 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. 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. In the July 1, 2011 actuarial valuation, the entry age actuarial cost method was used. The actuarial assumptions included a 4.5 percent investment rate (net of administrative expenses). The UAAL is being amortized as a level percentage of projected payroll on an open basis. The remaining amortization period at June 30, 2013, was 25 years. 55

61 10. LEASE REVENUES SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) The District has leased out two schools, and portions of two other schools sites. Lease agreements have been entered into with various lessees for terms in excess of one year. None of the agreements contain purchase options. All of the agreements contain a termination clause providing for cancellation after a specific number of days written notice to the lessees, but it is unlikely that the District will cancel any of the agreements prior to their expiration date. These lease revenues were recorded in the General Fund. The future minimum lease payments expected to be received by the District under these agreements is as follows: Year Ending June 30, Total $ 4,025,542 1,969,540 1,581,453 1,638, ,334 $ 10,493, JOINT POWERS AGREEMENTS The District is a member with other school districts in four joint powers agencies, South Bay Area Schools Insurance Authority (SBASIA), Schools Alliance for Workers' Compensation (SAWCXII), Silicon Valley Joint Powers Transportation Agency (SVJPTA) and Metropolitan Education District (MetroEd). The following is a summary of financial information of SBASIA, SAWXCII, SVJPTA and MetroEd at June 30, 2012 (the most current information available): SBASIA SAWXCII SVTA MetroEd Total assets $ 4,833,664 $ 19,569,866 $ 1,346,722 $ 51,758,308 Total liabilities $ 2,148,392 $ 18,413,131 $ 904,771 $ 4,399,838 Total revenues $ 3,327,589 $ 1,496,061 $ 7,602,386 $ 19,998,259 Total expenditures $ 2,738,975 $ 1,239,300 $ 7,928,718 $ 20,543,744 Change in net assets $ 588,614 $ 256,761 $ (326,332) $ (545,485) Net assets $ 2,685,272 $ 1,156,735 $ 441,951 $ 47,358,470 The relationship between the District and the Joint Powers Authorities is such that they are not component units of the District for financial reporting purposes. 56

62 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 12. COMMITMENTS AND CONTINGENCIES The District is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position or results of operations of the District. Also, the District has received federal and state funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could result in expenditure disallowances under terms of the grants, it is management's opinion that any required reimbursements or future revenue offsets subsequently determined will not have a material effect on the District's financial position or results of operations. 57

63 REQUIRED SUPPLEMENTARY INFORMATION

64 SANTA CLARA UNIFIED SCHOOL DISTRICT GENERAL FUND BUDGETARY COMPARISON SCHEDULE For the Year Ended June 30, 2013 Budget Variance Favorable Original Final Actual (Unfavorable) Revenues: Revenue limit sources: State apportionment $ (500,250) $ 2,425,186 $ 2,568,292 $ 143,106 Local sources 96,341,423 97, ,061 (678,943) Total revenue limit 95841, ,129,190 99,593,353 (535,837) Federal sources 5,432,226 7,230,108 6,344,395 (885,713) Other state sources 11,244,562 10,571,184 13,091,064 2,519,880 Other local sources 11,996,798 16,413,339 14, (1,970,972) Total revenues 124,514, ,343, ,179 (872,642) Expenditures: Certificated salaries 66,711,232 69,430,297 66,346,765 3,083,532 Classified salaries 18,817,998 19,925,693 19,757, ,737 Employee benefits 22,292,971 21,998,900 21,695, ,128 Books and supplies 4,282,714 12,077,620 4,456,918 7,620,702 Contract services and operating expenditures 14,141,496 17,532,059 15,959,705 1,572,354 Capital outlay 13,300 27,000 71,543 (44,543) Other outgo 145, , Total expenditures , ,175 -"l "l "7"'>CI. 000 I.G...I.G..V.UUU (Deficiency) excess of revenues (under) over expenditures (1,890272) (6,795,242) 5,059,004 11,854,246 Other financing sources (uses): Operating transfers in 6,192,289 5,706,837 5,816, ,061 Operating transfers out (4, ) (4,393,801 ) (4,393,801) T ctal other financing sources (uses) 1 849,885 1,313,036 1,423, Net change in fund balance (40,387) (5,482,206) 6,482,101 11,964,307 Fund balance, July 1, ,317, , Fund balance, June 30, 2013 $ 15277,611 9,835,792 ~ 23906,583 14,070,791 See accompanying notes to required supplementary information. 58

65 SANTA CLARA UNIFIED SCHOOL DISTRICT ADULT EDUCATION FUND BUDGETARY COMPARISON SCHEDULE For the Year Ended June 30, 2013 Budget Original Final Actual Revenues: Federal sources 354, , ,411 Other state sources 125, , ,876 Other local sources 2, ,355 2,038,168 Tota! revenues 2,600,793 3,244,642 2,935,455 Expenditures: Certificated salaries 1,855,464 1,947,302 1,674,107 Classified salaries 1,051,175 1,024,940 1,016,422 Employee benefits 664, , ,269 Books and supplies 222, , ,721 Contract services and operatlng expenditures 380, , ,140 Total expenditures 4,173,546 4,535,784 3,917,659 Deficiency of revenues under expenditures (1, ) (1291,142) (982204) Other financing sources (uses): Operating transfers in 4,157,003 4,208,400 4,208,400 Operating transfers out (3,556595) (3,555,368) (3,552,227) Total other financing sources (uses) 600, , ,173 Net change in fund balance (972,345) (638,110) (326,031) Variance Favorable (Unfavorable) (309,187) (309,187) 273,195 8,518 78, , , ,938 3,141 3, ,079 Fund balance, July 1, ,062 1,436,062 1,436,062 Fund balance, June 30, 2013 $ 463,717 ~ 797,952 ~ 1, $ See accompanying notes to required supplementary information. 59

66 SANTA CLARA UNIFIED SCHOOL DISTRICI SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPES) FUNDING PROGRESS For the Year Ended June 30, 2013 Fiscal Year Ended Actuarial Valuation Date Schedule of Funding Progress Unfunded Actuarial Actuarial Actuarial Accrued Accrued Value of Liability Liability Funded Assets (AAL) (UAAL) Ratio Covered Payroll UAALas a Percentage of Covered Payroll July 1, July 1, July 1, July 1, July 1, 2011 $ 11,716,000 11,716,000 0% $ 11,716,000 11,716,000 0% $ 11,716,000 11,716,000 0% $ 14,816,319 14,816,319 0% $ 14,816,319 14,816,319 0% 102,552, ,552, ,552,603 98,841,934 98,841, % 11.0% 11.0% 15.0% 15.0% See accompanying notes to required supplementary information. 60

67 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO REQUIRED SUPPLEMENTARY INFORMATION 1. PURPOSE OF SCHEDULES A Budgetary Comparison Schedules The District employs budget control by object codes and by individual appropriation accounts. Budgets are prepared on the modified accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board. The budgets are revised during the year by the Board of Education to provide for revised priorities. Expenditures cannot legally exceed appropriations by major object code. The originally adopted and final revised budgets for the Generai Fund and Adult Education Fund are presented as Required Supplementary Information. The basis of budgeting is the same as GAAP. Excess of expenditures over appropriations for the year ended June 30, 2013 were as follows: Fund Excess Expenditures General Fund: Capital outlay $ 44,543 8 Schedule of Other Postemolovment Benefits Fundina Proaress The Schedule of Funding Progress presents multi-year trend information which compares, over time, the actuarially accrued liability for benefits with the actuarial value of accumulated plan assets. 61

