NEW ISSUE BOOK-ENTRY ONLY

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1 NEW ISSUE BOOK-ENTRY ONLY Rating: Moody s: Aa3 (See MISCELLANEOUS Rating herein) In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Refunding Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Refunding Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Refunding Bonds. See TAX MATTERS herein. $28,895,000 MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2015 Dated: Date of Delivery Due: August 1, as shown herein This cover page is not a summary of this issue; it is only a reference to the information contained in this Official Statement. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Montebello Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2015 (the Refunding Bonds ) are being issued by the Montebello Unified School District (the District ), located in the County of Los Angeles, California (the County ), (i) to refund, on an advance basis, a portion of the District s outstanding Montebello Unified School District (County of Los Angeles, California) General Obligation Bonds, Election of 2004, Series 2008, and (ii) to pay costs of issuance of the Refunding Bonds. See THE REFUNDING BONDS Outstanding Bonds; Plan of Finance herein. The Refunding Bonds are being issued pursuant to the laws of the State of California (the State ) and a resolution of the Board of Education of the District, adopted on November 6, See THE REFUNDING BONDS Authority for Issuance herein. The Refunding Bonds are payable from ad valorem taxes to be levied within the District pursuant to the California Constitution and other State law. The Board of Supervisors of the County is empowered and obligated to levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Refunding Bonds, all as more fully described herein. See SECURITY AND SOURCE OF PAYMENT FOR THE REFUNDING BONDS herein. The Refunding Bonds will be issued as current interest bonds. The Refunding Bonds shall be issued in denominations of $5,000 principal amount and integral multiples thereof as shown on the inside cover page of this Official Statement. Interest on the Refunding Bonds shall be payable on February 1 and August 1 of each year, commencing on February 1, The Refunding Bonds will be issued in book-entry form only and will be initially issued and registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for the Refunding Bonds. Individual purchases of Refunding Bonds will be made in book-entry form only. Purchasers will not receive physical delivery of the Refunding Bonds purchased by them. Payments of the principal of and interest on the Refunding Bonds will be made by U.S. Bank National Association, as agent for the County of Los Angeles Treasurer and Tax Collector, the paying agent for the Refunding Bonds, to DTC for subsequent disbursement through DTC Participants to the beneficial owners of the Refunding Bonds. The Refunding Bonds are subject to redemption prior to maturity as described herein. See THE REFUNDING BONDS Redemption herein. The Refunding Bonds will be offered when, as and if issued by the District and received by the Underwriters, subject to the approval of legality by Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, and certain other conditions. Certain legal matters will be passed upon for the District by Orrick, Herrington & Sutcliffe LLP, as Disclosure Counsel to the District; and for the Underwriters by Dannis Woliver Kelly, Long Beach, California, as Underwriters Counsel. It is anticipated that the Refunding Bonds, in definitive form, will be available for delivery through the facilities of DTC in New York, New York, on or about January 7, RBC CAPITAL MARKETS, LLC BLAYLOCK BEAL VAN, LLC This Official Statement is dated December 10, 2014.

2 MATURITY SCHEDULE BASE CUSIP 1 : $28,895,000 MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2015 Maturity (August 1) Principal Amount Interest Rate Initial Public Offering Yield CUSIP Suffix $ 680, % 0.150% QU , QY ,065, QZ ,120, RA ,220, RB ,375, RC ,540, RD ,710, C RE ,890, C RF ,085, C RG ,285, C RH ,400, C RJ ,515, RK ,595, RL ,775, C RM ,675, C RN0 1 CUSIP is a registered trademark of the American Bankers Association. Copyright 2014 CUSIP Global Services. CUSIP data herein is provided by CUSIP Global Services. This data is not intended to serve as a database and does not in any way serve as a substitute for CUSIP Global Services. CUSIP numbers are provided for convenience of reference only. Neither the District nor the Underwriters take any responsibility for the accuracy of such CUSIP numbers. C Yield to call at par on February 1, 2025.

3 MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) BOARD OF EDUCATION Edgar Cisneros, President Benjamin Cárdenas, Vice President Lani Cupchoy, Clerk Hector Chacon, Member David Vela, Member DISTRICT ADMINISTRATORS Cleve A. Pell, Superintendent of Schools Susanna Contreras Smith, Superintendent of Education Arthur A. Revueltas, Deputy Superintendent Cheryl Plotkin, Assistant Superintendent, Business Services Dr. Anthony Martinez, Assistant Superintendent, Instructional Services Jill Rojas, Assistant Superintendent, Human Resources PROFESSIONAL SERVICES Financial Advisor Mission Trail Advisors, LLC San Francisco, California Bond Counsel and Disclosure Counsel Orrick, Herrington & Sutcliffe LLP Irvine, California Paying Agent, Authentication Agent, Transfer Agent and Escrow Bank U.S. Bank National Association, as agent for the County of Los Angeles Treasurer and Tax Collector Los Angeles, California Escrow Verification Causey, Demgen & Moore P.C. Denver, Colorado

4 TABLE OF CONTENTS Page INTRODUCTION...1 General...1 The District...1 THE REFUNDING BONDS...2 Authority for Issuance...2 Purpose of Issue...2 Form and Registration...2 Payment of Principal and Interest...3 Redemption...3 Defeasance...4 Unclaimed Moneys...5 Outstanding Bonds; Plan of Finance...5 Debt Service Schedule...7 Aggregate Debt Service...8 Estimated Sources and Uses of Funds...9 SECURITY AND SOURCE OF PAYMENT FOR THE REFUNDING BONDS...9 General...9 Property Taxation System...10 Assessed Valuation of Property Within the District...10 Tax Rates...16 Tax Charges and Delinquencies...18 Direct and Overlapping Debt...19 TAX MATTERS...21 OTHER LEGAL MATTERS...23 Legal Opinion...23 Legality for Investment in California...23 Continuing Disclosure...23 Litigation...23 ESCROW VERIFICATION...24 MISCELLANEOUS...24 Rating...24 Professionals Involved in the Offering...24 Underwriting...24 ADDITIONAL INFORMATION...25 i

5 TABLE OF CONTENTS (continued) Page APPENDIX A APPENDIX B APPENDIX C APPENDIX D INFORMATION RELATING TO THE DISTRICT S OPERATIONS AND BUDGET...A-1 FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, B-1 PROPOSED FORM OF OPINION OF BOND COUNSEL...C-1 FORM OF CONTINUING DISCLOSURE CERTIFICATE...D-1 APPENDIX E THE LOS ANGELES COUNTY POOLED SURPLUS INVESTMENTS... E-1 APPENDIX F COUNTY OF LOS ANGELES INVESTMENT POLICY... F-1 APPENDIX G BOOK-ENTRY ONLY SYSTEM...G-1 ii

6 This Official Statement does not constitute an offering of any security other than the original offering of the Refunding Bonds by the District. No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representations other than as contained in this Official Statement, and if given or made, such other information or representation not so authorized should not be relied upon as having been given or authorized by the District. The Refunding Bonds are exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 3(a)2 thereof. This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy Refunding Bonds in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. The information set forth herein other than that furnished by the District, although obtained from sources which are believed to be reliable, is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the District. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement is submitted in connection with the sale of the Refunding Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements. Such statements are generally identifiable by the terminology used, such as plan, expect, estimate, budget or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The District does not plan to issue any updates or revisions to those forward-looking statements if or when their expectations, or events, conditions or circumstances on which such statements are based, occur. The District maintains a website. However, the information presented there is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the Refunding Bonds. In connection with this offering, the Underwriters may overallot or effect transactions which stabilize or maintain the market prices of the Refunding Bonds at levels above those that might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriters may offer and sell the Refunding Bonds to certain securities dealers and dealer banks and banks acting as agent at prices lower than the public offering prices stated on the inside front cover page hereof and said public offering prices may be changed from time to time by the Underwriters.

7 $28,895,000 MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2015 INTRODUCTION This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Refunding Bonds to potential investors is made only by means of the entire Official Statement. General This Official Statement, which includes the cover page and appendices hereto, is provided to furnish information in connection with the sale of $28,895,000 aggregate principal amount of Montebello Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2015 (the Refunding Bonds ), all as indicated on the inside front cover hereof, to be issued by the Montebello Unified School District (the District ). This Official Statement speaks only as of its date, and the information contained herein is subject to change. The District has no obligation to update the information in this Official Statement, except as required by the Continuing Disclosure Certificate to be executed by the District. See OTHER LEGAL MATTERS Continuing Disclosure. The purpose of this Official Statement is to supply information to prospective buyers of the Refunding Bonds. Quotations from and summaries and explanations of the Refunding Bonds, a resolution of the Board of Education of the District, adopted on November 6, 2014, providing for the issuance of the Refunding Bonds, and the constitutional provisions, statutes and other documents described herein, do not purport to be complete, and reference is hereby made to said documents, constitutional provisions and statutes for the complete provisions thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or owners of any of the Refunding Bonds. Copies of documents referred to herein and information concerning the Refunding Bonds are available from the District by contacting: Montebello Unified School District, 123 South Montebello Blvd., Montebello, California 90640, Attention: Assistant Superintendent, Business Services. The District may impose a charge for copying, handling and mailing such requested documents. The District The District was formed in July 1936 by consolidating the two original elementary and secondary school districts. The District is a unified school district providing public education for students in kindergarten through grade 12, and for adult education. The District is located in the eastern portion of the County of Los Angeles (the County ) and encompasses a territory of about 22 square miles. The territory of the District includes nine political jurisdictions, including nearly all of the cities of

8 Montebello, Commerce, and Bell Gardens, portions of the cities of Monterey Park, Pico Rivera, Bell, Downey, Rosemead and Cudahy, and unincorporated portions of the County. The District operates 17 elementary schools, six intermediate schools, four comprehensive high schools, one continuation school, four adult schools, and numerous satellite facilities. Enrollment in the District for grades K-12 in the school year is approximately 29,229 students. In fiscal year , the District budgeted for approximately 2,759 full-time equivalent employees, which include certificated (credentialed teaching) staff, classified (non-teaching) staff, and management personnel. Total assessed valuation of taxable property in the District in Fiscal Year is approximately $14.12 billion. The District operates under the jurisdiction of the Los Angeles County Superintendent of Schools. The District is governed by a five-member Board of Education, each member of which is elected to a four-year term. Elections for positions to the Board of Education are held every two years, alternating between two and three available positions. The District s day-to-day operations are managed by a boardappointed Superintendent of Schools and a board-appointed Superintendent of Education. Clive Pell has served as Superintendent of Schools of the District since 2010 and Susanna Contreras Smith has served as Superintendent of Education of the District since For additional information about the District, see APPENDIX A INFORMATION RELATING TO THE DISTRICT S OPERATIONS AND BUDGET, and APPENDIX B FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, The audited financial statements for the fiscal year ended June 30, 2014, are expected to be approved by the Board of Education and made available on or about January 15, Such financial statements will be filed with the EMMA System (as defined herein) soon after they are made available. Authority for Issuance THE REFUNDING BONDS The Refunding Bonds are being issued pursuant to provisions of Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code and other applicable law, and a resolution adopted by the Board of Education of the District on November 6, 2014, providing for the issuance of the Refunding Bonds (the Resolution ). Purpose of Issue Proceeds from the Refunding Bonds will be used to refund, on an advance basis, a portion of the District s outstanding Montebello Unified School District (County of Los Angeles, California) General Obligation Bonds, Election of 2004, Series 2008 (the Series 2008 Bonds ), and (ii) to pay costs of issuance of the Refunding Bonds. See Outstanding Bonds; Plan of Finance and Estimated Sources and Uses of Funds below. Form and Registration The Refunding Bonds will be issued in book-entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), and will be available to purchasers of the Refunding Bonds (the Beneficial Owners ) under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described herein. Beneficial Owners will not receive physical delivery of 2

9 certificates from the District representing their interests in the Refunding Bonds being purchased. Payments of the principal of, premium, if any, and interest on the Refunding Bonds will be made by U.S. Bank National Association, the paying agent for the Refunding Bonds (the Paying Agent ), to DTC, and such payments will be remitted by DTC to the participants in DTC for subsequent disbursement to the Beneficial Owners of Refunding Bonds. See APPENDIX G BOOK-ENTRY ONLY SYSTEM. Payment of Principal and Interest The Refunding Bonds shall be dated the date of their delivery, and shall bear interest at the rates set forth in the table on the inside cover page hereof, payable on February 1 and August 1 of each year, commencing on February 1, 2015 (each an Interest Payment Date ), calculated on the basis of a 360-day year comprised of twelve 30-day months. The Refunding Bonds shall be issued in denominations of $5,000 or any integral multiples thereof, and shall bear interest from the Interest Payment Date next preceding the date of authentication thereof unless it is authenticated as of a date during the period from the 15th calendar day of the month immediately preceding such Interest Payment Date whether or not such day is a business day (each, a Record Date ) to such Interest Payment Date, inclusive, in which event it shall bear interest from such Interest Payment Date, or unless it is authenticated on or before the Record Date preceding the first Interest Payment Date for such Refunding Bonds, in which event it shall bear interest from its dated date; provided, however, that if, at the time of authentication of any Refunding Bond, interest is in default on any outstanding Refunding Bonds, such Refunding Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on the outstanding Refunding Bonds. Interest on the Refunding Bonds shall be paid in lawful money of the United States on each Interest Payment Date. Interest shall be paid by check of the Paying Agent mailed on each Interest Payment Date (if a business day, or on the next business day if the Interest Payment Date does not fall on a business day) to the registered owners thereof (the Owners ) as of the Record Date preceding such Interest Payment Date at their respective addresses shown on the registration books (the Registration Books ) maintained by the Paying Agent or at such address as the Owner may have filed with the Paying Agent for that purpose, except that the payment shall be made by wire transfer of immediately available funds to any Owner of at least $1,000,000 of outstanding Refunding Bonds who shall have requested in writing such method of payment of interest prior to the close of business on the Record Date immediately preceding any Interest Payment Date. The principal of the Refunding Bonds is payable in lawful money of the United States of America upon the surrender thereof at the principal corporate trust office of the Paying Agent at the maturity thereof or upon redemption prior to maturity. So long as the Refunding Bonds are held by Cede & Co., as nominee of DTC, payment shall be made by wire transfer. See APPENDIX G BOOK-ENTRY ONLY SYSTEM. Redemption Optional Redemption. The Refunding Bonds maturing on or after August 1, 2025 shall be subject to optional redemption on or after February 1, 2025, in whole or in part on any date, from any source of available funds, at a redemption price equal to the principal amount of the Refunding Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption. Selection of Bonds for Redemption. If less than all of the Refunding Bonds are called for redemption, such Refunding Bonds shall be redeemed in inverse order of maturities or as otherwise directed by the District. Whenever less than all of the outstanding Refunding Bonds of any one maturity are called for redemption, the Paying Agent shall select the outstanding Refunding Bonds of such maturity to be redeemed by lot. 3

10 Notice of Redemption. Notice of any redemption of the Refunding Bonds shall be mailed by the Paying Agent, postage prepaid, not less than 30 nor more than 60 days prior to the redemption date (i) by first class mail to the County and the respective Owners thereof at the addresses appearing on the Registration Books, and (ii) as may be further required in accordance with the Continuing Disclosure Certificate. Each notice of redemption shall state (i) the date of such notice; (ii) the name of the Refunding Bonds and the date of issue of such Refunding Bonds; (iii) the redemption date; (iv) the redemption price; (v) the dates of maturity or maturities of Refunding Bonds to be redeemed; (vi) if less than all of the Refunding Bonds of any maturity are to be redeemed, the distinctive numbers of the Refunding Bonds of each maturity to be redeemed; (vii) in the case of Refunding Bonds redeemed in part only, the respective portions of the principal amount of the Refunding Bonds of each maturity to be redeemed; (viii) the CUSIP number, if any, of each maturity of Refunding Bonds to be redeemed; (ix) a statement that such Refunding Bonds must be surrendered by the Owners at the principal corporate trust office of the Paying Agent, or at such other place or places designated by the Paying Agent; (x) notice that further interest on such Refunding Bonds will not accrue after the designated redemption date; and (xi) in the case of a conditional notice, that such notice is conditioned upon certain circumstances and the manner of rescinding such conditional notice. The actual receipt by the Owner of any Refunding Bond or by any securities depository or information service of notice of redemption shall not be a condition precedent to redemption, and failure to receive such notice, or any defect in the notice given, shall not affect the validity of the proceedings for the redemption of such Refunding Bonds or the cessation of interest on the date fixed for redemption. Effect of Notice of Redemption. When notice of redemption has been given substantially as described above and when the redemption price of the Refunding Bonds called for redemption is set aside, the Refunding Bonds designated for redemption shall become due and payable on the specified redemption date and interest shall cease to accrue thereon as of the redemption date, and upon presentation and surrender of such Refunding Bonds at the place specified in the notice of redemption, such Refunding Bonds shall be redeemed and paid at the redemption price thereof out of the money provided therefor. The Owners of such Refunding Bonds so called for redemption after such redemption date shall look for the payment of such Refunding Bonds and the redemption premium thereon, if any, only to moneys on deposit for the purpose in the interest and sinking fund of the District within the County treasury (the Interest and Sinking Fund ) or the trust fund established for such purpose. All Refunding Bonds redeemed shall be cancelled forthwith by the Paying Agent and shall not be reissued. Right to Rescind Notice. The District may rescind any optional redemption and notice thereof for any reason on any date prior to the date fixed for redemption by causing written notice of the rescission to be given to the owners of the Refunding Bonds so called for redemption. Any optional redemption and notice thereof shall be rescinded if for any reason on the date fixed for redemption moneys are not available in the Interest and Sinking Fund of the District or otherwise held in trust for such purpose in an amount sufficient to pay in full on said date the principal of, interest, and any premium due on the Refunding Bonds called for redemption. Notice of rescission of redemption shall be given in the same manner in which notice of redemption was originally given. The actual receipt by the owner of any Refunding Bond of notice of such rescission shall not be a condition precedent to rescission, and failure to receive such notice or any defect in such notice shall not affect the validity of the rescission. Defeasance The District may pay and discharge any or all of the Refunding Bonds by depositing in trust with the Paying Agent or an escrow agent at or before maturity, money and/or non-callable direct obligations of the United States of America (including zero interest bearing State and Local Government Series) or other non-callable obligations the payment of the principal of and interest on which is guaranteed by a 4

11 pledge of the full faith and credit of the United States of America, in an amount which will, together with the interest to accrue thereon and available moneys then on deposit in the Interest and Sinking Fund of the District, be fully sufficient to pay and discharge the indebtedness on such Refunding Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates. Unclaimed Moneys Any money held in any fund created pursuant to the Resolution or by the Paying Agent or an escrow agent in trust for the payment of the principal of, redemption premium, if any, or interest on Refunding Bonds and remaining unclaimed for two years after the principal of all of such Refunding Bonds has become due and payable (whether by maturity or upon prior redemption) shall be transferred to the Interest and Sinking Fund of the District for payment of any outstanding bonds of the District payable from said fund; or, if no such bonds of the District are at such time outstanding, said moneys shall be transferred to the general fund of the District as provided and permitted by law. Outstanding Bonds; Plan of Finance Outstanding Bonds. In addition to the Refunding Bonds, the District has eleven outstanding series (or subseries) of bonds, each of which is secured by ad valorem taxes upon all property subject to taxation by the District. On April 14, 1998, over two-thirds of the registered voters of the District approved the authorization to issue bonds of the District in an aggregate principal amount not to exceed $92,000,000 to repair, modernize and improve existing schools and to acquire and construct new classrooms, libraries and schools (the 1998 Authorization ). On August 18, 1998, the County, at the request of the District, issued $24,639,698 initial aggregate principal amount of bonds (the Series 1998 Bonds ) as the District s first series of bonds issued under the 1998 Authorization. On June 23, 1999, the County, at the request of the District, issued $19,997, initial aggregate principal amount of bonds (the Series 1999 Bonds ) as the District s second series of bonds issued under the 1998 Authorization. On June 21, 2001, the County, at the request of the District, issued $15,782, initial aggregate principal amount of bonds (the Series 2001 Bonds ) as the District s third series of bonds issued under the 1998 Authorization. On September 17, 2002, the County, at the request of the District, issued $15,996, initial aggregate principal amount of bonds (the Series 2002 Bonds ) as the District s fourth series of bonds issued under the 1998 Authorization. On July 8, 2004, the County, at the request of the District, issued $15,580, initial aggregate principal amount of bonds (the Series 2004 Bonds ) as the District s fifth and final series of bonds issued under the 1998 Authorization. On October 12, 2010, the District issued $15,770,000 aggregate principal amount of its 2010 General Obligation Refunding Bonds (the Series 2010 Refunding Bonds ) to refund portions of the outstanding Series 1999 Bonds, the Series 2001 Bonds and the Series 2004 Bonds. On November 2, 2004, over 55% of the registered voters of the District approved the authorization to issue bonds of the District in an aggregate principal amount not to exceed $98,000,000 to finance the acquisition of real property, and expansion/upgrading of facilities, including security, communications, heating/cooling systems, science labs, libraries and cafeterias, needed to improve student instruction and safety (the 2004 Authorization ). On August 2, 2005, the County, at the request of the District, issued $30,000,000 aggregate principal amount of bonds (the Series 2005 Bonds ) as the District s first series of bonds issued under the 2004 Authorization. On September 23, 2008, the County, at the request of the District, issued $35,000,000 aggregate principal amount of bonds (the Series 2008 Bonds ) as the District s second series of bonds issued under the 2004 Authorization. On October 8, 2009, the County, at the request of the District, issued (i) $20,360,000 aggregate principal amount of taxexempt bonds (the Series 2009A-1 Bonds ) and (ii) $12,640,000 aggregate principal amount of taxable bonds (the Series 2009A-2 Bonds ), which collectively are the District s third series of bonds issued under the 2004 Authorization. On May 16, 2013, the District issued $22,155,000 aggregate principal 5

12 amount of its General Obligation Refunding Bonds, Election of 2004, Series 2013A (the Series 2013A Refunding Bonds ) to advance refund portions of the outstanding Series 2005 Bonds. See APPENDIX A: DISTRICT FINANCIAL AND OPERATING INFORMATION FINANCIAL AND DEMOGRAPHIC INFORMATION District Debt Structure. Plan of Finance. The proceeds of the Refunding Bonds will be issued to refund and defease, on an advance basis, the District s outstanding Series 2008 Bonds maturing on August 1 in the years 2019 through 2025, inclusive, 2028 and 2033 (the Prior Bonds ), and (ii) to pay certain costs of issuance of the Refunding Bonds. The District and U.S. Bank National Association, as escrow bank (the Escrow Bank ) will enter into an Escrow Agreement, dated as of January 1, 2015, with respect to the Prior Bonds (the Escrow Agreement ), pursuant to which the District will deposit a portion of the proceeds from the sale of the Refunding Bonds into a special fund to be held by the Escrow Bank. The amounts deposited with the Escrow Bank with respect to the Prior Bonds will be used to purchase certain United States governmental obligations, the principal of and interest on which (together with any uninvested amount) will be sufficient to enable the Escrow Bank to pay the interest due on the Prior Bonds being refunded to their first optional redemption date (August 1, 2018), and to redeem such Prior Bonds at a redemption price equal to 100% of the principal amount of such Prior Bonds being refunded on such redemption date in accordance with the schedule set forth in the Escrow Agreement. See ESCROW VERIFICATION herein. Amounts on deposit with the Escrow Bank pursuant to the Escrow Agreement are not available to pay debt service on the Refunding Bonds. The Refunding Bonds are payable from ad valorem taxes to be levied within the District pursuant to the California Constitution and other State law. The Board of Supervisors of the County is empowered and obligated to levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Refunding Bonds. The proceeds of the levy shall be deposited to the credit of the interest and sinking fund of the District within the County treasury (the Interest and Sinking Fund ). Such proceeds shall be applied for the payment of principal of and interest on the Refunding Bonds. Moneys in the Interest and Sinking Fund will be invested on behalf of the District in any one or more investments generally permitted to school districts authorized pursuant to Section et seq. or Section et seq. of the California Government Code by the County Treasurer and Tax Collector, and consistent with the investment policy of the County. See APPENDIX E THE LOS ANGELES COUNTY POOLED SURPLUS INVESTMENTS AND APPENDIX F COUNTY OF LOS ANGELES INVESTMENT POLICY. 6

13 Debt Service Schedule The following table shows the annual debt service requirements of the Refunding Bonds, assuming no early redemptions: MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2015 Year Ending August 1, Principal Interest Total Annual Debt Service 2015 $680, $754, $1,434, ,318, ,318, ,318, ,318, ,318, ,318, , ,318, ,283, ,065, ,269, ,334, ,120, ,216, ,336, ,220, ,160, ,380, ,375, ,099, ,474, ,540, ,030, ,570, ,710, $953, ,663, ,890, $868, ,758, ,085, $773, ,858, ,285, $669, ,954, ,400, $555, ,955, ,515, $435, ,950, ,595, $356, ,951, ,775, $272, ,047, ,675, $133, ,808, Total: $28,895, $16,825, $45,720,

14 Aggregate Debt Service Debt service on each series of the District s outstanding bonds, including the Refunding Bonds, assuming no early redemptions, is shown in the following table: MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) General Obligation Bonds - Aggregate Debt Service Period Ending August 1, Series 1998 Bonds Series 1999 Bonds Series 2001 Bonds Series 2002 Bonds Series 2004 Bonds Series 2008 Series 2009A-1 Bonds (1) Bonds Series 2009A-2 Bonds (2) Series 2010 Refunding Bonds Series 2013A Refunding Bonds Refunding Bonds Aggregate Total Debt Service 2015 $2,055, $1,680, $1,365, $655, $1,491, $850, $2,264, $1,941, $1,434, $13,738, ,100, ,720, ,400, , ,537, , ,303, ,937, ,318, ,870, ,150, ,765, ,425, , ,591, , ,359, ,933, ,318, ,141, ,195, ,810, ,455, $1,215, , ,691, , ,199, ,938, ,318, ,587, ,250, ,855, ,480, ,240, ,737, , ,228, ,936, ,283, ,860, ,300, ,900, ,515, ,270, ,789, , ,260, ,937, ,334, ,157, ,350, ,945, $1,435, ,545, ,295, ,792, , ,935, ,336, ,485, ,405, ,995, ,470, ,575, ,320, , ,040, ,935, ,380, ,786, ,455, ,045, ,505, ,610, ,345, , ,067, ,938, ,474, ,104, ,095, ,545, ,820, ,535, , ,108, ,937, ,570, ,275, ,580, ,830, ,405, , ,137, ,937, ,663, ,218, ,620, ,940, ,640, , ,150, ,940, ,758, ,713, ,775, ,365, , ,115, ,938, ,858, ,717, ,455, , ,124, ,938, ,954, ,137, ,740, , ,140, ,935, ,955, ,434, ,859, ,937, ,950, ,746, ,903, ,951, ,855, ,945, ,047, ,992, ,987, ,808, ,796, ,036, ,036, Total: $20,260, $18,810, $9,155, $22,735, $20,825, $3,017, $31,677, $22,842, $10,615, $30,999, $45,720, $236,657, (1) Reflects the planned refunding of the Prior Bonds from proceeds of the Refunding Bonds. (2) The District expects to receive a cash subsidy payment from the United States Treasury equal to a portion of the interest due on each interest payment date on the portion of the Series 2009A-1 Bonds designated as Build America Bonds. Amounts shown do not take into account the receipt of any subsidy payments. 8

15 Estimated Sources and Uses of Funds The proceeds of the Refunding Bonds are expected to be applied as follows: Sources of Funds: Principal Amount of Refunding Bonds $28,895, Plus Original Issue Net Premium 4,553, Uses of Funds: Total Sources of Funds $33,448, Escrow Fund $33,150, Underwriters Discount 144, Costs of Issuance (1) 154, Total Uses of Funds $33,448, (1) Includes bond counsel fees, disclosure counsel fees, financial advisor and other consultant fees, rating agency fee, initial paying agent fees, printing fees and other miscellaneous fees and expenses. General SECURITY AND SOURCE OF PAYMENT FOR THE REFUNDING BONDS In order to provide sufficient funds for repayment of principal and interest when due on a school district s bonds, the board of supervisors of the county, the superintendent of schools of which has jurisdiction over such school district, is empowered and is obligated to levy ad valorem taxes upon all property subject to taxation by such school district, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates). Such taxes are in addition to other taxes levied upon property within the school district. The assessor of the county in which the school district lies must annually certify to the board of supervisors the assessed value of all taxable property in the county situated in the school district. The board of supervisors must levy upon the property of the school district within its own county the rate of tax that will be sufficient to raise not less than the amount needed to pay the interest and any portion of the principal of the bonds that is to become due during the year. Accordingly, the Board of Supervisors of the County must levy upon the property of the District the rate of tax that will be sufficient to provide sufficient funds for repayment of principal and interest when due on the Refunding Bonds. When collected, the tax revenues will be deposited in the District s Interest and Sinking Fund, which is required to be maintained by the County and to be used solely for the payment of bonds of the District. Moneys in the Interest and Sinking Fund will be invested on behalf of the District in any one or more investments generally permitted to school districts authorized pursuant to Section et seq. or Section et seq. of the California Government Code by the County Treasurer and Tax Collector, and consistent with the investment policy of the County. See APPENDIX E THE LOS ANGELES COUNTY POOLED SURPLUS INVESTMENTS and APPENDIX F COUNTY OF LOS ANGELES INVESTMENT POLICY. 9

16 Property Taxation System Property tax revenues result from the application of the appropriate tax rate to the total assessed value of taxable property in the District. School districts receive property taxes for payment of voterapproved bonds as well as for general operating purposes. Local property taxation is the responsibility of various county officers. For each school district located in a county, the county assessor computes the value of locally assessed taxable property. Based on the assessed value of property and the scheduled debt service on outstanding bonds in each year, the county auditor-controller computes the rate of tax necessary to pay such debt service, and presents the tax rolls (including rates of tax for all taxing jurisdictions in the county) to the county board of supervisors for approval. The county treasurer and tax collector prepares and mails tax bills to taxpayers and collects the taxes. In addition, the treasurer and tax collector, as ex officio treasurer of each school district located in the county, holds school district funds, including taxes collected for payment of school bonds, and is charged with payment of principal and interest on the bonds when due. Assessed Valuation of Property Within the District Taxable property located in the District had a assessed value of $13,627,819,832 and has a assessed value of $14,119,791,276. All property (real, personal and intangible) is taxable unless an exemption is granted by the California Constitution or United States law. Under the State Constitution, exempt classes of property include household and personal effects, intangible personal property (such as bank accounts, stocks and bonds), business inventories, and property used for religious, hospital, scientific and charitable purposes. The State Legislature may create additional exemptions for personal property, but not for real property. Most taxable property is assessed by the assessor of the county in which the property is located. Some special classes of property are assessed by the State Board of Equalization, as described below. Taxes are levied for each fiscal year on taxable real and personal property assessed as of the preceding January 1, at which time the lien attaches. The assessed value is required to be adjusted during the course of the year when property changes ownership or new construction is completed. State law also affords an appeal procedure to taxpayers who disagree with the assessed value of any property. When necessitated by changes in assessed value during the course of a year, a supplemental assessment is prepared so that taxes can be levied on the new assessed value before the next regular assessment roll is completed. See Appeals of Assessed Valuation; Blanket Reductions of Assessed Values below. Under the State Constitution, the State Board of Equalization assesses property of State-regulated transportation and communications utilities, including railways, telephone and telegraph companies, and companies transmitting or selling gas or electricity. The Board of Equalization also is required to assess pipelines, flumes, canals and aqueducts lying within two or more counties. The value of property assessed by the Board of Equalization is allocated by a formula to local jurisdictions in the county, including school districts, and taxed by the local county tax officials in the same manner as for locally assessed property. Taxes on privately owned railway cars, however, are levied and collected directly by the Board of Equalization. Property used in the generation of electricity by a company that does not also transmit or sell that electricity is taxed locally instead of by the Board of Equalization. Thus, the reorganization of regulated utilities and the transfer of electricity-generating property to non-utility companies, as often occurred under electric power deregulation in California, affects how those assets are assessed, and which local agencies benefit from the property taxes derived. In general, the transfer of State-assessed property located in the District to non-utility companies will increase the assessed value of property in the District, since the property s value will no longer be divided among all taxing jurisdictions in the County. The transfer of property located and taxed in the District to a State-assessed utility will have the opposite effect, generally reducing the assessed value in the District, as the value is shared among the other 10

