$20,000,000 CABRILLO UNIFIED SCHOOL DISTRICT (County of San Mateo, California) General Obligation Bonds Election of 2012, Series C

Transcription

1 NEW ISSUE FULL BOOK-ENTRY RATINGS: Moody s: Aa2 S&P: AA- (See RATINGS herein) In the opinion of Dannis Woliver Kelley, San Diego, California, Bond Counsel, subject to compliance by the District with certain covenants, under present law, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, but such interest is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. In addition, in the opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxation imposed by the State of California. See "TAX MATTERS herein. $20,000,000 CABRILLO UNIFIED SCHOOL DISTRICT (County of San Mateo, California) General Obligation Bonds Election of 2012, Series C Dated: Date of Delivery Due: August 1, as shown on inside cover The Cabrillo Unified School District (the District ) General Obligation Bonds, Election of 2012, Series C (the Bonds ) are issued under and pursuant to a bond authorization for the issuance and sale of not more than $81,000,000 of general obligation bonds (the 2012 Authorization ) approved by more than 55% of the registered voters of the District voting at an election held on June 5, 2012 (the Election ). The Bonds are being issued to finance the acquisition, construction, improvement, furnishing and equipping of school facilities for the District as approved at the Election. The Bonds are the third series of general obligation bonds issued under the 2012 Authorization. The Bonds will be issued on a parity basis with all other general obligation bonds of the District. The Board of Supervisors of the County of San Mateo (the County ) has the power and is obligated to annually levy ad valorem taxes upon all property subject to taxation by the District without limitation as to rate or amount (except certain personal property which is taxable at limited rates) for the payment of principal of and interest on the Bonds. See SECURITY FOR THE BONDS herein. The Bonds are dated the date of delivery set forth above and accrue interest at the rates set forth on the inside cover page hereof, payable semiannually on each February 1 and August 1 until maturity, commencing August 1, Payments of principal of and interest on the Bonds will be paid by The Bank of New York Mellon Trust Company, N.A., as the designated paying agent, registrar and transfer agent (the Paying Agent ), to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the Bonds. The Bonds will be issued in book-entry form only and will be initially issued and registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ( DTC ). Purchasers will not receive physical certificates representing their interests in the Bonds. See THE Bonds Description of the Bonds and APPENDIX F Book-Entry Only System herein. The Bonds are subject to optional redemption prior to maturity as described herein. See THE BONDS Redemption herein. MATURITY SCHEDULE (See inside cover) The Bonds were sold to Bank of America Merrill Lynch by competitive sale pursuant to the terms of an Official Notice of Sale dated January 18, See METHOD OF SALE herein. The Bonds are offered when, as and if issued, subject to the approval as to their legality by Dannis Woliver Kelley, San Diego, California, Bond Counsel. Certain legal matters also will be passed upon for the District by Dannis Woliver Kelley, Long Beach, California, as Disclosure Counsel to the District. It is anticipated that the Bonds in book-entry form will be available for delivery through the facilities of DTC in New York, New York, on or about February 1, The date of this Official Statement is January 18, 2017.

2 MATURITY SCHEDULE $20,000,000 CABRILLO UNIFIED SCHOOL DISTRICT (County of San Mateo, California) General Obligation Bonds Election of 2012, Series C Maturity Date (August 1) Principal Amount Interest Rate Yield Price CUSIP (127127) 2018 $20, % 0.880% % JB , JC , C JD , C JE , C JF , C JG , C JH , C JJ , C JK , C JL , JM ,095, JN9 $5,495, % Term Bonds due August 1, 2042 Priced to Yield 3.590% CUSIP JP4 $10,015, % Term Bonds due August 1, 2046 Priced to Yield 3.470% C CUSIP JQ2 C Yield to par call on August 1, Copyright 2017, American Bankers Association. CUSIP data herein are provided by Standard & Poor's CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., and are provided for convenience of reference only. The District does not assume any responsibility for the accuracy of these CUSIP data.