68 SUPPLEMENTARY INFORMATION

69 SANTA CLARA UNIFIED SCHOOL DISTRICT COMBINING BALANCE SHEET ALL NON-MAJOR FUNDS June 30, 2013 Special Child Deferred Reserve For Development Cafeteria Maintenance Capital Outlay Fund Fund Fund Fund Total ASSETS Cash in County Treasury $ 1,742,531 $ 928,639 $ 1,715,097 $ 3,070,938 $ 7,457,205 Cash with fiscal agent 856, ,999 Cash on hand and in banks 1,110 19,676 68,787 89,573 Receivables 93, ,061 1,700 3, ,188 Due from other funds 119,081 20, , ,195 1,062,265 Stores inventory 54,415 54,415 Prepaid expenditures ,901 Total assets $ 1, $ 1,567,780 $ $ $ LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 179,606 $ 4,800 $ $ 2,829 $ 187,235 Unearned revenue 101, ,272 Due to other funds ,742 Total liabilities , ,249 Fund balances: Nonspendable 54, , ,316 Restricted , Total fund balances 1, ,016,797 4,734, Total liabilities and fund balances $ 1,956,148 ~ 1,567,780 ~ 2.016,797 ~ 4,737,821 10,278,546 62

70 SANTA CLARA UNIFIED SCHOOL DISTRICT COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES ALL NON-MAJOR FUNDS For the Year Ended June 30, 2013 Special Child Deferred Reserve For Development Cafeteria Maintenance Capital Outlay Fund Fund Fund Fund Total Revenues: Federal sources $ $ 3,219,294 $ $ $ 3,219,294 Other state sources 1,637, , ,966 2,447,420 Other local sources 4, ,716,355 8,385 1,658,307 7,684,117 Total reven ues 5,938,336 5,198, ,351 1,658,307 13,350,831 Expenditures: Certificated salaries 958, ,226 Classified salaries 2,721,723 1,520, ,027 4,361,407 Employee benefits 1,242, ,352 46,624 1,778,985 Books and supplies 304,887 2,649,122 4,083 45,347 3,003,439 Contract services and operating expenditures 107, , , , ,620 Capital outlay 229, ,775 Debt service: Principal retirement 7,575,000 7,575,000 Interest 650, ,381 A-17C<l:A Total expenditures 5334, ""tlf,vv""t 8,617, ,833 Excess (Deficiency) of revenues over (under) expenditures 603, , ,697 (6,958,922) (6,009,002) Other financing sources (uses): Operating transfers in 100, ,000 Operating transfers out (192,973) (171,698) (2,000,000) (2,364,671) Proceeds from issuance of debt , Total other financing sources (uses) (192973) (171,698) 100,000 6,025,000 5,760,329 Net change in fund balances 410,566 36, ,697 (933,922) (248,673) Fund balances, July 1, ,186, , ,668, Fund balances, June 30, 2013 l1 1,596,873 l ~ 2,016,797 l1 4,734,992 l1 9,602,297 63

71 SANTA CLARA UNIFIED SCHOOL DISTRICT COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUND For the Year Ended June 30, 2013 STUDENT BODY ACCOUNTS Santa Clara High School Balance Balance July 1, June 30, 2012 Additions Deductions 2013 Assets: Cash on hand and in banks $ $ 455,553 $ $ 84,898 Liabilities: Due to student groups $ 181,610 $ 455,553 $ 552,265 $ 84,898 Wilcox High School Assets: Cash on hand and in banks $ 430,111 $ 506,606 $ 574,542 $ 362,175 Liabilities: Due to student groups $ $ $ 574,542 $ 362,175 Peterson Middle School Assets: Cash on hand and in banks $ $ 125,887 $ 131,203 $ 45,979 Liabilities: Due to student groups $ 51,295 $ 125,887 $ $ Cabrillo Middle School Assets: Cash on hand and in banks $ 84,525 $ 93,528 $ 93,263 $ 84,790 Liabiiities: Due to student groups $ 84,525 $ 93,528 $ $ Buchser Middle School Assets: Cash on hand and in banks $ $ 36,641 $ $ Liabilities: Due to student groups $ 32,433 ~ 36,641 ~ 36,231 ~ 32,843 64

72 SANTA CLARA UNIFIED SCHOOL DISTRICT COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUND (Continued) For the Year Ended June 30, 2013 STUDENT BODY ACCOUNTS (Continued) Elementary Schools ASB Balance Balance July 1, June 30, 2012 Additions Deductions 2013 Assets: Cash on hand and in banks $ $ 50,163 $ 406,228 $ 131,712 Liabilities: Due to student groups $ 487,777 $ 50,163 $ $ 131,712 Total Student Body Accounts Assets: Cash on hand and in banks $ 1,267,751 $ 1.268,378 $ 1,793,732 $ 742,397 Liabilities: Due to student groups $ 1267,751 II 1,268,378 1,793,732 II 742,397 65

73 SANTA CLARA UNIFIED SCHOOL DISTRICT ORGANIZATION June 30, 2013 Santa Clara Unified School District was established in 1966 and is comprised of an area of approximately 56 square miles located in the city of Santa Clara, in Santa Clara County. The District currently operates sixteen elementary schools and three middle schools, one K-8 school, two high schools, one continuation high school, one adult school, and one independent study program. There were no changes in the boundaries of the District during the year. The Board of Education of Santa Clara Unified School District is composed of seven members elected at large within the boundaries of the District. The Board and Administrative Staff manage and control the affairs of the District. GOVERNING BOARD Name Christine Koltermann Albert Gonzalez Ina Bendis Andrew Ratermann Michele Ryan Christopher Stampolis Jim Canova Office President Vice President Member Member Member Member Member Term Expires ADMINISTRATION Bobbie Plough* Superintendent Brad Syth Assistant Superintendent, Human Resources Vacant** Assistant Superintendent, Business Services Mary Kay*** Assistant Superintendent, Education Services * Effective July 2013, Bobbie Plough resigned and Stanley Rose III was hired as the new Superintendent. ** Effective December 2013, Mark Allgire was hired as the Assistant Superintendent, Business Services. *** Effective July 2013, Mary Kay resigned and Tanya Fisher was hired as the Assistant Superintendent, Education Services. 66

74 SANTA CLARA UNIFIED SCHOOL DISTRICT SCHEDULE OF AVERAGE DAILY ATTENDANCE For the Year Ended June 30, 2013 Original Revised Second Second Period Period Annual Report Report* Report Elementary: Kindergarten 1,331 1,331 1,328 First through Third 3,789 3,789 3,781 Fourth through Sixth 3,327 3,325 3,314 Seventh and Eighth 1,880 1,879 1,875 Opportunity Schools Home and Hospital Special Education Subtotal Elementary 10,629 10,628 10,611 Secondary: Regular Classes 3,469 3,442 3,424 Continuation Education Opportunity Schools Special Education Subtotal Secondary 3,852 3,R49 ::l R?A District Totals ,477 14,437 * Reflects revisions made by the District in June 2013, based on internal review of records. See accompanying notes to supplementary information. 67

75 SANTA CLARA UNIFIED SCHOOL DISTRICT SCHEDULE OF INSTRUCTIONAL TIME For the Year Ended June 30,2013 Grade Level Statutory Minutes Requirement Reduced Minutes Requirement Statutory Reduced Actual Actual Minutes Minutes Actual Minutes Number of Days Traditional Calendar Status DISTRICT Kindergarten 36,000 35,000 31,680 30,800 35, In Compliance Grade 1 50,400 49,000 47,480 46,161 49, In Compliance Grade 2 50, ,480 46,161 49, In Compliance Grade 3 50,400 49,000 47,480 46,161 52, In Compliance Grade 4 54,000 52,500 52,740 51,275 52, In Compliance Grade 5 54,000 52,500 52,740 51,275 52, In Compliance Grade 6 54,000 52,500 52,740 51,275 55, In Compliance Grade 7 54,000 52,500 54,560 53,044 55, In Compliance Grade 8 54,000 52,500 54,560 53,044 55, In Compliance Grade 9 64,800 63,000 57,726 56,122 64, In Compliance Grade 10 64,800 63,000 57,726 56,122 64, In Compliance Grade 11 64,800 63,000 57,726 56,122 64, In Compliance Grade 12 64,800 63,000 57,726 56,122 64, In Compliance See accompanying notes to supplementary information. 68