17 jurisdictions in the County. The District is unable to predict future transfers of State-assessed property in the District and the County, the impact of such transfers on its utility property tax revenues, or whether future legislation or litigation may affect ownership of utility assets, the State s methods of assessing utility property, or the method by which tax revenues of utility property is allocated to local taxing agencies, including the District. Locally taxed property is classified either as secured or unsecured, and is listed accordingly on separate parts of the assessment roll. The secured roll is that part of the assessment roll containing State-assessed property and property (real or personal) for which there is a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. All other property is unsecured, and is assessed on the unsecured roll. Secured property assessed by the State Board of Equalization is commonly identified for taxation purposes as utility property. Shown in the following table is the assessed valuation of the various classes of property in the District in the last five fiscal years. MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Assessed Value of Secured and Unsecured Property Fiscal Years through Fiscal Year Ending Local Secured Utility Unsecured Total Valuation $11,788,597,293 $62,284,801 $931,103,186 $12,781,985, ,898,325,763 62,106, ,162,974 12,903,595, ,128,764,532 58,067, ,947,225 13,121,778, ,681,314,137 37,209, ,296,206 13,627,819, ,129,325,418 45,314, ,151,439 14,119,791,276 Source: California Municipal Statistics, Inc. Assessments may be adjusted during the course of the year when real property changes ownership or new construction is completed. Assessments may also be appealed by taxpayers seeking a reduction as a result of economic and other factors beyond the District s control, such as a general market decline in land values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes), or the complete or partial destruction of taxable property caused by natural or manmade disaster, such as earthquake, flood, fire, toxic dumping, etc. When necessitated by changes in assessed value in the course of a year, taxes are pro-rated for each portion of the tax year. See also Appeals of Assessed Valuation; Blanket Reductions of Assessed Values below. Appeals of Assessed Valuation; Blanket Reductions of Assessed Values. There are two basic types of property tax assessment appeals provided for under State law. The first type of appeal, commonly referred to as a base year assessment appeal, involves a dispute on the valuation assigned by the assessor immediately subsequent to an instance of a change in ownership or completion of new construction. If the base year value assigned by the assessor is reduced, the valuation of the property cannot increase in subsequent years more than 2% annually unless and until another change in ownership and/or additional new construction or reconstruction activity occurs. The second type of appeal, commonly referred to as a Proposition 8 appeal (which Proposition 8 was approved by the voters in 1978), can result if factors occur causing a decline in the market value of 11

18 the property to a level below the property s then current taxable value (escalated base year value). Pursuant to State law, a property owner may apply for a Proposition 8 reduction of the property tax assessment for such owner s property by filing a written application, in the form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board. A property owner desiring a Proposition 8 reduction of the assessed value of such owner s property in any one year must submit an application to the county assessment appeals board (the Appeals Board ). Following a review of the application by the county assessor s office, the county assessor may offer to the property owner the opportunity to stipulate to a reduced assessment, or may confirm the assessment. If no stipulation is agreed to, and the applicant elects to pursue the appeal, the matter is brought before the Appeals Board (or, in some cases, a hearing examiner) for a hearing and decision. The Appeals Board generally is required to determine the outcome of appeals within two years of each appeal s filing date. Any reduction in the assessment ultimately granted applies only to the year for which application is made and during which the written application is filed. The assessed value increases to its pre-reduction level (escalated to the inflation rate of no more than 2%) following the year for which the reduction application is filed. However, the county assessor has the power to grant a reduction not only for the year for which application was originally made, but also for the then-current year and any intervening years as well. In practice, such a reduced assessment may and often does remain in effect beyond the year in which it is granted. In addition, Article XIIIA of the State Constitution provides that the full cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. This measure is computed on a calendar year basis. According to representatives of the County assessor s office, the County has in the past, pursuant to Article XIIIA of the State Constitution, ordered blanket reductions of assessed property values and corresponding property tax bills on single family residential properties when the value of the property has declined below the current assessed value as calculated by the County. No assurance can be given that property tax appeals and/or blanket reductions of assessed property values will not significantly reduce the assessed valuation of property within the District in the future. See APPENDIX A INFORMATION RELATING TO THE DISTRICT S OPERATIONS AND BUDGET CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Limitations on Revenues for a discussion of other limitations on the valuation of real property with respect to ad valorem taxes. Bonding Capacity. As a unified school district, the District may issue bonds in an amount up to 2.50% of the assessed valuation of taxable property within its boundaries. The District s fiscal year gross bonding capacity (also commonly referred to as the bonding limit or debt limit ) is approximately $353 million and its net bonding capacity is approximately $229 million (taking into account current outstanding debt before issuance of the Refunding Bonds and the refunding of the Prior Bonds). Refunding Bonds may be issued without regard to this limitation; however, once issued, the outstanding principal of any refunding bonds is included when calculating the District s bonding capacity. 12

19 Assessed Valuation by Jurisdiction. The following table describes the percentage and value of the total assessed value of the District that resides in the cities listed below and unincorporated portions of the County for fiscal year Jurisdiction MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Assessed Valuation by Jurisdiction (1) Assessed Valuation in District Percent of District Assessed Valuation of Jurisdiction Percent of Jurisdiction in District City of Bell $318,259, % $1,533,581, % City of Bell Gardens 1,447,245, ,523,035, City of Commerce 4,341,360, ,590,628, City of Cudahy 203, ,390, City of Downey 17,642, ,525,613, City of Montebello 5,193,249, ,198,752, City of Monterey Park 1,177,006, ,315,574, City of Pico Rivera 92,894, ,249,444, City of Rosemead 196,916, ,879,428, Unincorporated Los Angeles County 1,335,013, ,355,630, Total District $14,119,791, % Los Angeles County $14,119,791, % $1,201,271,457, % (1) Before deduction of redevelopment incremental valuation. Source: California Municipal Statistics, Inc. 13

20 Assessed Valuation by Land Use. The following table gives a distribution of taxable property located in the District on the fiscal year tax roll by principal purpose for which the land is used, and the assessed valuation and number of parcels for each use. Non-Residential: MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Assessed Valuation and Parcels by Land Use Assessed Valuation (1) Percent of Total No. of Parcels Percent of Total Commercial $1,927,176, % 1, % Vacant Commercial 48,340, Industrial 3,667,420, , Vacant Industrial 106,348, Recreational 148,019, Government/Social/Institutional 90,980, Miscellaneous 2,464, Subtotal Non-Residential $5,990,750, % 4, % Residential: Single Family Residence $4,292,637, % 18, % Condominium/Townhouse 531,539, , Mobile Home Park 13,469, Residential Units 1,454,765, , Residential 825,719, , Units/Apartments Vacant Residential 20,443, Subtotal Residential $7,138,575, , % TOTAL $13,129,325, % 32, % (1) Local secured assessed valuation, excluding tax-exempt property. Source: California Municipal Statistics, Inc. 14

21 Assessed Valuation of Single-Family Homes. The following table shows the assessed valuation of single-family homes in the District for fiscal year , including the median and mean assessed valuation per parcel. MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Per Parcel Assessed Valuation of Single Family Homes No. of Parcels Assessed Valuation Average Assessed Valuation Median Assessed Valuation Single Family Residential 18,855 $4,292,637,492 $227,666 $219, Assessed Valuation No. of Parcels (1) % of Total Cumulative % of Total Total Valuation % of Total Cumulative % of Total $0 - $24, % 0.191% $702, % 0.016% $25,000 - $49,999 1, ,904, $50,000 - $74,999 2, ,214, $75,000 - $99,999 1, ,103, $100,000 - $124, ,603, $125,000 - $149, ,293, $150,000 - $174, ,510, $175,000 - $199,999 1, ,256, $200,000 - $224,999 1, ,409, $225,000 - $249,999 1, ,114, $250,000 - $274,999 1, ,332, $275,000 - $299,999 1, ,206, $300,000 - $324, ,699, $325,000 - $349, ,877, $350,000 - $374, ,957, $375,000 - $399, ,998, $400,000 - $424, ,249, $425,000 - $449, ,078, $450,000 - $474, ,996, $475,000 - $499, ,110, $500,000 and greater ,019, Total 18, % $4,292,637, % (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc. 15

22 Largest Taxpayers in District. The twenty taxpayers with the greatest combined ownership of taxable property in the District on the fiscal year tax roll, and the assessed valuation of all property owned by those taxpayers in all taxing jurisdictions within the District, are shown below. MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Largest Local Secured Taxpayers Property Owner Primary Land Use Assessed Valuation Percent of Total (1) 1. Montebello Town Center Investors LLC Shopping Center $198,853, % 2. AMB Institutional Alliance Fund II LP/AMB Industrial 183,977, Property LP 3. Craig Realty Group Citadel LLC Commercial 164,930, Plains Exploration and Production Co. Oil & Gas 127,868, Rreef America REIT II Corp. Industrial 114,097, Cheli Distribution Center Inc. Industrial 107,340, California Commerce Club Inc. Casino/Card Club 104,992, LIT Commerce Distribution Center LLC Industrial 90,688, First Industrial LP Industrial 63,597, Bimbo Bakeries USA Inc. Industrial 60,862, Guardian Life Insurance Company of America Industrial 53,895, Terreno Garfield LLC Industrial 53,690, Teachers Insurance and Annuity Association Industrial 53,562, Costco Wholesale Corporation Commercial 50,426, Saturn LLC Office Building 46,900, Zvi Ryzman Industrial 46,539, Commerce Industrial Park LLC Industrial 45,459, Union Bank Office Building 45,378, KK 3A Corporation Apartments 45,103, Omninet Commerce LP Office Building 45,083, $1,703,247, % (1) local secured assessed valuation: $13,129,325,418 Source: California Municipal Statistics, Inc. The more property (by assessed value) owned by a single taxpayer, the more tax collections are exposed to weakness in the taxpayer s financial situation and ability or willingness to pay property taxes. Furthermore, assessments may be appealed by taxpayers seeking a reduction as a result of economic and other factors beyond the District s control. See Appeals of Assessed Valuation; Blanket Reductions of Assessed Values above. Tax Rates The State Constitution permits the levy of an ad valorem tax on taxable property not to exceed 1% of the full cash value of the property, and State law requires the full 1% tax to be levied. The levy of special ad valorem property taxes in excess of the 1% levy is permitted as necessary to provide for debt service payments on school bonds and other voter-approved indebtedness. The rate of tax necessary to pay fixed debt service on the Refunding Bonds in a given year depends on the assessed value of taxable property in that year. The rate of tax imposed on unsecured property for repayment of the Refunding Bonds is based on the prior year s secured property tax rate. Economic and other factors beyond the District s control, such as a general market decline in land values, 16

23 reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes), or the complete or partial destruction of taxable property caused by natural or manmade disaster, such as earthquake, flood, fire, toxic dumping, etc., could cause a reduction in the assessed value of taxable property within the District and necessitate a corresponding increase in the annual tax rate to be levied to pay the principal of and interest on the Refunding Bonds. Issuance of additional authorized bonds in the future might also cause the tax rate to increase. Typical Tax Rate Area. The following table shows ad valorem property tax rates for the last five fiscal years in typical Tax Rate Areas of the District (TRA 6330, TRA and TRA 6351). TRA 6330 comprised approximately 22.48% of the total fiscal year assessed value of the District. TRA comprised approximately 10.63% of the total fiscal year assessed value of the District. TRA 6351 comprised approximately 7.35% of the total fiscal year assessed value of the District. MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Typical Total Tax Rate per $100 of Assessed Valuation (TRA 6330, and 6351) Fiscal Years Through TRA General $ $ $ $ $ City of Montebello Montebello Unified School District Los Angeles Comm. College District Metropolitan Water District Total All Property $ $ $ $ $ TRA General $ $ $ $ $ Montebello Unified School District Los Angeles Comm. College District Metropolitan Water District Total All Property $ $ $ $ $ TRA General $ $ $ $ $ Montebello Unified School District Los Angeles Comm. College District Metropolitan Water District Total All Property $ $ $ $ $ Source: California Municipal Statistics, Inc. 17

24 Tax Charges and Delinquencies A school district s share of the 1% countywide tax is based on the actual allocation of property tax revenues to each taxing jurisdiction in the county in fiscal year , as adjusted according to a complicated statutory scheme enacted since that time. Revenues derived from special ad valorem taxes for voter-approved indebtedness, including the Refunding Bonds, are reserved to the taxing jurisdiction that approved and issued the debt, and may only be used to repay that debt. The county treasurer and tax collector prepares the property tax bills. Property taxes on the regular secured assessment roll are due in two equal installments: the first installment is due on November 1, and becomes delinquent after December 10. The second installment is due on February 1 and becomes delinquent after April 10. If taxes are not paid by the delinquent date, a 10% penalty attaches and a $10 cost is added to unpaid second installments. If taxes remain unpaid by June 30, the tax is deemed to be in default, and a $15 state redemption fee applies. Interest then begins to accrue at the rate of 1.5% per month. The property owner has the right to redeem the property by paying the taxes, accrued penalties, and costs within five years of the date the property went into default. If the property is not redeemed within five years, it is subject to sale at a public auction by the county treasurer and tax collector. The County has not adopted the Teeter Plan alternative method for collection of taxes and, therefore, such alternative method is not available to local taxing entities within the County, such as the District. The District s receipt of property taxes is therefore subject to delinquencies. Property taxes on the unsecured roll are due in one payment on the lien date, January 1, and become delinquent after August 31. A 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of 1.5% per month begins to accrue on November 1. To collect unpaid taxes, the county treasurer and tax collector may obtain a judgment lien upon and cause the sale of all property owned by the taxpayer in the county, and may seize and sell personal property, improvements and possessory interests of the taxpayer. The county treasurer and tax collector may also bring a civil suit against the taxpayer for payment. The date on which taxes on supplemental assessments are due depends on when the supplemental tax bill is mailed. 18

25 The following table shows a recent history of real property tax collections and delinquencies in the District. MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Secured Tax Charges and Delinquencies Fiscal Years Through Secured Tax Charge (1) Amount Delinquent June 30 Delinquent June $28,072, $948, % ,952, , ,323, , ,958, , ,120, , Secured Tax Charge (2) Amount Delinquent June 30 Delinquent June $11,374, $343, % ,459, , ,839, , ,736, , ,096, , (1) 1% general fund apportionment. Excludes redevelopment agency impounds. Reflects countywide delinquency rate. (2) Bond debt service levy only. Source: California Municipal Statistics, Inc. Direct and Overlapping Debt Set forth below is a schedule of direct and overlapping debt prepared by California Municipal Statistics Inc. effective November 1, 2014 for debt issued as of November 7, The table is included for general information purposes only. The District has not reviewed this table for completeness or accuracy and makes no representations in connection therewith. The first column in the table names each public agency which has outstanding debt as of the date of the schedule and whose territory overlaps the District in whole or in part. Column two shows the percentage of each overlapping agency s assessed value located within the boundaries of the District. This percentage, multiplied by the total outstanding debt of each overlapping agency (which is not shown in the table) produces the amount shown in column three, which is the apportionment of each overlapping agency s outstanding debt to taxable property in the District. The schedule generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District. Such long-term obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. 19

26 Assessed Valuation: $14,119,791,276 MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Statement of Direct and Overlapping Bonded Debt DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: Applicable Debt November 1, 2014 Los Angeles County Flood Control District 1.167% $203,992 Metropolitan Water District ,386 Los Angeles Community College District ,905,285 Montebello Unified School District ,969,454 (1) City of Bell ,384,660 Los Angeles County Regional Park and Open Space Assessment District ,840 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $209,180,617 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Los Angeles County General Fund Obligations 1.175% $20,990,262 Los Angeles County Superintendent of Schools Certificates of Participation ,450 Montebello Unified School District Certificates of Participation ,880,000 (1) City of Bell General Fund and Pension Obligation Bonds ,504,439 City of Commerce General Fund Obligations ,457,000 City of Montebello General Fund Obligations ,261,827 City of Monterey Park Pension Obligation Bonds ,775,049 Other City General Fund Obligations Various 3,824,857 Los Angeles County Sanitation District No. 1 Authority Los Angeles County Sanitation District No. 2 Authority ,821,534 Los Angeles County Sanitation District No. 15 Authority ,326 TOTAL GROSS OVERLAPPING GENERAL FUND DEBT $89,006,869 Less: Los Angeles County obligations supported by landfill revenues 59,164 City supported bonds 14,366,599 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT $74,581,106 OVERLAPPING TAX INCREMENT DEBT: $186,984,129 GROSS COMBINED TOTAL DEBT $485,171,615 (2) NET COMBINED TOTAL DEBT $470,745,852 (1) Excludes the Refunding Bonds described herein, but includes the Prior Bonds to be refunded. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Ratios to Assessed Valuation: Direct Debt ($123,969,454) % Total Direct and Overlapping Tax and Assessment Debt % Combined Total Debt ($134,849,454) % Gross Combined Total Debt % Net Combined Total Debt % Ratios to Redevelopment Incremental Valuation ($4,481,555,977): Total Overlapping Tax Increment Debt % Source: California Municipal Statistics, Inc. 20

27 TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, bond counsel to the District ( Bond Counsel ), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Refunding Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the Code ) and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Refunding Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix C hereto. To the extent the issue price of any maturity of the Refunding Bonds is less than the amount to be paid at maturity of such Refunding Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Refunding Bonds), the difference constitutes original issue discount, the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Refunding Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Refunding Bonds is the first price at which a substantial amount of such maturity of the Refunding Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Refunding Bonds accrues daily over the term to maturity of such Refunding Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Refunding Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Refunding Bonds. Beneficial Owners of the Refunding Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Refunding Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Refunding Bonds in the original offering to the public at the first price at which a substantial amount of such Refunding Bonds is sold to the public. Refunding Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) ( Premium Bonds ) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of obligations, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Refunding Bonds. The District has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Refunding Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Refunding Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Refunding Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel s attention after the date of issuance of the 21

28 Refunding Bonds may adversely affect the value of, or the tax status of interest on, the Refunding Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Although Bond Counsel is of the opinion that interest on the Refunding Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Refunding Bonds may otherwise affect a Beneficial Owner s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Refunding Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. For example, Representative Dave Camp, Chair of the House Ways and Means Committee released draft legislation that would subject interest on the Refunding Bonds to a federal income tax at an effective rate of 10% or more for individuals, trusts, and estates in the highest tax bracket, and the Obama Administration proposed legislation that would limit the exclusion from gross income of interest on the Refunding Bonds to some extent for high-income individuals. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Refunding Bonds. Prospective purchasers of the Refunding Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel s judgment as to the proper treatment of the Refunding Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service ( IRS ) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the District or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The District has covenanted, however, to comply with the requirements of the Code. Bond Counsel s engagement with respect to the Refunding Bonds ends with the issuance of the Refunding Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the District or the Beneficial Owners regarding the tax-exempt status of the Refunding Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the District and its appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the District legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Refunding Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Refunding Bonds, and may cause the District or the Beneficial Owners to incur significant expense. 22

29 OTHER LEGAL MATTERS Legal Opinion The validity of the Refunding Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District. Bond Counsel expects to deliver an opinion at the time of issuance of the Refunding Bonds substantially in the form set forth in Appendix C hereto. Bond Counsel, as such, undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the District by Orrick, Herrington & Sutcliffe LLP, as Disclosure Counsel to the District, and for the Underwriters by Dannis, Woliver Kelley, Long Beach, California. Legality for Investment in California Under the provisions of the California Financial Code, the Refunding Bonds are legal investments for commercial banks in California to the extent that the Refunding Bonds, in the informed opinion of the bank, are prudent for the investment of funds of depositors, and, under provisions of the California Government Code, the Refunding Bonds are eligible securities for deposit of public moneys in the State. Continuing Disclosure The District has covenanted for the benefit of the holders and beneficial owners of the Refunding Bonds to provide, or to cause to be provided, to the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access system or such other electronic system designated by the Municipal Securities Rulemaking Board (the EMMA System ) certain annual financial information and operating data relating to the District (the Annual Report ) by not later than nine months following the end of the District s fiscal year (currently ending June 30), commencing with the report for the fiscal year (which is due no later than April 1, 2015) and notice of the occurrence of certain enumerated events ( Notice Events ) in a timely manner not in excess of ten business days after the occurrence of such a Notice Event. The specific nature of the information to be contained in the Annual Report and the notices of Notice Events is set forth in APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE. These covenants have been made in order to assist the Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the Rule ). A review of the District s compliance with its previous continuing disclosure undertakings was conducted and it was found, during the preceding five years, that (a) the District did not timely file its annual reports for fiscal years ended June 30, 2010 and 2011, and (b) the District did not timely file notices of certain rating changes. Litigation No litigation is pending or threatened concerning or contesting the validity of the Refunding Bonds or the District s ability to receive ad valorem taxes and to collect other revenues, or contesting the District s ability to issue and retire the Refunding Bonds. The District is not aware of any litigation pending or threatened questioning the political existence of the District or contesting the title to their offices of District officers who will execute the Refunding Bonds or District or County officials who will sign certifications relating to the Refunding Bonds, or the powers of those offices. A certificate (or certificates) to that effect will be furnished to the Underwriters at the time of the original delivery of the Refunding Bonds. 23

30 The District is routinely subject to lawsuits and claims. In the opinion of the District, the aggregate amount of the uninsured liabilities of the District under these other lawsuits and claims will not materially affect the financial position or operations of the District. ESCROW VERIFICATION The arithmetical accuracy of certain computations included in the schedules provided by the Underwriters relating to the computation of the projected payments of principal and interest to retire the Prior Bonds to be refunded will be verified by Causey Demgen & Moore, P.C. (the Verification Agent ). Such computations will be based solely on assumptions and information supplied by the District and the Underwriters. The Verification Agent will restrict its procedures to verifying the arithmetical accuracy of certain computations and will not make any study to evaluate the assumptions and information on which the computations are based, and will express no opinion on the data used, the reasonableness of the assumptions or the achievability of the projected outcome. Rating MISCELLANEOUS Moody s Investors Service, Inc. has assigned its rating of Aa3 to the Refunding Bonds. Rating agencies generally base their ratings on their own investigations, studies and assumptions. The rating reflects only the view of the rating agency furnishing the same, and any explanation of the significance of such rating should be obtained only from the rating agency providing the same. Such rating is not a recommendation to buy, sell or hold the Refunding Bonds. There is no assurance that any rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency providing the same, if, in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of a rating may have an adverse effect on the market price of the Refunding Bonds. The Underwriters and the District have not undertaken any responsibility after the offering of the Refunding Bonds to assure the maintenance of the rating or to oppose any such revision or withdrawal. Professionals Involved in the Offering Orrick, Herrington & Sutcliffe LLP is acting as Bond Counsel and Disclosure Counsel with respect to the Refunding Bonds, and will receive compensation from the District contingent upon the sale and delivery of the Refunding Bonds. The District has retained Mission Trails Advisors as Financial Advisor (the Financial Advisor ) in connection with the issuance of the Refunding Bonds and certain other financial matters. Dannis Woliver Kelley is acting as Underwriters Counsel with respect to the Refunding Bonds. Payment of the fees and expenses of the Financial Advisor and Underwriters Counsel is also contingent upon the sale and delivery of the Refunding Bonds. Underwriting The Refunding Bonds are being purchased for reoffering to the public by RBC Capital Markets, LLC (the Representative ) on behalf of itself and as representative of Blaylock Bean Van, LLC (collectively, the Underwriters ), pursuant to the terms of a bond purchase contract executed on December 10, 2014, by and between the Representative and the District (the Purchase Contract ). The Underwriters have agreed to purchase the Refunding Bonds at a price of $33,304, (which represents the aggregate principal amount of the Refunding Bonds, plus $4,553, of net original issue premium, and less $144, of Underwriters discount). The Purchase Contract provides that the Underwriters will purchase all of the Refunding Bonds, subject to certain terms and conditions set forth in the Purchase Contract, including the approval of certain legal matters by counsel. 24

31 The Underwriters may offer and sell the Refunding Bonds to certain dealers and others at prices lower than the public offering prices shown on the inside front cover page of this Official Statement. The offering prices may be changed from time to time by the Underwriters. ADDITIONAL INFORMATION The purpose of this Official Statement is to supply information to purchasers of the Refunding Bonds. Quotations from and summaries and explanations of the Refunding Bonds and of the statutes and documents contained herein do not purport to be complete, and reference is made to such documents and statutes for full and complete statements of their provisions. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the Refunding Bonds. The District has duly authorized the delivery of this Official Statement. MONTEBELLO UNIFIED SCHOOL DISTRICT By: /s/ Cleve A. Pell Superintendent of Schools By: /s/ Susanna Contreras Smith Superintendent of Education 25

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33 APPENDIX A INFORMATION RELATING TO THE DISTRICT S OPERATIONS AND BUDGET The information in this appendix concerning the operations of the Montebello Unified School District (the District ), the District s finances, and State of California (the State ) funding of education, is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Refunding Bonds is payable from the general fund of the District or from State revenues. The Refunding Bonds are payable from the proceeds of an ad valorem tax approved by the voters of the District pursuant to all applicable laws and State Constitutional requirements, and required to be levied by County of Los Angeles on property within the District in an amount sufficient for the timely payment of principal of and interest on the Refunding Bonds. See SECURITY AND SOURCE OF PAYMENT FOR THE REFUNDING BONDS in the front portion of this Official Statement. Introduction THE DISTRICT The District was formed in July 1936 by consolidating the two original elementary and secondary school districts. The District is a unified school district providing public education for students in kindergarten through grade 12, and for adult education. The District is located in the eastern portion of the County of Los Angeles (the County ) and encompasses a territory of about 22 square miles. The territory of the District includes nine political jurisdictions, including nearly all of the cities of Montebello, Commerce, and Bell Gardens; portions of the cities of Monterey Park, Pico Rivera, Bell, Downey, and Rosemead, and unincorporated portions of the County. The District operates 17 elementary schools, six intermediate schools, four comprehensive high schools, one continuation school, four adult schools, and numerous satellite facilities. Enrollment in the District for grades K-12 in the school year is approximately 29,229 students. In fiscal year , the District budgeted for approximately 2,759 full-time equivalent employees, which include certificated (credentialed teaching) staff, classified (non-teaching) staff, and management personnel. Total assessed valuation of taxable property in the District in Fiscal Year is approximately $14.12 billion. The District operates under the jurisdiction of the Los Angeles County Superintendent of Schools. The District is governed by a five-member Board of Education, each member of which is elected to a four-year term. Elections for positions to the Board of Education are held every two years, alternating between two and three available positions. The District s day-to-day operations are managed by a boardappointed Superintendent of Schools. Board of Education The District operates under the jurisdiction of the Los Angeles County Superintendent of Schools, who has certain supervisory powers with respect to District budgets. The District is governed by a fivemember Board of Education, each member of which is elected to a four-year term. Elections for positions to the Board of Education are held every two years, alternating between two and three available positions. The name, office and the month and year of the expiration of the term of each member of the Board is described below. A-1

34 MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Board of Education Name Office Term Expires Edgar Cisneros President November, 2015 Benjamin Cárdenas Vice President November, 2017 Lani Cupchoy Clerk November, 2017 Hector Chacon Member November, 2017 David Vela Member November, 2015 Superintendent and Financial and Fiscal Administrative Personnel The Superintendent of Schools and the Superintendent of Education (collectively, the Superintendents ) are appointed by the Board and report to the Board. The Superintendents are responsible for management of the District s day-to-day operations and supervise the work of other key District administrators. The District has operated with two Superintendents since Clive Pell has served as Superintendent of Schools of the District since 2010 and Susanna Contreras Smith has served as Superintendent of Education of the District since Information concerning the District s Superintendent of Schools, the Superintendent of Education, the Deputy Superintendent and the Assistant Superintendent, Business Services is set forth below. Cleve A. Pell, Superintendent of Schools. Mr. Pell was appointed Superintendent in As Superintendent, Mr. Pell opened the new Applied Technology Center, a comprehensive high school that links college-focused instruction with state-of-the-art technical training. Mr. Pell has been a public school educator since He has served in the District as a math teacher, counselor, football coach, Assistant Principal, Principal, Assistant Director, and Director of Adult Education. Mr. Pell graduated from Arizona State University after service in the U.S. Navy. Mr. Pell actively participates and leads various professional organizations such as the American Association for Adult and Continuing Education and the Association of Montebello School Administrators. Susanna Contreras Smith, Superintendent of Education. Ms. Contreras Smith was appointed as Superintendent on January 17, Ms. Contreras Smith s administration experience includes her current position as Superintendent at the District and former position as Associate Superintendent of Accountability and Compliance. Prior to joining the District, Ms. Contreras Smith held administrative assignments totaling 12 years with El Rancho Unified School District as Assistant Superintendent of Education and Director of Curriculum and Instruction. She also served for five years as Principal and Assistant Principal at the high school and middle school levels with Bassett Unified School District. Ms. Contreras Smith also has extensive teaching experience that spans her first 20 years in education serving in multiple capacities as an adjunct instructor, resource teacher, master teacher, District mentor teacher, classroom teacher and instructional aide. Ms. Contreras Smith has taught at Mountain View District, Rio Hondo Community College and the District. Arthur P. Revueltas, Deputy Superintendent. Mr. Revueltas has been a public school educator since 1975, when he became a teacher with the District, where he has since continued his career. His experiences have spanned Business Services, Instruction, Facilities Planning and School Construction. Mr. Revueltas has served the District as elementary and intermediate teacher; intermediate school Project Director; Intermediate School Assistant Principal; Elementary, Intermediate and High School Principal; Administrator on Special Assignment, Facilities and Operations division; and Associate Superintendent, Instructional Services Division. In 2010, Mr. Revueltas was appointed as the Deputy Superintendent of A-2

35 the District. As Deputy Superintendent, Mr. Revueltas planned and implemented three retirement incentive programs which helped avoid layoffs in the District. Cheryl Plotkin, Assistant Superintendent, Business Services. Ms. Plotkin has served as Assistant Superintendent, Business Services for the District for over four years. Prior to joining the District, she served as Assistant Superintendent, Business Services for Beverly Hills Unified School District. Ms. Plotkin has years of experience prior to working for school districts as an Audit Manager specializing in school district, community colleges and non-profit organizations and as a Treasurer, Controller and General Manager for a pharmaceutical distribution company. Ms. Plotkin is a graduate of the University of Southern California Business School with a Bachelor of Science degree in Accounting and a Certified Public Accountant. DISTRICT FINANCIAL MATTERS State Funding of Education; State Budget Process General. As is true for all school districts in California, the District s operating income consists primarily of two components: a State portion funded from the State s general fund in accordance with the Local Control Funding Formula (see Allocation of State Funding to School Districts; Local Control Funding Formula herein) and a local portion derived from the District s share of the 1% local ad valorem tax authorized by the State Constitution (see Local Sources of Education Funding herein). In addition, school districts may be eligible for other special categorical funding from State and federal government programs. The District budgeted to receive approximately 78.4% of its general fund revenues from State funds (not including the local portion derived from the District s share of the local ad valorem tax), budgeted at approximately $ million in fiscal year Such amount includes both the State funding provided under the LCFF as well as other State revenues (see Allocation of State Funding to School District; Local Control Funding Formula Attendance and LCFF and Other District Revenues Other State Revenues below). As a result, decreases or deferrals in State revenues, or in State legislative appropriations made to fund education, may significantly affect the District s revenues and operations. Under Proposition 98, a constitutional and statutory amendment adopted by the State s voters in 1988 and amended by Proposition 111 in 1990 (now found at Article XVI, Sections 8 and 8.5 of the Constitution), a minimum level of funding is guaranteed to school districts, community college districts, and other State agencies that provide direct elementary and secondary instructional programs. Recent years have seen frequent disruptions in State personal income taxes, sales and use taxes, and corporate taxes, making it increasingly difficult for the State to meet its Proposition 98 funding mandate, which normally commands about 45% of all State general fund revenues, while providing for other fixed State costs and priority programs and services. Because education funding constitutes such a large part of the State s general fund expenditures, it is generally at the center of annual budget negotiations and adjustments. The State budget for fiscal year contained a new formula for funding the school finance system (the Local Control Funding Formula or LCFF ). The LCFF replaced the revenue limit funding system and most categorical programs. See Allocation of State Funding to School Districts; Local Control Funding Formula herein for more information. State Budget Process. According to the State Constitution, the Governor must propose a budget to the State Legislature no later than January 10 of each year, and a final budget must be adopted no later than June 15. Historically, the budget required a two-thirds vote of each house of the State Legislature for passage. However, on November 2, 2010, the State s voters approved Proposition 25, which amended the A-3

36 State Constitution to lower the vote requirement necessary for each house of the State Legislature to pass a budget bill and send it to the Governor. Specifically, the vote requirement was lowered from two thirds to a simple majority (50% plus one) of each house of the State Legislature. The lower vote requirement also would apply to trailer bills that appropriate funds and are identified by the State Legislature as related to the budget in the budget bill. The budget becomes law upon the signature of the Governor, who may veto specific items of expenditure. Under Proposition 25, a two thirds vote of the State Legislature is still required to override any veto by the Governor. School district budgets must generally be adopted by July 1, and revised by the school board within 45 days after the Governor signs the budget act to reflect any changes in budgeted revenues and expenditures made necessary by the adopted State budget. The Governor signed the fiscal year State budget on June 20, When the State budget is not adopted on time, basic appropriations and the categorical funding portion of each school district s State funding are affected differently. Under the rule of White v. Davis (also referred to as Jarvis v. Connell), a State Court of Appeal decision reached in 2002, there is no constitutional mandate for appropriations to school districts without an adopted budget or emergency appropriation, and funds for State programs cannot be disbursed by the State Controller until that time, unless the expenditure is (i) authorized by a continuing appropriation found in statute, (ii) mandated by the Constitution (such as appropriations for salaries of elected State officers), or (iii) mandated by federal law (such as payments to State workers at no more than minimum wage). The State Controller has consistently stated that basic State funding for schools is continuously appropriated by statute, but that special and categorical funds may not be appropriated without an adopted budget. Should the State Legislature fail to pass a budget or emergency appropriation before the start of any fiscal year, the District might experience delays in receiving certain expected revenues. The District is authorized to borrow temporary funds to cover its annual cash flow deficits, and as a result of the White v. Davis decision, the District might find it necessary to increase the size or frequency of its cash flow borrowings, or to borrow earlier in the fiscal year. The District does not expect the White v. Davis decision to have any long-term effect on its operating budgets. Aggregate State Education Funding. The Proposition 98 guaranteed amount for education is based on prior-year funding, as adjusted through various formulas and tests that take into account State proceeds of taxes, local property tax proceeds, school enrollment, per-capita personal income, and other factors. The State s share of the guaranteed amount is based on State general fund tax proceeds and is not based on the general fund in total or on the State budget. The local share of the guaranteed amount is funded from local property taxes. The total guaranteed amount varies from year to year and throughout the stages of any given fiscal year s budget, from the Governor s initial budget proposal to actual expenditures to post-year-end revisions, as better information regarding the various factors becomes available. Over the long run, the guaranteed amount will increase as enrollment and per capita personal income grow. If, at year-end, the guaranteed amount is calculated to be higher than the amount actually appropriated in that year, the difference becomes an additional education funding obligation, referred to as settle-up. If the amount appropriated is higher than the guaranteed amount in any year, that higher funding level permanently increases the base guaranteed amount in future years. The Proposition 98 guaranteed amount is reduced in years when general fund revenue growth lags personal income growth, and may be suspended for one year at a time by enactment of an urgency statute. In either case, in subsequent years when State general fund revenues grow faster than personal income (or sooner, as the Legislature may determine), the funding level must be restored to the guaranteed amount, the obligation to do so being referred to as maintenance factor. In recent years, the State s response to fiscal difficulties has had a significant impact on Proposition 98 funding and settle-up treatment. The State has sought to avoid or delay paying settle-up A-4