3 Use of Official Statement. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not a contract between any bond owner and the District. No Offering Except by This Official Statement. No dealer, broker, salesperson or other person has been authorized by the District or the Underwriter to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representation must not be relied upon as having been authorized by the District. No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Estimates and Projections. When used in this Official Statement and in any continuing disclosure by the District, in any press release and in any oral statement made with the approval of an authorized officer of the District, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, forecast, expect, intend and similar expressions identify forward looking statements within the meaning of the Private Securities Litigation Reform Act of Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. Information in Official Statement. The information set forth in this Official Statement has been furnished by the District and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness. Document Summaries. All summaries of the Resolution or other documents referred to in this Official Statement are made subject to the provisions of such documents and qualified in their entirety to reference to such documents, and do not purport to be complete statements of any or all of such provisions. No Securities Laws Registration. The Bonds have not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exceptions therein for the issuance and sale of municipal securities. The Bonds have not been registered or qualified under the securities laws of any state. Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, give rise to any implication that there has been no change in the affairs of the District, County of San Mateo, the other parties described in this Official Statement, or the condition of the property within the District since the date of this Official Statement.

4 CABRILLO UNIFIED SCHOOL DISTRICT (County of San Mateo, California) DISTRICT GOVERNING BOARD Freya McCamant, President Rob Pappalardo, Vice-President Kirk Riemer, Clerk Sophia Layne, Member Kimberly Hines, Member DISTRICT ADMINISTRATION Jane Yuster, Superintendent John Corry, Assistant Superintendent Personnel/Pupil Services Joy Dardenelle, Assistant Superintendent Curriculum & Instruction Crystal Leach, Chief Business Official FINANCIAL ADVISOR Isom Advisors, a Division of Urban Futures, Inc. Walnut Creek, California BOND COUNSEL AND DISCLOSURE COUNSEL Dannis Woliver Kelley San Diego, California PAYING AGENT, TRANSFER AGENT, AND BOND REGISTRAR The Bank of New York Mellon Trust Company, N.A. Los Angeles, California

5 TABLE OF CONTENTS Page INTRODUCTION... 1 Description of the Bonds THE BONDS... 3 Authority for Issuance... 3 Purpose of Issue... 3 Description of the Bonds... 3 Payment of the Bonds... 4 Paying Agent... 4 Redemption... 4 Registration, Transfer and Exchange of Bonds... 6 Defeasance of Bonds... 7 DEBT SERVICE SCHEDULES... 8 SOURCES AND USES OF FUNDS APPLICATION OF PROCEEDS OF BONDS Building Fund Interest and Sinking Fund Investment of Proceeds of Bonds SECURITY FOR THE BONDS General Ad Valorem Property Taxation Assessed Valuations Appeals of Assessed Value Property Tax Collections Largest Secured Property Taxpayers in District Overlapping Debt Obligations COUNTY INVESTMENT POOL LEGAL OPINION TAX MATTERS NO LITIGATION RATINGS CONTINUING DISCLOSURE METHOD OF SALE ADDITIONAL INFORMATION APPENDIX A - DISTRICT GENERAL AND FINANCIAL INFORMATION APPENDIX B - AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2015 APPENDIX C - GENERAL INFORMATION ABOUT THE COUNTY OF SAN MATEO APPENDIX D - FORM OF OPINION OF BOND COUNSEL APPENDIX E - FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX F - BOOK-ENTRY ONLY SYSTEM APPENDIX G - SAN MATEO COUNTY INVESTMENT POOL INVESTMENT POLICY AND MONTHLY INVESTMENT REPORT

6 [THIS PAGE INTENTIONALLY LEFT BLANK]