76 SANTA CLARA UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURE OF FEDERAL AWARDS For the Year Ended June 30, 2013 Pass- Through Federal Entity Federal Catalog Federal Grantor/Pass-Through Identifying Expend- Number Grantor/Program or Cluster Title Number itures U.S. De~artment of Education - Passed through California De~artment of Education Special Education Cluster: Special Education IDEA, Basic local Assistance Entitlement, Part B, Section $ 2,651, Special Ed: IDEA Mental Health Services, Part B, Sec , A Special Education IDEA, Preschool local Entitlement , Special Education IDEA, Preschool Grants, Part B, Section 619 (Age 3-4-5) , A Special Education IDEA, Preschool Staff Development ,000 Subtotal Special Education Cluster 3,119,741 Title I, Part A Cluster: NClB: Title I, Part A Basic Grants low Income and Neglected ,383, A NClB: Title I, Part A, Program Improvement lea Corrective Action Resources ,694 Subtotal Title I, Part A Cluster 1,629,376 NClB: Title III Cluster: NClB (ESEA) : Title III, Immigrant Education Program , NelS: Title III, Limited English Proficient (LEP) Student Program ,582 Subtotal NClB: Title III Cluster Vocational Programs: Vocational Programs Post Secondary and Adult II C, Sec 132 (Carl Perkins Act) , Vocational Programs: Voc & Appl Tech Secondary II C Sec 131 (Carl Perkins Act) ,584 Subtotal Vocational Programs 113,660 (Continued) 69

77 SANTA CLARA UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURE OF FEDERAL AWARDS (Continued) For the Year Ended June 30, 2013 Federal Catalog Number Federal Grantor/Pass-Through Grantor/Program or Cluster Title Pass- Through Entity Identifying Number Federal Expenditures U.S. DeQartment of Education - Passed through California DeQartment of Education (Continued) Adult Education: Adult Education: Adult Secondary Education (Section 231) A Adult Education: Adult Basic Education and ESL (Section 231) A Adult Education: English Literacy and Civics Education - Local Grant $ 57, , Subtotal Adult Education NClB: Title I, Part C, Migrant Ed (Regular and Summer Program) Department of Rehabilitation: Workability II, Transitions Partnership Program NClB: Title II, Part D, Enhancing Education through Technology, Competitive Grants NClB: Title II, Part A, Improving Teacher Quality Total U.S. Department of Education U.S. DeQartment of Health and Human Services - Passed through California Department of Education Medi-Cal Billing Option U.S. DeQartment of Housing and Urban DeveloQment - Passed through California Department of Education Supportive Housing Program U.S. DeRartment of Agriculture - Passed through California Department of Education 10,555 Child Nutrition: School Programs Total Federal Programs N/A ,791 56, , , , ,534 3, ~ 9, See accompanying notes to supplementary information, 70

78 SANTA CLARA UNIFIED SCHOOL DISTRICT RECONCILIATION OF UNAUDITED ACTUAL FINANCIAL REPORT WITH AUDITED FINANCIAL STATEMENTS For the Year Ended June 30, 2013 Cafeteria Fund Unaudited Actual ending Fund Balance, June 30, 2013 Adjustment to remove the balances of capital assets and related activity for proper presentation as a governmental fund. The capital asset balances are included in the government-wide financial statements. Audited ending Fund Balance, June 30,2013 $ 1,736,458 (482,823) $ 1,253,635 There were no adjustments proposed to any other funds of the District. See accompanying notes to supplementary information. 71

79 SANTA CLARA UNIFIED SCHOOL DISTRICT SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS For the Year Ended June 30, 2013 (UNAUDITED) (Budgeted) General Fund Revenues and other financing sources $143, $139, $135753,267 $ Expenditures Other uses and transfers out 139,930, , ,412,175 4,393, ,945,357 4,324, ,614, Total outgo 144,333, , ,269, ,769,618 Change in fund balance $ (1,021,973) $ 6.482,101 $ 3.483,893 $ (5,267,531) Ending fund balance $ 20, $ 21,800,099 $ 15,317,998 $ 11,834,105 Available reserves $ 17, $ 16,360,594 $ 10,197,572 $ 6,770,868 Designated for economic uncertainties $ 4,164,000 $ $ 3872,586 $ Undesignated fund balances $ 13, $ ,594 $ 6,324,986 $ 6,770,868 Available reserves as percentages of t... t~f 1"\,,t ~..., '"'... ~v 11.91% 12,32% 7.90% 5.18% Total long-term liabilities $451,846,921 $462,584,860 $ ,082 $476,147,314 Average daily attendance at P ,548 14,550 The General Fund fund balance has increased by $4,698,463 over the past three years, The fiscal year budget, as originally adopted, projects a decrease of $1,021,973, For a district this size, the state recommends available reserves of at least 3% of total General Fund expenditures, transfers out, and other uses, The District has met this requirement. The District has incurred operating surpluses in two of the past three years, and anticipates an operating deficit during the fiscal year. Total long-term liabilities have decreased by $13,562,454 over the past two years. Average daily attendance has decreased by 73 over the past two years. An increase of 250 ADA is anticipated during fiscal year , See accompanying notes to supplementary information, 72

80 SANTA CLARA UNIFIED SCHOOL DISTRICT SCHEDULE OF CHARTER SCHOOLS For the Year Ended June 30, 2013 Charter Schools Chartered by District Downtown College Preparatory Alviso Charter School Included in District Financial Statements, or Separate Report Separate Report See accompanying notes to supplementary information. 73

81 SANTA CLARA UNIFIED SCHOOL DISTRiCT NOTES TO SUPPLEMENTARY INFORMATION 1. PURPOSE OF SCHEDULES A Schedule of Average Daily Attendance Average daily attendance 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. B Schedule of I nstructional Time The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. 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 C Schedule of Expenditure of Federal Awards OMB Circular A-133 requires a disclosure of the financial activities of all federally funded programs. This schedule was prepared to comply with A-133 requirements, and is presented on the modified basis of accounting. The following schedule provides a reconciliation between revenues reported on the Statement of Revenues, Expenditures and Change in Fund Balances and the related expenditures reported on the Schedule of Expenditure of Federal Awards. The reconciling amounts represent Federal funds that have been recorded as revenues that have not been expended by June 30, Description Total Federal revenues, Statement of Revenues, Expenditures and Change in Fund Balances CFDA Number Amount $ 11,138,923 Less: Medi-Cal Billing Funds not spent Federal interest reimbursement on Qualified School Construction Bonds Total Schedule of Expenditure of Federal Awards (103,027) N/A (1,138,823) $ 9,897,073 74

82 SANTA CLARA UNIFIED SCHOOL DISTRICT NOTES TO SUPPLEMENTARY INFORMATION (Continued) 1. PURPOSE OF SCHEDULES (Continued) D Reconciliation of Unaudited Actual Financial Report with Audited Financial Statements This schedule provides the information necessary to reconcile the Unaudited Actual Financial Report to the audited financial statements. E Schedule of Financial Trends and Analysis - Unaudited This schedule provides trend information on fund balances, revenues, expenditures and average daily attendance, as required by the State Controller's Office. The information in this schedule was derived from audited information. F Schedule of Charter Schools This schedule provides information for the California Department of Education to monitor financial reporting by Charter Schools. 2. EARLY RETIREMENT INCENTIVE PROGRAM Education Code Section requires certain disclosure in the financial statements of districts which adopt Early Retirement Incentive Programs pursuant to Education Code Sections and For the fiscal year ended June 30,2013, the District did not adopt this program. 75