37 amounts when funding has lagged the guaranteed amount. In response, teachers unions, the State Superintendent and others sued the State or Governor in 1995, 2005, 2009 and 2011 to force them to fund schools in the full amount required. The settlement of the 1995 and 2005 lawsuits has so far resulted in over $4 billion in accrued State settle-up obligations. However, legislation enacted to pay down the obligations through additional education funding over time, including the Quality Education Investment Act of 2006, have also become part of annual budget negotiations, resulting in repeated adjustments and deferrals of the settle-up amounts. The State has also sought to preserve general fund cash while avoiding increases in the base guaranteed amount through various mechanisms: by treating any excess appropriations as advances against subsequent years Proposition 98 minimum funding levels rather than current year increases; by temporarily deferring apportionments of Proposition 98 funds from one fiscal year to the next; by permanently deferring apportionments of Proposition 98 funds from one fiscal year to the next; by suspending Proposition 98, as the State did in fiscal year , fiscal year , fiscal year and fiscal year ; and by proposing to amend the State Constitution s definition of the guaranteed amount and settle-up requirement under certain circumstances. The District cannot predict how State income or State education funding will vary over the term to maturity of the Refunding Bonds, and the District takes no responsibility for informing owners of the Refunding Bonds as to actions the State Legislature or Governor may take affecting the current year s budget after its adoption. Information about the State budget and State spending for education is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the Department of Finance, under the heading California Budget. An impartial analysis of the budget is posted by the Office of the Legislative Analyst at In addition, various State of California official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on school districts in the State, may be found at the website of the State Treasurer, The information referred to is prepared by the respective State agency maintaining each website and not by the District, and the District can take no responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references State Budget. The Governor signed the fiscal year State budget (the State Budget ) on June 20, The State Budget represents a multiyear plan that is balanced and that continues to focus on paying down budgetary debt from prior years, setting aside reserves and implementing a funding plan for the State Teachers Retirement System ( CalSTRS ). The State Budget provides for $109.4 billion in revenues and transfers for fiscal year (which amount includes a $3.9 billion prior year general fund balance from fiscal year ), $108.0 billion in expenditures and a balance of $450 million in the general fund traditional reserve and $1.6 billion in a rainy day fund (the Rainy Day Fund ). Revenues and expenditures for fiscal year , as revised under the State Budget, were $104.6 billion (which amount includes a $2.4 billion prior year general fund balance from fiscal year ) and $100.7 billion, respectively. The State Budget projects that budgetary debt, which was approximately $35 billion at the end of fiscal year and $26 billion at the end of fiscal year , will be eliminated by the end of fiscal year For fiscal year , specifically, the State Budget dedicates to paying down more than $10 billion of budgetary debt, including approximately $5 billion to pay down the deferral of payments to schools. As it relates to K-12 education, the State Budget provides total funding of $76.6 billion ($45.3 billion general fund and $31.3 billion other funds). The State Budget provides Proposition A-5

38 98 funding for all K-14 education of $60.9 billion for fiscal year Such amount, when combined with an aggregate increase of $4.4 billion from fiscal years and provided for in the State Budget, results in an increase of $10 billion in funding for K-14 education. The State Budget notes that Proposition 98 funding for K-12 education has grown by more than $12 billion from fiscal year to fiscal year , representing an increase of more than $1,900 per student. Certain budget adjustments for K-12 programs include the following: Local Control Funding Formula. An increase of $4.75 billion in Proposition 98 general funds to continue the State s transition to the Local Control Funding Formula. This formula commits most new funding to districts serving English language learners, students from low-income families, and youth in foster care. This increase will close the remaining funding implementation gap by more than 29%. Additionally, the State Budget addresses an administrative problem related to the collection of income eligibility forms that are used to determine student eligibility for free or reduced-price meals. K-12 Deferrals. The State Budget repays nearly $4.7 billion in Proposition 98 general funds for K-12 expenses that had been deferred from one year to the next during the economic downturn, leaving an outstanding balance of less than $900 million in K-12 deferrals. Further, the State Budget includes a trigger mechanism that will appropriate any additional funding resources attributable to the and fiscal years subsequent to the enactment of the State Budget for the purpose of retiring this remaining deferral balance. Independent Study. The State Budget streamlines the existing independent study program, reducing administrative burdens and freeing up time for teachers to spend on student instruction and support, while making it easier for schools to offer and expand instructional opportunities available to students through non-classroom based instruction. K-12 Mandates. An increase of $400.5 million in one-time Proposition 98 general funds to reimburse K-12 local educational agencies for the costs of State-mandated programs. These funds will make a significant down payment on outstanding mandate debt, while providing school districts, county offices of education and charter schools with discretionary resources to support critical investments such as Common Core implementation. K-12 High-Speed Internet Access. An increase of $26.7 million in one-time Proposition 98 general funds for the K-12 High Speed Network to provide technical assistance and grants to local educational agencies to address the technology requirements necessary for successful Common Core implementation. Based on an assessment by the K-12 High Speed Network, these funds will be targeted to those local educational agencies most in need of help with securing required internet connectivity and infrastructure to implement the new computer adaptive tests under Common Core. Career Technical Education Pathways Program. An increase of $250 million in one-time Proposition 98 general funds to support a second cohort of competitive grants for participating K-14 local educational agencies. Established in the State Budget Act for fiscal year , the Career Pathways Trust Program provides grant awards to improve career technical programs and linkages between employers, schools, and community colleges. A-6

39 Rainy Day Fund. The State Budget proposed certain constitutional amendments to the Rainy Day Fund on the November 2014 ballot, which proposition was approved by the voters. Such constitutional amendments (i) require deposits into the Rainy Day Fund whenever capital gains revenues rise to more than 8% of general fund tax revenues (and the State Budget notes that capital gains revenues are expected to account for approximately 9.8% of general fund revenues in fiscal year ); (ii) set the maximum size of the Rainy Day Fund at 10% of general fund revenues; (iii) for the next 15 years, require half of each year s deposit to be used for supplemental payments to pay down the budgetary debts or other long-term liabilities and, thereafter, require at least half of each year s deposit to be saved and the remainder used for supplemental debt payments or savings; (iv) allow the withdrawal of funds only for a disaster or if spending remains at or below the highest level of spending from the past three years; (v) require the State to provide a multiyear budget forecast; and (vi) create a Proposition 98 reserve (the Public School System Stabilization Account) to set aside funds in good years to minimize future cuts and smooth school spending. The State may deposit amounts into such account only after it has paid all amounts owing to school districts relating to the Proposition 98 maintenance factor for fiscal years prior to fiscal year The State, in addition, may not transfer funds to the Public School System Stabilization Account unless the State is in a Test 1 year under Proposition 98 or in any year in which a maintenance factor is created. SB 858. As part of the State Budget, the Governor signed Senate Bill 858 ( SB 858 ) which includes provisions which could limit the amount of reserves that may be maintained by a school district in certain circumstances. Such provisions became effective upon the State voters approval of the constitutional amendments relating to the Rainy Day Fund described above. Under SB 858, in any fiscal year immediately following a fiscal year in which the State has made a transfer into the Public School System Stabilization Account, any adopted or revised budget by a school district would need to contain a combined unassigned and assigned ending fund balance that (a) for school districts with an Average Daily Attendance ( A.D.A. ) of less than 400,000, is not more than two times the amount of the reserve for economic uncertainties mandated by the Education Code, or (b) for school districts with an A.D.A. that is more than 400,000, is not more than three times the amount of the reserve for economic uncertainties mandated by the Education Code. In certain cases, the county superintendent of schools may grant a school district a waiver from this limitation on reserves for up to two consecutive years within a threeyear period if there are certain extraordinary fiscal circumstances. The District, which has an A.D.A. of less than 400,000, is required to maintain a reserve for economic uncertainty in an amount equal to 3% of its general fund expenditures and other financing uses. The District s original adopted budget for fiscal year projected total expenditures and other financing uses of approximately $295.3 million, 3% of which is approximately $8.86 million. The estimated maximum amount permitted under SB 858 in fiscal year , if SB 848 were in effect for such fiscal year, would be approximately $17.72 million. The District s original adopted budget for fiscal year projected a combined assigned and unassigned ending fund balance of approximately $12.07 million, which is approximately $5.64 million less than the maximum that would be permitted under SB 858 if SB 858 were in effect. The District does not expect SB 858, if approved and operative, to adversely affect its ability to pay the principal of and interest on the Refunding Bonds as and when due. AB As part of the State Budget, the Governor signed Assembly Bill 1469 ( AB 1469 ) which implements a new funding strategy for CalSTRS, increasing the employer contribution rate in fiscal year from 8.25% to 8.88% of covered payroll. See Retirement Benefits CalSTRS herein for more information about CalSTRS and AB The complete State Budget is available from the California Department of Finance website at The District can take no responsibility for the continued accuracy of this A-7

40 internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference. Prohibitions on Diverting Local Revenues for State Purposes. Beginning in , the State satisfied a portion of its Proposition 98 obligations by shifting part of the property tax revenues otherwise belonging to cities, counties, special districts, and redevelopment agencies, to school and community college districts through a local Educational Revenue Augmentation Fund (ERAF) in each county. Local agencies, objecting to invasions of their local revenues by the State, sponsored a statewide ballot initiative intended to eliminate the practice. In response, the State Legislature proposed an amendment to the State Constitution, which the State s voters approved as Proposition 1A at the November 2004 election. That measure was generally superseded by the passage of a new initiative constitutional amendment at the November 2010 election, known as Proposition 22. The effect of Proposition 22 is to prohibit the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation, redevelopment, or local government projects and services. It prevents the State from redirecting redevelopment agency property tax increment to any other local government, including school districts, or from temporarily shifting property taxes from cities, counties and special districts to schools, as in the ERAF program. This is intended to, among other things, stabilize local government revenue sources by restricting the State s control over local property taxes. One effect of this amendment will be to deprive the State of fuel tax revenues to pay debt service on most State bonds for transportation projects, reducing the amount of State general fund resources available for other purposes, including education. Prior to the passage of Proposition 22, the State invoked Proposition 1A to divert $1.935 billion in local property tax revenues in from cities, counties, and special districts to the State to offset State general fund spending for education and other programs, and included another diversion in the adopted State budget of $1.7 billion in local property tax revenues from local redevelopment agencies, which local redevelopment agencies have now been dissolved (see Dissolution of Redevelopment Agencies below). Redevelopment agencies had sued the State over this latter diversion. However, the lawsuit was decided against the California Redevelopment Association on May 1, Because Proposition 22 reduces the State s authority to use or shift certain revenue sources, fees and taxes for State general fund purposes, the State will have to take other actions to balance its budget in some years such as reducing State spending or increasing State taxes, and school and community college districts that receive Proposition 98 or other funding from the State will be more directly dependent upon the State s general fund. Dissolution of Redevelopment Agencies. The adopted State budget for fiscal , as signed by the Governor of the State on June 30, 2011, included as trailer bills Assembly Bill No. 26 (First Extraordinary Session) ( AB1X 26 ) and Assembly Bill No. 27 (First Extraordinary Session) ( AB1X 27 ), which the Governor signed on June 29, AB1X 26 suspended most redevelopment agency activities and prohibited redevelopment agencies from incurring indebtedness, making loans or grants, or entering into contracts after June 29, AB1X 26 dissolved all redevelopment agencies in existence and designated successor agencies and oversight boards to satisfy enforceable obligations of the former redevelopment agencies and administer dissolution and wind down of the former redevelopment agencies. Certain provisions of AB1X 26 are described further below. In July of 2011, various parties filed an action before the Supreme Court of the State of California (the Court ) challenging the validity of AB1X 26 and AB1X 27 on various grounds (California Redevelopment Association v. Matosantos). On December 29, 2011, the Court rendered its decision in Matosantos upholding virtually all of AB1X 26 and invalidating AB1X 27. In its decision, the Court also A-8

41 modified various deadlines for the implementation of AB1X 26. The deadlines for implementation of AB1X 26 below take into account the modifications made by the Court in Matosantos. On February 1, 2012, and pursuant to Matosantos, AB1X 26 dissolved all redevelopment agencies in existence and designated successor agencies and oversight boards to satisfy enforceable obligations of the former redevelopment agencies and administer dissolution and wind down of the former redevelopment agencies. With limited exceptions, all assets, properties, contracts, leases, records, buildings and equipment, including cash and cash equivalents of a former redevelopment agency will be transferred to the control of its successor agency and, unless otherwise required pursuant to the terms of an enforceable obligation, distributed to various related taxing agencies pursuant to AB1X 26. AB1X 26 requires redevelopment agencies to continue to make scheduled payments on and perform obligations required under its enforceable obligations. For this purpose, AB1X 26 defines enforceable obligations to include bonds, including the required debt service, reserve set-asides, and any other payments required under the indenture or similar documents governing the issuance of outstanding bonds of the former redevelopment agency and any legally binding and enforceable agreement or contract that is not otherwise void as violating the debt limit or public policy. AB1X 26 specifies that only payments included on an enforceable obligation payment schedule adopted by a redevelopment agency shall be made by a redevelopment agency until its dissolution. However, until a successor agency adopts a recognized obligation payment schedule the only payments permitted to be made are payments on enforceable obligations included on an enforceable obligation payment schedule. A successor agency may amend the enforceable obligation payment schedule at any public meeting, subject to the approval of its oversight board. Under AB1X 26, commencing February 1, 2012, property taxes that would have been allocated to each redevelopment agency if the agencies had not been dissolved will instead be deposited in a redevelopment property tax trust fund created for each former redevelopment agency by the related county auditor-controller and held and administered by the related county auditor-controller as provided in AB1X 26. AB1X 26 generally requires each county auditor-controller, on May 16, 2012 and June 1, 2012 and each January 16 and June 1 (now each January 2 and June 1 pursuant to AB 1484, as described below) thereafter, to apply amounts in a related redevelopment property tax trust fund, after deduction of the county auditor-controller s administrative costs, in the following order of priority: To pay pass-through payments to affected taxing entities in the amounts that would have been owed had the former redevelopment agency not been dissolved; provided, however, that if a successor agency determines that insufficient funds will be available to make payments on the recognized obligation payment schedule and the county auditorcontroller and State Controller verify such determination, pass-through payments that had previously been subordinated to debt service may be reduced; To the former redevelopment agency s successor agency for payments listed on the successor agency s recognized obligation payment schedule for the ensuing six-month period; To the former redevelopment agency s successor agency for payment of administrative costs; and Any remaining balance to school entities and local taxing agencies. It is possible that there will be additional legislation proposed and/or enacted to clean up various inconsistencies contained in AB1X 26 and there may be additional legislation proposed and/or A-9

42 enacted in the future affecting the current scheme of dissolution and winding up of redevelopment agencies currently contemplated by AB1X 26. For example, AB 1484 was signed by the Governor on June 27, 2012, to clarify and amend certain aspects of AB1X 26. AB 1484, among other things, attempts to clarify the role and requirements of successor agencies, provides successor agencies with more control over agency bond proceeds and properties previously owned by redevelopment agencies and adds other new and modified requirements and deadlines. AB 1484 also provides for a tax claw back provision, wherein the State is authorized to withhold sales and use tax revenue allocations to local successor agencies to offset payment of property taxes owed and not paid by such local successor agencies to other local taxing agencies. This tax claw back provision has been challenged in court by certain cities and successor agencies. The District cannot predict the outcome of such litigation and what effect, if any, it will have on the District. Additionally, no assurances can be given as to the effect of any such future proposed and/or enacted legislation on the District. Future Budgets and Budgetary Actions. The District cannot predict what actions will be taken in the future by the State Legislature and the Governor to address any changing State revenues and expenditures or the impact such actions will have on State revenues available in the current or future years for K-12 education. The State budget will be affected by national and State economic conditions and other factors over which the District cannot predict and will have no control. Certain actions could result in a significant shortfall of revenue and cash, and could impair the State s ability to fund schools in future fiscal years. Certain factors, like an economic recession, could result in State budget shortfalls in any fiscal year and could have a material adverse financial impact on the District. Allocation of State Funding to School Districts; Local Control Funding Formula Prior to the implementation of the Local Control Funding Formula in fiscal year , under California Education Code Section and following, each school district was determined to have a target funding level: a base revenue limit per student multiplied by the district s student enrollment measured in units of average daily attendance. The base revenue limit was calculated from the district s prior-year funding level, as adjusted for a number of factors, such as inflation, special or increased instructional needs and costs, employee retirement costs, especially low enrollment, increased pupil transportation costs, etc. Generally, the amount of State funding allocated to each school district was the amount needed to reach that district s base revenue limit after taking into account certain other revenues, in particular, locally generated property taxes. This is referred to as State equalization aid. To the extent local tax revenues increased due to growth in local property assessed valuation, the additional revenue was offset by a decline in the State s contribution; ultimately, a school district whose local property tax revenues exceeded its base revenue limit was entitled to receive no State equalization aid, and received only its special categorical aid, which is deemed to include the basic aid of $120 per student per year guaranteed by Article IX, Section 6 of the Constitution. Such districts were known as basic aid districts, which are now referred to as community funded districts. School districts that received some equalization aid were commonly referred to as revenue limit districts, which are now referred to as LCFF districts. The District is an LCFF district. Beginning in fiscal year , the LCFF replaced the revenue limit funding system and most categorical programs, and distributes combined resources to school districts through a base revenue limit funding grant ( Base Grant ) per unit of A.D.A. with additional supplemental funding allocated to local educational agencies based on their proportion of English language learners, students from low-income families and foster youth. The LCFF has an eight year implementation program to incrementally close the gap between actual funding and the target level of funding, as described below. The LCFF includes the following components: A-10

43 A Base Grant for each local education agency, equivalent to $7,643 per unit of A.D.A. in fiscal year Such Base Grant per unit of A.D.A., adjusted by grade span variation and to be adjusted annually for cost-of-living, is as follows: $6,845 for grades K-3, $6,947 for grades 4-6, $7,154 for grades 7-8 and $8,289 for grades This amount includes an adjustment of 10.4% to the Base Grant to support lowering class sizes in grades K-3, and an adjustment of 2.6% to reflect the cost of operating career technical education programs in grades A 20% supplemental grant for the unduplicated number of English language learners, students from low-income families and foster youth to reflect increased costs associated with educating those students. An additional concentration grant of up to 22.5% of a local education agency s Base Grant, based on the number of English language learners, students from low-income families and foster youth served by the local education agency that comprise more than 55% of enrollment. An Economic Recovery Target (the ERT ) that is intended to ensure that almost every local education agency receives at least their pre-recession funding level (i.e., the fiscal year revenue limit per unit of A.D.A.), adjusted for inflation, at full implementation of the LCFF. Upon full implementation, local education agencies would receive the greater of the Base Grant or the ERT. Of the projected $25 billion in new funding to be invested through the LCFF over the next eight years, the vast majority of new funding will be provided for Base Grants. Specifically, of every dollar invested through the LCFF, 84 cents will go to Base Grants, 10 cents will go to supplemental grants and 6 cents will go to concentration grants. Under the new formula, for basic aid districts (now, community funded districts ), local property tax revenues would be used to offset up to the entire allocation under the new formula. However, community funded districts would continue to receive the same level of State aid as allocated in fiscal year All school districts, county offices of education and charter schools are required to develop and adopt local control and accountability plans, which will identify local goals in areas that are priorities for the State, including pupil achievement, parent engagement and school climate. Such local control and accountability plans are to be developed in accordance with a template to be provided by the State Board of Education. County superintendents will review and provide support to the school districts under their jurisdiction, while the Superintendent of Public Instruction will perform a corresponding role for county offices of education. The State Budget created the California Collaborate for Education Excellence (the Collaborative ) to advise and assist local education agencies in achieving the goals identified in their plans. For local education agencies that continue to struggle in meeting their goals, and when the Collaborative indicates that additional intervention is needed, the Superintendent of Public Instruction would have authority to make changes to a local education agency s plan. A-11

44 Attendance and Base Revenue Limit. The following table sets forth the District s actual A.D.A., enrollment and base revenue limit per unit of A.D.A. for fiscal years through for grades K-12. The A.D.A. and enrollment numbers reflected in the following table include special education but exclude adult education. MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Average Daily Attendance, Enrollment And Base Revenue Limit Fiscal Years Through Fiscal Year Average Daily Attendance (1) Enrollment (2) Base Revenue Limit Per Unit of Average Daily Attendance (3) 30,542 32,819 $6, (4) 30,001 31,364 6, (5) 29,230 30,357 6,724 (1) A.D.A. for the second period of attendance, typically in mid-april of each school year. (2) Reflects enrollment as of October report submitted to the California Basic Educational Data System ( CBEDS ) in each school year. (3) The District had a % base revenue limit deficit factor and a negative 0.39% cost of living adjustment in fiscal year , which resulted in a funded base revenue limit of $5, (4) The District had a % base revenue limit deficit factor and a 2.24% cost of living adjustment in fiscal year , which resulted in a funded base revenue limit of $5, (5) The District had a % base revenue limit deficit factor and a 3.243% cost of living adjustment in fiscal year , which resulted in a funded base revenue limit of $5, Source: Montebello Unified School District. A-12

45 Attendance and LCFF. The following table sets forth the District s actual and budgeted A.D.A., enrollment (including percentage of students who are English language learners, from low-income families and/or foster youth (collectively, EL/LI Students )), and targeted Base Grant per unit of A.D.A. for fiscal years and , respectively. The A.D.A. and enrollment numbers reflected in the following table include special education but exclude adult education. MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Average Daily Attendance, Enrollment And Targeted Base Grant Fiscal Years Through A.D.A./Base Grant Enrollment (5) Fiscal Year K Total A.D.A. Total Enrollment Unduplicated Percent of EL/LI Students A.D.A. (2) : 8,186 6,357 4,598 9,485 28,625 29, % Targeted Base Grant (3) : $7,675 $7,056 $7,266 $8, (1) A.D.A. (2) : 8,377 6,140 4,439 9,120 28,076 (6) 29,229 (6) 89.18% Targeted Base Grant (3)(4) : $7,740 $7,116 $7,328 $8, (1) Figures are projections. (2) A.D.A. for the second period of attendance, typically in mid-april of each school year. (3) Such amounts represent the targeted amount of Base Grant per unit of A.D.A., and do not include any supplemental and concentration grants under the LCFF. Such amounts are not expected to be fully funded in fiscal years and (4) Targeted fiscal year Base Grant amounts reflect a 0.85% cost of living adjustment from targeted fiscal year Base Grant amounts. (5) Reflects enrollment as of October report submitted to the CBEDS in each school year. For purposes of calculating Supplemental and Concentration Grants, a school district s fiscal year percentage of unduplicated EL/LI Students will be expressed solely as a percentage of its fiscal year total enrollment. For fiscal year , the percentage of unduplicated EL/LI Students enrollment will be based on the two-year average of EL/LI Students enrollment in fiscal years and Beginning in fiscal year , a school district s percentage of unduplicated EL/LI Students will be based on a rolling average of such school district s EL/LI Students enrollment for the thencurrent fiscal year and the two immediately preceding fiscal years. (6) The District projects A.D.A. and enrollment will continue to decline in future fiscal years due to declining birth rates in the territory within the District and because the Los Angeles Unified School District currently does not approve of inter district transfers to the District as it did in prior years. The District, however, cannot provide any assurances that A.D.A. and enrollment will continue to decline as projected as such would be subject to change based on numerous factors over which the District has no control. Source: Montebello Unified School District. The District received approximately $208.7 million (unaudited) in aggregate revenues allocated under the LCFF in fiscal year , and has budgeted to receive approximately $233.2 million in aggregate revenues under the LCFF in fiscal year (or approximately 79.8% of its general fund revenues in fiscal year ). Such amount includes the supplemental grants and concentration grants estimated to be $11.9 million and $11.4 million, respectively, in fiscal year Effect of Changes in Enrollment. Changes in local property tax income and A.D.A. affect LCFF districts and community funded districts differently. In an LCFF district, increasing enrollment increases the total amount distributed under the LCFF and thus generally increases a district s entitlement to State equalization aid, while increases in property taxes do nothing to increase district revenues, but only offset the State funding requirement of equalization aid. Operating costs increase disproportionately slowly to enrollment growth; and only at the point where additional teachers and classroom facilities are needed. Declining enrollment has the reverse A-13

46 effect on LCFF districts, generally resulting in a loss of State equalization aid, while operating costs decrease slowly and only when, for example, the district decides to lay off teachers or close schools. In community funded districts, the opposite is generally true: increasing enrollment increases the amount to which the district would be entitled were it an LCFF district, but since all LCFF income (and more) is already generated by local property taxes, there is no increase in State income, other than the $120 per student in basic aid, as described above. Meanwhile, as new students impose increased operating costs, property tax income is stretched further. Declining enrollment does not reduce property tax income, and has a negligible impact on State aid, but eventually reduces operating costs, and thus can be financially beneficial to a community funded district. Local Sources of Education Funding The principal component of local revenues is a school district s property tax revenues, i.e., each district s share of the local 1% property tax, received pursuant to Sections 75 and following and Sections 95 and following of the California Revenue and Taxation Code. California Education Code Section 42238(h) itemizes the local revenues that are counted towards the amount allocated under the LCFF (and formerly, the base revenue limit) before calculating how much the State must provide in State aid. The more local property taxes a district receives, the less State aid it is entitled to receive. Prior to the implementation of the LCFF, a school district whose local property tax revenues exceeded its base revenue limit was entitled to receive no State aid, and received only its special categorical aid which is deemed to include the basic aid of $120 per student per year guaranteed by Article IX, Section 6 of the Constitution. Such districts were known as basic aid districts. School districts that received some State aid were commonly referred to as revenue limit districts. The District was a revenue limit district and is now referred to as an LCFF district. Under the LCFF, local property tax revenues are used to offset up to the entire State aid collection under the new formula; however, community funded districts would continue to receive the same level of State aid as allotted in fiscal year See Allocation of State Funding to School Districts: Local Control Funding Formula herein for more information about the LCFF. Local property tax revenues account for approximately 10.4% of the District s aggregate revenues allocated under the LCFF, and are budgeted to be $24.2 million, or 8.3% of total general fund revenues in fiscal year For a discussion of legal limitations on the ability of the District to raise revenues through local property taxes, see CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS below. Other District Revenues Federal Revenues. The federal government provides funding for several District programs, including special education programs. Federal revenues, most of which are restricted, comprise approximately 8.9% (or approximately $26.2 million) of the District s general fund budgeted revenues for fiscal year Other State Revenues. In addition to State apportionments for Proposition 98 funding through the Local Control Funding Formula, the District receives other State revenues which comprise approximately 6.8% (or approximately $20.0 million) of the District s general fund budgeted revenues for fiscal year A significant portion of such other State revenues are amounts the District expects to receive from State lottery funds, which may not be used for non-instructional purposes, such as the acquisition of A-14

47 real property, the construction of facilities, or the financing of research. School districts receive lottery funds proportional to their total A.D.A. The District s State lottery revenue is budgeted at $5,626,035 for fiscal year Other Local Revenues. In addition to ad valorem property taxes, the District receives additional local revenues from items such as interest earnings and other local sources. Other local revenues comprise approximately 4.3% (or approximately $12.7 million) of the District s general fund budgeted revenues for fiscal year Significant Accounting Policies and Audited Financial Reports The State Department of Education imposes by law uniform financial reporting and budgeting requirements for K-12 school districts. Financial transactions are accounted for in accordance with the Department of Education s California School Accounting Manual. This manual, according to Section of the Education Code, is to be followed by all California school districts, including the District. Significant accounting policies followed by the District are explained in Note 1 to the District s audited financial statements for the fiscal year ended June 30, 2013, which are included as Appendix B. The audited financial statements for the fiscal year ended June 30, 2014, are expected to be approved by the Board of Education and made available on or about January 15, Such financial statements will be filed with the EMMA System (as defined herein) soon after they are made available. Independently audited financial reports are prepared annually in conformity with generally accepted accounting principles for educational institutions. The annual audit report is generally available about six months after the June 30 close of each fiscal year. The following tables contain data abstracted from financial statements prepared by the District s independent auditor, Vavrinek, Trine, Day & Co., LLP, Certified Public Accountants, Rancho Cucamonga, California, for fiscal years through Vavrinek, Trine, Day & Co., LLP, Certified Public Accountants, have not been requested to consent to the use or to the inclusion of their reports in this Official Statement, and they have not audited or reviewed this Official Statement. The District is required by law to adopt its audited financial statements after a public meeting to be conducted no later than January 31 following the close of each fiscal year. The following table shows the statement of revenues, expenditures and changes in fund balances for the District s general fund for the fiscal years through A-15

48 MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Statement of General Fund Revenues, Expenditures and Changes in Fund Balance Fiscal Years through Actuals Actuals Actuals Actuals Actuals REVENUES Revenue limit sources $181,695,889 $158,357,126 $165,069,591 $161,759,740 $159,520,453 Federal sources 48,434,419 43,774,763 41,692,961 40,845,328 30,586,715 Other State sources 52,263,180 52,264,897 49,579,012 49,762,761 52,499,631 Other local sources 16,109,143 18,167,884 15,270,396 17,176,295 20,810,240 Total Revenues 298,502, ,564, ,611, ,544, ,417,039 EXPENDITURES Current Instruction 190,135, ,215, ,990, ,702, ,820,863 Instruction-related activities: Supervision of instruction 18,469,434 18,316,482 16,602,279 18,040,495 15,144,845 Instructional library, media, and technology 1,972,196 1,547,248 1,499,383 1,317,211 1,229,893 School site administration 16,424,175 16,442,611 16,252,815 16,092,424 17,375,565 Pupil services: Home-to-school transportation 6,904,054 6,654,416 6,410,590 6,355,187 5,925,700 Food services - 273, ,053 85,658 41,894 All other pupil services 18,117,192 19,267,781 18,952,356 20,102,769 20,391,330 General administration: Data processing 3,720,798 3,384,413 2,769,293 2,752,816 4,848,156 All other general administration 10,207,715 10,172,051 8,967,877 9,268,531 9,528,439 Plant services 24,462,649 24,006,930 24,303,190 24,451,823 24,524,341 Facility acquisition and construction 2,032, , ,797 1,763, ,136 Ancillary services 786, , ,617 1,034,941 1,111,064 Community services 652, , , , ,244 Other outgo 1,467,759 1,700,001 1,518,400 1,540,664 1,813,226 Enterprise services ,210,959 Debt service: Principal 2,402,157 1,828,692 3,822, , ,000 Interest and other 820, ,477 1,573, ,631 1,653,889 Total Expenditures 298,576, ,784, ,622, ,696, ,565,544 Excess (Deficiency) of Revenues Over (Under) Expenditures (73,761) (10,219,810) 989,562 (6,151,946) (12,148,505) Other Financing Sources (Uses) Transfers in 1,000,000 1,000, Other sources 3,800,000 58,341 3,377, ,682 Transfers out (1,050,460) (32,144) (24,271) (11,295) (34,120) Net Financing Sources (Uses) 3,749,540 1,026,197 3,353,387 (11,295) 938,562 NET CHANGE IN FUND BALANCES 3,675,779 (9,193,613) 4,342,949 (6,163,241) (11,209,943) Fund Balance Beginning 52,985,982 56,661,761 47,468,148 54,197,372 48,034,132 Prior Period Adjustment - - 2,386,275 (1) - 1,361,031 (1) Fund Balances Beginning (As Restated) ,854,423-49,395,163 Fund Balances Ending $56,661,761 $47,468,148 $54,197,372 $48,034,131 $38,185,220 (1) Adjustment due to restatement to conform to GASB Statement No. 54 s definition of governmental funds. Source: Montebello Unified School District Audited Financial Reports for fiscal years through A-16