7 OFFICIAL STATEMENT $20,000,000 CABRILLO UNIFIED SCHOOL DISTRICT (County of San Mateo, California) General Obligation Bonds Election of 2012, Series C The purpose of this Official Statement, which includes the cover page, inside cover page and attached appendices, is to set forth certain information concerning the sale and delivery by the Cabrillo Unified School District (the District ) of the bonds captioned above (the Bonds ). All capitalized terms used in this Official Statement, unless noted otherwise, have the meanings set forth in the Resolution (as defined below). 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 Bonds to potential investors is made only by means of the entire Official Statement. The District. The District, located south of San Francisco along the west coast of San Mateo County, serves the communities of Montara, Moss Beach, Half Moon Bay, El Granada and Woodside. Currently, the District operates four elementary schools, one intermediate school and one high school. In addition, the District maintains one adult education facility and one alternative high school. Enrollment for fiscal year is 3,269 students. For more information on the District, see APPENDIX A DISTRICT GENERAL AND FINANCIAL INFORMATION. Description of the Bonds. Form of Bonds. The Bonds mature in the years and in the amounts as set forth on the inside cover page hereof. The Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee for DTC. Purchasers will not receive physical certificates representing their interest in the Bonds. See THE BONDS Description of the Bonds, Book-Entry Only System below and APPENDIX F Book-Entry Only System. REGISTRATION. THE BONDS WILL BE ISSUED IN FULLY REGISTERED FORM ONLY, REGISTERED IN THE NAME OF CEDE & CO. AS NOMINEE OF THE DEPOSITORY TRUST COMPANY, NEW YORK, NEW YORK ( DTC ), AND WILL BE AVAILABLE TO ACTUAL PURCHASERS OF THE BONDS (THE BENEFICIAL OWNERS ) IN THE DENOMINATIONS SET FORTH ON THE INSIDE COVER PAGE HEREOF, 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 BE ENTITLED TO RECEIVE PHYSICAL DELIVERY OF THE BONDS. SEE APPENDIX F - BOOK-ENTRY ONLY SYSTEM. IN THE EVENT THAT THE BOOK-ENTRY-ONLY SYSTEM DESCRIBED BELOW IS NO LONGER USED WITH RESPECT TO THE BONDS, THE BONDS WILL BE REGISTERED IN ACCORDANCE WITH THE RESOLUTION DESCRIBED HEREIN. SEE THE BONDS -- REGISTRATION, TRANSFER AND EXCHANGE OF BONDS.

8 Redemption. The Bonds are subject to redemption prior to maturity as described below. See THE BONDS - Redemption herein. Authority for Issuance of the Bonds. Issuance of the Bonds was approved by the requisite 55% of the voters of the District voting at an election held on June 5, 2012 (the Authorization ), and the Bonds will be issued pursuant to certain provisions of the Government Code of the State of California (the State ) and a resolution adopted by the District on December 8, 2016 (the Resolution ). See THE BONDS - Authority for Issuance herein. Security for the Bonds. The Bonds are general obligations of the District. The Board of Supervisors of the County of San Mateo (the County ) has the power and is obligated to annually levy ad valorem taxes for the payment of the Bonds and the interest thereon upon all property within the District subject to taxation without limitation of rate or amount (except certain personal property which is taxable at limited rates). See SECURITY FOR THE BONDS herein. Purpose of Issue. The net proceeds of the Bonds will be used to finance the specific school facilities projects set forth in the ballot measure approved in connection with the 2012 Authorization. See THE BONDS -- Purpose of Issue and ESTIMATED SOURCES AND USES OF FUNDS herein. Offering and Delivery of the Bonds. The Bonds are offered when, as and if issued and received by the purchasers, subject to approval as to their legality by Dannis Woliver Kelley, as bond counsel ( Bond Counsel ). It is anticipated that the Bonds will be available for delivery through the facilities of DTC on or about February 1, Legal Matters. Issuance of the Bonds is subject to the approving opinion of Bond Counsel, to be delivered in substantially the form attached hereto as Appendix D. Dannis Woliver Kelley, Long Beach, California, is serving as disclosure counsel ( Disclosure Counsel ) to the District. Payment of the fees of Bond Counsel and Disclosure Counsel is contingent upon issuance of the Bonds. Tax Matters. Assuming compliance with certain covenants and provisions of the Internal Revenue Code of 1986, in the opinion of Bond Counsel, interest on the Bonds will not be includable in gross income for federal income tax purposes although it may be includable in the calculation for certain taxes. Also in the opinion of Bond Counsel, interest on the Bonds will be exempt from State of California (the State ) personal income taxes. See TAX MATTERS herein. Continuing Disclosure. The District has covenanted and agreed that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. The form of the Continuing Disclosure Certificate is included in Appendix E hereto. See APPENDIX E - FORM OF CONTINUING DISCLOSURE CERTIFICATE hereto. Other Information. For limiting factors about this Official Statement, see General Information About This Official Statement inside the cover hereof. Copies of documents referred to herein and information concerning the Bonds are available from the Superintendent, Cabrillo Unified School District, 498 Kelly Avenue, Half Moon Bay, California (the Superintendent's Office ). The District may impose a charge for copying, mailing and handling. -2-