83 Crowe Horwath. Crowe Horwath LLP Independent Member Crowe Horwath International INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH STATE LAWS AND REGULATIONS Board of Education Santa Clara Unified School District Santa Clara, California Report on Compliance with State Laws and Regulations We have audited Santa Clara Unified School District's compliance with the types of compliance requirements described in the State of California's Standards and Procedures for Audits of California K- 12 Local Educational Agencies (the "Audit Guide") to the state laws and regulations listed below for the year ended June 30, Description Audit Guide Procedures Procedures Performed Attendance Reporting Teacher Certification and Misassignments Kindergarten Continuance Independent Study Continuation Education Instructional Time: School Districts County Offices of Education Instructional Materials: General requirements Ratio of Administrative Employees to Teachers Classroom Teacher Salaries Early Retirement Incentive Program Gann Limit Calculation School Accountability Report Card Juvenile Court Schools Class Size Reduction Program: General requirements Option one classes Opiion iwo classes Districts with only one school serving K-3 After School Education and Safety Program: General requirements After school Before school Contemporaneous Records of Attendance, for charter schools Mode of Instruction, for charter schools Nonclassroom-Based Instructionllndependent Study, for charter schools Determination of Funding for Nonclassroom-Based Instruction, for charter schools Annual Instructional Minutes - Classroom-Based, for charter schools 6 Yes 3 Yes 3 Yes 23 Yes 10 Yes 6 Yes 3 No, see below 8 Yes 1 Yes 1 Yes 4 No, see below 1 Yes 3 Yes 8 No, see below 7 Yes 3 Yes 4 No, see below 4 No, see below 4 Yes 5 Yes 6 No, see below 1 No, see below 1 No, see below 15 No, see below 3 No, see below 4 No, see below 76

84 We did not perform any procedures related to Instructional Time for County Offices of Education because the District is not a County Office of Education. The District did not offer an Early Retirement Incentive Program in the current year; therefore, we did not perform steps a through d. The District does not have any Juvenile Court Schools, therefore, we did not perform any procedures related to Juvenile Court Schools. We did not perform any procedures related to Class Size Reduction Program-Option Two and Districts with only one school serving K-3, because the District does not offer Option Two and the District has more than one school serving K-3. We did not perform any procedures related to After School Education and Safety Program for Before School, because the District does not offer this program. The District does not have any Charter Schools, therefore, we did not perform any of the procedures required by Article 4 of the Audit Guide. Management's Responsibility Management is responsible for compliance with the requirements of state laws and regulations. Auditor's Responsibility Our responsibility is to express an opinion on compliance with state laws and regulations of Santa Clara Unified School District. 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 Comptroiler General of the United States; and the State of California's Standards and Procedures for Audits of California K-12 Local Educational Agencies. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the state laws and regulations listed above occurred. An audit includes examining, on a test basis, evidence about Santa Clara Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance with state laws and regulations. However, our audit does not provide a legal determination of Santa Clara Unified School District's compliance. Opinion with State Laws and Regulations In our opinion, Santa Clara Unified School District complied, in all material respects, with the state laws and regulations referred to above for the year ended June 30, Further, based on our examination, for items not tested, nothing came to our attention to indicate that Santa Clara Unified School District had not complied with the state laws and regulations. Purpose of this Report The purpose of this report on compliance is solely to describe the scope of our testing of compliance and the results of that testing based on the requirements of the State of California's Standards and Procedures for Audits of California K-12 Local Educational Agencies. Accordingly, this report is not suitable for any other purpose. Crowe Horwath LLP Sacramento, California December 9,

85 Crowe Horvvath. Crowe Horwath LLP Independent Member Crowe Horwath international INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MA TIERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Education Santa Clara Unified School District Santa Clara, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Santa Clara Unified School District as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise Santa Clara Unified School District's basic financial statements, and have issued our report thereon dated December 9, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Santa Clara 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 Clara Unified School District's internal control. Accordingly, we do not express an opinion on the effectiveness of Santa Clara Unified School District's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether Santa Clara Unified School District's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 78

86 Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Sacramento, California December 9, 2013 Crowe Horwath LLP 79

87 Crowe Horwath. Crowe Horwath LlP Independent Member Crowe Horwath International INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE Board of Education Santa Clara Unified School District Santa Clara, California Report on Compliance for Each Major Federal Program We have audited Santa Clara 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 Clara Unified School District's major federal programs for the year ended June 30, Santa Clara Unified School District's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with the 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 Clara Unified School District's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 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 Clara Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Santa Clara Unified School District's compliance. Opinion on Each Major Federal Program In our opinion, Santa Clara 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,

88 Report on Internal Control Over Compliance Management of Santa Clara 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 Clara 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 OMS 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 Clara 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 OMS Circular A-133. According!y, this report is not suitable for any other purpose. Sacramento, California December 9,2013 Crowe Horwath LLP 81

89 FINDINGS AND RECOMMENDATIONS

90 SANTA CLARA UNIFIED SCHOOL DISTRICT SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS Year Ended June 30, 2013 SECTION I - SUMMARY OF AUDITOR'S RESULTS FINANCIAL STATEMENTS Type of auditor's report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? Significant deficiency(ies) identified not considered to be material weakness(es)? Yes Yes X X No None reported Noncompliance material to financial statements noted? Yes X No FEDERAL AWARDS Internal control over major programs: Material weakness(es) identified? Significant deficiency(ies) identified not considered to be material weakness(es)? Type of auditor's report issued on compliance for major programs: Yes Yes Unmodified ----"X,-- No ~X,,-_ None reported Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section.510(a)? Yes X No Identification of major programs: CFDA Number(s) Name of Federal Program or Cluster Child Nutrition: National School Lunch Program Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as low-risk auditee? $ 300,000 X Yes No STATE AWARDS Type of auditor's report issued on compliance for state programs: Unmodified 82

91 No matters were reported. SANTA CLARA UNIFIED SCHOOL DISTRICT SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued) Year Ended June 30, 2013 SECTION II - FINANCIAL STATEMENT FINDINGS 83

92 SANTA CLARA UNIFIED SCHOOL DISTRICT SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued) Year Ended June 30,2013 SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. 84

93 SANTA CLARA UNIFIED SCHOOL DISTRICT SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued) Year Ended June 30, 2013 SECTION IV - STATE AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. 85

94 STATUS OF PRIOR YEAR FINDINGS AND RECOMMENDATIONS

95 SANTA CLARA UNIFIED SCHOOL DISTRICT STATUS OF PRIOR YEAR FINDINGS AND RECOMMENDATIONS Year Ended June 30, 2013 Finding/Recommendation No matters were reported. Current Status District Explanation If Not Implemented 86

96 Crowe Horwath Crowe Horwath LLP Independent Member Crowe Horwath International To the Board of Education Santa Clara Unified School District Santa Clara, California Professional standards require that we communicate certain matters to keep you adequately informed about matters related to the financial statement audit that are, in our professional judgment, significant and relevant to your responsibilities in overseeing the financial reporting process. We communicate such matters in this report. AUDITOR'S RESPONSIBILITY UNDER AUDITING STANDARDS GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA Our responsibility is to form and express an opinion about whether the financial statements that have been prepared by management with your oversight are presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America. The audit of the financial statements does not relieve you of your responsibilities and does not relieve management of their responsibilities. Refer to our engagement letter with the District for further information on the responsibilities of management and of Crowe Horwath LLP. AUDITOR'S RESPONSIBILITY UNDER GOVERNMENT AUDITING STANDARDS As part of obtaining reasonable assurance about whether the District's financial statements are free of material misstatement, we performed tests of the District's compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts or disclosures. 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. PLANNED SCOPE AND TIMING OF THE AUDIT We are to communicate an overview of the planned scope and timing of the audit. following matters will be discussed during our meeting with you. Accordingly, the How we addressed the significant risks of material misstatement, whether due to fraud or error. e Our approach to internal control relevant to the audit. The concept of materiality in planning and executing the audit, focusing on the factors considered rather than on specific thresholds or amounts. Where the entity has an internal audit function, the extent to which the auditor used the work of internal audit, and how the external and internal auditors best work together. 1.