49 The following table shows the general fund balance sheet of the District for fiscal years through ASSETS MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Summary of General Fund Balance Sheet Fiscal Years Through Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Deposits and investments $36,919,588 $41,758,587 $32,330,686 $23,618,435 $62,627,172 Receivables 48,090,190 47,247,718 54,895,391 72,182,238 41,186,850 Due from other funds 6,370,553 9,804,348 1,786,664 2,679,688 1,970,304 Prepaid expenditures 7, ,392-2,495, ,661 Stores inventories 555, , , , ,582 Other current assets ,732 7,307 Total Assets $91,942,773 $99,603,616 $89,541,164 $101,322,740 $106,539,876 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $28,289,797 $29,968,952 $27,766,240 $33,740,927 $37,355,982 Due to other funds 1,941,004 6,146, ,059 Other current liabilities - 15,000,000-18,000,000 28,000,000 Deferred revenue 5,050,211 1,020,332 7,577,552 1,547,682 2,755,615 Total Liabilities 35,281,012 52,135,468 35,343,792 53,288,609 68,354,656 FUND BALANCES Nonspendable ,423 3,082, ,243 Restricted - - 8,631,117 8,181,586 9,273,851 Committed Assigned ,334,970 14,834,970 4,722,791 Unassigned ,463,862 21,934,928 23,205,335 Reserved: Revolving cash 250, , Stores inventories 555, , Prepaid expenditures 7, , Legally restricted balance 18,736,209 10,660, Unreserved: Designated 12,226,497 12,166, Undesignated, reported in: General fund 24,886,613 23,598, Special revenue funds Debt service funds Total fund balances 56,661,761 47,468,148 54,197,372 48,034,131 38,185,220 Total liabilities and fund balances $91,942,773 $99,603,616 $89,541,164 $101,322,740 $106,539,876 Source: Montebello Unified School District Audited Financial Reports for fiscal years through District Budget Process and County Review State law requires school districts to adopt a balanced budget in each fiscal year. The State Department of Education imposes a uniform budgeting and accounting format for school districts. Under current law, a school district governing board must adopt and file with the county superintendent of A-17

50 schools a tentative budget by July 1 in each fiscal year. The District is under the jurisdiction of the County of Los Angeles Superintendent of Schools. The county superintendent must review and approve, conditionally approve or disapprove the budget no later than August 15. The county superintendent is required to examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical corrections necessary to bring the budget into compliance with the established standards. If the budget is disapproved, it is returned to the District with recommendations for revision. The District is then required to revise the budget, hold a public hearing thereon, adopt the revised budget, and file it with the county superintendent no later than September 8. Pursuant to State law, the county superintendent has available various remedies by which to impose and enforce a budget that complies with State criteria, depending on the circumstances, if a budget is disapproved. After approval of an adopted budget, the school district s administration may submit budget revisions for governing board approval. Subsequent to approval, the county superintendent will monitor each district under its jurisdiction throughout the fiscal year pursuant to its adopted budget to determine on an ongoing basis if the district can meet its current or subsequent year financial obligations. If the county superintendent determines that a district cannot meet its current or subsequent year s obligations, the county superintendent will notify the district s governing board of the determination and may then do either or both of the following: (a) assign a fiscal advisor to enable the district to meet those obligations, or (b) if a study and recommendations are made and a district fails to take appropriate action to meet its financial obligations, the county superintendent will so notify the State Superintendent of Public Instruction, and then may do any or all of the following for the remainder of the fiscal year: (i) request additional information regarding the district s budget and operations; (ii) develop and impose, after also consulting with the district s governing board, revisions to the budget that will enable the district to meet its financial obligations; and (iii) stay or rescind any action inconsistent with such revisions. However, the county superintendent may not abrogate any provision of a collective bargaining agreement that was entered into prior to the date upon which the county superintendent assumed authority. A State law adopted in 1991 (known as A.B ) imposed additional financial reporting requirements on school districts, and established guidelines for emergency State aid apportionments. Under the provisions of A.B. 1200, each school district is required to file interim certifications with the county superintendent (on December 15, for the period ended October 31, and by mid-march for the period ended January 31) as to its ability to meet its financial obligations for the remainder of the thencurrent fiscal year and, based on current forecasts, for the subsequent fiscal year. The county superintendent reviews the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that is deemed unable to meet its financial obligations for the remainder of the fiscal year or the subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations for the current fiscal year or two subsequent fiscal years. A school district that receives a qualified or negative certification may not issue tax and revenue anticipation notes or certificates of participation without approval by the county superintendent. In the last five years, the District received a qualified certification of its first interim financial report for fiscal year , its first interim financial report for fiscal year , its second interim report for fiscal year , and its first and second interim financial reports for fiscal year The District has not received a negative certification for an interim financial report pursuant to AB in the last five years, and the District has never had a budget disapproved by the County Superintendent. A-18

51 The District s first interim report for fiscal year is expected to be approved by the Board of Education and made available in mid-december of MONTEBELLO UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) General Fund Budgets for Fiscal Years Through , Unaudited Actuals for Fiscal Years Through Original Adopted Budget Unaudited Actuals (1) Original Adopted Budget Unaudited Actuals Original Adopted Budget (2) REVENUES Revenue Limit/LCFF Sources $159,772, $159,520, $162,825, $208,689, $233,231, Federal Revenue 29,744, ,586, ,612, ,778, ,248, Other State Revenue 39,085, ,978, ,445, ,459, ,004, Other Local Revenue 14,273, ,727, ,317, ,023, ,691, TOTAL REVENUES $242,875, $252,813, $246,200, ,951, ,175, EXPENDITURES Certificated Salaries 122,264, ,295, ,957, ,367, ,874, Classified Salaries 43,049, ,702, ,768, ,891, ,709, Employee Benefits 62,976, ,082, ,015, ,935, ,593, Books and Supplies 8,365, ,221, ,544, ,948, ,428, Services, Other Operating Expenses 22,279, ,934, ,888, ,194, ,184, Capital Outlay 2,023, ,368, ,093, ,126, ,058, Other Outgo (excluding Direct Support/Indirect Costs) 2,760, ,109, ,709, ,063, ,199, Other Outgo - Transfers of Indirect Costs (1,095,000.00) (1,151,104.30) (1,381,957.00) (1,230,796.84) (1,220,985.00) TOTAL EXPENDITURES 262,623, ,563, ,596, ,296, ,827, EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (19,747,631.00) (10,750,171.66) (15,396,549.00) 655, ,347, OTHER FINANCING SOURCES (USES) Inter-fund Transfers In Inter-fund Transfers Out (36,285.62) (34,120.36) (82,695.00) (12,289,242.73) (12,479,893.00) Other Sources (Uses) Contributions TOTAL, OTHER FINANCING (36,285.62) (34,120.36) (82,695.00) (12,289,242.73) (12,479,893.00) SOURCES (USES) NET INCREASE (DECREASE) IN FUND BALANCE (19,783,916.62) (10,784,292.02) (15,479,244.00) (11,634,113.14) (3,132,744.00) BEGINNING BALANCE, as of July 1 43,182, ,726, ,251, ,942, ,115, ENDING BALANCE $23,398, $36,942, $14,772, $25,308, $18,982, (1) Total revenues and total expenditures do not match the District s audited financial statements because the District does not include contributions to the State Teacher s Retirement System made by the State on behalf of the District in its internal financial reports, amounting to $6,520,937 in fiscal year Additionally, due to the consolidation of Fund 14 (Deferred Maintenance Fund) and Fund 71 (Retiree Benefit Fund) for reporting purposes into the general fund, additional revenues and expenditures pertaining to such funds are included in the District s audited financial statements in accordance with GAAP, but are not included in the District s internal financial reports. (2) Figures are estimates. Source: Montebello Unified School District Adopted general fund Budgets for fiscal years , and ; and unaudited actuals for fiscal years and A-19

52 District Debt Structure Long-Term Debt Summary. A schedule of the District s long-term obligations for the year ended June 30, 2013, consisted of the following: Long-Term Debt Balance June 30, 2012 Additions Accretion Deductions Balance June 30, 2013 Due in One Year General obligation bonds (1) $174,094,053 $22,155,000 $3,506,437 $31,140,000 $168,615,490 $8,300,683 Premium on issuance 3,567,204 3,763, ,236 7,072,772 - Certificates of Participation 12,690,000 10,430,000-10,370,000 12,750, ,000 Accumulated vacation - net 4,385, ,421 3,841,595 - Supplemental early retirement 12,183, ,143-3,537,473 8,859,751 3,537,473 program OPEB obligations - net 24,169,986 8,551,305-4,264,130 28,457,161 - Total $231,089,340 $45,114,252 $3,506,437 $50,113,260 $229,596,769 $12,748,156 (1) Amounts do not reflect the refunding of the Prior Bonds with proceeds of the Refunding Bonds. See THE REFUNDING BONDS Outstanding Bonds; Plan of Finance in the front portion of this Official Statement. Source: Montebello Unified School District Audited Financial Report for fiscal year General Obligation Bonds. In addition to the Refunding Bonds, the District has eleven outstanding series (or subseries) of bonds, each of which is secured by ad valorem taxes upon all property subject to taxation by the District. On April 14, 1998, over two-thirds of the registered voters of the District approved the authorization to issue bonds of the District in an aggregate principal amount not to exceed $92,000,000 to repair, modernize and improve existing schools and to acquire and construct new classrooms, libraries and schools (the 1998 Authorization ). On August 18, 1998, the County, at the request of the District, issued $24,639,698 initial aggregate principal amount of bonds (the Series 1998 Bonds ) as the District s first series of bonds issued under the 1998 Authorization. On June 23, 1999, the County, at the request of the District, issued $19,997, initial aggregate principal amount of bonds (the Series 1999 Bonds ) as the District s second series of bonds issued under the 1998 Authorization. On June 21, 2001, the County, at the request of the District, issued $15,782, initial aggregate principal amount of bonds (the Series 2001 Bonds ) as the District s third series of bonds issued under the 1998 Authorization. On September 17, 2002, the County, at the request of the District, issued $15,996, initial aggregate principal amount of bonds (the Series 2002 Bonds ) as the District s fourth series of bonds issued under the 1998 Authorization. On July 8, 2004, the County, at the request of the District, issued $15,580, initial aggregate principal amount of bonds (the Series 2004 Bonds ) as the District s fifth and final series of bonds issued under the 1998 Authorization. On October 12, 2010, the District issued $15,770,000 aggregate principal amount of its 2010 General Obligation Refunding Bonds (the Series 2010 Refunding Bonds ) to refund portions of the outstanding Series 1999 Bonds, the Series 2001 Bonds and the Series 2004 Bonds. On November 2, 2004, over 55% of the registered voters of the District approved the authorization to issue bonds of the District in an aggregate principal amount not to exceed $98,000,000 to finance the acquisition of real property, and expansion/upgrading of facilities, including security, communications, heating/cooling systems, science labs, libraries and cafeterias, needed to improve student instruction and safety (the 2004 Authorization ). On August 2, 2005, the County, at the request of the District, issued $30,000,000 aggregate principal amount of bonds (the Series 2005 Bonds ) as the District s first series of bonds issued under the 2004 Authorization. On September 23, 2008, the County, at the request of the District, issued $35,000,000 aggregate principal amount of bonds (the Series 2008 Bonds ) as the District s second series of bonds issued under the 2004 Authorization. On October 8, 2009, the County, at the request of the District, issued (i) $20,360,000 aggregate principal amount of taxexempt bonds (the Series 2009A-1 Bonds ) and (ii) $12,640,000 aggregate principal amount of taxable bonds (the Series 2009A-2 Bonds ), which collectively are the District s third series of bonds issued under the 2004 Authorization. On May 16, 2013, the District issued $22,155,000 aggregate principal A-20

53 amount of its General Obligation Refunding Bonds, Election of 2004, Series 2013A (the Series 2013A Refunding Bonds ) to advance refund portions of the outstanding Series 2005 Bonds. The Prior Bonds are expected to be refunded with proceeds of the Refunding Bonds. See THE REFUNDING BONDS Outstanding Bonds; Plan of Finance in the front portion of this Official Statement. Bond The following table summarizes the District s bonds that were outstanding as of June 30, 2013: Maturity Date Interest Rate Original Issue Bonds Outstanding July 1, 2012 Issued Accreted Redeemed Bonds Outstanding June 30, 2013 Series 1998 Bonds % $24,639,698 $19,643,399 $ - $939,528 $1,920,000 $18,662,927 Series 1999 Bonds ,997,854 15,482, ,600-16,334,561 Series 2001 Bonds ,782,827 4,835, ,351-5,109,746 Series 2002 Bonds ,996,693 17,545, ,240 1,290,000 17,097,746 Series 2004 Bonds ,580,273 12,106, , ,000 11,916,098 Series 2005 Bonds ,000,000 25,070, ,130, ,000 Series 2008 Bonds (1) ,000,000 32,605, ,000 32,255,000 Series 2009A-1 Bonds ,360,000 20,000, ,000 19,585,000 Series 2009A-2 Bonds ,640,000 12,640, ,640,000 Series 2010 Refunding Bonds ,770,000 14,165, ,245,000 11,920,000 Series 2013 Refunding Bonds ,155,000-22,155, ,155,000 $174,094,053 $22,155,000 $3,506,437 $31,140,000 $168,615,490 (1) A portion of the Series 2008 Bonds is to be refunded with the proceeds of the District s Refunding Bonds. See THE REFUNDING BONDS Outstanding Bonds; Plan of Finance in the front portion of this Official Statement. Source: Montebello Unified School District Audited Financial Reports for fiscal year See THE REFUNDING BONDS Outstanding Bonds; Plan of Finance in the front portion of this Official Statement for more information on the bonds to be refunded with proceeds of the Refunding Bonds, and see THE REFUNDING BONDS Aggregate Debt Service in the front portion of this Official Statement for the annual debt service requirements for the District s outstanding bonds. Certificates of Participation. In July, 2003, the District executed and delivered certificates of participation evidencing principal in the original amount of $13,085,000 through the Los Angeles County Pooled Financing Program (the 2003 COPs ) for the purpose of financing the acquisition, construction and installation of certain items of equipment, the improvement of real property and the acquisition and construction of other capital improvements to be used for educational purposes. At June 30, 2013, the outstanding principal balance evidenced by the 2003 COPs was $425,000. The principal evidenced by the 2003 COPs has been paid. On April 7, 2010, the District executed and delivered certificates of participation evidencing principal in the original amount of $3,215,000 through the Los Angeles County Pooled Financing Program (the 2010 COPs ) for the purpose of financing of certain capital improvements including the prepayment of certain existing obligations. At June 30, 2013, the outstanding principal balance evidenced by the 2010 COPs outstanding was $2,090,000. On July 25, 2012, the District executed and delivered certificates of participation evidencing principal in the original amount of $10,430,000 through the Los Angeles County Schools Pooled Financing Program (the 2012 COPs ) for the purpose of prepaying certain of the principal evidenced by the 2003 COPs. As of June 30, 2013, the outstanding principal balance evidenced by the 2012 COPs was $10,235,000. A-21

54 The District s certificates of participation debt, as of June 30, 2013, was follows: Issue Date Maturity Date Interest Rate Original Issue Bonds Outstanding July 1, 2012 Issued Redeemed Bonds Outstanding June 30, COPs (1) % $13,085,000 $10,215,000 $ - $ 9,790,000 $ 425, COPs % 3,215,000 2,475, ,000 2,090, COPs % 10,430,000-10,430, ,000 10,235,000 $12,690,000 $10,430,000 $10,370,000 $12,750,000 (1) Principal evidenced by the 2003 COPs has been paid. Source: Montebello Unified School District Audited Financial Reports for fiscal year Accumulated Unpaid Employee Vacation. The long-term portion of accumulated unpaid employee vacation for the District at June 30, 2013, amounted to $3,841,595. Supplemental Employee Retirement Plan (SERP). The District offered an early retirement incentive to qualified employees under a qualified plan of Section 401A of the Internal Revenue Code. Currently there are 317 employees participating in this plan and the District s obligation to those retirees as of June 30, 2013, was $8,859,751. Payments are required as follows: Fiscal Years Ending June 30, Total Payment 2014 $3,537, ,106, ,607, ,607,818 Total $8,859,751 Source: Montebello Unified School District Audited Financial Reports for fiscal year Other Post-Employment Benefits. In addition to the retirement plan benefits with CalSTRS and the State Public Employees Retirement System ( CalPERS ) (see Retirement Benefits below), the District provides certain post-retirement healthcare benefits, in accordance with District employment contracts. The District s health care plan (the Plan ) is a single-employer defined benefit healthcare plan administered by the District. The Plan provides health benefits to eligible retirees based on agreements entered into with the Montebello Teachers Association, the local California Service Employees Association (CSEA), the Association of Montebello School Administrators and unrepresented groups. The required contribution is based on projected pay-as-you-go financing requirements. Membership of the Plan consists of 524 retirees currently receiving benefits and 2,667 active members. The District provides employer paid medical benefits to eligible retirees and their eligible dependents through age 67 up to an annual maximum. Certificated employees may also be eligible for an early retirement program that provides some enhanced benefits prior to age 60. Eligibility for retiree health benefits requires at least 15 years of service at retirement. For fiscal year , the District contributed $4,264,130 to the Plan, all of which was used for current premiums. The Governmental Accounting Standards Board released its Statement Number 45 ( Statement Number 45 ), which requires municipalities to account for other post-employment benefits (meaning other than pension benefits) ( OPEB ) liabilities much like municipalities are required to account for pension benefits. The expense is generally accrued over the working career of employees, rather than on a pay-as-you-go basis, which has been the practice for most municipalities and public sector organizations. OPEBs generally include post-employment health benefits (medical, dental, vision, prescription drug and mental health), life insurance, disability benefits and long term care benefits. Statement Number 45 was A-22

55 phased in over a three-year period based upon the entity s revenues. Statement Number 45 became effective for the District beginning in fiscal year The contribution requirement of plan members and the District are established under a funding policy approved by the District s Board of Education, and may be amended by the District from time to time. The District s funding policy is to contribute an amount sufficient to pay the current year s retiree claim costs and plan expenses. The District has not established an irrevocable trust to prefund its OPEB liability and no prefunding of benefits has been made. For fiscal years , and , the District contributed $3,630,840, $3,474,296 and $4,264,130, respectively to the Plan, including current claim costs and Plan expenses. Nyhart Epler, San Diego, California, has prepared an actuarial valuation covering the District s retiree health benefits and reports that, as of July l, 2013, the District had an actuarial accrued liability of $78,319,866, and an unfunded actuarial accrued liability of the same amount because there has not been any prefunding of such liability. According to such valuation, the District s annual required contribution was $9,358,264 for fiscal year , and was estimated to be $9,541,704 for fiscal The District s net OPEB obligation was $28,457,161 as of June 30, 2013, and was estimated to be $32,821,521 as of June 30, Certain assumptions incorporated in such actuarial valuation include a 4.5% discount rate (the prior valuation assumed 5.5%), a 2.8% inflation rate (the prior valuation assumed 3.0%), a 3.0% increase for salaries (the prior valuation assumed 3.25%), and various other assumptions. For additional information about the District s Plan, as well as information regarding a previous actuarial valuation, see Note 11 to the District s financial statements attached hereto as APPENDIX B FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, The information with respect to such actuarial valuation that is included in the District s financial statements, however, is as July 1, A copy of the latest actuarial valuation is available upon request from the District at the address listed on the first page of the forepart of this Official Statement. The District may impose a charge for copying, handling and mailing such requested documents. Tax and Revenue Anticipation Notes. Tax and Revenue Anticipation Notes ( TRANs ) are general obligations of the District and are payable from revenues and cash receipts to be generated by the District. TRANs are issued to supplement the District s cash flow when necessary. On March 27, 2014, the District issued $18,000,000 aggregate principal amount of TRANs through the Los Angeles County School Pooled Financing Program. Such TRANs mature on December 31, The District may issue TRANs or borrow funds in the current fiscal year or future fiscal years as and if necessary to supplement cash flow when necessary. A-23

56 Employment As of June 30, 2014, the District employed 2,759 employees, consisting of 1,633 certificated employees and 1,126 classified employees. For the year ended June 30, 2014, the total certificated and classified payrolls from all funds were approximately $ million (unaudited) and $44.89 million (unaudited), respectively. For fiscal year , the total certificated and classified payrolls from all funds are budgeted to be approximately $ million and $46.71 million, respectively. District employees are represented by employee bargaining units as follows: Number of Employees Represented Current Contract Expiration Date Name of Bargaining Unit California School Employees Association 1,082 June 30, 2016 Montebello Teachers Association 1,459 June 30, 2016 Source: Montebello Unified School District. Retirement Benefits The District participates in retirement plans with CalSTRS, which covers all full-time certificated District employees, and the State Public Employees Retirement System, which covers certain classified employees. Classified school personnel who are employed four or more hours per day may participate in CalPERS. CalSTRS. Contributions to CalSTRS are fixed in statute. For fiscal year , teachers contributed 8% of salary to CalSTRS, while school districts contributed 8.25%. In addition to the teacher and school contributions, the State contributed 4.517% of teacher payroll to CalSTRS (calculated on payroll data from two fiscal years ago). Unlike typical defined benefit programs, however, neither the CalSTRS employer nor the State contribution rate varies annually to make up funding shortfalls or assess credits for actuarial surpluses. The State does pay a surcharge when the teacher and school district contributions are not sufficient to fully fund the basic defined benefit pension (generally consisting of 2% of salary for each year of service at age 60 referred to herein as pre-enhancement benefits ) within a 30- year period. However, this surcharge does not apply to systemwide unfunded liability resulting from recent benefit enhancements. As of June 30, 2013, an actuarial valuation (the 2013 CalSTRS Actuarial Valuation ) for the entire CalSTRS defined benefit program showed an estimated unfunded actuarial liability of $74.4 billion, an increase of $3.4 billion from the June 30, 2012 valuation. The funded ratios of the actuarial value of valuation assets over the actuarial accrued liabilities as of June 30, 2013, June 30, 2012 and June 30, 2011, based on the actuarial assumptions, were approximately 67%, 67% and 69%, respectively. Future estimates of the actuarial unfunded liability may change due to market performance, legislative actions and other experience that may differ from the actuarial assumptions. The following are certain of the actuarial assumptions set forth in the 2013 CalSTRS Actuarial Valuation: measurement of accruing costs by the Entry Age Normal Actuarial Cost Method, 7.50% investment rate of return, 4.50% interest on member accounts, 3.75% projected wage growth, and 3.00% projected inflation. The 2013 CalSTRS Actuarial Valuation also assumes that all members hired on or after January 1, 2013 are subject to the provisions of PEPRA (as defined herein). See Governor s Pension Reform below for a discussion of the pension reform measure signed by the Governor in August 2012 expected to help reduce future pension obligations of public employers with respect to employees hired on or after January 1, Future estimates of the actuarial unfunded liability may change due to market performance, legislative A-24

57 actions, changes in actuarial assumptions and other experiences that may differ from the actuarial assumptions. As indicated above, there was no required contribution from teachers, schools districts or the State to fund the unfunded actuarial liability for the CalSTRS defined benefit program and only the State legislature can change contribution rates. The 2013 CalSTRS Actuarial Valuation noted that, as of June 30, 2013, the contribution rate, inclusive of contributions from the teachers, the school districts and the State, was equivalent to % over the next 30 years. The 2013 CalSTRS Actuarial Valuation provides that the contribution rate would need to have been raised by % to a total of % to amortize the unfunded liability over a 30-year period as of June 30, As part of the State Budget, the Governor signed Assembly Bill 1469 which implements a new funding strategy for CalSTRS, increasing the employer contribution rate in fiscal year from 8.25% to 8.88% of covered payroll. Such rate would increase by 1.85% beginning in fiscal year until the employer contribution rate is 19.10% of covered payroll as further described below. Teacher contributions will also increase from 8.00% to a total of 10.25% of pay, phased in over the next three years. The State s total contribution will also increase from approximately 3% in fiscal year to 6.30% of payroll in fiscal year , plus the continued payment of 2.5% of payroll annual for a supplemental inflation protection program for a total of 8.80%. In addition, AB 1469 provides the State Teachers Retirement Board with authority to modify the percentages paid by employers and employees for fiscal year and each fiscal year thereafter to eliminate the CalSTRS unfunded liability by June 30, The State Teachers Retirement Board would also have authority to reduce employer and State contributions if they are no longer necessary. The District s total general fund employer contributions to CalSTRS for fiscal years , , and were $10,299,873, $10,385,023, $9,932,196 and $10,455,484 (unaudited), respectively, and were equal to 100% of the required contributions for each year. The District has budgeted employer contributions from its general fund to CalSTRS of $12,219,226 for fiscal year With the implementation of AB 1469, the District anticipates that its contributions to CalSTRS will increase in future fiscal years as compared to prior fiscal years. The District, nonetheless, is unable to predict all factors or any changes in law that could affect its required contributions to CalSTRS in future fiscal years. CalSTRS produces a comprehensive annual financial report and actuarial valuations which include financial statements and required supplementary information. Copies of the CalSTRS comprehensive annual financial report and actuarial valuations may be obtained from CalSTRS. The information presented in these reports is not incorporated by reference in this Official Statement. CalPERS. All qualifying classified employees of K-12 school districts in the State are members in CalPERS, and all of such districts participate in the same plan. As such, all such districts share the same contribution rate in each year. However, unlike school districts participating in CalSTRS, the school districts contributions to CalPERS fluctuate each year and include a normal cost component and a component equal to an amortized amount of the unfunded liability. Accordingly, the District cannot provide any assurances that the District s required contributions to CalPERS will not significantly increase in the future above current levels. According to the CalPERS State and Schools Actuarial Valuation as of June 30, 2012, the CalPERS Schools plan had a funded ratio of 75.5% on a market value of assets basis. The funded ratio as of June 30, 2011, June 30, 2010, June 30, 2009 and June 30, 2008 was 78.7%, 69.5%, 65.0% and 93.8%, respectively. According to the actuarial valuation as of June 30, 2012, the latest decline in the funded ratio A-25

58 was because the investment return experienced by CalPERS in fiscal year was less than the assumed 7.5%. In June 2009, the CalPERS Board of Administration adopted a new employer rate smoothing methodology for local governments and school employer rates. It was designed to ease the impact of the investment losses which were then expected in fiscal year on affiliated public employers while strengthening the long-term financial health of the pension fund. Under such methodology, certain investment losses are amortized and paid off over a fixed and declining 30-year period instead of a rolling 30-year amortization period. In March of 2012, the CalPERS Board of Administration adopted new economic actuarial assumptions to be used with the June 30, 2011 actuarial valuation; in particular, lowering the price inflation assumption from 3.00% to 2.75%. Lowering the price inflation assumption resulted in a reduced discount rate, which is the fund s assumed rate of return calculated based on expected price inflation and the expected real rate of return, from 7.75% to 7.5%. According to CalPERS, this reduction in the discount rate is anticipated to increase State and school district employer contributions for each fiscal year beginning in fiscal year by 1.2% to 1.6% for miscellaneous plans (which includes general office and others) and by 2.2% to 2.4% for safety plans beginning in fiscal year In April of 2013, the CalPERS Board of Administration approved changes to the CalPERS amortization and smoothing policy intended to reduce volatility in employer contribution rates. Beginning with the June 30, 2013 actuarial valuation, CalPERS will employ a new amortization and smoothing policy that will pay for all gains and losses over a fixed 30-year period with the increases or decreases in the rate spread directly over a 5-year period (as compared to the current policy of spreading investment returns over a 15-year period with experience gains and losses paid for over a rolling 30-year period). Such changes, the implementation of which are delayed until fiscal year for the State, schools and all public agencies, are expected to increase contribution rates in the near term but lower contribution rates in the long term. In February of 2014, the CalPERS Board of Administration adopted new actuarial demographic assumptions that take into account public employees living longer. Such assumptions are expected to increase costs for the State and public agency employers (including school districts), which costs will be amortized over 20 years and phased in over three years beginning in fiscal year for the State and amortized over 20 years and phased in over five years beginning in fiscal year for the employers. CalPERS estimates that the new demographic assumptions could cost public agency employers up to 9% of payroll for safety employees and up to 5% of payroll for miscellaneous employees at the end of the five year phase in period. To the extent, however, that future experiences differ from CalPERS current assumptions, the required employer contributions may vary. The District s total general fund employer contributions from to CalPERS for fiscal years , , and were $3,970,402, $4,009,898, $4,203,316 and $4,538,077 (unaudited), respectively, and were equal to 100% of the required contributions for each year. The District budgeted employer contributions from its general fund to CalPERS of $5,284,507 for fiscal year With the change in actuarial assumptions described above, the District anticipates that its contributions to CalPERS will increase in future fiscal years as the increased costs are phased in. The implementation of PEPRA (see Governor s Pension Reform below), however, is expected to help reduce certain future pension obligations of public employers with respect to employees hired on or after January 1, The District cannot predict the impact these changes will have on its contributions to CalPERS in future years. CalPERS produces a comprehensive annual financial report and actuarial valuations that include financial statements and required supplementary information. Copies of the CalPERS comprehensive annual financial report and actuarial valuations may be obtained from CalPERS Financial Services A-26

59 Division. The information presented in these reports is not incorporated by reference in this Official Statement. Governor s Pension Reform. On August 28, 2012, Governor Brown and the State Legislature reached agreement on a new law that reforms pensions for State and local government employees. AB 340, which was signed into law on September 12, 2012, established the California Public Employees Pension Reform Act of 2012 ( PEPRA ) which governs pensions for public employers and public pension plans on and after January 1, For new employees, PEPRA, among other things, caps pensionable salaries at the Social Security contribution and wage base, which is $110,100 for 2012, or 120% of that amount for employees not covered by Social Security, increases the retirement age by two years or more for all new public employees while adjusting the retirement formulas, requires state employees to pay at least half of their pension costs, and also requires the calculation of benefits on regular, recurring pay to stop income spiking. For all employees, changes required by PEPRA include the prohibition of retroactive pension increases, pension holidays and purchases of service credit. PEPRA applies to all State and local public retirement systems, including county and district retirement systems. PEPRA only exempts the University of California system and charter cities and counties whose pension plans are not governed by State law. Although the District anticipates that PEPRA would not increase the District s future pension obligations, the District is unable to determine the extent of any impact PEPRA would have on the District s pension obligations at this time. Additionally, the District cannot predict if PEPRA will be challenged in court and, if so, whether any challenge would be successful. The District is unable to predict what the amount of State pension liabilities will be in the future, or the amount of the contributions which the District may be required to make. CalSTRS and CalPERS are more fully described in Note 11 to the District s financial statements attached hereto as APPENDIX B FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, GASB 67 and 68. In June 2012, the Governmental Accounting Standards Board approved a pair of related statements, Statement Number 67, Financial Reporting for Pension Plans ( Statement Number 67 ), which addresses financial reporting for pension plans, and Statement Number 68, Accounting and Financial Reporting for Pensions ( Statement Number 68 ), which establishes new accounting and financial reporting requirements for governments that provide their employees with pensions. The guidance contained in these statements will change how governments calculate and report the costs and obligations associated with pensions. Statement Number 67 replaces the current requirements of Statement Number 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, for most public employee pension plans, and Statement Number 27 replaces the current requirements of Statement Number 27, Accounting for Pensions by State and Local Governmental Employers, for most government employers. The new statements also replace the requirements of Statement Number 50, Pension Disclosures, for those governments and pension plans. Certain of the major changes include: (i) the inclusion of unfunded pension liabilities on the government s balance sheet (such unfunded liabilities are currently typically included as notes to the government s financial statements); (ii) full pension costs would be shown as expenses regardless of actual contribution levels; (iii) lower actuarial discount rates would be required to be used for most plans for certain purposes of the financial statements, resulting in increased liabilities and pension expenses; and (iv) shorter amortization periods for unfunded liabilities would be required to be used for certain purposes of the financial statements, which generally would increase pension expenses. Statement Number 67 will take effect in fiscal years beginning after June 15, 2013, and Statement Number 68 will take effect in fiscal years beginning after June 15, A-27

60 Risk Pooling, Joint Powers Agreements and Joint Ventures The District participates in a joint powers agreement (JPA) with Alliance of Schools for Cooperative Insurance Programs (ASCRIP) for worker s compensation. The JPA is governed by a board consisting of a representative from each member district. The board controls the operations of its JPA, including selection of management and approval of operating budgets independent of any influence by the member districts beyond their representation on the board. Each member pays a premium commensurate with the level of coverage requested and shares surpluses and deficits proportionately to their participation in each JPA. The relationship between the District and the JPA is such that the JPA is not a component unit of the District for financial reporting purposes. See Note 15 to the District s financial statements attached hereto as APPENDIX B FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, Limitations on Revenues CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS On June 6, 1978, California voters approved Proposition 13 ( Proposition 13 ), which added Article XIIIA to the State Constitution ( Article XIIIA ). Article XIIIA limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on (i) indebtedness approved by the voters prior to July 1, 1978, (ii) bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-thirds of the voters on such indebtedness, and (iii) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures are included in the proposition. Article XIIIA defines full cash value to mean the county assessor s valuation of real property as shown on the tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership have occurred after the 1975 assessment. This full cash value may be increased at a rate not to exceed 2% per year to account for inflation. Article XIIIA has subsequently been amended to permit reduction of the full cash value base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the full cash value base in the event of reconstruction of property damaged or destroyed in a disaster and in other minor or technical ways. County of Orange v. Orange County Assessment Appeals Board No. 3. Section 51 of the Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property as a result of natural disasters, economic downturns or other factors, to subsequently recapture such value (up to the pre-decline value of the property) at an annual rate higher than 2%, depending on the assessor s measure of the restoration of value of the damaged property. The constitutionality of this procedure was challenged in a lawsuit brought in 2001 in the Orange County Superior Court, and in similar lawsuits brought in other counties, on the basis that the decrease in assessed value creates a new base year value for purposes of Proposition 13 and that subsequent increases in the assessed value of a property by more than 2% in a single year violate Article XIIIA. On appeal, the California Court of Appeal upheld the recapture practice in 2004, and the State Supreme Court declined to review the ruling, leaving the recapture law in place. A-28