9 THE BONDS Authority for Issuance The Bonds are issued under the provisions of Article 4.5 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code (the Bond Law ) and under the Resolution. Pursuant to the Authorization, the District received approval, by over 55% vote of the qualified electors, to issue general obligation bonds in a principal amount not to exceed $81,000,000. The Bonds are the third series of general obligation bonds to be issued under the Authorization. Subsequent to the issuance of the Bonds, $23,000,000 aggregate principal amount of general obligation bonds will remain for issuance under the 2012 Authorization. In addition to general obligation bonds issued pursuant to the 2012 Authorization, the District has other general obligation bonds outstanding. See APPENDIX A DISTRICT GENERAL AND FINANCIAL INFORMATION District Long-Term Debt. Purpose of Issue The proceeds of the Bonds will be used for the specific school facilities projects set forth in the ballot measure approved by the District's voters, the short form of which is as follows: Description of the Bonds To improve the quality of education in local schools by replacing leaky roofs; performing essential safety repairs on classrooms and facilities; updating science labs, equipping classrooms with 21 st century technology; maximizing energy efficiency and conservation to save money; and renovating, constructing and equipping classrooms and facilities; shall Cabrillo Unified School District issue $81 million in bonds at legal rates with citizen oversights, annual audits, no funds for administrator salaries, and all funds staying in local schools? The Bonds will be dated their date of delivery and will be issued only as fully registered bonds in denominations of $5,000 principal amount or integral multiples thereof. The Bonds will be issued in fully registered form and, when issued, will be registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for the Bonds. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references herein to the Owners or registered owners shall mean Cede & Co. as aforesaid, and shall not mean the Beneficial Owners (as defined herein) of the Bonds. So long as Cede & Co. is the registered owner of the Bonds, principal of and interest or premium, if any, on the Bonds are payable by wire transfer or New York Clearing House or equivalent next-day funds or by wire transfer of same day funds by The Bank of New York Mellon Trust Company, N.A., as appointee of the Treasurer-Tax Collector of the County of San Mateo, as paying agent, to Cede & Co., as nominee for DTC. DTC is obligated, in turn, to remit such amounts to the DTC Participants (as defined herein) for subsequent disbursement to the Beneficial Owners. See APPENDIX F BOOK-ENTRY ONLY SYSTEM herein. -3-