97 Your views and knowledge about matters you consider warrant our attention during the audit, as well as your views on: o o o o The allocation of responsibilities between you and management. The entity's objectives and strategies, and the related business risks that may result in material misstatements. Significant communications with regulators. Other matters you believe are relevant to the audit of the financial statements. SIGNIFICANT ACCOUNTING POLICIES AND MANAGEMENT JUDGMENTS AND ACCOUNTING ESTIMATES Significant Accounting Policies: The Board of Education should be informed of the initial selection of and changes in significant accounting policies or their application. Also, the Board of Education should be aware of methods used to account for significant unusual transactions and the effect of significant accounting policies in controversial or emerging areas where there is a lack of authoritative consensus. We believe management has the primary responsibility to inform the Board of Education about such matters. To assist the Board of Education in its oversight role, we also provide the following accounting changes or significant policies requiring communication. GASB Statement No.61, "The Financial Reporting Entity: Omnibus - An Amendment of GASB Statements No. 14 and No.34" The objective of this Statement, issued in November 2010, is to improve financial reporting for a governmental financial reporting entity. The requirements of Statement No. 14, "The Financial Reporting Entity, and the related financial reporting requirements of Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments", were amended to better meet user needs and to address reporting entity issues that have arisen since the issuance of those Statements. This Statement modifies certain requirements for inclusion of component units in the financial reporting entity. For organizations that previously were required to be included as component units by meeting the fiscal dependency criterion, a financial benefit or burden relationship also would need to be present between the primary government and that organization for it to be included in the reporting entity as a component unit. Further, for organizations that do not meet the financial accountability criteria for inclusion as component units but that, nevertheless, should be included because the primary government's management determines that it would be misleading to exclude them, this Statement clarifies the manner in which that determination should be made and the types of relationships that generally should be considered in making the determination. 2.

98 GASB Statement No.61, "The Financial Reporting Entity: Omnibus - An Amendment of GASB Statements No. 14 and No.34" (Continued) This Statement also amends the criteria for reporting component units as if they were part of the primary government (that is, blending) in certain circumstances. For component units that currently are blended based on the "substantively the same governing body" criterion, it additionally requires that (1) the primary government and the component unit have a financial benefit or burden relationship or (2) management (below the level of the elected officials) of the primary government have operational responsibility (as defined in paragraph 8a) for the activities of the component unit. New criteria also are added to require blending of component units whose total debt outstanding is expected to be repaid entirely or almost entirely with resources of the primary government. The blending provisions are amended to clarify that funds of a blended component unit have the same financial reporting requirements as a fund of the primary government. Lastly, additional reporting guidance is provided for blending a component unit if the primary government is a business-type activity that uses a single column presentation for financial reporting. I This Statement also clarifies the reporting of equity interests in legally separate organizations. It requires a primary government to report its equity interest in a component unit as an asset. This statement was adopted for the District's fiscal year ended June 30, 2013 with no material impact on the District. 3.

99 GASB Statement No. 62, "Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30,1989 FASB and AICPA Pronouncements" This Statement, issued in December 2010, incorporates into the GASB's authoritative literature certain accounting and financial reporting guidance that is included in the following pronouncements issued on or before November 30, 1989, which does not conflict with or contradict GASB pronouncements: (1) Financial Accounting Standards Board (FASB) Statements and Interpretations; (2) Accounting Principles Board Opinions; and (3) Accounting Research Bulletins of the American Institute of Certified Public Accountants' (AICPA) Committee on Accounting Procedure. The requirements in this Statement will improve financial reporting by contributing to the GASB's efforts to codify all sources of generally accepted accounting principles for state and local governments so that they derive from a single source. This effort brings the authoritative accounting and financial reporting literature together in one place, with that guidance modified as necessary to appropriately recognize the governmental environment and the needs of governmental financial statement users. It will eliminate the need for financial statement preparers and auditors to determine which FASB and AICPA pronouncement provisions apply to state and local governments, thereby resulting in a more consistent application of applicable guidance in financial statements of state and local governments. In addition, all FASB and AICPA pronouncements became non-authoritative literature for the private sector on July 1, 2009, the effective date of the FASB Accounting Standards Codification. Although certain FASB and AICPA pronouncements are still available in the archive section of the FASB's Codification on a limited basis, this Statement will make accessible in the GASB's authoritative literature all applicable accounting and financial reporting guidance previously residing only in the FASB and AICPA pronouncements. This statement was adopted for the District's fiscal year ended June 30, 2013 with no material impact on the District. 4.

100 GASB Statement No. 63, "Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position" This Statement, issued in June 2011, provides a new statement of net position format to report all assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position (which is the net residual amount of the other elements). This Statement requires that deferred outflows of resources and deferred inflows of resources be reported separately from assets and liabilities. This Statement also amends certain provisions of GASB Statement No. 34, Basic Financial Statements -- and Management's Discussion and Analysis -- for State and Local Governments, and related pronouncements to reflect the residual measure in the statement of financial position as net position, rather than net assets. The requirements of this Statement will improve financial reporting by standardizing the presentation of deferred outflows of resources and deferred inflows of resources and their effects on a government's net position. It alleviates uncertainty about reporting those financial statement elements by providing guidance where none previously existed. GASB Statement No. 65, "Items Previously Reported as Assets and Liabilities". This statement was adopted for the District's fiscal year ended June 30, 2013 with no material impact on the District. I This Statement, issued in March 2012, 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. 5.

101 GASB Statement No. 65, "Items Previously Reported as Assets and Liabilities" (Continued) Concepts Statement No.4, Elements of Financial Statements, introduced and defined the elements included in financial statements, including deferred outflows of resources and deferred infiows of resources. In addition, Concepts Statement 4 provides that reporting a deferred outflow of resources or a deferred inflow of resources should be limited to those instances identified by the Board in authoritative pronouncements that are established after applicable due process. Prior to the issuance of this Statement, only two such pronouncements have been issued. Statement No. 53 requires the reporting of a deferred outflow/inflows of I resources for the changes in fair value of hedging I derivative instruments, and Statement No. 60, requires a deferred inflow of resources to be reported by a transferor government in a qualifying service concession arrangement This Statement amends the financial statement element classification of certain items previously reported as assets and liabilities to be consistent with the definitions in Concepts Statement 4. This Statement also provides other financial reporting guidance related to the impact of the financial statement elements deferred outflows of resources and deferred inflows of resources, such as changes in the determination of the major fund calculations and limiting the use of the term deferred in financial statement presentations. ~ ~---- GASB Statement No. 66, "Technical Corrections- 2012, An Amendment of GASB Statements No. 10 and No. 62" This statement was adopted for the District's fiscal year ended June 30, 2013 and beginning net position was restated by $2,698,020 because bond issuance costs were no longer capitalized. The District also established a Deferred Outfiow category to report the prior and current year deferred losses on refunding of debt, which had been previously reported with long-term liabilities. The objective of this Statement, issued in March 2012, is to improve accounting and financial reporting for a governmental financial reporting entity by resolving conflicting guidance that resulted from the issuance of two pronouncements, Statements No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, and No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. 6.