61 Legislation Implementing Article XIIIA. Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the taxing area based upon their respective situs. Any such allocation made to a local agency continues as part of its allocation in future years. Beginning in the fiscal year, assessors in the State no longer record property values on tax rolls at the assessed value of 25% of market value which was expressed as $4 per $100 assessed value. All taxable property is now shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100% of market value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value. Article XIIIB of the California Constitution An initiative to amend the State Constitution entitled Limitation of Government Appropriations was approved on September 6, 1979, thereby adding Article XIIIB to the State Constitution ( Article XIIIB ). Under Article XIIIB state and local governmental entities have an annual appropriations limit and are not permitted to spend certain moneys which are called appropriations subject to limitation (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the appropriations limit. Article XIIIB does not affect the appropriation of moneys which are excluded from the definition of appropriations subject to limitation, including debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the appropriations limit is to be based on certain expenditures, and is to be adjusted annually to reflect changes in consumer prices, populations, and services provided by these entities. Among other provisions of Article XIIIB, if these entities revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. The District s budgeted appropriations from proceeds of taxes (sometimes referred to as the Gann limit ) for the fiscal year are equal to the allowable limit of $174,314,226 and estimates an appropriations limit for the fiscal year of $170,226,341. Any proceeds of taxes received by the District in excess of the allowable limit are absorbed into the State s allowable limit. Article XIIIC and Article XIIID of the California Constitution On November 5, 1996, the voters of the State of California approved Proposition 218, popularly known as the Right to Vote on Taxes Act. Proposition 218 added to the California Constitution Articles XIIIC and XIIID ( Article XIIIC and Article XIIID, respectively), which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing and future taxes, assessments, fees and charges. According to the Title and Summary of Proposition 218 prepared by the California Attorney General, Proposition 218 limits the authority of local governments to impose taxes and property-related assessments, fees and charges. Among other things, Article XIIIC establishes that every tax is either a general tax (imposed for general governmental purposes) or a special tax (imposed for specific A-29

62 purposes), prohibits special purpose government agencies such as school districts from levying general taxes, and prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds vote; and also provides that the initiative power will not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. Article XIIIC further provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the California Constitution and special taxes approved by a two-thirds vote under Article XIIIA, Section 4. Article XIIID deals with assessments and property-related fees and charges, and explicitly provides that nothing in Article XIIIC or XIIID will be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development. The District does not impose any taxes, assessments, or property-related fees or charges which are subject to the provisions of Proposition 218. It does, however, receive a portion of the basic 1% ad valorem property tax levied and collected by the County pursuant to Article XIIIA of the California Constitution. The provisions of Proposition 218 may have an indirect effect on the District, such as by limiting or reducing the revenues otherwise available to other local governments whose boundaries encompass property located within the District thereby causing such local governments to reduce service levels and possibly adversely affecting the value of property within the District. Statutory Limitations On November 4, 1986, State voters approved Proposition 62, an initiative statute limiting the imposition of new or higher taxes by local agencies. The statute (a) requires new or higher general taxes to be approved by two-thirds of the local agency s governing body and a majority of its voters; (b) requires the inclusion of specific information in all local ordinances or resolutions proposing new or higher general or special taxes; (c) penalizes local agencies that fail to comply with the foregoing; and (d) required local agencies to stop collecting any new or higher general tax adopted after July 31, 1985, unless a majority of the voters approved the tax by November 1, Appellate court decisions following the approval of Proposition 62 determined that certain provisions of Proposition 62 were unconstitutional. However, the California Supreme Court upheld Proposition 62 in its decision on September 28, 1995 in Santa Clara County Transportation Authority v. Guardino. This decision reaffirmed the constitutionality of Proposition 62. Certain matters regarding Proposition 62 were not addressed in the Supreme Court s decision, such as whether the decision applies retroactively, what remedies exist for taxpayers subject to a tax not in compliance with Proposition 62, and whether the decision applies to charter cities. Proposition 98 and Proposition 111 On November 8, 1988, voters approved Proposition 98, a combined initiative constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act (the Accountability Act ). The Accountability Act changed State funding of public education below the university level, and the operation of the State s Appropriations Limit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (collectively, K-14 districts ) at a level equal to the greater of (a) the same percentage of general fund revenues as the percentage appropriated to such districts in , which percentage is equal to 40.9%, or (b) the amount actually appropriated to such districts from the general fund in the previous fiscal year, adjusted for growth in enrollment and inflation. Since the Accountability Act is unclear in some details, there can be no assurance that the Legislature or a court might not interpret the Accountability Act to require a different percentage of general fund revenues to be allocated to K-14 districts than the 40.9%, or to apply the relevant percentage A-30

63 to the State s budgets in a different way than is proposed in the Governor s Budget. In any event, the Governor and other fiscal observers expect the Accountability Act to place increasing pressure on the State s budget over future years, potentially reducing resources available for other State programs, especially to the extent the Article XIIIB spending limit would restrain the State s ability to fund such other programs by raising taxes. The Accountability Act also changes how tax revenues in excess of the State Appropriations Limit are distributed. Any excess State tax revenues up to a specified amount would, instead of being returned to taxpayers, be transferred to K-14 districts. Such transfer would be excluded from the Appropriations Limit for K-14 districts and the K-14 school Appropriations Limits for the next year would automatically be increased by the amount of such transfer. These additional moneys would enter the base funding calculation for K-14 districts for subsequent years, creating further pressure on other portions of the State budget, particularly if revenues decline in a year following an Article XIIIB surplus. The maximum amount of excess tax revenues which could be transferred to schools is 4% of the minimum State spending for education mandated by the Accountability Act, as described above. On June 5, 1990, California voters approved Proposition 111 (Senate Constitutional Amendment 1), which further modified the Constitution to alter the spending limit and education funding provisions of Proposition 98. Most significantly, Proposition 111 (1) liberalized the annual adjustments to the spending limit by measuring the change in the cost of living by the change in State per capita personal income rather than the Consumer Price Index, and specified that a portion of the State s spending limit would be adjusted to reflect changes in school attendance; (2) provided that 50% of the excess tax revenues, determined based on a two-year cycle, would be transferred to K-14 school districts with the balance returned to taxpayers (rather than the previous 100% but only up to a cap of 4% of the districts minimum funding level), and that any such transfer to K-14 school districts would not be built into the school districts base expenditures for calculating their entitlement for State aid in the following year and would not increase the State s appropriations limit; (3) excluded from the calculation of appropriations that are subject to the limit appropriations for certain qualified capital outlay projects and certain increases in gasoline taxes, sales and use taxes, and receipts from vehicle weight fees; (4) provided that the Appropriations Limit for each unit of government, including the State, would be recalculated beginning in the fiscal year, based on the actual limit for fiscal year , adjusted forward to as if Senate Constitutional Amendment 1 had been in effect; and (5) adjusted the Proposition 98 formula that guarantees K-14 school districts a certain amount of general fund revenues, as described below. Under prior law, K-14 school districts were guaranteed the greater of (a) 40.9% of general fund revenues (the first test ) or (b) the amount appropriated in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to per capita personal income) and enrollment (the second test ). Under Proposition 111, school districts would receive the greater of (a) the first test, (b) the second test or (c) a third test, which would replace the second test in any year when growth in per capita general fund revenues from the prior year was less than the annual growth in State per capita personal income. Under the third test, school districts would receive the amount appropriated in the prior year adjusted for change in enrollment and per capita general fund revenues, plus an additional small adjustment factor. If the third test were used in any year, the difference between the third test and the second test would become a credit to be paid in future years when general fund revenue growth exceeds personal income growth. Proposition 30 On November 6, 2012, voters approved Proposition 30, also referred to as the Temporary Taxes to Fund Education, Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment. Proposition 30 temporarily (a) increased the personal income tax on certain of the State s income A-31

64 taxpayers by one to three percent for a period of seven years beginning with the 2012 tax year and ending with the 2019 tax year, and (b) increased the sales and use tax by one-quarter percent for a period of four years beginning on January 1, 2013 and ending with the 2016 tax year. The revenues generated from such tax increases are included in the calculation of the Proposition 98 minimum funding guarantee (see Proposition 98 and Proposition 111 above). The revenues generated from such temporary tax increases are deposited into a State account created pursuant to Proposition 30 (the Education Protection Account), and 89% of the amounts therein are allocated to school districts and 11% of the amounts therein are allocated to community college districts. The Proposition 30 tax increases are temporary and expire at the end of the 2016 and 2019 tax years. The District cannot predict the effect the loss of the revenues generated from such temporary tax increases will have on total State revenues and the effect on the Proposition 98 formula for funding schools. Applications of Constitutional and Statutory Provisions The application of Proposition 98 and other statutory regulations has become increasingly difficult to predict accurately in recent years. For a discussion of how the provisions of Proposition 98 have been applied to school funding see DISTRICT FINANCIAL MATTERS State Funding of Education; State Budget Process. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC, Article XIIID, as well as Propositions 62, 98, 111 and 218, were each adopted as measures that qualified for the ballot pursuant to the State s initiative process. From time to time other initiative measures could be adopted, further affecting District revenues or the District s ability to expend revenues. A-32

65 APPENDIX B FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2013 B-1

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67 MONTEBELLO UNIFIED SCHOOL DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2013

68 MONTEBELLO UNIFIED SCHOOL DISTRICT TABLE OF CONTENTS JUNE 30, 2013 FINANCIAL SECTION Independent Auditors' Report 2 Management's Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 16 Statement of Activities 17 Fund Financial Statements Governmental Funds - Balance Sheet 18 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 19 Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances 20 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 21 Proprietary Funds - Statement of Net Position 23 Proprietary Funds - Statement of Revenues, Expenses, and Changes in Fund Net Position 24 Proprietary Funds - Statement of Cash Flows 25 Fiduciary Funds - Statement of Net Position 26 Notes to Financial Statements 27 REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 63 Schedules of Other Postemployment Benefits (OPEB) Funding Progress 64 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 66 Local Education Agency Organization Structure 69 Schedule of Average Daily Attendance 70 Schedule of Instructional Time 71 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements 72 Schedule of Financial Trends and Analysis 73 Combining Statements - Non-Major Governmental Funds Combining Balance Sheet 74 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 75 Note to Supplementary Information 76 INDEPENDENT AUDITORS' REPORTS Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 79 Report on Compliance for Each Major Program and Report on Internal Control Over Compliance in Accordance With OMB Circular A Report on State Compliance 83

69 MONTEBELLO UNIFIED SCHOOL DISTRICT TABLE OF CONTENTS JUNE 30, 2013 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditors' Results 86 Financial Statement Findings 87 Federal Awards Findings and Questioned Costs 88 State Awards Findings and Questioned Costs 89 Summary Schedule of Prior Audit Findings 90 Management Letter 91

70 FINANCIAL SECTION 1

71 Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITORS' REPORT Governing Board Montebello Unified School District Montebello, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Montebello Unified School District (the District) as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Standards and Procedures for Audits of California K-12 Local Education Agencies , issued by the California Education Audit Appeals Panel as regulations. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether 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 District'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 District'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 Aspen Street Rancho Cucamonga, CA Tel: Fax: FRESNO LAGUNA HILLS PALO ALTO PLEASANTON RANCHO CUCAMONGA riverside Sacramento

72 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Montebello 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. Emphasis of Matter Regarding Restatement As discussed in the notes to the basic financial statements, the accompanying financial statements reflect certain changes as a result of a correction to the Retiree Benefit Fund and the General Fund for the year ended June 30, These changes require a restatement of the beginning net position of the District as discussed in Note 16. 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 required supplementary information, such as management's discussion and analysis on pages 5 through 15, budgetary comparison information and other postemployment benefits funding progress on pages 63 and 64 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Montebello Unified School District's basic financial statements. The accompanying supplementary information such as the Schedule of Expenditures of Federal Awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and the other supplementary information, as listed on the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the accompanying supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 3

73 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 16, 2013, on our consideration of the Montebello 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 Montebello Unified School District's internal control over financial reporting and compliance. Rancho Cucamonga, California December 16,

74 MONTEBELLO UNIFIED SCHOOL DISTRICT 123 South Montebello Boulevard, Montebello, CA (323) / (562) Finance Department This section of Montebello Unified School District's (the District) ( ) annual financial report presents our discussion and analysis of the District's financial performance during the fiscal year ended on June 30, 2013, with comparative information from Please read it in conjunction with the District's financial statements, which immediately follow this section. FINANCIAL HIGHLIGHTS OF As of June 30, 2013, the General Fund reported a fund balance of $38.2 million, a decrease of approximately $11.2 million over last year's ending balance. The total reported revenue in the General Fund was approximately $263.4 million. Compared to , the total revenues were approximately $6.1 million less. The decrease was attributed mainly to the decrease in federal revenue. As of June 30, 2013, the unrestricted General Fund reported a balance of $23.2 million. SIGNIFICANT ACCOMPLISHMENTS OF FISCAL YEAR ARE NOTED BELOW: While the decline of student enrollment continued for the eighth straight year, the District is able to maintain the current level of service by utilizing the reserves. Nutrition Services served over four million meals. Solvency Plan prepared in accordance with guidelines to the three year multi-year projections. Construction additions of approximately $12.3 million for building projects. Negotiations were completed for all District employee bargaining units with no reductions. The Transportation Department transported about 764,000 pupils to and from school and traveled about 716,000 miles. 5

75 MONTEBELLO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 Guiding Principles Improve student achievement Maintain fiscal solvency Establish systems that support high performance Organizational Goals Raise the level of student performance Build positive relationships Be client focused Maintain safe, clean, and attractive schools Maximize fiscal resources Optimize the use of our facilities Solvency The District is required to maintain a two percent Reserve for Economic Uncertainties and the District has been maintaining an undesignated ending balance of over eight percent for the past three years. OVERVIEW OF THE FINANCIAL STATEMENTS The Financial Statements The financial statements presented herein include all of the activities of the Montebello Unified School District and its component units using the integrated approach as prescribed by Governmental Accounting Standards Board (GASB) Statement No. 34. The Government-Wide Financial Statements present the financial picture of the District from the economic resources measurement focus using the accrual basis of accounting. They present governmental activities and business-type activities separately. These statements include all assets of the District (including land, building and equipment) as well as all liabilities (including long-term obligations). Additionally, certain eliminations have occurred as prescribed by the statement in regards to interfund activity, payables and receivables. The Fund Financial Statements include statements for each of the three categories of activities: governmental, business-type, and fiduciary. The Governmental Activities are prepared using the current financial resources measurement focus and modified accrual basis of accounting. 6

76 MONTEBELLO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 The Business-Type Activities are prepared using the economic resources measurement focus and the accrual basis of accounting. The Fiduciary Activities are prepared using the economic resources measurement focus and the accrual basis of accounting. Reconciliation of the Fund Financial Statements to the Government-Wide Financial Statements is provided to explain the differences created by the integrated approach. The Primary unit of the government is the Montebello Unified School District. REPORTING THE DISTRICT AS A WHOLE The Statement of Net Position and the Statement of Activities The Statement of Net Position and the Statement of Activities report information about the District as a whole and about its activities. These statements include all assets and liabilities of the District using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the District's net position and changes in them. Net position is the difference between assets and deferred outflows of resources, and liabilities and deferred inflows of resources, which is one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's net position will serve as a useful indicator of whether the financial position of the District is improving or deteriorating. Other factors to consider are changes in the District's property tax base and the condition of the District's facilities. The relationship between revenues and expenses is the District's operating results. Since the Board's responsibility is to provide services to our students and not to generate profit as commercial entities do, one must consider other factors when evaluating the overall health of the District. The quality of the education and the safety of our schools will likely be an important component in this evaluation. In the Statement of Net Position and the Statement of Activities, we separate the District activities as follows: Governmental Activities - Most of the District's services are reported in this category. This includes the education of kindergarten through grade twelve students, adult education students, the operation of child development activities, and the on-going effort to improve and maintain buildings and sites. Property taxes, State income taxes, user fees, interest income, Federal, State, and local grants, as well as general obligation bonds, finance these activities. Business-Type Activities - The District charges fees to help it cover the costs of certain services it provides. The District's Food Services Programs are included here. 7

77 MONTEBELLO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 REPORTING THE DISTRICT'S MOST SIGNIFICANT FUNDS Fund Financial Statements The fund financial statements provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by State law and by bond covenants. However, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education. Governmental Funds - Most of the District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The differences of results in the governmental fund financial statements to those in the government-wide financial statements are explained in a reconciliation following each governmental fund financial statement. Proprietary Funds - When the District charges users for the services it provides, whether to outside customers or to other departments within the District, these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Revenues, Expenses and Changes in Fund Net Position. In fact, the District's enterprise funds are the same as the business-type activities we report in the government-wide financial statements but provide more detail and additional information, such as cash flows, for proprietary funds. We use internal service funds (the other component of proprietary funds) to report activities that provide supplies and services for the District's other programs and activities - such as the District's Self-Insurance Fund. The internal service funds are reported with governmental activities in the government-wide financial statements. THE DISTRICT AS TRUSTEE Reporting the District's Fiduciary Responsibilities The District is the trustee, or fiduciary, for funds held on behalf of others, like our funds for associated student body activities. The District's fiduciary activities are reported in the Fiduciary Funds Statements of Net Position. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes. 8

78 MONTEBELLO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 THE DISTRICT AS A WHOLE Net Position The District's Governmental Activities Net Position was $178.3 million for the fiscal year ended June Of this amount, $(8.9) million was unrestricted. Restricted Net Position are reported separately to show legal constraints from debt covenants and enabling legislation that limit the District's ability to use those Net Position for day-to-day operations. Our analysis below focuses on the Net Position (Table 1) and change in Net Position (Table 2) of the District's activities. Table 1 (Amounts in millions) Governmental Business-Type Total School District Activities Activities Activities Assets Current and other assets $ $ $ 14.8 $ 12.5 $ $ Capital assets Total Assets Liabilities Current liabilities Long-term obligations Total Liabilities Net Position Net investment in capital assets Restricted Unrestricted (8.9) (4.7) - - (8.9) (4.7) Total Net Position $ $ $ 14.8 $ 12.4 $ $ The $(8.9) million in unrestricted net deficit of governmental activities represents the accumulated results of all past years' operations. 9

79 MONTEBELLO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 Changes in Net Position The results of this year's operations for the District as a whole are reported in the Statement of Activities on page 17. Table 2 takes the information from the Statement, rounds off the numbers, and rearranges them slightly so you can see our total revenues for the year. Table 2 Governmental Business-Type Total School District (Amounts in millions) Activities Activities Activities Revenues Program revenues: Charges for services $ 3.1 $ 3.0 $ 0.8 $ 0.9 $ 3.9 $ 3.9 Operating grants and contributions Capital grants and contributions General revenues: State revenue limit sources Property taxes Other general revenues Total Revenues Expenses Instruction-related Student support services Administration Maintenance and operations Food services Other Total Expenses Change in Net Position $ (9.6) $ (23.8) $ 2.4 $ 2.4 $ (7.2) $ (21.4) 10

80 MONTEBELLO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 Governmental Activities As reported in the Statement of Activities on page 17, the cost of all of our governmental activities this year was $307.5 million. However, the amount that our taxpayers ultimately financed for these activities through local taxes was only $54.6 million. In Table 3, we have presented the cost by the different functions. Some of the larger functions are: instruction, school administration, pupil transportation, other support services, administration, maintenance and operations, and other services. As discussed above, net cost shows the financial burden that was placed on the District's taxpayers by each of these functions. Providing this information allows our citizens to consider the cost of each function in comparison to the benefits they believe are provided by that function. Table 3 (Amounts in millions) Total Cost of Services Net Cost of Services Instruction $ $ $ $ School administration Pupil transportation Other support services Administration Maintenance and operations Other Total $ $ $ $ THE DISTRICT'S FUNDS The District's Funds ended at $112.6 million, a decrease of $10.8 million mainly from excess costs in the General Fund of $11.2 million, capital expenditures of $3.9 million in the Building Fund. General Fund Budgetary Highlights Over the course of the year, the District revises its budget as it attempts to deal with unexpected changes in revenues and expenditures. The final amendment to the budget was adopted in June (A schedule showing the District's original and final budget amounts compared with amounts actually paid and received is provided in our annual report on page 63.) 11

81 MONTEBELLO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At June 30, 2013, the District had $296.8 million in a broad range of capital assets, including land, buildings, and furniture and equipment (net of accumulated depreciation). This amount represents an decrease (including additions and deductions) of $0.9 million, or 0.30 percent, from last year. Capital assets (net of accumulated depreciation) of governmental activities were $296.4 million and $297.4 million as of June 30, 2013 and 2012, respectively. Depreciation expense for 2013 was $6.2 million for governmental activities and $97,404 for business-type activities. Table 4 (Amounts in millions) Governmental Activities Business-Type Activities Total School District Activities Land and construction in progress $ $ $ - $ - $ $ Buildings and improvements Equipment Total (net) $ $ $ 0.4 $ 0.4 $ $ Long-Term Obligations At the end of this year, the District had $188.4 million in general obligation bonds and certificates of participation outstanding versus $190.4 million last year, a decrease of $2.0 million, or 1.05 percent. These bonds consisted of $175.7 million of general obligation bonds and premium on issuance, and $12.7 million of certificates of participation. Table 5 (Amounts in millions) Governmental Activities General obligation bonds and premium on issuance $ $ Certificates of participation Accumulated vacation Supplemental Early Retirement Program OPEB obligation Total $ $

82 MONTEBELLO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 The District's general obligation bond rating continues to be "AAA" by Standard & Poor's. The State limits the amount of general obligation debt that districts can issue to 2.5 percent of the assessed value of all taxable property within the districts' boundaries. The District's gross bond issuance capacity in was over $323 million. The District's outstanding general obligation debt of $175.7 million is significantly below our capacity. Other obligations include compensated absences payable, supplemental early retirement program, other postemployment benefits, and capital leases. We present more detailed information regarding our long-term obligations in Note 9 of the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES In considering the District Budget for the year, the District Board and management used the following Summary of Assumptions: Income Revenue Limit Sources Cost of Living Adjustment (COLA): percent or $106. Deficit Factor: percent or $1, Equalization Aid: $-0-. Student ADA: P-2 number, 29,335. Net Revenue Limit per ADA Rate (after deficit): $5,533. Federal Income Sources Any unused grants at the end of will be considered as deferred revenue in State Income Sources For most State categorical programs it is budgeted with no significant changes from base year funding. Any unused grants at the end of will be considered as deferred revenue in Special Education State Aid: o COLA: percent o Base State Deficit: -0- percent Mandate Block grant budgeted at $47 per ADA. 13

83 MONTEBELLO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 K-3 Class Size Reduction (Includes -0- percent COLA): o Operations: $1,071 per enrolled student in 20:1 class. o K-3 classes are budgeted in 33:1 settings. o Revenue is budgeted with 20 percent penalty. State Lottery: The Non-Prop 20 portion is budgeted at $124 per ADA. Local Income Sources Interest rates for Cash in County Treasury: ranging from.58 percent to.72 percent. Expenditures Expenditures are based on the following forecasts: Staffing Ratio Enrollment Grades TK through three 33:1 8,206 Grade four 33:1 2,106 Grades five through eight Intermediate Schools 34:1 34:1 2,456 6,211 Grades nine through twelve 37:1 9,689 Certificated Salaries Bargaining unit staffing based on formula driven number plus all pupil support services employees Budget includes step, column and anniversary increases Zero percent salary increase budgeted Zero furlough days Classified Salaries Budget based on all existing classified positions Budget includes step and anniversary increases Zero percent salary increase budgeted Zero furlough days Estimated Employee Benefits District premium contribution per employee of Health and Welfare benefit: $11,467 for certificated bargaining unit member, $9,809 for classified bargaining unit member and $10,168 per supervisory, confidential, and management employees. 14

84 MONTEBELLO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 Rates: o California State Teachers' Retirement System (CalSTRS): 8.25 percent o California Public Employees' Retirement System (CalPERS): percent o CalPERS Reduction (recapture by State of CalPERS expense savings): percent o Social Security (OASDI): 6.20 percent o Medicare: 1.45 percent o Unemployment Insurance:.05 percent o Workers' Compensation (contribution to Self-Insurance Fund): 4.14 percent Other Services and Operating Expenditures Contribution to Comprehensive Property and Liability Insurance Funds: $1,312,454 Other Financing Sources/Uses Contributions to Restricted Programs (encroachment): $28,874,650 Overall Conditions The enrollment declining trend continues. Between and , the District lost about 5,036 revenue limit ADA. It translates to about $27.8 million on-going revenue loss. The District is monitoring the budget situation closely. In addition to the staffing adjustment in conjunction with the declining enrollment, other budget adjustments are also made to cope with the problem. CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have questions about this report or need any additional financial information, contact the Controller at Montebello Unified School District, 123 S. Montebello Blvd., Montebello, California, 90640, or at tran_kim@montebello.k12.ca.us. 15

85 MONTEBELLO UNIFIED SCHOOL DISTRICT STATEMENT OF NET POSITION JUNE 30, 2013 Governmental Business-Type Activities Activities Total ASSETS Deposits and investments $ 147,143,598 $ 10,940,195 $ 158,083,793 Receivables 46,440,453 4,064,419 50,504,872 Internal balances 730,502 (730,502) - Prepaid expenditures 383, ,661 Stores inventories 444, , ,839 Other assets 7,307-7,307 Deferred charge on issuance 1,190,432-1,190,432 Deferred discount on debt 486, ,398 Capital assets Land and construction in process 122,570, ,570,034 Other capital assets 283,433, , ,173,843 Less: Accumulated depreciation (109,647,999) (283,922) (109,931,921) Total Capital Assets 296,355, , ,811,956 Total Assets 493,181,906 15,278, ,460,258 LIABILITIES Accounts payable 39,085, ,127 39,596,908 Interest payable 2,654,809-2,654,809 Deferred revenue 2,755,615-2,755,615 Claims liability 12,733,775-12,733,775 Current loans 28,000,000-28,000,000 Long-term obligations Current portion of long-term obligations 12,748,156-12,748,156 Noncurrent portion of long-term obligations 216,848, ,848,613 Total Long-Term Obligations 229,596, ,596,769 Total Liabilities 314,826, , ,337,876 NET POSITION Net investment in capital assets 147,124, , ,580,562 Restricted for: Debt service 9,349,950-9,349,950 Capital projects 21,533,898-21,533,898 Educational programs 9,273,851-9,273,851 Other activities - 14,310,741 14,310,741 Unrestricted (8,926,620) - (8,926,620) Total Net Position $ 178,355,157 $ 14,767,225 $ 193,122,382 The accompanying notes are an integral part of these financial statements. 16

86 MONTEBELLO UNIFIED SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2013 Program Revenues Charges for Operating Capital Services and Grants and Grants and Functions/Programs Expenses Sales Contributions Contributions Governmental Activities: Instruction $ 180,825,109 $ 1,729,471 $ 41,047,155 $ 6,095,121 Instruction-related activities: Supervision of instruction 15,190, ,115 11,223,635 - Instructional library, media, and technology 1,229, ,193 - School site administration 21,775,848 1,989 2,056,478 - Pupil services: Home-to-school transportation 5,928,051 9,986 2,010,250 - Food services 41, All other pupil services 20,517, ,189 10,703,446 - Administration: Data processing 4,848, All other administration 10,106,510 24,313 1,399,513 - Plant services 27,218, , ,599 - Ancillary services 1,111,063-14,244 - Community services 674, , ,990 - Enterprise services 3,214, Interest on long-term obligations 13,034, Other outgo 1,813,226 14, ,493 - Total Governmental Activities 307,530,901 3,072,089 70,607,996 6,095,121 Business-Type Activities: Cafeteria 14,675, ,306 16,246,369 - Total School District $ 322,206,472 $ 3,887,395 $ 86,854,365 $ 6,095,121 General revenues and subventions: Property taxes, levied for general purposes Property taxes, levied for debt service Taxes levied for other specific purposes Federal and State aid not restricted to specific purposes Interest and investment earnings Miscellaneous Subtotal, General Revenues Change in Net Position Net Position - Beginning Net Position- Ending The accompanying notes are an integral part of these financial statements. 17

87 Net (Expenses) Revenues and Changes in Net Position Governmental Business-Type Activities Activities Total $ (131,953,362) $ - $ (131,953,362) (3,408,128) - (3,408,128) (756,700) - (756,700) (19,717,381) - (19,717,381) (3,907,815) - (3,907,815) (41,894) - (41,894) (9,407,565) - (9,407,565) (4,848,156) - (4,848,156) (8,682,684) - (8,682,684) (26,468,330) - (26,468,330) (1,096,819) - (1,096,819) (13,484) - (13,484) (3,214,420) - (3,214,420) (13,034,728) - (13,034,728) (1,204,229) - (1,204,229) (227,755,695) - (227,755,695) - 2,386,104 2,386,104 (227,755,695) 2,386,104 (225,369,591) 40,034,172-40,034,172 13,515,966-13,515,966 1,111,817-1,111, ,090, ,090, ,065 4, ,411 5,399,144-5,399, ,139,196 4, ,143,542 (9,616,499) 2,390,450 (7,226,049) 187,971,656 12,376, ,348,431 $ 178,355,157 $ 14,767,225 $ 193,122,382 17

88 MONTEBELLO UNIFIED SCHOOL DISTRICT GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2013 General Building Fund Fund ASSETS Deposits and investments $ 62,627,172 $ 38,032,313 Receivables 41,186,850 88,901 Due from other funds 1,970,304 - Prepaid expenditures 383,661 - Stores inventories 364,582 - Other current assets 7,307 - Total Assets $ 106,539,876 $ 38,121,214 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 37,355,982 $ 591,176 Due to other funds 243,059 - Curren loans 28,000,000 - Deferred revenue 2,755,615 - Total Liabilities 68,354, ,176 Fund Balances: Nonspendable 983,243 - Restricted 9,273,851 37,530,038 Committed - - Assigned 4,722,791 - Unassigned 23,205,335 - Total Fund Balances 38,185,220 37,530,038 Total Liabilities and Fund Balances $ 106,539,876 $ 38,121,214 The accompanying notes are an integral part of these financial statements. 18

89 County School Non-Major Total Facilities Governmental Governmental Fund Funds Funds $ 20,367,034 $ 13,429,883 $ 134,456,402 48,329 5,095,055 46,419,135-1,111 1,971, ,661-79, , ,307 $ 20,415,363 $ 18,605,550 $ 183,682,003 $ 297,565 $ 809,081 $ 39,053, ,854 1,240, ,000, ,755, ,565 1,806,935 71,050,332-85,501 1,068,744 20,117,798 13,420,859 80,342,546-3,292,255 3,292, ,722, ,205,335 20,117,798 16,798, ,631,671 $ 20,415,363 $ 18,605,550 $ 183,682,003 18

90 MONTEBELLO UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2013 Total Fund Balance - Governmental Funds $ 112,631,671 Amounts Reported for Governmental Activities in the Statement of Net Position is Different Because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of capital assets is $ 406,003,471 Accumulated depreciation is (109,647,999) Net Capital Assets 296,355,472 In governmental funds, debt issue costs are recognized as expenditures in the period they are incurred. In the government-wide financial statements, debt issue costs and discount are amortized over the life of the debt. Unamortized debt issue costs included on the Statement of Net Position is $1,676,830. 1,676,830 In governmental funds, unmatured interest on long-term obligations is recognized in the period when it is due. On the government-wide financial statements, unmatured interest on long-term obligations is recognized when it is incurred. (2,654,809) An Internal Service Fund is used by the District's management to charge the costs of the workers' compensation insurance program to the individual funds. The assets and liabilities of the Internal Service Fund are included with governmental activities. (57,238) Long-term obligations, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. Long-term obligations at year-end consist of: Bonds payable and accreted interest 168,615,490 Premium on issuance 7,072,772 Certificate of Particpation 12,750,000 Accumulated vacation - net 3,841,595 Supplemental Early Retirement Program 8,859,751 OPEB obligation - net 28,457,161 Total Long-Term Obligations (229,596,769) Total Net Position - Governmental Activities $ 178,355,157 The accompanying notes are an integral part of these financial statements. 19

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92 MONTEBELLO UNIFIED SCHOOL DISTRICT GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2013 General Building Fund Fund REVENUES Revenue limit sources $ 159,520,453 $ - Federal sources 30,586,715 - Other State sources 52,499,631 - Other local sources 20,810, ,922 Total Revenues 263,417, ,922 EXPENDITURES Current Instruction 165,820,863 - Instruction-related activities: Supervision of instruction 15,144,845 - Instructional library, media, and technology 1,229,893 - School site administration 17,375,565 - Pupil services: Home-to-school transportation 5,925,700 - Food services 41,894 - All other pupil services 20,391,330 - General administration: Data processing 4,848,156 - All other general administration 9,528,439 - Plant services 24,524,341 - Facility acquisition and construction 296,136 4,147,653 Ancillary services 1,111,064 - Community services 659,244 - Other outgo 1,813,226 - Enterprise services 4,210,959 - Debt service Principal 990,000 - Interest and other 1,653,889 2,707,754 Total Expenditures 275,565,544 6,855,407 Excess (Deficiency) of Revenues Over Expenditures (12,148,505) (6,597,485) OTHER FINANCING SOURCES (USES) Transfers in - - Other sources - Proceeds from debt 10,352,682 25,918,804 Transfers out (34,120) - Other uses - Refunding of debt (9,380,000) (23,220,000) Net Financing Sources (Uses) 938,562 2,698,804 NET CHANGE IN FUND BALANCES (11,209,943) (3,898,681) Fund Balances - Beginning 48,034,132 41,428,719 Prior Period Adjustment 1,361,031 - Fund Balances - Beginning (As Restated) 49,395,163 41,428,719 Fund Balances - Ending $ 38,185,220 $ 37,530,038 The accompanying notes are an integral part of these financial statements. 20