10 Payment of the Bonds Interest on the Bonds is payable semiannually on February 1 and August 1 of each year (each, an Interest Payment Date ) through maturity commencing on August 1, Interest on each Bond shall accrue from its dated date at the interest rates applicable thereto as set forth on the cover page hereof. Interest shall be computed using a year of 360 days comprised of twelve 30-day months and shall be payable on each Interest Payment Date to the Owner thereof as of the close of business on the fifteenth calendar day of the month next preceding an Interest Payment Date (the Record Date ). Interest will be payable from the Interest Payment Date next preceding the date of registration thereof, unless (i) it is registered during the period from the 16 th day of the month immediately preceding any Interest Payment Date to that Interest Payment Date, in which event interest with respect thereto shall be payable from such Interest Payment Date; or (ii) it is registered prior to the close of business on July 15, 2017, in which event interest shall be payable from its Dated Date; provided, however, that if at the time of registration of any Bond interest with respect thereto is in default, interest with respect thereto shall be payable from the Interest Payment Date to which interest has previously been paid or made available for payment. Payments of interest will be made on each Interest Payment Date by check or draft of the Paying Agent sent by first-class mail, postage prepaid, to the Owner thereof on the Record Date, or by wire transfer, to the account specified by such Owner in a written request delivered to the Paying Agent on or prior to the Record Date for such Interest Payment Date; provided, however, that payments of defaulted interest shall be payable to the person in whose name such Bond is registered at the close of business on a special record date fixed therefor by the Paying Agent which shall not be more than 15 days and not less than ten days prior to the date of the proposed payment of defaulted interest. Paying Agent Pursuant to the Resolution, the District has appointed the Treasurer-Tax Collector of the County of San Mateo (the County Treasurer ), or its appointee, as the paying agent for the Bonds. The County Treasurer has appointed The Bank of New York Mellon Trust Company, N.A. to act, on behalf of the County, as the registrar, transfer agent, and paying agent for the Bonds (the Paying Agent ). As long as DTC is the registered owner of the Bonds and DTC s book-entry method is used for the Bonds, the Paying Agent will send any notice of redemption or other notices to owners only to DTC. Any failure of DTC to advise any DTC Participant, or of any DTC Participant to notify any Beneficial Owner, of any such notice and its content or effect will not affect the validity or sufficiency of the proceedings relating to the redemption of the Bonds called for redemption or of any other action covered by such notice. The Paying Agent and the District have no responsibility or liability for any aspects of the records relating to or payments made on account of beneficial ownership, or for maintaining, supervising or reviewing any records relating to beneficial ownership, of interests in the Bonds. Redemption Optional Redemption. The Bonds maturing on or before August 1, 2026 are not subject to redemption prior to their stated maturity dates. The Bonds maturing on or after August 1, 2027 are subject to redemption prior to maturity, at the option of the District, in whole or in part among maturities on such basis as shall be designated by the District and by lot within a maturity, from any available source of funds, on August 1, 2026, or on any date thereafter, at a price equal to 100% of the principal amount thereof, without premium, together with accrued interest thereon to the redemption date.. Mandatory Redemption. The Bonds maturing on August 1, 2042 are subject to redemption prior to maturity from mandatory sinking fund payments on August 1 of each year, as shown in the following -4-

11 tables, at a redemption price equal to the principal amount thereof, together with accrued interest to the date fixed for redemption, without premium. Redemption Date (August 1) Principal Amount (1) Maturity $1,200, ,310, ,430, (1) 1,555,000 The Bonds maturing on August 1, 2046 are subject to redemption prior to maturity from mandatory sinking fund payments on August 1 of each year, as shown in the following tables, at a redemption price equal to the principal amount thereof, together with accrued interest to the date fixed for redemption, without premium. Redemption Date (August 1) Principal Amount (1) Final maturity $1,685, ,830, ,130, (1) 3,370,000 Selection of Bonds for Redemption. If less than all of the Bonds are subject to redemption and are called for redemption, such Bonds shall be redeemed in inverse order of maturities or as otherwise directed by the District, and if less than all of the Bonds of any given maturity are called for redemption, the portions of such Bonds of a given maturity to be redeemed shall be determined by lot. Notice of Redemption. The Paying Agent will cause notice of any redemption to be mailed, by first class mail, 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 maintained by the Paying Agent, 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 Bonds and the date of issue of the Bonds; (iii) the redemption date; (iv) the redemption price; (v) the series of Bonds and the dates of maturity or maturities of Bonds to be redeemed, the distinctive numbers of the Bonds of each maturity of such series to be redeemed; (vii) in the case of Bonds of a series redeemed in part only, the respective portions of the principal amount of the Bonds of each maturity of such series to be redeemed; (viii) the CUSIP number, if any, of each maturity of Bonds of a series to be redeemed; (ix) a statement that such 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 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. -5-