102 , c,», > " i",.,'.'c.,,'.,,\<.lll}~ctc(lfa~ci~~ci~\,. c,c'c'.'ccc.c ',C\ ', cc,cc ccc c,c.ccc C, CC cccc '~()~Il~llg$tal1d~d cc'.c c' cc ccc cc c" CCCCcc'cC "c cc "",, ", c cccc cc" GASB Statement Noc 66, "Technical Corrections- This Statement amends Statement No.1 0, 2012, An Amendment of GASB Statements No. Accounting and Financial Reporting for Risk 10 and No. 62" (Continued) Financing and Related Insurance Issues, by removing the provision that limits fund-based reporting of an entity's risk financing activities to the general fund and the internal service fund type. As a result, governments should base their decisions about fund type classification on the nature of the activity to be reported, as required in Statement 54 and Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments. This Statement also amends Statement 62 by modifying the specific guidance on accounting for (1) operating lease payments that vary from a straight-line basis, (2) the difference between the initial investment (purchase price) and the principal amount of a purchased loan or group of loans, and (3) servicing fees related to mortgage loans that are sold when the stated service fee rate differs significantly from a current (normal) servicing fee rate. These changes clarify how to apply Statement No. 13, Accounting for Operating Leases with Scheduled Rent Increases, and result in guidance that is consistent with the I requirements in Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intr-=d::::ntit\l Tr-::lncfors f"\f 8..:.C'o.tc- ~nr4 r::"h ""0 "'~ '-'..., '~'~} ",_U,...,'" "oj' \"','"... ~'''...,,... '.. n... ' ""' Revenues, respectively. I This Statement is effective for fiscal years beginning after June 15, Earlier application is encouraged. Management has not determined what impact, if any, this GASB statement might have on its financial statements. 7.

103 ....;, ; ;;.. ' ,..;.. Jl:e:eo!1f!tlng~Yil'!daJ"d;... ;..., GASB Statement No. 67, "Financial Reporting for Pension Plans - An Amendment of GASB Statement No. 25" I. ;.. ;. ;;... I~13~~J~f.~o~~~;i> ii.. ;.;. ';', The objective of this Statement, issued in June 2012, is to improve financial reporting by state and local governmental pension plans. 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. This Statement replaces the requirements of Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 50, Pension Disclosures, as they relate to pension plans that are administered through trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. The requirements of Statements 25 and 50 remain applicable to pension plans that are not administered through trusts covered by the scope of this Statement and to defined contribution plans that provide postemployment benefits other than pensions. I This Statement establishes a definition of a pension plan that reflects the primary activities associated with the pension arrangementdetermining pensions, accumulating and managing assets dedicated for pensions, and paying benefits to plan members as they come due. The scope of this Statement addresses accounting and financial reporting for the activities of pension plans that are administered through trusts that have the following characteristics. Contributions from employers and non employer contributing entities to the pension plan and earnings on those contributions are irrevocable. Pension plan assets are dedicated to providing pensions to plan members in accordance with the benefit terms. Pension plan assets are legally protected from the creditors of employers, nonemployer contributing entities, and the pension plan administrator. If the plan is a defined benefit pension plan, plan assets also are legally protected from creditors of the plan members. I 8.

104 GASB Statement No. 67, "Financial Reporting for Pension Plans - An Amendment of GASB Statement No. 25" (Continued) For defined benefit pension plans, this Statement establishes standards of financial reporting for separately issued financial reports and specifies the required approach to measuring the pension liability of employers and non employer contributing entities for benefits provided through the pension plan (the net pension liability), about which information is required to be presented. Distinctions are made regarding the particular requirements depending upon the type of pension plan administered, as follows: Single-employer pension plans-those in which pensions are provided to the employees of only one employer (as defined in this Statement) I. Agent multiple-employer pension plans (agent pension plans)-those in which plan assets are pooled for investment purposes but separate accounts are maintained for each individual employer so that each employer's share of the pooled assets is legally available to pay the benefits of only its employees Cost-sharing multiple-employer pension plans (cost-sharing pension plans) those in which the pension obligations to the employees of more than one employer are pooled and plan assets can be used to pay the benefits of the employees of any employer that provides pensions through the pension plan. This Statement also details the note disclosure requirements for defined contribution pension plans administered through trusts that meet the identified criteria. This Statement is effective for fiscal years beginning after June 15, Earlier application is encouraged. Management has not determined what impact, if any, this GASB statement might have on its financial statements. 9.

105 GASB Statement No. 68, "Accounting and Financial Reporting for Pensions - An Amendment of GASB Statement No. 27" The primary objective of this Statement, issued in June 2012, 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. This Statement replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of Statement No. 50, Pension Disclosures, as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. The requirements of Statements 27 and 50 remain applicable for pensions that are not covered by the scope of this Statement. The scope of this Statement addresses accounting and financial reporting for pensions that are provided to the employees of state and local governmental employers through pension plans that are administered through trusts that have the following characteristics: Contributions from employers and nonemployer contributing entities to the pension plan and earnings on those contributions are irrevocable. Pension plan assets are dedicated to providing pensions to plan members in accordance with the benefit terms. Pension plan assets are legally protected from the creditors of employers, nonemployer contributing entities, and the pension plan administrator. If the plan is a defined benefit pension plan, plan assets also are legally protected from creditors of the plan members. 10.

106 GASB Statement No. 68, "Accounting and Financial Reporting for Pensions - An Amendment of GASB Statement No. 27" (Continued) This Statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. For defined benefit pensions, this Statement identifies the methods and assumptions that should be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. Note disclosure and required supplementary information requirements about pensions also are addressed. Distinctions are made regarding the particular requirements for employers based on the number of employers whose employees are provided with pensions through the pension plan and whether pension obligations and pension plan assets are shared. Employers are classified in one I of the following categories for purposes of this Statement: Single employers are those whose employees are provided with defined benefit pensions through single-employer pension plans-pension plans in which pensions are provided to the employees of only one employer (as defined in this Statement). Agent employers are those whose employees are provided with defined benefit pensions through agent multiple-employer pension plans-pension plans in which plan assets are pooled for investment purposes but separate accounts are maintained for each individual employer so that each employer's share of the pooled assets is legally available to pay the benefits of only its employees. Cost-sharing employers are those whose employees are provided with defined benefit pensions through cost-sharing multipleemployer pension plans-pension plans in which the pension obligations to the employees of more than one employer are pooled and plan assets can be used to pay the benefits of the employees of any employer that provides pensions through the pension plan. 11.

107 GASB Statement No. 68, "Accounting and Financial Reporting for Pensions - An Amendment of GASB Statement No. 27" (Continued) In addition, this Statement details the recognition and disclosure requirements for employers with liabilities (payables) to a defined benefit pension plan and for employers whose employees are provided with defined contribution pensions. This Statement also addresses circumstances in which a non employer entity has a legal requirement to make contributions directly to a pension plan. This Statement is effective for fiscal years beginning after June 15, Earlier application is encouraged. Management has not determined what impact, if any, this GASB statement might have on its financial statements. Management Judgments and Accounting Estimates: Further, accounting estimates are an integral part of the financial statements prepared by management and are based upon management's current judgments. These judgments are based upon knowledge and experience about past and current events and assumptions about future events. Certain estimates are particularly sensitive because of their significance and because of the possibility that future events affecting them may differ markedly from management's current judgments and may be subject to significant change in the near term. The following describes the significant accounting estimates reflected in the District's year end financial statements, the process used by management in formulating these particularly sensitive accounting estimates and the primary basis for our conclusions regarding the reasonableness of those estimates. Revenue Limit Management calculates the Base Revenue Limit amount by using prior year Base Revenue Limit amount increased by the applicable cost-ofliving increase. This amount is then multiplied by the District's funded ADA which is equal to the greater of current year or prior year second period ADA. Several adjustments may be made to the revenue limit funding to include additional funding such as Unemployment Insurance Program funding. Also, other adjustments to the revenue limit funding are made for various purposes including the recapture of savings related to the Public Employees Retirement System employer contribution rate. We tested the propriety of information underlying management's estimates. 12.