93 County School Non-Major Total Facilities Governmental Governmental Fund Funds Funds $ - $ - $ 159,520,453-1,363,244 31,949,959 5,971,884 12,747,839 71,219, ,236 13,991,995 35,183,393 6,095,120 28,103, ,873,159-8,359, ,180, ,348 15,711, ,229,893-3,945,121 21,320, ,925, , ,870 20,517, ,848, ,559 10,105, ,478 24,894,819 2,588, ,813 7,497, ,111, , ,813, ,210,959-6,546,447 7,536,447-6,401,485 10,763,128 2,588,701 27,358, ,367,708 3,506, ,022 (14,494,549) - 34,120 34, ,271, (34,120) - - (32,600,000) - 34,120 3,671,486 3,506, ,142 (10,823,063) 16,611,379 17,380, ,454,734 - (1,361,031) - 16,611,379 16,019, ,454,734 $ 20,117,798 $ 16,798,615 $ 112,631,671 20

94 MONTEBELLO UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2013 Total Net Change in Fund Balances - Governmental Funds $ (10,823,063) Amounts Reported for Governmental Activities in the Statement of Activities are Different Because: Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures, however, for governmental activities, those costs are shown in the Statement of Net Position is allocated over their estimated useful lives as annual depreciation expenses in the Statement of Activities. This is the amount by which depreciation exceeds capital outlay in the period. Depreciation expense $ (6,197,800) Capital Outlays 5,193,645 (1,004,155) In the Statement of Activities, certain operating expenses - compensated absences (vacations) and special termination benefits (early retirement) are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). This year, special termination benefits earned were less than the amounts paid by $3,323,330. Vacation used was more than amounts earned by $543,421. 3,866,751 Proceeds received from issuance of debt is a revenue in the governmental funds, but it increases long-term obligations in the Statement of Net Position and does not affect the Statement of Activities: Sale of refunding general obligation bonds (22,155,000) Sale of refunding certificates of participation (10,430,000) Combined adjustment (32,585,000) Governmental funds report the effect of premiums, discounts, issuance costs, and the deferred amount on a refunding when the debt is first issued, whereas the amounts are deferred and amortized in the Statement of Activities. This amount is the net effect of these related items: Premium on issuance (3,763,804) Discount on issuance 77,318 Combined adjustment (3,686,486) Repayment of principal is an expenditure in the governmental funds, but it reduces long-term obligations in the Statement of Net Position and does not affect the Statement of Activities: General obligation bonds 31,140,000 Certificates of participation 10,370,000 Combined long-term obligations 41,510,000 The accompanying notes are an integral part of these financial statements. 21

95 MONTEBELLO UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES (CONTINUED) FOR THE YEAR ENDED JUNE 30, 2013 In the Statement of Activities Other Postemployment Benefits Obligations (OPEB) are measured by an actuarially determined Annual Required Contribution (ARC). In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). This year, amounts contributed toward the OPEB obligation were less than the ARC by $4,287,175. $ (4,287,175) Under the modified basis of accounting used in the governmental funds, expenditures are not recognized for transactions that are not normally paid with expendable available financial resources. In the Statement of Activities, however, which is presented on the accrual basis, expenses and liabilities are reported regardless of when financial resources are available. This adjustment combines the net changes of the following balances: Amortization of debt premium $ 258,236 Amortization of discount on debt (19,040) Amortization of cost of issuance (59,590) Combined adjustment 179,606 Interest on long-term obligations in the Statement of Activities differs from the amount reported in the governmental funds because interest is recorded as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the Statement of Activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. The additional interest reported in the Statement of Activities is the result of two factors. First, accrued interest on the general obligation bonds and certificates of participation, increased by $318,322. The District had an additional $3,506,437 of accreted interest in the current fiscal year. (3,824,759) An internal service fund is used by the District's management to charge the costs of the unemployment compensation insurance program to the individual funds. The change in net assets of the Internal Service Fund is reported with governmental activities. 1,037,782 Change in Net Position of Governmental Activities $ (9,616,499) The accompanying notes are an integral part of these financial statements. 22

96 MONTEBELLO UNIFIED SCHOOL DISTRICT PROPRIETARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2013 ASSETS Current Assets Business-Type Activities Enterprise Fund Food Service Governmental Activities Internal Service Fund Deposits and investments $ 10,940,195 $ 12,687,196 Receivables 4,064,419 21,318 Due from other funds 241,948 - Stores inventories 547,756 - Total Current Assets 15,794,318 12,708,514 Noncurrent Assets Furniture and equipment (net) 456,484 - Total Assets 16,250,802 12,708,514 LIABILITIES Current Liabilities Accounts payable 511,127 31,977 Due to other funds 972,450 - Total Current Liabilities 1,483,577 31,977 Noncurrent Liabilities Claims liability - 12,733,775 Total Liabilities 1,483,577 12,765,752 NET POSITION (DEFICIT) Net investment in capital assets 456,484 - Restricted 14,310,741 (57,238) Total Net Position (Deficit) $ 14,767,225 $ (57,238) The accompanying notes are an integral part of these financial statements. 23

97 MONTEBELLO UNIFIED SCHOOL DISTRICT PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION FOR THE YEAR ENDED JUNE 30, 2013 Business-Type Activities Governmental Enterprise Fund Activities Food Internal Service Service Fund OPERATING REVENUES Charges to other funds and miscellaneous revenues $ 815,306 $ 12,623,443 OPERATING EXPENSES Payroll costs 6,121, ,783 Professional and contract services 120,738 11,398,064 Supplies and materials 7,008,691 18,057 Facility rental 240,024 - Other operating cost 1,087,385 - Depreciation 97,404 - Total Operating Expenses 14,675,571 11,626,904 Operating Income (Loss) (13,860,265) 996,539 NONOPERATING REVENUES Interest income 4,346 41,243 Grants 16,246,369 - Total Nonoperating Revenues 16,250,715 41,243 Changes in Net Assets 2,390,450 1,037,782 Total Net Position (Deficit) - Beginning 12,376,775 (1,095,020) Total Net Position (Deficit) - Ending $ 14,767,225 $ (57,238) The accompanying notes are an integral part of these financial statements. 24

98 MONTEBELLO UNIFIED SCHOOL DISTRICT PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2013 Business-Type Activities Governmental Enterprise Fund Activities Food Internal Services Service Fund CASH FLOWS FROM OPERATING ACTIVITIES Cash received from user charges $ 630,174 $ - Cash received from assessments made to other funds - 12,613,744 Cash payments to employees for services (5,938,021) (198,777) Cash payments for insurance claims - (9,305,333) Cash payments to suppliers for goods and services (6,157,152) (18,057) Cash payments for facility use (240,024) - Cash payments for other operating expenses (1,208,123) - Net Cash Provided (Used) by Operating Activities (12,913,146) 3,091,577 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Nonoperating grants received 15,124,736 - CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets (189,306) - CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments 4,346 41,243 Net Increase in Cash and Cash Equivalents 2,026,630 3,132,820 Cash and Cash Equivalents - Beginning 8,913,565 9,554,376 Cash and Cash Equivalents - Ending $ 10,940,195 $ 12,687,196 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating Income (loss) $ (13,860,265) $ 996,539 Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation 97,404 - Commodities used 804,458 - Changes in assets and liabilities: Receivables - (9,699) Prepaid expenditures 3,787 - Inventories 53,029 - Accrued liabilities 47,081 12,006 Due to other funds 183,308 - NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (12,913,146) $ 3,091,577 NONCASH, NONCAPITAL FINANCING ACTIVITIES During the year, the District received $804,458 of food commodities from the U.S. Department of Agriculture. The accompanying notes are an integral part of these financial statements. 25

99 MONTEBELLO UNIFIED SCHOOL DISTRICT FIDUCIARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2013 Agency Funds ASSETS Deposits and investments $ 1,005,690 Inventory 12,477 Total Assets $ 1,018,167 LIABILITIES Accounts payable $ 176 Due to student groups 1,017,991 Total Liabilities $ 1,018,167 The accompanying notes are an integral part of these financial statements. 26

100 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Reporting Entity The Montebello Unified School District (the District) was organized in 1936, under the laws of the State of California. The District operates under a locally elected five-member Board form of government and provides educational services to grades K - 12 as mandated by the State and/or Federal agencies. The District operates eighteen elementary schools, six intermediate schools, four high schools, four adult schools, one continuation high school, and two independent study facilities. A reporting entity is comprised of the primary government, component units, and other organizations that are included to ensure the financial statements are not misleading. The primary government of the District consists of all funds, departments, boards, and agencies that are not legally separate from the District. For Montebello Unified School District, this includes general operations, food service, and student related activities of the District. Component Units Component units are legally separate organizations for which the District is financially accountable. Component units may include organizations that are fiscally dependent on the District in that the District approves their budget, the issuance of their debt or the levying of their taxes. In addition, component units are other legally separate organizations for which the District is not financially accountable but the nature and significance of the organization's relationship with the District is such that exclusion would cause the District's financial statements to be misleading or incomplete. The District has issued Certificates of Participation (COP) through the two separate financing corporations. All proceeds and debt obligations are reported in the District's financial statements. Basis of Presentation - Fund Accounting The accounting system is organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The District's funds are grouped into three broad fund categories: governmental, proprietary, and fiduciary. Governmental Funds Governmental funds are those through which most governmental functions typically are financed. Governmental fund reporting focuses on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the District's major and non-major governmental funds: Major Governmental Funds General Fund The General Fund is the chief operating fund for all Districts. It is used to account for the ordinary operations of a district. All transactions except those required or permitted by law to be in another fund are accounted for in this fund. 27

101 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Two funds currently defined as a special revenue fund in the California State Accounting Manual (CSAM) does not meet the GASB Statement No. 54 and fiduciary fund definition. Specifically, Fund 14, Deferred Maintenance Fund and Fund 71, Retiree Benefit Fund, are not substantially composed of restricted or committed revenue sources. While these funds are authorized by statute and will remain open for internal reporting purposes, these funds functions effectively as an extension of the General Fund, and accordingly has been combined with the General Fund for presentation in these audited financial statements. As a result, the General Fund reflects an increase in assets, liabilities, fund balance, revenues, and expenses of $1,600,376, $357,632, $1,242,744, $4,082,752 and $4,508,404, respectively. Building Fund The Building Fund exists primarily to account separately for proceeds from the sale of bonds (Education Code Section 15146) and may not be used for any purposes other than those for which the bonds were issued. County School Facilities Fund The County School Facilities Fund is established pursuant to Education Code Section to receive apportionments from the 1998 State School Facilities Fund (Proposition la), the 2002 State School Facilities Fund (Proposition 47), the 2004 State School Facilities Fund (Proposition 55), or the 2006 State Schools Facilities Fund (Proposition 1D) authorized by the State Allocation Board for new school facility construction, modernization projects, and facility hardship grants, as provided in the Leroy F. Greene School Facilities Act of 1998 (Education Code Section et seq.). Non-Major Governmental Funds Special Revenue Funds The Special Revenue funds are used to account for the proceeds from specific revenue sources (other than trusts, major capital projects, or debt service) that are restricted or committed to expenditures for specified purposes and that compose a substantial portion of the inflows of the fund. Additional resources that are restricted, committed, or assigned to the purpose of the fund may also be reported in the fund. Adult Education Fund The Adult Education Fund is used to account separately for Federal, State, and local revenues for adult education programs and is to be expended for adult education purposes only, except for State revenues which, as a result of Senate Bill 4 of the Third Extraordinary Session (SBX3 4), may be used for any educational purpose. Child Development Fund The Child Development Fund is used to account separately for Federal, State, and local revenues to operate child development programs and is to be used only for expenditures for the operation of child development programs. Capital Projects Funds The Capital Projects Funds are used to account for financial resources that are restricted, committed, or assigned to the acquisition or construction of major capital facilities and other capital assets (other than those financed by proprietary funds and trust funds). Capital Facilities Fund The Capital Facilities Fund is used primarily to account separately for monies received from fees levied on developers or other agencies as a condition of approving a development (Education Code Sections ). Expenditures are restricted to the purposes specified in Government Code Sections or to the items specified in agreements with the developer (Government Code Section 66006). 28

102 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Debt Service Funds The Debt Service funds are used to account for the accumulation of restricted, committed, or assigned resources for and the payment of principal and interest on general long-term debt. Bond Interest and Redemption Fund The Bond Interest and Redemption Fund is used for the repayment of bonds issued for a District (Education Code Sections ). Proprietary Funds Proprietary funds are used to account for activities that are more business-like than government-like in nature. Business-type activities include those for which a fee is charged to external users or to other organizational units of the local education agency, normally on a full cost-recovery basis. Proprietary funds are generally intended to be self-supporting and are classified as enterprise or internal service. Enterprise Fund Enterprise funds may be used to account for any activity for which a fee is charged to external users for goods or services. The only enterprise fund of the District accounts for the financial transactions related to the Food Service Program of the District. Internal Service Fund Internal service funds may be used to account for any activity for which services are provided to other funds of the District on a cost-reimbursement basis. The District operates a Workers' Compensation and General Liability Self-Insurance that is accounted for in an internal service fund. Fiduciary Funds Fiduciary funds are used to account for assets held in trustee or agent capacity for others that cannot be used to support the District's own programs. The fiduciary fund category is split into four classifications: pension trust funds, investment trust funds, private-purpose trust funds, and agency funds. The key distinction between trust and agency funds is that trust funds are subject to a trust agreement that affects the degree of management involvement and the length of time that the resources are held. Trust funds are used to account for the assets held by the District under a trust agreement for individuals, private organizations, or other governments and are therefore not available to support the District's own programs. The District has no Trust funds. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Such funds have no equity accounts since all assets are due to individuals or entities at some future time. The District's agency fund accounts for associated student body (ASB) activities. Basis of Accounting - Measurement Focus Government-Wide Financial Statements The government-wide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting. This is the same approach used in the preparation of the proprietary fund financial statements, but differs from the manner in which governmental fund financial statements are prepared. 29

103 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 The government-wide Statement of Activities presents a comparison between expenses, both direct and indirect, and program revenues for each segment of the business-type activities of the District and for each governmental function, and exclude fiduciary activity. Direct expenses are those that are specifically associated with a service, program, or department and are therefore, clearly identifiable to a particular function, and exclude fiduciary activity The District does not allocate indirect expenses to functions in the Statement of Activities, except for depreciation. Program revenues include charges paid by the recipients of the goods or services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each program or business segment is self-financing or draws from the general revenues of the District. Eliminations have been made to minimize the double counting of internal activities. Net position should be reported as restricted when constraints placed on net asset use are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. The Net position restricted for other activities result from special revenue funds and the restrictions on their net asset use. Fund Financial Statements Fund financial statements report detailed information about the District. The focus of governmental and proprietary fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Non-major funds are aggregated and presented in a single column. The internal service fund is presented in a single column on the face of the proprietary fund statements. Governmental Funds All governmental funds are accounted for using a flow of current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets and current liabilities generally are included on the Balance Sheet. The Statement of Revenues, Expenditures, and Changes in Fund Balance reports on the sources (revenues and other financing sources) and uses (expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the governmental activities of the government-wide financial statements are prepared. Governmental fund financial statements therefore include reconciliation with brief explanations to better identify the relationship between the government-wide financial statements and the statements for the governmental funds on a modified accrual basis of accounting and the current financial resources measurement focus. Under this basis, revenues are recognized in the accounting period in which they become measurable and available. Expenditures are recognized in the accounting period in which the fund liability is incurred, if measurable. Proprietary Funds Proprietary funds are accounted for using a flow of economic resources measurement focus and the accrual basis of accounting. All assets and all liabilities associated with the operation of this fund are included in the Statement of Net Position. The Statement of Changes in Net Position presents increases (revenues) and decreases (expenses) in net total assets. The Statement of Cash Flows provides information about how the District finances and meets the cash flow needs of its proprietary fund. Fiduciary Funds Fiduciary funds are accounted for using the flow of economic resources measurement focus and the accrual basis of accounting. Fiduciary funds are excluded from the government-wide financial statements, because they do not represent resources of the District. 30

104 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Revenues Exchange and Non-Exchange Transactions Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter, to be used to pay liabilities of the current fiscal year. Generally, available is defined as collectible within 90 days. However to achieve comparability of reporting among California districts and so as not to distort normal revenue patterns, with specific respect to reimbursement grants and corrections to State-aid apportionments, the California Department of Education has defined available for district's as collectible within one year. The following revenue sources are considered to be both measurable and available at fiscal year-end: State apportionments, interest, certain grants, and other local sources. Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, certain grants, entitlements, and donations. Revenue from property taxes is recognized in the fiscal year in which the taxes are received. Revenue from certain grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include time and purpose requirements. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. Deferred Revenue Deferred revenue arises when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period or when resources are received by the District prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized. Certain grants received that have not met eligibility requirements are recorded as deferred revenue. On the governmental fund financial statements, receivables that will not be collected within the available period are also recorded as deferred revenue. Expenses/Expenditures On the accrual basis of accounting, expenses are recognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable, and typically paid within 90 days. Principal and interest on longterm obligations, which has not matured, are recognized when paid in the governmental funds as expenditures. Allocations of costs, such as depreciation and amortization, are not recognized in the governmental funds but are recognized in the government-wide statements. Cash and Cash Equivalents The District's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Cash equivalents also include cash with county treasury balances for purposes of the Statement of Cash Flows. 31

105 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Investments Investments held at June 30, 2013, with original maturities greater than one year are stated at fair value. Fair value is estimated based on quoted market prices at year-end. All investments not required to be reported at fair value are stated at cost or amortized cost. Fair values of investments in the County and State investment pools is determined by the program sponsor. Prepaid Expenditures Prepaid expenditures (expenses) represent amounts paid in advance of receiving goods or services. The District has the option of reporting an expenditure in governmental funds for prepaid items either when purchased or during the benefiting period. The District has chosen to report the expenditures when paid. Stores Inventories Inventories consist of expendable food and supplies held for consumption. Inventories are stated at cost, on the weighted average basis. The costs of inventory items are recorded as expenditures in the governmental-type funds and expenses in the proprietary-type funds when used. Deferred Charges and Amount on Refunding Deferred charges consist of costs of issuance of long-term obligations. In the government-wide and proprietary funds financial statements, costs of issuance are capitalized and amortized over the life of the related debt as a component of interest expense using a method that approximates the effective interest method. In the governmental fund financial statements, these costs are reported as expenditures. Capital Assets and Depreciation The accounting and reporting treatment applied to the capital assets associated with a fund are determined by its measurement focus. General capital assets are long-lived assets of the District. The District maintains a capitalization threshold of $10,000. The District does not possess any infrastructure. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are not capitalized, but are expensed as incurred. Interest incurred during the construction of capital assets utilized by the enterprise fund is also capitalized. When purchased, such assets are recorded as expenditures in the governmental funds and capitalized in the government-wide financial Statement of Net Position. The valuation basis for general capital assets are historical cost, or where historical cost is not available, estimated historical cost based on replacement cost. Donated capital assets are capitalized at estimated fair market value on the date donated. Capital assets in the proprietary funds are capitalized in the fund in which they are utilized. The valuation basis for proprietary fund capital assets is the same as those used for the capital assets of governmental funds. Depreciation of capital assets is computed and recorded by the straight-line method. Estimated useful lives of the various classes of depreciable capital assets are as follows: buildings, 50 years; improvements, 25 years; equipment, 5 years, land improvements, 20 years. 32

106 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Interfund Balances On fund financial statements, receivables and payables resulting from short-term interfund loans are classified as "interfund receivables/payables". These amounts are eliminated in the governmental and business-type activities columns of the Statement of Net Position, except for the net residual amounts due between governmental and business-type activities, which are presented as internal balances. Compensated Absences Compensated absences are accrued as a liability as the benefits are earned. The entire compensated absence liability is reported on the government-wide statement of Net Position. For governmental funds, the current portion of unpaid compensated absences is recognized upon the occurrence of relevant events such as employee resignations and retirements that occur prior to year end that have not yet been paid with expendable available financial resources. These amounts are reported in the fund from which the employees who have accumulated leave are paid. Sick leave is accumulated without limit for each employee at the rate of one day for each month worked. Leave with pay is provided when employees are absent for health reasons; however, the employees do not gain a vested right to accumulated sick leave. Employees are never paid for any sick leave balance at termination of employment or any other time. Therefore, the value of accumulated sick leave is not recognized as a liability in the District's financial statements. However, credit for unused sick leave is applicable to all classified school members who retire after January 1, At retirement, each member will receive.004 year of service credit for each day of unused sick leave. Credit for unused sick leave is applicable to all certificated employees and is determined by dividing the number of unused sick days by the number of base service days required to complete the last school year, if employed full-time. Accrued Liabilities and Long-Term Obligations All payables, accrued liabilities, and long-term obligations are reported in the government-wide and proprietary fund financial statements. In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources are reported as obligations of the funds. However, claims and judgments, compensated absences, special termination benefits, and contractually required pension contributions that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they are due for payment during the current year. Bonds, capital leases, and long-term loans are recognized as liabilities in the governmental fund financial statements when due. Deferred Issuance Costs, Premiums and Discounts In the government-wide financial statements, long-term obligations are reported as liabilities in the applicable governmental activities. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight line method. Current Loans Current loans consist of amounts outstanding at June 30, 2013, for Tax Revenue and Anticipation Notes. The notes were issued as short-term obligations to provide cash flow needs. This liability is offset with cash deposits in the County Treasurer, which have been set aside to repay the notes. 33

107 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Fund Balances - Governmental Funds As of June 30, 2013, fund balances of the governmental funds are classified as follows: Nonspendable - amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact. Restricted - amounts that can be spent only for specific purposes because of constitutional provisions or enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments. Committed - amounts that can be used only for specific purposes determined by a formal action of the governing board. The governing board is the highest level of decision-making authority for the District. Commitments may be established, modified, or rescinded only through resolutions or other action as approved by the governing board. Assigned - amounts that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes. Under the District's adopted policy, only the governing board or chief business officer/assistant superintendent of business services may assign amounts for specific purposes. Unassigned - all other spendable amounts. Spending Order Policy When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless the governing board has provided otherwise in its commitment or assignment actions. Minimum Fund Balance Policy The governing board adopted a minimum fund balance policy for the General Fund in order to protect the District against revenue shortfalls or unpredicted one-time expenditures. The policy requires a Reserve for Economic Uncertainties consisting of unassigned amounts equal to no less than three percent of General Fund expenditures and other financing uses. Net Position Net position represents the difference between assets and liabilities. Net position net of 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 first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available. The government-wide financial statements report $40,157,699 of restricted net position. 34

108 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Operating Revenues and Expenses Operating revenues are those revenues that are generated directly from the primary activity of the proprietary funds. For the District, these revenues are premiums for insurance cost. Operating expenses are necessary costs incurred to provide the good or service that are the primary activity of the fund. Interfund Activity Transfers between governmental and business-type activities in the government-wide financial statements are reported in the same manner as general revenues. Exchange transactions between funds are reported as revenues in the seller funds and as expenditures/expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in governmental funds and after nonoperating revenues/expenses in proprietary funds. Repayments from funds responsible for particular expenditures/expenses to the funds that initially paid for them are not presented on the financial statements. Interfund transfers are eliminated in the governmental and business-type activities columns of the Statement of Activities, except for the net residual amounts transferred between governmental and business-type activities. Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. Budgetary Data The budgetary process is prescribed by provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an operating budget no later than July 1 of each year. The District governing board satisfied these requirements. The adopted budget is subject to amendment throughout the year to give consideration to unanticipated revenue and expenditures primarily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriations by major object account. The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all budget amendments have been accounted for. For budget purposes, on behalf payments have not been included as revenue and expenditures as required under generally accepted accounting principles. 35

109 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Property Tax Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are payable in two installments on November 1 and February 1 and become delinquent on December 10 and April 10, respectively. Unsecured property taxes are payable in one installment on or before August 31. The County of Los Angeles bills and collects the taxes on behalf of the District. Local property tax revenues are recorded when received. Changes in Accounting Principles 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 financial reporting guidance for deferred outflows of resources and deferred inflows of resources. Concepts Statement No. 4, Elements of Financial Statements, introduced and defined those elements as a consumption of net assets by the government that is applicable to a future reporting period, and an acquisition of net assets by the government that is applicable to a future reporting period, respectively. Previous financial reporting standards do not include guidance for reporting those financial statement elements, which are distinct from assets and liabilities. Concepts Statement No. 4 also identifies net position as the residual of all other elements presented in a statement of financial position. This Statement amends the net asset reporting requirements in Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, and other pronouncements by incorporating deferred outflows of resources and deferred inflows of resources into the definitions of the required components of the residual measure and by renaming that measure as net position, rather than net assets. The District has implemented the provisions of this Statement for the year ended June 30, New Accounting Pronouncements 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. Concepts Statement No. 4, Elements of Financial Statements, introduced and defined the elements included in financial statements, including deferred outflows of resources and deferred inflows 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, Accounting and Financial Reporting for Derivative Instruments, requires the reporting of a deferred outflow of resources or a deferred inflow of resources for the changes in fair value of hedging derivative instruments, and Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, 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. 36

110 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 The provisions of this Statement are effective for financial statements for periods beginning after December 15, Early implementation is encouraged. In June 2012, the GASB issued Statement No. 68, Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for pensions with regard to providing decision-useful information, supporting assessments of accountability and inter-period 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 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, non-employer 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. This Statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, and 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 of the following categories for purposes of this Statement: Single employers are those whose employees are provided with defined benefit pensions through singleemployer pension plans pension plans in which pensions are provided to the employees of only one employer (as defined in this Statement). 37

111 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 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 multiple-employer 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. 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, Early implementation is encouraged. 38

112 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 2 - DEPOSITS AND INVESTMENTS Summary of Deposits and Investments Deposits and investments as of June 30, 2013, were classified in the accompanying financial statements as follows: Governmental activities $ 147,143,598 Business-type activities 10,940,195 Fiduciary funds 1,005,690 Total Deposits and Investments $ 159,089,483 Deposits and investments as of June 30, 2013, consisted of the following: Cash on hand and in banks $ 12,442,141 Cash in revolving 247,900 Investments 146,399,442 Total Deposits and Investments $ 159,089,483 Policies and Practices The District is authorized under California Government Code to make direct investments in local agency bonds, notes, or warrants within the State; U.S. Treasury instruments; registered State warrants or treasury notes; securities of the U.S. Government, or its agencies; bankers acceptances; commercial paper; certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companies, certificates of participation, obligations with first priority security; and collateralized mortgage obligations. Investment in County Treasury - The District is considered to be an involuntary participant in an external investment pool as the District is required to deposit all receipts and collections of monies with their County Treasurer (Education Code Section 41001). The fair value of the District's investment in the pool is reported in the accounting financial statements at amounts based upon the District's pro-rata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis. 39

113 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 General Authorizations Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are indicated in the schedules below: Maximum Maximum Maximum Authorized Remaining Percentage Investment Investment Type Maturity of Portfolio In One Issuer Local Agency Bonds, Notes, Warrants 5 years None None Registered State Bonds, Notes, Warrants 5 years None None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None Banker's Acceptance 180 days 40% 30% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days 20% of base None Medium-Term Corporate Notes 5 years 30% None Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 10% Mortgage Pass-Through Securities 5 years 20% None County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAIF) N/A None None Joint Powers Authority Pools N/A None None Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The District manages its exposure to interest rate risk by investing in the Los Angeles County Investment Pool and money market funds. Weighted Average Maturity The District monitors the interest rate risk inherent in its portfolio by measuring the weighted average maturity of its portfolio. Information about the weighted average maturity of the District's portfolio is presented in the following schedule: Weighted Average Fair Maturity Investment Type Value In Days Los Angeles County Investment Pool $ 146,282,

114 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by the California Government Code, the District's investment policy, or debt agreements, and the actual rating as of the year-end for each investment type. Minimum Legal Rating Fair Investment Type Rating June 30, 2013 Value Los Angeles County Investment Pool Not Required Not Rated $ 146,282,322 Custodial Credit Risk - Deposits This is the risk that in the event of a bank failure, the District's deposits may not be returned to it. The District does not have a policy for custodial credit risk for deposits. However, the California Government Code requires that a financial institution secure deposits made by State or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under State law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited by the public agency. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105 percent of the secured deposits. As of June 30, 2013, the District's bank balance of $1,348,410 was exposed to custodial credit risk because it was uninsured, but collateralized with securities held by the pledging financial institution's trust department or agent, but not in the name of the District. 41

115 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 3 - RECEIVABLES Receivables at June 30, 2013, consisted of intergovernmental grants, entitlements, interest, and other local sources. All receivables are considered collectible in full. County School Non-Major Internal Total General Building Facilities Governmental Service Governmental Fund Fund Fund Funds Fund Activities Federal Government Categorical aid $ 5,130,297 $ - $ - $ 400,081 $ - $ 5,530,378 State Government Apportionment 23,874, ,631,206-28,505,747 Categorical aid 8,815, ,880-8,866,083 Lottery 2,883, ,883,841 Local Government Interest 70,051 88,901 48,329 7,273 21, ,872 Other Local Sources 412, , ,532 Total $ 41,186,850 $ 88,901 $ 48,329 $ 5,095,055 $ 21,318 $ 46,440,453 Federal Government Categorical aid State Government Apportionment Categorical aid Lottery Local Government Interest Other Local Sources Total Enterprise Food Service Fund $ $ 2,904, ,935-1, ,573 4,064,419 42

116 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 4 - CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2013, was as follows: Balance Balance July 1, 2012 Additions Deductions June 30, 2013 Governmental Activities Capital Assets Not Being Depreciated Land $ 29,800,336 $ - $ - $ 29,800,336 Construction in process 96,697,599 3,747,280 7,675,181 92,769,698 Total Capital Assets Not Being Depreciated 126,497,935 3,747,280 7,675, ,570,034 Capital Assets Being Depreciated Land improvements 13,550,641 1,437,482-14,988,123 Buildings and improvements 241,777,623 6,271, ,049,237 Furniture and equipment 18,983,627 1,412,450-20,396,077 Total Capital Assets Being Depreciated 274,311,891 9,121, ,433,437 Less Accumulated Depreciation Land improvements 7,931, ,249-8,650,069 Buildings and improvements 76,754,506 4,627,011-81,381,517 Furniture and equipment 18,763, ,540-19,616,413 Total Accumulated Depreciation 103,450,199 6,197, ,647,999 Governmental Activities Capital Assets, Net $ 297,359,627 $ 6,671,026 $ 7,675,181 $ 296,355,472 Business-Type Activities Furniture and equipment $ 551,100 $ 189,306 $ - $ 740,406 Less Accumulated Depreciation 186,518 97, ,922 Business-Type Activities Capital Assets, Net $ 364,582 $ 91,902 $ - $ 456,484 43

117 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Depreciation expense was charged to governmental and business-type functions as follows: Governmental Activities Instruction $ 5,680,466 Supervision of instruction 23,106 School site administration 455,162 Home-to-school transportation 2,351 All other general administration 512 Plant services 20,457 Community services 15,746 Total Depreciation Expenses Governmental Activities 6,197,800 Business-Type Activities Food services 97,404 Total Depreciation Expenses All Activities $ 6,295,204 NOTE 5 - INTERFUND TRANSACTIONS Interfund Receivables/Payables (Due To/Due From) Interfund receivable and payable balances arise from interfund transactions and are recorded by all funds affected in the period in which transactions are executed. Interfund receivable and payable balances at June 30, 2013, between major and non-major governmental funds, enterprise funds are as follows: Due From Non-Major Enterprise General Governmental Food Service Due To Fund Funds Fund Total General Fund $ - $ 997,854 $ 972,450 $ 1,970,304 Non-Major Governmental Funds 1, ,111 Enterprise Food Service Fund 241, ,948 Total $ 243,059 $ 997,854 $ 972,450 $ 2,213,363 The balance of $1,111 is due to the Non-Major Adult Education Fund from the General Fund for salaries and benefits and other expenses. The balance of $241,948 is due to the Enterprise Food Service Fund from the General Fund for reimbursement of salaries and benefits. The balance of $944,751 is due to the General Fund from Non-Major Governmental Adult Education Fund for reimbursement of salaries and benefits. The balance of $53,103 is due to General Fund from the Non-Major Child Development Fund for salaries and benefits. All remaining balances resulted from the time lag between the date that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transaction are recorded in the accounting system, and (3) payments between funds are made. 44

118 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Operating Transfers Interfund transfers for the year ended June 30, 2013, consisted of the following: The General Fund transferred to the Child Development Non-Major Govermental Fund for general support. $ 34,120 NOTE 6 - ACCOUNTS PAYABLE Accounts payable at June 30, 2013, consisted of the following: County School Non-Major Internal Total General Building Facilities Governmental Service Governmental Fund Fund Fund Funds Fund Activities Vendor payables $ 14,927,896 $ 3,779 $ - $ - $ 31,977 $ 14,963,652 State apportionment 10,243, ,753-10,732,288 Salaries and benefits 11,837, , ,680-12,791,731 Construction - 587,051-11, ,110 Total $ 37,008,571 $ 591,176 $ 297,565 $ 1,156,492 $ 31,977 $ 39,085,781 Vendor payables State apportionment Salaries and benefits Construction Total Enterprise Food Service Fiduciary Fund Funds $ - $ , $ 511,127 $ 176 NOTE 7 - DEFERRED REVENUE Deferred revenue at June 30, 2013, consisted of the following: General Fund Federal financial assistance $ 2,735,867 State categorical aid 18,381 Other local 1,367 Total $ 2,755,615 45