12 Effect of Notice. A certificate of the Paying Agent that notice of redemption has been given to Owners shall be conclusive as against all parties. Neither the failure to receive the notice of redemption, nor any defect in such notice shall affect the sufficiency of the proceedings for the redemption of the Bonds or the cessation of interest on the date fixed for redemption. When notice of redemption has been given substantially as provided in the Resolution, and when the redemption price of the Bonds called for redemption is set aside for such purpose, the 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 Bonds at the place specified in the notice of redemption, such Bonds shall be redeemed and paid at the redemption price thereof out of the money provided therefor. The Owners of such Bonds so called for redemption after such redemption date shall be entitled to payment thereof only from the interest and sinking fund or the trust fund established for such purpose. All Bonds redeemed shall be cancelled forthwith by the Paying Agent and shall not be reissued. Right to Rescind Notice of Redemption. 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 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 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 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 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. Funds for Redemption. Prior to or on the redemption date of any Bonds there shall be available in the interest and sinking fund of the District, or held in trust for such purpose as provided by law, monies for the purpose and sufficient to redeem, at the redemption prices as in this Resolution provided, the Bonds designated in the notice of redemption. Such monies shall be applied on or after the redemption date solely for payment of principal of, interest and premium, if any, on the Bonds to be redeemed upon presentation and surrender of such Bonds, provided that all monies in the interest and sinking fund of the District shall be used for the purposes established and permitted by law. Any interest due on or prior to the redemption date shall be paid from the interest and sinking fund of the District, unless otherwise provided to be paid from such monies held in trust. If, after all of the Bonds have been redeemed and cancelled or paid and cancelled, there are monies remaining in the interest and sinking fund of the District or otherwise held in trust for the payment of redemption price of the Bonds, the monies shall be held in or returned or transferred to the interest and sinking fund of the District for payment of any outstanding bonds of the District payable from such fund; provided, however, that if the monies are part of the proceeds of bonds of the District, the monies shall be transferred to the fund created for the payment of principal of and interest on such bonds. If no such bonds of the District are at such time outstanding, the monies shall be transferred to the general fund of the District as provided and permitted by law. Registration, Transfer and Exchange of Bonds Following the termination or removal of DTC or successor depository, any Bond may, in accordance with its terms, be transferred, upon the Registration Books, by the Owner thereof, in person or by the duly authorized attorney of such Owner, upon surrender of such Bond to the Paying Agent for cancellation, accompanied by delivery of a duly executed written instrument of transfer in a form approved by the Paying Agent. Whenever any Bond or Bonds shall be surrendered for transfer, the designated District officials shall execute and the Paying Agent shall authenticate and deliver a new Bond or Bonds, of the same maturity, Interest Payment Date and interest rate. The Paying Agent may require -6-

13 the payment by any Owner of Bonds requesting any such transfer of any tax or other governmental charge required to be paid with respect to such transfer. The Bonds may be exchanged for Bonds of other authorized denominations of the same maturity and Interest Payment Date, by the Owner thereof, in person or by the duly authorized attorney of such Owner, upon surrender of such Bond to the Paying Agent for cancellation, accompanied by delivery of a duly executed request for exchange in a form approved by the Paying Agent. No transfer or exchange of any Bonds are required to be made (a) during the period established by the Paying Agent for selection of Bonds for redemption or (b) with respect to a Bond which has been selected for redemption. Defeasance of Bonds If at any time the District shall pay or cause to be paid or there shall otherwise be paid to the Owners of any or all of the outstanding Bonds all or any part of the principal, interest and premium, if any, on the Bonds at the times and in the manner provided in the Resolution, or as provided in the following paragraph, or as otherwise provided by law consistent with the Resolution, then such Owners shall cease to be entitled to the obligation of the District, and such obligation and all agreement and covenants of the District and of the County to such Owners shall thereupon be satisfied and discharged and shall terminate, except only that the District shall remain liable for payment of all principal, interest and premium, if any, represented by the Bonds, but only out of monies on deposit in the interest and sinking fund or otherwise held in trust for such payment. The District may pay and discharge any or all of the Bonds by depositing in trust with the Paying Agent or an escrow agent, selected by the District, at or before maturity, money 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 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 monies then on deposit in the interest and sinking fund of the District, be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates. -7-

14 DEBT SERVICE SCHEDULES The following table shows the debt service schedule with respect to the Bonds (assuming no optional redemptions). CABRILLO UNIFIED SCHOOL DISTRICT DEBT SERVICE SCHEDULE The Bonds Bond Year ending August 1 Principal Amount Interest Total $384, $384, $20, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,012, , , ,043, , , ,081, , , ,122, , , ,165, , , ,206, , , ,250, ,095, , ,724, ,200, , ,792, ,310, , ,860, ,430, , ,935, ,555, , ,010, ,685, , ,085, ,830, , ,163, ,130, , ,390, ,370, , ,504, TOTAL $20,000, $19,133, $39,133,