108 ~igriifi~~~~~~~~tiil9 '. /i.. i>. "....\:.:,..... '." Y<..i.' '. I Es~lnllte... '.....,... fr9f~~~~~~~~~~~9~~llt BII~iS!!>rO~r~~~l~si~~s>. Useful Lives of Fixed Management has determined the We tested the propriety of Assets economic useful lives of fixed assets information underlying based on past history of similar types management's estimates. of assets, future plans as to their use, and other factors that impact their economic value to the District. Loss Contingencies The District consults with legal Based on information obtained counsel to evaluate outstanding from the District's legal counsel litigation, claims and assessments. regarding this matter and Factors that affect management's discussions with management, evaluation of litigation contingencies we concur with management's requiring disclosure include the determination that the loss nature of the contingencies and contingency does not meet whether the outcome could have an conditions for accrual of being effect on the consolidated financial both probable and estimable, statements. and, thus, no accrual is recorded and no specific disclosures are required. Pension and Amounts reported for pension and We reviewed the reasonableness Postretirement Obligations postretirement obligations require of these estimates and management to use estimates that assumptions. may be subject to significant change in the near term. These estimates are based on projection of the weighted average discount rate, rate of increase in future compensation levels, and weighted average expected long-term rate of return on pension assets. Claim liabilities The claims liability was determined We tested this accounting by management by a process of estimate by reviewing, on a test applying third party actuarial studies basis, the information listed and and rolling forward their assumptions by recalculating the factors to the end of the fiscal year. applied by management. AUDITOR'S JUDGMENTS ABOUT QUALITATIVE ASPECTS OF SIGNIFICANT ACCOUNTING PRACTICES We are to discuss with you our comments about the following matters related to the District's accounting policies and financial statement disclosures. Accordingly, these matters will be discussed during our meeting with you. The appropriateness of the accounting policies to the particular circumstances of the entity, considering the need to balance the cost of providing information with the likely benefit to users of the entity's financial statements. The overall neutrality, consistency, and clarity of the disclosures in the financial statements. The effect of the timing of transactions in relation to the period in which they are recorded. The potential effect on the financial statements of significant risks and exposures, and uncertainties that are disclosed in the financial statements. The extent to which the financial statements are affected by unusual transactions including nonrecurring amounts recognized during the period, and the extent to which such transactions are separately disclosed in the financial statements. 13.

109 The issues involved, and related judgments made, in formulating particularly sensitive financial statement disclosures. The factors affecting asset and liability carrying values, including the entity's basis for determining useful lives assigned to tangible and intangible assets. The selective correction of misstatements, for example, correcting misstatements with the effect of increasing reported earnings, but not those that have the effect of decreasing reported earnings. CORRECTED AND UNCORRECTED MISSTATEMENTS Corrected Misstatements: We are to inform you of material corrected misstatements that were brought to the attention of management as a result of our audit procedures. There were no such misstatements. Uncorrected Misstatements: We are to inform you of uncorrected misstatements that were aggregated by us during the current engagement and pertaining to the latest and prior period(s) presented that were determined by management to be immaterial, both individually and in the aggregate, to the financial statements taken as a whole. For your consideration, we have distinguished misstatements between known misstatements and likely misstatements. There were no such misstatements. OTHER COMMUNICATIONS Other Information In Documents Containing Audited Financial Statements Information may be prepared by management that accompanies the financial statements. To assist I your consideration of this information, you should know that we are required by audit standards to read such information and consider whether such information, or the manner of its presentation, is materially inconsistent with information in the financial statements. If we consider the information materially inconsistent based on this reading, we are to seek a resolution of the matter. Significant Difficulties Encountered During the Audit We are to inform you of any significant difficulties encountered in dealing with management related to the performance of the audit. Disagreements With Management I We are to discuss with you any disagreements with management, whether or not satisfactorily resolved, about matters that individually or in the aggregate could be significant to the District's financial statements or the auditor's report. We read the following items and noted no material inconsistencies or misstatement of facts in such information based on our reading thereof. Management's Discussion and Analysis There were no significant difficulties encountered in dealing with management related to the performance of the audit. During our audit, there were no such disagreements with management. 14.

110 /<. ~P'!1I1'!!.I!licll!!~p!!Jtem...>.,... 1«.....)... <.R~~!.II.I$ < >,.. Consultations With Other Accountants If management consulted with other accountants about auditing and accounting matters, we are to inform you of such consultation, if we are aware of it, and provide our views on the significant matters that were the subject of such consultation. Representations The Auditor Is Requesting From Management We are to provide you with a copy of management's requested written representations to us. Significant Issues Discussed, or Subject to 1 Correspondence, With Management We are to communicate to you any significant issues that were discussed or were the subject of correspondence with management Significant Related Party Findings and Issues We are to communicate to you significant findings and issues arising during the audit in connection with the District's related parties. Other Findings or Issues We Find Relevant or Significant We are to communicate to you other findings or issues, if any, arising from the audit that are, in our professional judgment, significant and relevant to you regarding your oversight of the financial reporting process. We are not aware of any instances where management consulted with other accountants about auditing or accounting matters since no other accountants contacted us, which they are required to do by Statement on Auditing Standards No. 50, before they provide written or oral advice. We direct your attention to a copy of the letter of management's representation to us provided separately. There were no such significant issues discussed, or subject to correspondence, with management There were no such findings or issues that are, in our judgment, significant and relevant to you regarding your oversight of the financial reporting process. There were no such other findings or issues that are, in our judgment, significant and relevant to you regarding your oversight of the financial reporting process. We are pleased to serve your District as its independent auditors and look forward to our continued relationship. We provide the above information to assist you in performing your oversight responsibilities, and would be pleased to discuss this letter or any matters further, should you desire. This letter is intended solely for the information and use of the Board of Education and, if appropriate, management, and is not intended to be and should not be used by anyone other than these specified parties. Sacramento, California December 9, 2013 Crowe Horwath LLP 15.

111 SANTA CLARA UNIFIED SCHOOL DISTRICT 1889 Lav,Tcncc Rd. Snn!<l Clara, CA 9505 [ ( fanley ROSE 111. btd. SIJl>EI~Il\'TENDENT December g, 2013 Crowe Horwath LLP 400 Capitol Mall, Suite 1200 Sacramento, California Ladies and Gentlemen: We are providing this letter in connection with your audit of the financial staternents of Santa Clara Unified School District as of June 30, 2013 and for the year then ended for the purpose of expressing an opinion as to whether the financial statements present fairly, in ali material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Santa Clara Unified School District, and the respective changes in financial position and cash flows, where applicable, in conformity with accounting principles generally accepted in the United States of America. Some representations in this letter are specifically limited to matters that are material. Items are considered material if they involve an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement. We confirm, to the best of our knowledge and belief, as of the date of this letter, the following representations made to you during your audit: 1. We are responsible for the fair presentation in the previously mentioned financial statements in conformity with accounting principles generally accepted in the United States, and we believe the financial statements are fairly presented and include all properly classified funds and other financial information of the primary government required by generally accepted accounting principles to be included in the financial reporting entity. 2. We are responsible for maintaining internal control that will, among other things, help assure the preparation of the financial statements in conformity with accounting principles generally accepted in the United States. We acknowledge our responsibility for the design and implementation of programs and controls to prevent and detect fraud. 3. We are responsible for compliance with the laws, regulations, and provisions of contracts and grant agreements applicable to us, including tax or debt limits and debt contracts, and we have identified and disclosed to you all laws, regulations and provisions of contracts and grant agreements that we believe have a direct and material effect on the determination of financial statement amounts, including legal and contractual provisions for reporting specific activities in separate funds. 4. We have made available to you all -- a. Financial records and related data and other relevant information, as well as access, as agreed upon in the terms of the audit engagement. b. Minutes of the Board of Trustees or summaries of actions of recent meetings for which minutes have not yet been prepared. c. Audit or relevant monitoring reports, if any, received from funding sources. no/, 1m OF EIHJCATION tna 1(. HENDIS JIM CANOVA.-\i.BERr GONZ/\U,J. n1hjst1nr'. K01"TEH:\IA~i'\ ANDREW I~ATrJl:MAN('{ MIC!II:Li; RYA "< 5. There have been no communications from regulatory agencies concerning noncompliance with, or deficiencies in, financial reporting practices. "The mission of Santa Clam Unified School District is to prepare students of all ages and abilities to succeed in an ever-changing world."