119 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 8 TAX AND REVENUE ANTICIPATION NOTES At July 1, 2012, the District had outstanding Tax and Revenue Anticipation Notes in the amount of $18,000,000, which matured on December 31, On December 11, 2012, the District issued $28,000,000 of Tax and Revenue Anticipation Notes bearing interest at 2.00 percent. The notes were issued to supplement cash flows. Interest and principal are due and payable on November 29, As of June 30, 2013, Tax and Revenue Anticipations Notes totaling $28,000,000 were still outstanding. Changes in the outstanding liabilities for the Tax and Revenue Anticipation Notes is as follows: Outstanding Outstanding Issue Date Rate Maturity Date July 1, 2012 Additions Payments June 30, /23/2012 2% 12/31/2012 $ 18,000,000 $ - $ 18,000,000 $ - 12/11/2012 2% 11/29/ ,000,000-28,000,000 $ 18,000,000 $ 28,000,000 $ 18,000,000 $ 28,000,000 NOTE 9 - LONG-TERM OBLIGATIONS Summary The changes in the District's long-term obligations during the year consisted of the following: Balance Balance Due in July 1, 2012 Additions Accretion Deductions June 30, 2013 One Year General obligation bonds $ 174,094,053 $ 22,155,000 $ 3,506,437 $ 31,140,000 $ 168,615,490 $ 8,300,683 Premium on issuance 3,567,204 3,763, ,236 7,072,772 - Certificates of participation 12,690,000 10,430,000-10,370,000 12,750, ,000 Accumulated vacation - net 4,385, ,421 3,841,595 - Supplemental early retirement program 12,183, ,143-3,537,473 8,859,751 3,537,473 OPEB obligation - net 24,169,986 8,551,305-4,264,130 28,457,161 - $ 231,089,340 $ 45,114,252 $ 3,506,437 $ 50,113,260 $ 229,596,769 $ 12,748,156 Payments on the General Obligation Bonds are made from the Bond Interest and Redemption Fund. Payments on the Certificates of Participation are made from the General Fund. Payments for Accumulated Vacation are typically liquidated in the fund in which the employee was paid. Payments on the OPEB Obligation are made from the General Fund. Payments for the Supplemental Early Retirement Plan are made from the General Fund. 46

120 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 General Obligation Bonds The outstanding general obligation bonded debt are as follows: Bonds Bonds Issue Maturity Interest Original Outstanding Outstanding Date Date Rate Issue July 1, 2012 Issued Accretion Redeemed June 30, % $ 24,639,698 $ 19,643,399 $ - $ 939,528 $ 1,920,000 $ 18,662, % 19,997,854 15,482, ,600-16,334, % 15,782,827 4,835, ,351-5,109, % 15,996,693 17,545, ,240 1,290,000 17,097, % 15,580,273 12,106, , ,000 11,916, % 30,000,000 25,070, ,130, , to 5.00% 35,000,000 32,605, ,000 32,255, to 5.25% 20,360,000 20,000, ,000 19,585, to 7.00% 12,640,000 12,640, ,640, to 5.00% 15,770,000 14,165, ,245,000 11,920, to 5.00% 22,155,000-22,155, ,155,000 $ 174,094,053 $ 22,155,000 $ 3,506,437 $ 31,140,000 $ 168,615,490 Election 1998, Series 1998 General Obligation Bonds In July 1998, the District issued $24,639,698 in Election 1998, Series 1998 General Obligation Bonds. Proceeds from the bonds will be used to fund the renovation of existing schools and to complete the construction of new schools. At June 30, 2013, the principal balance outstanding was $18,662,927. The bonds mature through 2024 as follows: Principal Current Including Accreted Interest to Fiscal Year Interest to Date Maturity Total 2014 $ 1,956,934 $ 8,066 $ 1,965, ,903, ,651 2,010, ,850, ,610 2,055, ,795, ,654 2,100, ,746, ,046 2,150, ,961,184 3,538,815 11,499, ,448,769 1,006,231 2,455,000 Total $ 18,662,927 $ 5,572,073 $ 24,235,000 47

121 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Election 1998, Series 1999 General Obligation Bonds In June 1999, the District issued $19,997,854 in Election 1998, Series 1999 General Obligation Bonds. Proceeds from the bonds will be used to fund the renovation of existing schools and to complete the construction of new schools. At June 30, 2013, the principal balance outstanding was $16,334,561. The bonds mature through 2025 as follows: Principal Current Including Accreted Interest to Fiscal Year Interest to Date Maturity Total 2014 $ 1,593,240 $ 6,760 $ 1,600, ,549,713 90,287 1,640, ,504, ,540 1,680, ,458, ,400 1,720, ,417, ,873 1,765, ,477,071 3,027,929 9,505, ,334,350 1,805,650 4,140,000 Total $ 16,334,561 $ 5,715,439 $ 22,050,000 Election 1998, Series 2001 General Obligation Bonds In June 2001, the District issued $15,782,827 in Election 1998, Series 2001 General Obligation Bonds. Proceeds from the bonds will be used to repair, modernize and improve existing schools and to acquire and construct new classrooms, libraries, and schools. The bonds issued included issuance costs of $94,620. The amount of $94,620 is amortized using the straight-line method. The unamortized balance at June 30, 2013, is $52,990. At June 30, 2013, the principal balance outstanding was $5,109,746. The bonds mature through 2027 as follows: Principal Current Including Accreted Interest to Fiscal Year Interest to Date Maturity Total $ 1,812,910 $ 1,092,090 $ 2,905, ,296,836 2,953,164 6,250,000 Total $ 5,109,746 $ 4,045,254 $ 9,155,000 48

122 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Election 1998, Series 2002 General Obligation Bonds In August 2002, the District issued $15,996,693 in Election 1998, Series 2002 General Obligation Bonds. Proceeds from the bonds will be used to repair, modernize and improve existing schools and to acquire and construct new classrooms, libraries, and schools. At June 30, 2013, the principal balance outstanding was $17,097,158. The bonds mature through 2028 as follows: Principal Current Including Accreted Interest to Fiscal Year Interest to Date Maturity Total 2014 $ 1,305,509 $ 4,491 $ 1,310, ,282,415 62,585 1,345, ,239, ,380 1,365, ,209, ,080 1,400, ,169, ,087 1,425, ,251,712 2,318,288 7,570, ,638,069 5,336,931 10,975,000 Total $ 17,097,158 $ 8,292,842 $ 25,390,000 Election 1998, Series 2004 General Obligation Bonds In June 2004, the District issued $15,580,237 in Election 1998, Series 2004 General Obligation Bonds. Proceeds from the bonds will be used to repair, modernize and improve existing schools and to acquire and construct new classrooms, libraries, and schools. The bonds issued included issuance costs of $114,965. The amount of $114,965 is amortized using the straight-line method. The unamortized balance at June 30, 2013, is $78,183. At June 30, 2013, the principal balance outstanding was $11,916,098. The bonds mature through 2030 as follows: Principal Current Including Accreted Interest to Fiscal Year Interest to Date Maturity Total 2014 $ 850,000 $ 248,500 $ 1,098, ,341,633 1,998,367 6,340, ,617,726 4,672,274 9,290, ,106,739 3,088,261 5,195,000 Total $ 11,916,098 $ 10,007,402 $ 21,923,500 49

123 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Election 2004, Series 2005 General Obligation Bonds In July 2005, the District issued $30,000,000 in Election 2004, Series 2005 General Obligation Bonds. Proceeds from the bonds will be used to finance the addition and modernization of school facilities. The bonds issued included issuance costs of $438,263. The amount of $438,263 is amortized using the straight-line method. The unamortized balance at June 30, 2013, is $315,558. In May 2013, the District issued $22,155,000 in General Obligation Refunding Bonds. Proceeds from the bonds were used to refund portions of Election 2004, Series 2005 General Obligation Bonds. As a result, $23,220,000 Series 2005 Current Interest Bonds are considered to be defeased and the liability for these bonds has been removed from the accompanying financial statements. At June 30, 2013, the principal balance outstanding was $940,000. The bonds mature through 2014 as follows: Fiscal Year Principal Interest Total 2014 $ 940,000 $ 1,052,929 $ 1,992,929 Election 2004, Series 2008 General Obligation Bonds In September 2008, the District issued $35,000,000 in Election 2004, Series 2008 General Obligation Bonds. Proceeds from the bonds will be used to finance specific construction and modernization projects approved by the voters and to pay costs of issuance of the bonds. The bonds issued included issuance costs of $100,000, discount of $245,000 and premium of $899,414. Balances are amortized using the straight-line method. The unamortized balance for issuance costs, discount and premium at June 30, 2013, are $84,000, $205,800 and $785,518, respectively. At June 30, 2013, the principal balance outstanding was $32,255,000. The bonds mature through 2034 as follows: Fiscal Year Principal Interest Total 2014 $ 405,000 $ 1,584,156 $ 1,989, ,000 1,569,438 2,034, ,000 1,552,025 2,082, ,000 1,527,875 2,122, ,000 1,496,250 2,166, ,225,000 6,787,125 12,012, ,675,000 5,097,875 13,772, ,885,000 2,383,875 15,268, ,805,000 70,125 2,875,125 Total $ 32,255,000 $ 22,068,744 $ 54,323,744 50

124 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Election 2004, Series 2009A-1 (Tax Exempt) General Obligation Bonds In September 2009, the District issued $20,360,000 in Election 2004, Series 2009A-1 (Tax Exempt) General Obligation Bonds. Proceeds from the bonds will be used to finance specific construction and modernization projects approved by the voters and to pay costs of issuance of the bonds. At June 30, 2013, the principal balance outstanding was $19,585,000. The bonds mature through 2035 as follows: Fiscal Year Principal Interest Total 2014 $ 470,000 $ 1,783,043 $ 2,253, ,000 1,763,043 2,293, ,000 1,740,643 2,330, ,000 1,715,643 2,375, ,000 1,687,643 2,427, ,945,000 6,390,472 10,335, ,070,000 1,784,738 8,854, ,580, ,938 5,877,938 Total $ 19,585,000 $ 17,163,163 $ 36,748,163 Election 2004, Series 2009A-2 (Federally Taxable Build America Bonds) General Obligation Bonds In September 2009, the District issued $12,640,000 in Election 2004, Series 2009A-2 (Federally Taxable Build America Bonds) General Obligation Bonds. Proceeds from the bonds will be used to finance specific construction and modernization projects approved by the voters and to pay costs of issuance of the bonds. At June 30, 2013, the principal balance outstanding was $12,640,000. The bonds mature through 2030 as follows: Fiscal Year Principal Interest Total $ 1,190,000 $ 1,478,576 $ 2,668, ,595,000 6,052,310 13,647, ,855,000 1,271,113 5,126,113 Total $ 12,640,000 $ 8,801,999 $ 21,441,999 The Election 2004, Series 2009A-1 and Series 2009 A-2 General Obligation bonds issued in September 2009, included issuance costs of $570,783, discount of $231,000 and premium of $1,439,947. Balances are amortized using the straight-line method. The unamortized balance for issuance costs, discount and premium at June 30, 2013, are $502,289, $203,280 and $1,267,156, respectively. 51

125 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, General Obligation Refunding Bonds In September 2010, the District issued $15,770,000 in 2010 General Obligation Refunding Bonds. Proceeds from the bonds will be used to refund portions of Election 1998, Series 1999 General Obligation Bonds, Election 1998, Series 2001 General Obligation Bonds, and Election 1998, Series 2004 General Obligation Bonds. The bonds issued included issuance costs of $171,094 and premium of $1,443,293. Balances are amortized using the straight-line method. The unamortized balance for issuance costs and premium at June 30, 2013, are $157,412 and $1,154,634, respectively. At June 30, 2013, the principal balance outstanding was $11,920,000. The bonds mature through 2021 as follows: Fiscal Year Principal Interest Total 2014 $ 780,000 $ 467,350 $ 1,247, ,760, ,150 2,196, ,885, ,250 2,264, ,995, ,725 2,303, ,120, ,800 2,359, ,380, ,800 3,687,800 Total $ 11,920,000 $ 2,139,075 $ 14,059, General Obligation Refunding Bonds In May 2013, the District issued $22,155,000 in General Obligation Refunding Bonds. Proceeds from the bonds will be used to refund portions of Election 2004, Series 2005 General Obligation Bonds. The bonds issued included premium of $3,763,804. The amount of $3,763,804 is amortized using the straight-line method. The unamortized balance for premium at June 30, 2013, is $3,763,804. At June 30, 2013, the principal balance outstanding was $22,155,000. The bonds mature through 2031 as follows: Fiscal Year Principal Interest Total 2014 $ - $ 212,292 $ 212, ,000 1,019,000 1,939, , ,400 1,941, , ,900 1,937, ,010, ,900 1,933, ,740,000 3,943,550 9,683, ,285,000 2,406,250 9,691, ,275, ,000 5,811,000 Total $ 22,155,000 $ 10,995,292 $ 33,150,292 52

126 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Certificates of Participation The certificates of participation debt is as follows: Bonds Bonds Issue Maturity Interest Original Outstanding Outstanding Date Date Rate Issue July 1, 2012 Issued Redeemed June 30, % $ 13,085,000 $ 10,215,000 $ - $ 9,790,000 $ 425, % 3,215,000 2,475, ,000 2,090, % 10,430,000-10,430, ,000 10,235,000 $ 12,690,000 $ 10,430,000 $ 10,370,000 $ 12,750,000 In July 2003, the District issued $13,085,000 in Certificates of Participation for the purpose of financing the acquisition, construction, and installation of certain items of equipment, the improvement of real property and the acquisition and construction of other capital improvements to be used for educational purposes. In July 7, 2012, the District issued $10,430,000 in Refunding Certificates of Participation which was used to refund portions of the remaining balance in the amount of $9,380,000. At June 30, 2013, the principal balance outstanding was $425,000. Payments are required as follows: Interest to Fiscal Year Principal Maturity Total 2014 $ 425,000 $ 331,600 $ 756,600 In March 2010, the District issued $3,215,000 in Certificates of Participation for the purpose for the financing or refinancing of the acquisition of certain capital improvements including through the prepayment of certain existing obligation. The certificates of participation issued included premium of $162,658. The amount of $162,658 is amortized using the straight-line method. The unamortized balance for premium at June 30, 2013, is $101,660. At June 30, 2013, the principal balance outstanding was $2,090,000. Payments are required as follows: Interest to Fiscal Year Principal Maturity Total 2014 $ 375,000 $ 76,300 $ 451, ,000 60, , ,000 44, , ,000 26, , ,000 9, ,100 Total $ 2,090,000 $ 216,800 $ 2,306,800 53

127 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 In July 2012, the District issued $10,430,000 in Refunding Certificates of Participation. Proceeds will be used to refund portions of Certificates of Participation existing in the amount of $9,380,000. The Certificates of Participation issued included a discount of $77,318. Balances are amortized using the straight-line method. The unamortized balance for issuance costs and premium at June 30, 2013, are $77,318. At June 30, 2013, the principal balance outstanding was $10,235,000. The bonds mature through 2029 as follows: Interest to Fiscal Year Principal Maturity Total 2014 $ 110,000 $ 323,988 $ 433, , , , , , , , , , , , , ,215,000 1,164,663 4,379, ,770, ,425 4,381, ,000 33, ,800 Total $ 10,235,000 $ 3,342,228 $ 13,577,228 Accumulated Unpaid Employee Vacation The long-term portion of accumulated unpaid employee vacation for the District at June 30, 2013, amounted to $3,841,595. Supplemental Employee Retirement Plan (SERP) The District offered an early retirement incentive to qualified employees under a qualified plan of Section 401A of the Internal Revenue Code. Currently, there are 317 employees participating in this plan and the District's obligation to those retirees as of June 30, 2013, is $8,859,751. Payments are required as follows: Year Ending Total June 30, Payment 2014 $ 3,537, ,106, ,607, ,607,818 Total $ 8,859,751 54

128 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Other Postemployment Benefits (OPEB) Obligation The District's annual required contribution for the year ended June 30, 2013, was $8,961,042, and contributions made by the District during the year were $4,264,130. Interest on the net OPEB obligation and adjustments to the annual required contribution were $1,329,349 and $(1,739,086), respectively, which resulted in an increase to the net OPEB obligation of $4,287,175. As of June 30, 2013, the net OPEB obligation was $28,457,161. See Note 11 for additional information regarding the OPEB obligation and the postemployment benefits plan. NOTE 10 - FUND BALANCES Fund balances are composed of the following elements: County School Non-Major General Building Facilities Governmental Fund Fund Fund Funds Total Nonspendable Revolving cash $ 235,000 $ - $ - $ 6,000 $ 241,000 Stores inventories 364, , ,083 Prepaid expenditures 383, ,661 Total Nonspendable 983, ,501 1,068,744 Restricted Legally restricted programs 9,273, ,273,851 Capital projects - 37,530,038 20,117,798 1,416,100 59,063,936 Debt services ,004,759 12,004,759 Total Restricted 9,273,851 37,530,038 20,117,798 13,420,859 80,342,546 Committed Adult education program ,292,255 3,292,255 Total Committed ,292,255 3,292,255 Assigned Deferred maintenance program 10, ,902 Retiree benefits program 876, ,499 Unrestricted carryover 3,835, ,835,390 Total Assigned 4,722, ,722,791 Unassigned uncertainties 7,907, ,907,929 Remaining unassigned 15,297, ,297,406 Total Unassigned 23,205, ,205,335 Total $ 38,185,220 $ 37,530,038 $ 20,117,798 $ 16,798,615 $ 112,631,671 55

129 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 11 - POSTEMPLOYMENT HEALTH CARE PROGRAM AND OTHER POSTEMPLOYMENT BENEFITS (OPEB) OBLIGATION Plan Description The Montebello Unified School District Retiree Health Plan (the Plan) is a single-employer defined benefit healthcare program administered by the Montebello Unified School District. The Plan provides retiree health benefits to eligible retirees. Membership of the Plan consists of 400 retirees currently receiving benefits and 2,767 active Plan members. The District provides employer paid medical benefits to eligible retirees and their eligible dependents through age 67 up to an annual maximum. Certificated employees may also be eligible for an early retirement program that provides some enhanced benefits prior to age 60. Eligibility for retiree health benefits requires at least 15 years of service at retirement. Contribution Information The contribution requirements of Plan members and the District are established and may be amended by the District and the Montebello Teachers Association (MTA), the local California School Employees Association (CSEA), the Association of Montebello School Administrators (AMSA), and unrepresented groups. The required contribution is based on projected pay-as-you-go financing requirements. For fiscal year , the District contributed $4,264,130 to the Plan, all of which was used for current premiums. Annual OPEB Cost and Net OPEB Obligation The District's annual other postemployment benefits (OPEB) cost (expense) is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (UAAL) (or funding excess) over a period not to exceed 30 years. The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the District's net OPEB obligation to the Plan: Annual required contribution $ 8,961,042 Interest on net OPEB obligation 1,329,349 Adjustment to annual required contribution (1,739,086) Annual OPEB cost (expense) 8,551,305 Contributions made (4,264,130) Increase in net OPEB obligation 4,287,175 Net OPEB obligation, beginning of year 24,169,986 Net OPEB obligation, end of year $ 28,457,161 56

130 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Trend Information Trend information for annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation is as follows: Annual Actual Year Ended OPEB Employer Percentage Net OPEB June 30, Cost Contribution Contributed Obligation 2011 $ 8,503,128 $ 3,630, % $ 19,213, ,431,171 3,474, % 24,169, ,551,305 4,264, % 28,457,161 Funded Status and Funding Progress A schedule of funding progress as of the most recent actuarial valuation is as follows: Actuarial Accrued UAAL as a Acturial Liability Unfunded Percentage of Actuarial Value (AAL) - AAL Funded Covered Valuation of Assets Unprojected (UAAL) Ratio Covered Payroll Date (a) Unit Credit (b) (b - a) (a / b) Payroll (c) ([b - a] / c) July 1, 2011 $ - $ 71,728,903 $ 71,728,903 0% $ 166,429,079 43% Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, investment returns, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. 57

131 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 In the July 1, 2011, actuarial valuation, the Projected Unit Credit with service prorate method was used. Under this method, the Actuarial Accrued Liability is the present value of projected benefits multiplied by the ratio of benefit service as of the valuation date to the projected benefit service at retirement, termination, disability or death. The normal cost for a plan year is the expected increase in the Accrued Liability during the plan year. All employees eligible as of the measurement date in accordance with the provisions of the Plan listed in the data provided by the employer were included in the valuation. NOTE 12 - RISK MANAGEMENT CLAIMS Description The District's risk management activities are recorded in the General and Self-Insurance Funds. Employee life, health, and disability programs are administered by the General Fund through the purchase of commercial insurance. The Workers' Compensation Property and Liability Program, for which the District retains risk of loss, is administered by the Self-Insurance fund. Excess property and liability coverage is obtained through SELF. For insured programs, there have been no significant reductions in insurance coverage. Settlement amounts have not exceeded insurance coverage for the current year or the three prior years. 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 represent the changes in approximate aggregate liabilities for the District from July 1, 2011 to June 30, 2013: General Workers' Liability Compensation Total Liability Balance, July 1, 2011 $ 746,348 $ 9,894,696 $ 10,641,044 Claims and changes in estimates 4,060,136 4,974,088 9,034,224 Claims payments (4,060,136) (4,974,088) (9,034,224) Liability Balance, June 30, ,348 9,894,696 10,641,044 Claims and changes in estimates 3,936,638 10,726,338 14,662,976 Claims payments (3,819,328) (8,750,917) (12,570,245) Liability Balance, June 30, 2013 $ 863,658 $ 11,870,117 $ 12,733,775 Assets available to pay claims at June 30, 2013 $ 12,687,196 58

132 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 13 - EMPLOYEE RETIREMENT SYSTEMS Qualified employees are covered under multiple-employer retirement plans maintained by agencies of the State of California. Certificated employees are members of the California State Teachers' Retirement System (CalSTRS) and classified employees are members of the California Public Employees' Retirement System (CalPERS). CalSTRS Plan Description The District contributes to CalSTRS, a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalSTRS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and survivor benefits to beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the California State Teachers' Retirement Law. CalSTRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalSTRS annual financial report may be obtained from CalSTRS, 100 Waterfront Place, West Sacramento, California Funding Policy Active plan members are required to contribute 8.0 percent 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 CalSTRS Teachers' Retirement Board. The required employer contribution rate for fiscal year , was 8.25 percent of annual payroll. The contribution requirements of the plan members are established by State statute. The District's contributions to CalSTRS for the fiscal years ending June 30, 2013, 2012, and 2011, were $10,393,979, $10,856,692, and $10,773,416, respectively, and equal 100 percent of the required contributions for each year. CalPERS Plan Description The District contributes to the School Employer Pool under CalPERS, a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalPERS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and survivor benefits to plan members and beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the Public Employees' Retirement Laws. CalPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalPERS' annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California

133 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Funding Policy Active plan members are required to contribute 7.0 percent 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 percent of covered 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, 2013, 2012, and 2011, were $4,460,456, $4,267,756, and $4,222,314, respectively, and equal 100 percent of the required contributions for each year. Social Security As established by Federal law, all public sector employees who are not members of their employer's existing retirement system (CalSTRS or CalPERS) must be covered by social security or an alternative plan. The District has elected to use the social security as its alternative plan. On Behalf Payments The State of California makes contributions to CalSTRS on behalf of the District. These payments consist of State General Fund contributions to CalSTRS in the amount of $6,520,937 (5.176 percent of annual payroll). Under accounting principles generally accepted in the United States of America, these amounts are to be reported as revenues and expenditures; however, guidance received from the California Department of Education advises local educational agencies not to record these amounts in the Annual Financial and Budget Report. These amounts have not been included in the budgeted amounts reported in the General Fund - Budgetary Comparison Schedule. These amounts have been recorded in these financial statements. On behalf payments have been excluded from the calculation of available reserves. NOTE 14 - COMMITMENTS AND CONTINGENCIES Grants The District received financial assistance from Federal and State agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the General Fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material adverse effect on the overall financial position of the District at June 30, Litigation The District is involved in various litigations arising from the normal course of business. In the opinion of management and legal counsel, the disposition of all litigation pending is not expected to have a material adverse effect on the overall financial position of the District at June 30,

134 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 15 - PARTICIPATION IN JOINT POWERS AUTHORITIES The District is a member of the Alliance of Schools for Cooperative Insurance Programs (ASCIP) a joint powers authority. The District pays an annual premium to the authority for its workers' compensation coverage. The relationship between the District and ASCIP is such that it is not a component unit of the District for financial reporting purposes. This entity has budgeting and financial reporting requirements independent of member units and their financial statements are not presented in these financial statements; however, fund transactions between ASCIP and the District are included in these statements. Audited financial statements are available from the respective entities. During the year ended June 30, 2013, the District made payments of approximately $1,442,839 to ASCIP for its workers' compensation coverage. NOTE 16 - RESTATEMENT OF PRIOR YEAR FUND BALANCES The District s prior year fund balances for the Retiree Benefit Fund and the General Fund have been restated as of June 30, 2013 to conform to GASB Statement No. 54 s definition of governmental funds. Accordingly, the beginning fund balance of the Retiree Benefit Fund is reported as a restatement to the beginning fund balance of the General Fund. The restatement does not change the total fund balance amounts reported in the District s audited financial statements. General Fund Fund Balance - Beginning $ 48,034,132 Change in accounting principles to conform to GASB Statement No. 54 1,361,031 Fund Balance - Beginning as Restated $ 49,395,163 Non-Major Governmental Funds Fund Balance - Beginning $ 17,380,504 Change in accounting principles to conform to GASB Statement No. 54 (1,361,031) Fund Balance - Beginning as Restated $ 16,019,473 61

135 REQUIRED SUPPLEMENTARY INFORMATION 62

136 MONTEBELLO UNIFIED SCHOOL DISTRICT GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2013 Variances - Positive Budgeted Amounts (Negative) (GAAP Basis) Actual Final Original Final (GAAP Basis) to Actual REVENUES Revenue limit sources $ 159,772,610 $ 159,678,883 $ 159,520,453 $ (158,430) Federal sources 29,744,890 31,670,823 30,586,715 (1,084,108) Other State sources 39,085,221 44,167,576 52,499,631 8,332,055 Other local sources 14,273,271 14,351,215 20,810,240 6,459,025 Total Revenues 1 242,875, ,868, ,417,039 13,548,542 EXPENDITURES Current Certificated salaries 122,264, ,059, ,295,920 (236,379) Classified salaries 43,049,583 42,535,746 41,702, ,613 Employee benefits 62,976,692 62,208,562 67,603,155 (5,394,593) Books and supplies 8,365,194 9,677,371 8,333,324 1,344,047 Services and operating expenditures 22,279,360 28,454,531 31,956,402 (3,501,871) Capital outlay 2,023,654 1,312,477 1,368,599 (56,122) Other outgo 1,665,119 2,065, ,122 1,402,997 Debt service Principal ,000 (990,000) Interest - - 1,653,889 (1,653,889) Total Expenditures 1 262,623, ,313, ,565,544 (8,252,197) Excess (Deficiency) of Revenues Over Expenditures (19,747,631) (17,444,850) (12,148,505) 5,296,345 Other Financing Uses Other sources - Proceeds from debt ,352,682 10,352,682 Transfers out 36,286 30,286 (34,120) (64,406) Other uses - Refunding of debt - - (9,380,000) (9,380,000) Net Financing Uses 36,286 30, , ,276 NET CHANGE IN FUND BALANCES (19,711,345) (17,414,564) (11,209,943) 6,204,621 Fund Balance - Beginning (As restated) 49,395,163 49,395,163 49,395,163 - Fund Balance - Ending $ 29,683,818 $ 31,980,599 $ 38,185,220 $ 6,204,621 1 On behalf payments of $6,520,937 are included in the actual revenues and expenditures, but have not been included in the budgeted amounts. In addition, due to the consolidation of Fund 14, Deferred Maintenance Fund and Fund 71, Retiree Benefit Fund, for reporting purposes into the General Fund, additional revenues and expenditures pertaining to these other funds are included in the Actual (GAAP Basis) revenues and expenditures, however are not included in the original and final General Fund budgets. 63

137 MONTEBELLO UNIFIED SCHOOL DISTRICT SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB) FUNDING PROGRESS FOR THE YEAR ENDED JUNE 30, 2013 Actuarial Accrued UAAL as a Acturial Liability Unfunded Percentage of Actuarial Value (AAL) - AAL Funded Covered Valuation of Assets Unprojected (UAAL) Ratio Covered Payroll Date (a) Unit Credit (b) (b - a) (a / b) Payroll (c) ([b - a] / c) July 1, 2006 $ - $ 63,155,769 $ 63,155,769 0% $ 171,700,000 37% July 1, ,874,974 71,874,974 0% 166,768,000 43% July 1, ,728,903 71,728,903 0% 166,429,079 43% 64

138 SUPPLEMENTARY INFORMATION 65

139 MONTEBELLO UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2013 Pass-Through Entity Federal Grantor/Pass-Through CFDA Identifying Federal Grantor/Program or Cluster Title Number Number Expenditures U.S. DEPARTMENT OF EDUCATION Safe Schools Healthy Students L [1] $ 1,392,612 Passed through California Department of Education (CDE): Improving America's School Act/No Child Left Behind Title II, Part A Cluster: Title II, Part A, Improving Teacher Quality ,239,547 Title II, Part A, Administrator Training (Formerly Principal Training) ,000 Total Title II, Part A Cluster 2,263,547 Title I, Part A, Basic Grants Low-Income and Neglected ,095,057 Title I ARRA School Improvement Grant for QEIA Schools ,472 Title I, Part G, Advanced Placement (AP) Test Fee Reimbursement Program ,398 Title II, Part D - Enhancing Education Through Technology (EETT), Formula Grants ,585 Title III, Limited English Proficiency (LEP) Student Program ,164,505 Title IV, Part B, 21st Century Community Centers Learning Program ,317,923 Vocational Programs Cluster: Voc and Appl Tech Secondary II C, Sec 131 (Carl Perkins Act) ,641 Postsecondary and Adult II C, Sec 132 (Carl Perkins Act) ,148 Total Vocational Programs Cluster 329,789 [1] Direct Award/Pass-Through Entity Identifying Number not available. See accompanying note to supplementary information. 66

140 MONTEBELLO UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (Continued) FOR THE YEAR ENDED JUNE 30, 2013 Pass-Through Entity Federal Grantor/Pass-Through CFDA Identifying Federal Grantor/Program or Cluster Title Number Number Expenditures U.S. DEPARTMENT OF EDUCATION (Continued) Passed through CDE: Elementary and Secondary School Counceling E [1] $ 41,975 Workability II, Transitions Partnership ,070 Adult Education: Adult Basic Education and English as a Second Language A ,878 Adult Secondary ,176 English Literacy and Civic Education A ,255 Total Adult Education 1,165,309 Passed through California State University Long Beach Foundation: Improving Teacher Quality/ CPEC [1] 89,814 Passed through Los Angeles County Special Education Local Plan Area: Individuals with Disabilities Education Act (IDEA): Special Education (IDEA) Cluster: Basic Local Assistance Entitlement, Part B, Section ,828,364 Preschool Grants, Part B, Section ,054 Preschool Local Entitlement, Part B, Section A ,464 Mental Health Allocation Plan, Part B, Sec ,509 Preschool Local Entitlement, Part B, Section A ,223 Total Special Education (IDEA) Cluster 5,640,614 Total U.S. Department of Education 23,782,670 U.S. DEPARTMENT OF LABOR Workforce Investment Act (WIA) ,114 Total U.S. Department of Labor 72,114 U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Passed through the Los Angeles County Office of Education (LACOE): Head Start Cluster: Head Start - Basic [2] ,769,994 Head Start - Training and Technical [2] ,976 Total Head Start Cluster 6,811,970 Medicaid Cluster: LEA Medi-Cal Billings ,217 Medi-Cal Administrative Activities (MAA) ,724 Total Medicaid Cluster 1,304,941 [1] Direct Award/Pass-Through Entity Identifying Number not available. See accompanying note to supplementary information. 67

141 MONTEBELLO UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (Continued) FOR THE YEAR ENDED JUNE 30, 2013 Pass-Through Entity Federal Grantor/Pass-Through CFDA Identifying Federal Grantor/Program or Cluster Title Number Number Expenditures U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES (Continued) Passed through the LACOE: Child Development: Federal Child Care $ 89,787 Total Child Development 89,787 Total U.S. Department of Health and Human Services 8,206,698 U.S. DEPARTMENT OF AGRICULTURE Passed through CDE: Child Nutrition Cluster: National School Lunch Program ,574,342 Especially Needy Breakfast ,348,884 Basic School Breakfast Program ,206 Meal Supplements ,765 Food Distribution ,458 Total Child Nutrition Cluster 14,173,655 Child Care Food Program ,056 Total U.S. Department of Agriculture 14,687,711 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Passed through Community Development Commission (CDC) of the County of Los Angeles and the City of Monterey Park Potrero Heights Elementary - Promoting Acheivement Within Students Program (PAWS) A ,973 Total U.S. Department of Housing and Urban Development 36,973 U.S. DEPARTMENT OF JUSTICE Passed through Office of Community Oriented Policing Services: Secure Our Schools (SOS) [1] 80,496 Total U.S. Department of Justice 80,496 U.S. DEPARTMENT OF TRANSPORTATION Passed through Federal Highway Administration: Garrett A. Morgan Technology and Transportation Education Program [1] 103,404 Total U.S. Department of Housing 103,404 and Urban Development Total Expenditures of Federal Awards $ 46,970,066 [1] Direct Award, Pass-Through Entity Identifying Number not available. [2] Local Share/In-Kind Contribution Head Start - Basic $ 1,682,498 Head Start - Training and Technical 10,494 Total Local share/in-kind contribution $ 1,692,992 See accompanying note to supplementary information. 68