15 In August 1996, the District issued $34,996, aggregate issue amount of its 1996 General Obligation Bonds, Series A (the 1996 Bonds ), on October 25, 2012, the District issued $18,000,000 aggregate principal amount of its General Obligation Bonds, 2012 Election, Series A (the Series A Bonds ) and on January 28, 2015, the District issued $20,000,000 aggregate principal amount of its General Obligation Bonds, 2012 Election, Series B (the Series B Bonds ) under the 2012 Authorization. See APPENDIX A DISTRICT GENERAL AND FINANCIAL INFORMATION District Long- Term Debt. The following table shows the debt service schedule with respect to the 1996 Bonds, the Series A Bonds, the Series B Bonds and the Bonds (assuming no optional redemptions). CABRILLO UNIFIED SCHOOL DISTRICT Debt Service Schedule All General Obligation Bonds Bond Year Ending (August 1) 1996 Bonds Series A Bonds Series B Bonds The Bonds Total 2017 $4,470, $1,049, $1,466, $384, $7,370, ,725, ,061, , , ,294, ,990, ,077, , , ,599, ,275, ,097, , , ,907, ,580, ,116, , , ,253, ,133, , , ,723, ,151, , , ,773, ,164, , , ,823, ,185, , , ,862, ,202, , , ,917, ,222, , , ,977, ,244, ,015, , ,026, , ,060, , ,925, , ,091, , ,007, , ,136, ,012, ,094, , ,174, ,043, ,177, , ,220, ,081, ,281, , ,264, ,122, ,379, ,008, ,306, ,165, ,480, ,022, ,355, ,206, ,584, ,040, ,399, ,250, ,689, ,450, ,724, ,175, ,503, ,792, ,296, ,556, ,860, ,417, ,611, ,935, ,546, ,666, ,010, ,676, ,727, ,085, ,813, ,794, ,163, ,957, ,390, ,390, ,504, ,504, Total $25,040, $22,517, $33,241, $39,133, $119,931,

16 SOURCES AND USES OF FUNDS The proceeds of the Bonds are expected to be applied as follows: Sources of Funds Principal Amount of Bonds $20,000, Net Original Issue Premium 571, Total Sources $20,571, Uses of Funds Deposit to Building Fund $19,835, Deposit to Debt Service Fund (1) 400, Costs of Issuance (2) 336, Total Uses $20,571, (1) Comprises capitalized interest on the Bonds through August 7, (2) Payment of Underwriter s discount, Bond and Disclosure Counsel fees, financial advisory fees, rating agency fees and Building Fund other costs of issuance. APPLICATION OF PROCEEDS OF BONDS Pursuant to the Resolution, the County Treasurer will deposit the proceeds from the sale of the Bonds into a fund known as the Building Fund. The District will maintain separate accounting for the proceeds of the Bonds, including all earnings received from the investment thereof. Amounts credited to the Building Fund for the Bonds will be expended by the District solely for the financing of projects for which the Bond proceeds are authorized to be expended under the 2012 Authorization, and for payment of costs of issuance, if any. See THE BONDS Purpose of Issue herein. All interest and other gain arising from the investment of proceeds of the Bonds will be retained in the Building Fund and used for the purposes thereof. At the written request of the District filed with the County Treasurer, any amounts remaining on deposit in the Building Fund and not needed for the purposes thereof shall be withdrawn from the Building Fund and transferred to the Interest and Sinking Fund (defined below), to be applied to pay debt service on the Bonds. If excess amounts remain on deposit in the Building Fund after payment in full of the Bonds, any such excess amounts shall be transferred to the general fund of the District, to be applied for the purposes for which the Bonds have been authorized or otherwise in accordance with the Bond Law. The County has no obligation regarding the use or application of the proceeds of the Bonds. Interest and Sinking Fund The District will establish an interest and sinking fund for the Bonds (the Interest and Sinking Fund ). The Interest and Sinking Fund will be maintained by the County Treasurer as a separate account, distinct from all other funds of the District. The County Treasurer will deposit or cause to be deposited into the Interest and Sinking Fund any premium received by the County Treasurer on the sale of the Bonds, and the proceeds of taxes levied for the payment of debt service on the Bonds. The Interest and Sinking Fund is pledged for the payment of the principal of and interest on the Bonds when and as the same become due, including the principal of any term Bonds required to be paid upon the mandatory sinking fund redemption thereof. Amounts in the Interest and Sinking Fund will be transferred by the County to the Paying Agent to the extent required to pay the principal of and interest on -10-