112 Crowe Horwath LLP December 9, 2013 Page 2 6. There are no material transactions that have not been properly recorded in the accounting records underlying the financial statements or the schedule of expenditures of federal awards. 7. We have no plans or intentions that might materially affect the carrying value or classification of assets, deferred outfiows, liabilities, and deferred inflows. 8. We have identified all accounting estimates that materially affect recorded amounts and disclosures in the financial statements, and the key factors and significant assumptions underlying those estimates. We believe the estimates are reasonable in the circumstances. These estimates include: a. Revenue Limit. b. Valuation of long lived assets. c. Disclosure of pension plans or other post retirement benefits. 9. Except as disclosed in the. financial statements, or directly to you, there are or have been no material: a. Related party transactions and related amounts receivable or payable, including revenues, expenditures/expenses, loans, transfers, leasing arrangements and guarantees. b. Arrangements, either written or oral, with financial institutions involving compensating balances or other arrangements involving restrictions on cash balances and lins=ef-.credit or similar arrangements. c. Oral or written guarantees under which the entity is contingently liable. d. Other financial instruments with significant 'off-balance-sheef risk of accounting loss to which the entity is a party. e. Asserted or unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be disclosed in accordance with GASB 62. f. Concentrations that make the entity vulnerable to the risk of a severe impact within one year from the balance sheet date (including, for example, individual or group concentrations of customers, suppliers, lenders, products, services, sources of labor or materials, licenses or other rights, operating areas or markets). g. Significant accounting estimates that are susceptible to changing materially as a result of an event or change in conditions that is reasonably possible of occurrence within one year from the balance sheet date. h. Liens, encumbrances or other title impairments, such as pledges as collateral, on entity assets at the balance sheet date. i. Restrictions under borrowing agreements. j. Unrecorded transections. k. Significant events that have occurred subsequent to the balance sheet date through the date of this letter that would require adjustment to, or disclosure in, the financial statements. I. Declines in market value of investments that are not temporary.

113 Crowe Horwath LLP December 9, 2013 Page Except as disclosed to you, we have no knowledge of any fraud or suspected fraud affecting the entity involving: a. Management, whether material or not. b. Employees who have significant roles in intemal control, whether material or not. c. Others where the fraud could have a material effect on the financial statements. 11. Except as disclosed to you, we have no knowledge of any allegations of fraud or suspected fraud affecting the entity received in communications from employees, former employees, analysts, regulators, or others. 12. Except as disclosed to you, there have been no: a. Violations or possible violations of budget ordinances, laws or regulations (including those pertaining to adopting, approving, and amending budgets), provisions of contracts and grant agreements, tax or debt limits, and any related debt covenants whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss. b. Other material liabilities or gain or loss contingencies that are required to be accrued or disclosed by GASB 62. c. Communications from regulatory agencies conceming noncompliance with, or deficiencies in, financial reporting practices that could have a material effect on the financial statements. d. Reservations or designations of fund equity that were nol properly authorized and approved. 13. We have complied with au aspec"ls of contiactual agreements that would have a Frlaterial effect on the financial statements in the event of noncompliance. 14. We are responsible for the presentation of the supplementary information in accordance with the applicable criteria and believe the supplementary information, including its form and content, is fairly presented in accordance with these criteria. The methods of measurement and presentation have not changed from those used in the prior period. All Significant assumptions or interpretations underlying the measurement and presentation of the supplementary information have been identified and disclosed to you. If the supplementary information is not presented with the audited financial statements, we will make the audited financial statements readily available to the intended users of the supplementary information no later than the date of issuance of the supplementary information and the auditor's report thereon. 15. We are responsible for the required supplementary Information, including that such information is measured and presented In accordance with prescribed guidelines. The methods of measurement or presentation have not changed from those used in the prior period. All significant assumptions or interpretations underlying the measurement or presentation of the required supplementary information have been disclosed to you. 16. We understand that during the course of your audit, you have relied on work performed by the following specialists. We confirm that we have no relationships with those specialists that may bear on their objectivity, such as the ability through employmen~ ownership, contractual right, family relationship or otherwise to directiy or indirectly control or significantly influence the specialist. North Bay Pensions Bay Actuarial Consultants Keenan & Associates

114 Crowe Horwath LLP December Page During the course of your audit. we have provided to you physical or electronic copies of various original documents. We understand that you are relying on such copies as audit evidence in your audit and nepresent that copies provide ane an accunete and completed representation of the original documentation and thatthe copies have not been modified from their original version. 18. During the course of your audit. you may have accumulated records containing data which should be reflected in our books and records.. All such data have been so reflected. Accordingly. copies of such records in your possession are no longer needed by us. 19. The financial statements do not include the following component un'its that meet the criteria of financial accountability - Santa Clara Teacher Housing Foundation and Santa Clara Teacher Mortgage Assistance Foundation. although we believe their exclusion does not eause the finaneialstatements to be misleading. Further, the classification of these component units as discnetely presented or blended is appropriate. and the relationships and criteria for inclusion are properly disclosed. 20. Tha financial statements include all joint ventures with an equity interests and properly disclose these joint ventunes and other related Qrganizations (e.g. - Joint Powers AgreementS). 21. The financial statements properly classify all funds and activities. 22. All funds that meet the quantitative criteria in GASB Statements Nos. 34 and 37 for presentation. as major are identified and presented as such and all other funds that are presented as major are particularly important to the financial statement users. 23. Net position components (nat investment in capital assets, restricted, and unrestricted) are properly classified and fund balance types (including minimum fund balance policies and/or stabilization agreements, if applicable) are properly presented and disclosed pursuant to GASB Statement No. 54, Fund Balance Reporting and Govemmental Fund Type Definitions. 24. Expenses have been properly classified in or allocated to functions and programs in the statement of activities, and allocations have been made on a reasonable basis. 25. Revenues ane properly classified in the statement of activities within program revenues, general revenues, contributions to term or permanent endowments, or contributions to permanent fund principal. 26. lnterfund, internal. and intra-entity activity and balances have been properly classified and reported. 27. Deposits and investment securities are properly classified in category of custodial credit risk. 28. Capital assets, including infrastructure assets, are properly capitalized, reported, and if applicable, depreciated. 29. We understand that you have assisted us with the preparation of our financial statements and footnotes and we have reviewed and approved the financial statements and footnotes and take full responsibility for them. 30. We have elected to early-implement the provisions of GASB Statement No With respect to compliance with Government Auditing Standards: a. We are responsible for compliance with the laws. regulations, and provisions of contracts and grant agneements applicable to this organization.