142 MONTEBELLO UNIFIED SCHOOL DISTRICT LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE JUNE 30, 2013 ORGANIZATION The Montebello Unified School District was organized in 1936, and consists of an area comprising approximately 22 square miles. The District operates eighteen elementary schools, six intermediate schools, four high schools, four adult schools, one continuation high school, and two independent study facilities. There were no boundary changes during the year. GOVERNING BOARD MEMBER OFFICE TERM EXPIRES Hector A. Chacon President December 2013 Gerri Guzman Vice President December 2013 David Vela Clerk December 2015 Benjamin Cardenas Member December 2013 Paul Montoya Member December 2013 ADMINISTRATION Susana Contreras Smith and Cleve A. Pell Arthur P. Revueltas Cheryl A. Plotkin Jill E. Rojas Deborah De La Torre Michael G. Cobarrubias Superintendents of Schools Deputy Superintendent Assistant Superintendent, Business Services Assistant Superintendent, Human Resources Assistant Superintendent, Instructional Services Assistant Superintendent, Pupil and Community Services See accompanying note to supplementary information. 69

143 MONTEBELLO UNIFIED SCHOOL DISTRICT SCHEDULE OF AVERAGE DAILY ATTENDANCE FOR THE YEAR ENDED JUNE 30, 2013 Final Report Second Period Annual Report Report ELEMENTARY Kindergarten 1,912 1,915 First through third 6,220 6,230 Fourth through sixth 6,200 6,198 Seventh and eighth 4,545 4,545 Opportunity schools Community Day School 3 3 Home and hospital 6 8 Special education Total Elementary 19,480 19,507 SECONDARY Regular classes 8,957 8,874 Continuation education Community Day School Home and hospital Special education Total Secondary 9,750 9,664 Total K-12 29,230 29,171 See accompanying note to supplementary information. 70

144 MONTEBELLO UNIFIED SCHOOL DISTRICT SCHEDULE OF INSTRUCTIONAL TIME FOR THE YEAR ENDED JUNE 30, 2013 Reduced Reduced Number of Days Actual Actual Minutes Minutes Actual Traditional Multitrack Grade Level Minutes Minutes Requirement Requirement Minutes Calendar Calendar Status Kindergarten 31,500 30,625 36,000 35,000 36, Complied Grades 1-3 Grade 1 47,250 45,938 50,400 49,000 53, Complied Grade 2 47,250 45,938 50,400 49,000 53, Complied Grade 3 47,250 45,938 50,400 49,000 53, Complied Grades 4-6 Grade 4 54,075 52,573 54,000 52,500 53, Complied Grade 5 54,075 52,573 54,000 52,500 53, Complied Grade 6 54,075 52,573 54,000 52,500 55, Complied Grades 7-8 Grade 7 54,075 52,573 54,000 52,500 55, Complied Grade 8 54,075 52,573 54,000 52,500 55, Complied Grades 9-12 Grade 9 63,000 61,250 64,800 63,000 64, Complied Grade 10 63,000 61,250 64,800 63,000 64, Complied Grade 11 63,000 61,250 64,800 63,000 64, Complied Grade 12 63,000 61,250 64,800 63,000 64, Complied See accompanying note to supplementary information. 71

145 MONTEBELLO UNIFIED SCHOOL DISTRICT RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2013 Summarized below are the fund balance reconciliations between the Unaudited Actual Financial Report and the audited financial statements. Enterprise Internal Service Fund Fund NET POSITION Balance, June 30, 2013, Unaudited Actuals $ 15,009,525 $ 2,035,493 Increase in: Accumulated depreciation 208,737 - Claims Liability - (2,092,731) Decrease in: Capital assets (451,037) - Balance, June 30, 2013, Audited Financial Statement $ 14,767,225 $ (57,238) See accompanying note to supplementary information. 72

146 MONTEBELLO UNIFIED SCHOOL DISTRICT SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2013 (Budget) GENERAL FUND 4 Revenues $ 246,200,258 $ 259,334,287 $ 269,535,127 $ 271,566,608 Other sources - 10,352,682-3,377,658 Total Revenues and Other Sources 246,200, ,686, ,535, ,944,266 Expenditures 261,596, ,057, ,659, ,525,741 Other uses and transfers out 82,695 9,414,120 11,295 24,271 Total Expenditures and Other Uses 261,679, ,471, ,670, ,550,012 INCREASE (DECREASE) IN FUND BALANCE $ (15,479,244) $ (10,784,291) $ (5,135,636) $ 5,394,254 ENDING FUND BALANCE $ 21,463,231 $ 36,942,475 $ 47,726,766 $ 52,862,402 AVAILABLE RESERVES 2 $ 14,120,332 $ 23,205,335 $ 21,934,928 $ 31,463,862 AVAILABLE RESERVES AS A PERCENTAGE OF TOTAL OUTGO % 8.47% 8.15% 11.91% LONG-TERM OBLIGATIONS N/A $ 229,596,769 $ 231,089,340 $ 219,462,823 AVERAGE DAILY ATTENDANCE AT P-2 28,653 29,230 30,001 30,542 The General Fund balance has decreased by $15,919,927 over the past two years. The fiscal year budget projects a further decrease of $15,479,244 (41.90 percent). For a district this size, the State recommends available reserves of at least three percent of total General Fund expenditures, transfers out, and other uses (total outgo). The District has incurred operating deficits in two of the past three years and anticipates incurring an operating deficit during the fiscal year. Total long-term obligations have decreased by $10,133,946 over the past two years. Average daily attendance has decreased by 1,312 over the past two years. Additional decline of 577 ADA is anticipated during fiscal year Budget 2014 is included for analytical purposes only and has not been subjected to audit. 2 Available reserves consist of all undesignated fund balances and all funds designated for economic uncertainty contained within the General Fund. 3 On behalf payments of $6,520,937, $6,963,460, and $5,379,709, have been excluded from the calculation of available reserves for the fiscal years ending June 30, 2013, 2012, and 2011, respectively. 4 General Fund amounts do not include activity related to the consolidation of the Fund 14 Deferred Maintenance Fund and Fund 71 Retiree Benefit Fund as required by GASB Statement No. 54. See accompanying note to supplementary information. 73

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148 MONTEBELLO UNIFIED SCHOOL DISTRICT NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2013 Adult Child Capital Education Development Facilities Fund Fund Fund ASSETS Deposits and investments $ 6,200 $ - $ 1,418,924 Receivables 5,030,207 61,652 3,196 Due from other funds 1, Stores inventories 79, Total Assets $ 5,117,019 $ 61,652 $ 1,422,120 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable 794,512 $ $ 8,549 $ 6,020 Due to other funds 944,751 53,103 - Total Liabilities 1,739,263 61,652 6,020 Fund Balances: Nonspendable 85, Restricted - - 1,416,100 Committed 3,292, Total Fund Balances 3,377,756-1,416,100 Total Liabilities and Fund Balances $ 5,117,019 $ 61,652 $ 1,422,120 See accompanying note to supplementary information. 74

149 Bond Interest and Redemption Fund Total Non-Major Governmental Funds $ 12,004,759 $ 13,429,883-5,095,055-1,111-79,501 $ 12,004,759 $ 18,605,550 $ - $ 809, ,854-1,806,935-85,501 12,004,759 13,420,859-3,292,255 12,004,759 16,798,615 $ 12,004,759 $ 18,605,550 74

150 MONTEBELLO UNIFIED SCHOOL DISTRICT NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2013 Adult Child Retiree Capital Education Development Benefits Facilities Fund Fund Fund Fund REVENUES Federal sources $ 1,273,457 $ 89,787 $ - $ - Other State sources 12,565,250 87, Other local sources 85, ,113 Total Revenues 13,923, ,389-84,113 EXPENDITURES Current Instruction 8,274,994 84, Instruction-related activities Supervision of instruction 566, School site administration 3,944, Pupil services: All other pupil services - 125, Administration: All other administration 577, Plant services 370, Facility acquisition and construction ,813 Debt service Principal Interest and other Total Expenditures 13,733, , ,813 Excess (Deficiency) of Revenues Over Expenditures 190,176 (34,120) - (380,700) Other Financing Sources Transfers in - 34, NET CHANGE IN FUND BALANCES 190, (380,700) Fund Balances - Beginning 3,187,580-1,361,031 1,796,800 Prior Period Adjustment - - (1,361,031) - Fund Balances - Beginning (As Restated) 3,187, ,796,800 Fund Balances - Ending $ 3,377,756 $ - $ - $ 1,416,100 See accompanying note to supplementary information. 75

151 Bond Interest and Redemption Fund Total Non-Major Governmental Funds $ - $ 1,363,244 94,987 12,747,839 13,822,611 13,991,995 13,917,598 28,103,078-8,359, ,348-3,945, , , , ,813 6,546,447 6,546,447 6,401,485 6,401,485 12,947,932 27,358, , ,022-34, , ,142 11,035,093 17,380,504 - (1,361,031) 11,035,093 16,019,473 $ 12,004,759 $ 16,798,615 75

152 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2013 NOTE 1 - PURPOSE OF SCHEDULES Schedule of Expenditures of Federal Awards The accompanying Schedule of Expenditures of Federal Awards includes the Federal grant activity of the District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of the United States Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the financial statements. The following schedule provides reconciliation between revenues reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances, and the related expenditures reported on the Schedule of Expenditures of Federal Awards. The reconciling amounts consist of LEA Medi-Cal Billing has been recorded in the current period as revenues that have not been expended and Medical Administrative Activities (MAA) has been recorded in the current period as expense that have not been recorded as revenue as of June 30, These unspent balances are reported as legally restricted ending balances within the General Fund. CFDA Numbers Amount Total Federal Revenues reported in the Statement of Revenues, Expenditures, and Changes in Fund Balances: $ 46,637,670 Medical Administrative Activities (MAA) ,724 LEA Medi-Cal Billing (229,328) Total Expenditures of Federal Awards $ 46,970,066 Local Education Agency Organization Structure This schedule provides information about the District's boundaries and schools operated, members of the governing board, and members of the administration. Schedule of Average Daily Attendance (ADA) Average daily attendance (ADA) is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of State funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs. 76

153 MONTEBELLO UNIFIED SCHOOL DISTRICT NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2013 Schedule of Instructional 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 Districts must maintain their instructional minutes at either the actual minutes or the requirements, whichever is greater, as required by Education Code Section Senate Bill 2 of the Fourth Extraordinary Session (SBX4 2) allows for an equivalent five-day reduction to the required number of instructional minutes for the fiscal years through Reconciliation of Annual Financial and Budget Report With Audited Financial Statements This schedule provides the information necessary to reconcile the Net Position and fund balance of all funds reported on the Annual Financial and Budget Report Unaudited Actuals to the audited financial statements. Schedule of Financial Trends and Analysis This schedule discloses the District's financial trends by displaying past years' data along with current year budget information. These financial trend disclosures are used to evaluate the District's ability to continue as a going concern for a reasonable period of time. Non-Major Governmental Funds - Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances The Non-Major Governmental Funds Combining Balance Sheet and Combining Statement of Revenues, Expenditures, and Changes in Fund Balances is included to provide information regarding the individual funds that have been included in the Non-Major Governmental Funds column on the Governmental Funds Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances. 77

154 INDEPENDENT AUDITORS' REPORTS 78

155 Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITORS' 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 Governing Board Montebello Unified School District Montebello, 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, the businesstype activities, each major fund, and the aggregate remaining fund information of Montebello Unified School District (the District) as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise Montebello Unified School District's basic financial statements, and have issued our report thereon dated December 16, Emphasis of Matter Regarding Restatement As discussed in the notes to the basic financial statements, the accompanying financial statements reflect certain changes as a result of a correction to the Retiree Benefit Fund and the General Fund for the year ended June 30, These changes require a restatement of the beginning net position of the District as discussed in Note 16. Our opinion is not modified with respect to this matter. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Montebello 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 Montebello Unified School District's internal control. Accordingly, we do not express an opinion on the effectiveness of Montebello 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 District'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 Aspen Street Rancho Cucamonga, CA Tel: Fax: FRESNO LAGUNA HILLS PALO ALTO PLEASANTON RANCHO CUCAMONGA riverside Sacramento

156 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 Montebello Unified School District's financial statements are free from 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. We noted certain matters that we reported to management of Montebello Unified School District in a separate letter dated December 16, Purpose of This Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District'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 District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Rancho Cucamonga, California December 16,

157 Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133 Governing Board Montebello Unified School District Montebello, California Report on Compliance for Each Major Federal Program We have audited Montebello 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 Montebello Unified School District's (the District) major Federal programs for the year ended June 30, Montebello 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 Montebello 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 Montebello 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 Montebello Unified School District's compliance Aspen Street Rancho Cucamonga, CA Tel: Fax: FRESNO LAGUNA HILLS PALO ALTO PLEASANTON RANCHO CUCAMONGA riverside Sacramento

158 Opinion on Each Major Federal Program In our opinion, Montebello Unified School District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major Federal programs for the year ended June 30, Report on Internal Control Over Compliance Management of Montebello 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 Montebello Unified School District's internal control over compliance with the types of requirements that could have a direct and material effect on each major Federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major Federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Montebello Unified School District's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a Federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Rancho Cucamonga, California December 16,

159 Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITORS' REPORT ON STATE COMPLIANCE Governing Board Montebello Unified School District Montebello, California Report on State Compliance We have audited Montebello Unified School District's compliance with the types of compliance requirements as identified in the Standards and Procedures for Audit of California K-12 Local Educational Agencies that could have a direct and material effect on each of Montebello Unified School District's State government programs as noted below for the year ended June 30, Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its State s programs. Auditors' Responsibility Our responsibility is to express an opinion on compliance of each of the Montebello Unified School District's State programs based on our audit of the types of compliance requirements referred to above. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Standards and Procedures for Audits of California K-12 Local Educational Agencies These standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a material effect on the applicable government programs noted below. An audit includes examining, on a test basis, evidence about Montebello 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. Our audit does not provide a legal determination of Montebello Unified School District's compliance with those requirements. Unmodified Opinion on Each of the Programs In our opinion, Montebello Unified School District complied, in all material respects, with the compliance requirements referred to above that are applicable to the government programs noted below that were audited for the year ended June 30, Aspen Street Rancho Cucamonga, CA Tel: Fax: FRESNO LAGUNA HILLS PALO ALTO PLEASANTON RANCHO CUCAMONGA riverside Sacramento

160 In connection with the audit referred to above, we selected and tested transactions and records to determine the Montebello Unified School District's compliance with the State laws and regulations applicable to the following items: Procedures in Audit Guide Procedures Performed Attendance Accounting: Attendance Reporting 6 Yes Teacher Certification and Misassignments 3 Yes Kindergarten Continuance 3 Yes Independent Study 23 Yes Continuation Education 10 Yes, See below Instructional Time: School Districts 6 Yes County Offices of Education 3 Not Applicable Instructional Materials: General Requirements 8 Yes Ratios of Administrative Employees to Teachers 1 Yes Classroom Teacher Salaries 1 Yes Early Retirement Incentive 4 Not Applicable Gann Limit Calculation 1 Yes School Accountability Report Card 3 Yes Juvenile Court Schools 8 Not Applicable Class Size Reduction Program (including in charter schools): General Requirements 7 Yes Option One Classes 3 Yes Option Two Classes 4 Not Applicable Districts or Charter Schools With Only One School Serving K-3 4 Not Applicable After School Education and Safety Program: General Requirements 4 Yes After School 5 Yes Before School 6 Not Applicable Charter Schools: Contemporaneous Records of Attendance 1 Not Applicable Mode of Instruction 1 Not Applicable Non Classroom-Based Instruction/Independent Study 15 Not Applicable Determination of Funding for Non Classroom-Based Instruction 3 Not Applicable Annual Instruction Minutes Classroom-Based 4 Not Applicable We did not perform procedures specific to the Work Experience Program related to continuation education, as the District does not operate this program. Rancho Cucamonga, California December 16,

161 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 85

162 MONTEBELLO UNIFIED SCHOOL DISTRICT SUMMARY OF AUDITORS' RESULTS FOR THE YEAR ENDED JUNE 30, 2013 FINANCIAL STATEMENTS Type of auditors' report issued: Internal control over financial reporting: Material weakness identified? Significant deficiency identified? Noncompliance material to financial statements noted? FEDERAL AWARDS Internal control over major programs: Material weakness identified? Significant deficiency identified? Type of auditors' report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with Section.510(a) of OMB Circular A-133? Unmodified No None Reported No No None Reported Unmodified No Identification of major programs: CFDA Numbers Name of Federal Program or Cluster Title I, Part A, Basic Grants Low-Income and Neglected Medicaid Cluster Head Start Cluster Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as low-risk auditee? $ 1,409,102 Yes STATE AWARDS Type of auditors' report issued on compliance for programs: Unmodified 86

163 MONTEBELLO UNIFIED SCHOOL DISTRICT FINANCIAL STATEMENT FINDINGS FOR THE YEAR ENDED JUNE 30, 2013 None reported. 87

164 MONTEBELLO UNIFIED SCHOOL DISTRICT FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2013 None reported. 88

165 MONTEBELLO UNIFIED SCHOOL DISTRICT STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2013 None reported. 89

166 MONTEBELLO UNIFIED SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2013 Except as specified in previous sections of this report, summarized below is the current status of all audit findings reported in the prior year's Schedule of Findings and Questioned Costs. Financial Statement Findings None reported. Federal Awards Findings None reported. State Awards Findings None reported. 90

167 Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE Governing Board Montebello Unified School District Montebello, California In planning and performing our audit of the financial statements of Montebello Unified School District (the District) for the year ended June 30, 2013, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control structure. However, during our audit, we noted certain matters that are opportunities for strengthening internal controls and operating efficiency. The following item represents a condition noted by our audit that we consider important enough to bring to your attention. This letter does not affect our report dated December 16, 2013, on the financial statements of Montebello Unified School District. CURRENT YEAR OBSERVATIONS AND RECOMMENDATIONS Bandini Elementary School Site Cash Collection Condition During our review of the cash collection procedures it was determined that the monies collected have not been deposited to the District for the entire year as of the audit date. Due to the fact that no deposits were transferred to the District, we were unable to determine if transmittal forms are utilized for deposits. Recommendation It is recommended that the District inform the school site as to the procedures regarding cash collections and subsequently the deposit procedures as well. This will help ensure that deposits are made in a timely manner and are intact. District response The District contacted the school site and communicated with the responsible parties of the set procedures set forth by the District. Through efforts of the District, management determined that appropriate procedures were implemented. Bell Gardens Elementary School Site Cash Collection Condition During our review of the cash collection procedures it was determined that the monies collected have not been deposited to the District for the entire year as of the audit date. Personnel informed the auditor that they did not know what the procedures were to deposit monies to the District. Due to the fact that no deposits were transferred to the District, we were unable to determine if transmittal forms are utilized for deposits Aspen Street Rancho Cucamonga, CA Tel: Fax: FRESNO LAGUNA HILLS PALO ALTO PLEASANTON RANCHO CUCAMONGA riverside Sacramento

168 Governing Board Montebello Unified School District Recommendation It is recommended that the District inform the school site as to the procedures regarding cash collections and subsequently the deposit procedures as well. This will help ensure that deposits are made in a timely manner and are intact. District Rsponse The District contacted the school site and communicated with the responsible parties of the set procedures set forth by the District. Through efforts of the District, management determined that appropriate procedures were implemented. Winter Garden Elementary School Site Cash Collection Condition During our review of the cash collection procedures it was determined that the monies collected in the current year and prior year have not been deposited to the District office. Recommendation It is recommended that the District inform the school site as to the procedures regarding cash collections and subsequently the deposit procedures as well. This will help ensure that deposits are made in a timely manner and are intact. District Response The District contacted the school site and communicated with the responsible parties of the set procedures set forth by the District. Through efforts of the District, management determined that appropriate procedures were implemented. Bell Gardens High School Associated Student Body Condition During our review of the Associated Student Body account, it was noted that the student store inventory listing is not maintained. Recommendation It is our recommendation that in order to prevent loss of inventory that a inventory is maintained and updated on a regular basis. District Response The District contacted the school site and communicated with the responsible parties of the requirement for the Associated Student Body set forth by the District. Through efforts of the District, management determined that appropriate procedures were implemented. 92

169 Governing Board Montebello Unified School District Vail High School Associated Student Body Condition During our review of the Associated Student Body account, the following items were noted: 1. It was determined that the Associated Student Body advisor has been made an authorized signee. Because the advisor also performs the depositing and reconciling of funds, it was determined that proper segregation of duties does not exist. 2. It was noted that the advisor of the Associated Student Body purchased merchandise from a vendor that was also noted to be related to the advisor without the knowledge of the District or Principal. 3. It was noted during our review of disbursement testing, one expense did not include backup documentation. 4. It was noted during our review of disbursement testing, that one expense did not have the required signatures needed for approval. Recommendation It is recommended that a review of Associated Student Body manual be performed by the Associated Student Body to ensure that procedures for proper internal controls are being established and followed. District Response The District contacted the school site and communicated with the responsible parties of the requirement for the Associated Student Body set forth by the District. Through efforts of the District, management determined that appropriate procedures were implemented. La Merced Intermediate Associated Student Body Condition It was noted during our review of the Associated Student Body that the student store listing of inventory is not maintained. Recommendation It is our recommendation that in order to prevent loss of inventory that a inventory is maintained and updated on a regular basis. District Response The District contacted the school site and communicated with the responsible parties of the requirement for the Associated Student Body set forth by the District. Through efforts of the District, management determined that appropriate procedures were implemented. 93

170 Governing Board Montebello Unified School District Macy Intermediate Associated Student Body Condition It was noted during our review of the Associated Student Body that revenue potentials are not being used for all fundraisers. Recommendation It is our recommendation that in order to prevent performing fundraisers that continuously lose money, revenue potential should be utilized for all fundraisers performed. District Response The District contacted the school site and communicated with the responsible parties of the requirement for the Associated Student Body set forth by the District. Through efforts of the District, management determined that appropriate procedures were implemented. We will review the status of the current year comments during our next audit engagement. Rancho Cucamonga, California December 16,

171 APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL Upon issuance and delivery of the Refunding Bonds, Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, proposes to render its final approving opinion with respect to the Refunding Bonds in substantially the following form: [Closing Date] Montebello Unified School District Montebello, California Ladies and Gentlemen: Montebello Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2015 (Final Opinion) We have acted as bond counsel to the Montebello Unified School District (the District ), which is located in the County of Los Angeles (the County ), in connection with the issuance by the District of $28,895,000 aggregate principal amount of Montebello Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2015 (the Bonds ), pursuant to a resolution of the Board of Education of the District adopted on November 6, 2014 (the Resolution ). Capitalized undefined terms used herein have the meanings ascribed thereto in the Resolution. In such connection, we have reviewed the Resolution, the Tax Certificate of the District, dated the date hereof (the Tax Certificate ), certificates of the District, the County and others, and such other documents and matters to the extent we deemed necessary to render the opinions set forth herein. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this letter is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the District. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Resolution and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to ensure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Bonds, the Resolution and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors rights, C-1

172 to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against school districts or counties in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement, dated December 10, 2014, or other offering material relating to the Bonds and express no opinion with respect thereto. Based on and subject to the foregoing and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The Bonds constitute valid and binding obligations of the District. 2. The Resolution has been duly and legally adopted and constitutes a valid and binding obligation of the District. 3. The Board of Supervisors of the County has power and is obligated to levy ad valorem taxes without limitation as to rate or amount upon all property within the District s boundaries subject to taxation by the District (except certain personal property which is taxable at limited rates) for the payment of the Bonds and the interest thereon. 4. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. We express no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP C-2

173 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE THIS CONTINUING DISCLOSURE CERTIFICATE (this Disclosure Certificate ) is executed and delivered by the Montebello Unified School District (the District ) in connection with the issuance of $28,895,000 aggregate principal amount of Montebello Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2015 (the Bonds ). The Bonds are being issued pursuant to a resolution adopted by the Board of Education of the District on November 6, 2014 (the Resolution ). The District covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 hereof. Beneficial Owner shall mean any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries). Dissemination Agent shall mean the District, or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation. Holder shall mean the person in whose name any Bond shall be registered. Listed Events shall mean any of the events listed in Section 5(a) or (b) hereof. MSRB shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at Official Statement shall mean the Official Statement, dated December 10, 2014 (including all exhibits or appendices thereto), relating to the offer and sale of Bonds. Participating Underwriter shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. Rule shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. Section 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than nine months after the end of the District s fiscal year (which due D-1

174 date shall be April 1 of each year, so long as the fiscal year ends on June 30), commencing with the report for the Fiscal Year (which is due not later than April 1, 2015), provide to the MSRB an Annual Report which is consistent with the requirements of Section 4 hereof. The Annual Report must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB, and may cross-reference other information as provided in Section 4 hereof; provided, however, that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the District s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(e) hereof. The Annual Report shall be submitted on a standard form in use by industry participants or other appropriate form and shall identify the Bonds by name and CUSIP number. (b) Not later than 15 business days prior to the date specified in subsection (a), the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If the District is unable to provide to the MSRB an Annual Report by the date required in subsection (a), the District shall send a notice to the MSRB, in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall: (i) (if the Dissemination Agent is other than the District), provide any Annual Report received by it to the MSRB as provided herein; and (ii) (if the Dissemination Agent is other than the District), file a report with the District certifying that the Annual Report has been provided to the MSRB pursuant to this Disclosure Certificate, stating the date it was provided to the MSRB. Section 4. Content of Annual Reports. The District s Annual Report shall contain or include by reference the following: (a) Audited financial statements of the District for the preceding fiscal year, prepared in accordance with the laws of the State of California and including all statements and information prescribed for inclusion therein by the Controller of the State of California. If the District s audited financial statements are not available by the time the Annual Report is required to be provided to the MSRB pursuant to Section 3(a) hereof, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be provided to the MSRB in the same manner as the Annual Report when they become available. (b) To the extent not included in the audited financial statements of the District, the Annual Report shall also include the following: (i) The adopted budget of the District for the then-current fiscal year. (ii) Assessed value of taxable property in the District for the then-current fiscal year as shown on the most recent equalized assessment role. (iii) If the County of Los Angeles (the County ) no longer includes the tax levy for payment of the Bonds in its Teeter Plan, the property tax levies, collections, and delinquencies for the District for the most recently completed fiscal year. D-2

175 (iv) Top ten property owners in the District for the then-current fiscal year, as measured by secured assessed valuation, the amount of their respective taxable value, and their percentage of total secured assessed value. (c) In addition to any of the information expressly required to be provided under subsections (a) and (b) hereof, the District shall provide such further information, if any, as may be necessary to make the specifically required statements, in light of the circumstances under which they are made, not misleading. Any or all of the items listed above may be set forth in one or a set of documents or may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been made available to the public on the MSRB s website. The District shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. (a) The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds not later than ten business days after the occurrence of the event: (i) principal and interest payment delinquencies; (ii) unscheduled draws on debt service reserves reflecting financial difficulties; (iii) unscheduled draws on credit enhancements reflecting financial difficulties; (iv) substitution of the credit or liquidity providers or their failure to perform; (v) adverse tax opinions or issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB); (vi) (vii) (viii) (ix) person. tender offers; defeasances; rating changes; or bankruptcy, insolvency, receivership or similar event of the obligated For the purposes of the event identified in subparagraph (ix), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. D-3

176 (b) The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, not later than ten business days after the occurrence of the event: (i) unless described in paragraph 5(a)(v) hereof, other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; Bonds; (ii) (iii) (iv) (v) modifications to rights of Bond Holders; optional, unscheduled or contingent Bond calls; release, substitution, or sale of property securing repayment of the non-payment related defaults; (vi) the consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; or (vii) appointment of a successor or additional paying agent or the change of name of a paying agent. (c) The District shall give, or cause to be given, in a timely manner, notice of a failure to provide the annual financial information on or before the date specified in Section 4 hereof, as provided in Section 4(b) hereof. (d) Whenever the District obtains knowledge of the occurrence of a Listed Event described in Section 5(b) hereof, the District shall determine if such event would be material under applicable federal securities laws. (e) If the District learns of the occurrence of a Listed Event described in Section 5(a) hereof, or determines that knowledge of a Listed Event described in Section 5(b) hereof would be material under applicable federal securities laws, the District shall within ten business days of occurrence file a notice of such occurrence with the MSRB in electronic format, accompanied by such identifying information as is prescribed by the MSRB. Notwithstanding the foregoing, notice of the Listed Event described in subsections (a)(vii) or (b)(iii) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Resolution. Section 6. Termination of Reporting Obligation. The District s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(e) hereof. Section 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report D-4

177 prepared by the District pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be the District. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Section 3(a) hereof, Section 4 hereof, or Section 5(a) or (b) hereof, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) the undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by the Holders in the same manner as provided in the Resolution for amendments to the Resolution with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(e) hereof, and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate, any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate; provided, that any such action may be instituted only in Superior Court of the State of California in and for the County of Los Angeles or in U.S. District Court in or nearest to the County of Los Angeles. A default under this Disclosure Certificate shall not be deemed an event of default under the Resolution, and the sole remedy under this D-5

178 Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance. Section 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and (if the Dissemination Agent is other than the District), the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Dated:, 2015 MONTEBELLO UNIFIED SCHOOL DISTRICT By: D-6

179 EXHIBIT A NOTICE TO THE MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Name of Issue: MONTEBELLO UNIFIED SCHOOL DISTRICT Montebello Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2015 Date of Issuance:, 2015 NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by Section 4 of the Continuing Disclosure Certificate of the District, dated, [The District anticipates that the Annual Report will be filed by.] Dated: MONTEBELLO UNIFIED SCHOOL DISTRICT D-7

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181 APPENDIX E THE LOS ANGELES COUNTY POOLED SURPLUS INVESTMENTS The following information has been supplied by the County of Los Angeles (the County ) Treasurer and Tax Collector (the Treasurer ). Neither the District nor the Underwriters can make any representations regarding the accuracy and completeness of the information. The full Monthly Investment Report is available from the Treasurer. The County of Los Angeles Treasurer and Tax Collector (the Treasurer ) has the delegated authority to invest funds on deposit in the County Treasury (the Treasury Pool ). As of September 30, 2014, investments in the Treasury Pool were held for local agencies including school districts, community college districts, special districts and discretionary depositors such as cities and independent districts in the following amounts: Local Agency Invested Funds (in billions) County of Los Angeles and Special Districts $7.240 Schools and Community Colleges Discretionary Participants Total $ The Treasury Pool participation composition is as follows: Non-discretionary Participants 88.99% Discretionary Participants: Independent Public Agencies 9.55% County Bond Proceeds and Repayment Funds 1.46% Total % Decisions on the investment of funds in the Treasury Pool are made by the County Investment Officer in accordance with established policy, with certain transactions requiring the Treasurer s prior approval. In Los Angeles County, investment decisions are governed by Chapter 4 (commencing with Section 53600) of Part 1 of Division 2 of Title 5 of the California Government Code, which governs legal investments by local agencies in the State of California, and by a more restrictive Investment Policy developed by the Treasurer and adopted by the Los Angeles County Board of Supervisors on an annual basis. The Investment Policy adopted on June 17, 2014 (a copy of which is attached hereto as Appendix F), reaffirmed the following criteria and order of priority for selecting investments: 1. Safety of Principal 2. Liquidity 3. Return on Investment The Treasurer prepares a monthly Report of Investments (the Investment Report ) summarizing the status of the Treasury Pool, including the current market value of all investments. This report is submitted monthly to the Board of Supervisors. According to the Investment Report dated November 3, 2014, the September 30, 2014 book value of the Treasury Pool was approximately $ billion and the corresponding market value was approximately $ billion. An internal controls system for monitoring cash accounting and investment practices is in place. The Treasurer s Compliance Auditor, who operates independently from the Investment Officer, E-1

182 reconciles cash and investments to fund balances daily. The Compliance Auditor s staff also reviews each investment trade for accuracy and compliance with the Board adopted Investment Policy. On a quarterly basis, the County s outside independent auditor (the External Auditor ) reviews the cash and investment reconciliations for completeness and accuracy. Additionally, the External Auditor reviews investment transactions on a quarterly basis for conformance with the approved Investment Policy and annually accounts for all investments. The following table identifies the types of securities held by the Treasury Pool as of September 30, 2014: Type of Investment % of Pool U.S. Government and Agency Obligations 57.86% Certificates of Deposit Commercial Paper Bankers Acceptances 0.00 Municipal Obligations 0.08 Corporate Notes & Deposit Notes 1.09 Asset Backed Instruments 0.00 Repurchase Agreements 0.00 Other % The Treasury Pool is highly liquid. As of September 30, 2014 approximately 38.17% of the investments mature within 60 days, with an average of 728 days to maturity for the entire portfolio. Neither the District nor the Underwriters have made an independent investigation of the investments in the Treasury Pool or an assessment of the current Investment Policy. The value of the various investments in the Treasury Pool will fluctuate on a daily basis as a result of a multitude of factors, including generally prevailing interest rates and other economic conditions. Additionally, the County may change the Investment Policy at any time. Therefore, there can be no assurance that the values of the various investments in the Treasury Pool will not vary significantly from the values described herein. E-2

183 APPENDIX F COUNTY OF LOS ANGELES INVESTMENT POLICY F-1

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