17 and redemption premium (if any) on the Bonds when due. In addition, amounts on deposit in the Interest and Sinking Fund will be applied to pay the fees and expenses of the Paying Agent insofar as permitted by law. If, after payment in full of the Bonds, any amounts remain on deposit in the Interest and Sinking Fund, the County shall transfer such amounts to the General Fund of the District as provided in Section of the Education Code of the State. Investment of Proceeds of Bonds All moneys held in any of the funds or accounts established with the County under the Resolution will be invested in any one or more investments generally permitted to school districts under the laws of the State, consistent with the County s current investment policy. Such investments will be made under the direction and at the discretion of the County Treasurer. Obligations purchased as an investment of moneys in any fund or account constitute a part of such fund or account. All interest or gain derived from the investment of amounts in any of the funds or accounts established under the Resolution will be deposited in the fund or account from which such investment was made, and will be expended for the purposes thereof. See COUNTY INVESTMENT POOL herein for a description of the County's investment policy and investment portfolio. General SECURITY FOR THE BONDS The Board of Supervisors of the County has the power and is obligated to levy ad valorem taxes for the payment of the Bonds and the interest accruing and accreting thereon upon all property within the District subject to taxation by the District without limitation as to rate or amount (except certain personal property which is taxable at limited rates). Such taxes are required to be levied annually, in addition to all other taxes, during the period that the Bonds are outstanding in an amount sufficient to pay the principal of and interest on the Bonds when due. Such taxes, when collected, will be deposited into the appropriate debt service fund for the Bonds, which is maintained by the County and which is created by statute for the payment of principal of and interest on the Bonds when due. Although the County is obligated to levy an ad valorem tax for the payment of the Bonds, and will maintain the Interest and Sinking Fund pledged to the repayment of the Bonds, the Bonds are not a debt of the County. The moneys in the Interest and Sinking Fund, to the extent necessary to pay the principal and interest on the Bonds as the same become due and payable, shall be transferred by the County to the Paying Agent which, in turn, shall pay such moneys to DTC to pay the principal of and interest on the Bonds. DTC will thereupon make payments of principal of and interest on the Bonds to the DTC Participants who will thereupon make payments of principal of and interest to the beneficial owners of the Bonds. See APPENDIX F BOOK-ENTRY ONLY SYSTEM. The amount of the annual ad valorem tax levied by the County to repay the Bonds will be determined by the relationship between the assessed valuation of taxable property in the District and the amount of debt service due on the Bonds. A reduction in the assessed valuation of taxable property in the District caused by economic factors beyond the District s control, such as economic recession, slower growth, or deflation of land values, a relocation out of the District by one or more major property owners, or the complete or partial destruction of such property caused by, among other eventualities, an earthquake, flood or other natural disaster, could cause a reduction in the assessed value of the District and necessitate an unanticipated increase in the annual tax levy. -11-

18 Ad Valorem Property Taxation Taxes are levied by the County for each fiscal year on taxable real and personal property which is situated in the District as of the preceding January 1. For assessment and collection purposes, property is classified either as secured or unsecured and is listed accordingly on separate parts of the assessment roll. The secured roll is that part of the assessment roll containing State-assessed public utilities property and real property having a tax lien which is sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the unsecured roll. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. Property on the secured roll with respect to which taxes are delinquent becomes tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1.5% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is subject to sale by the Tax Collector and Treasurer. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid, on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid by 5:00 p.m. on October 31, an additional penalty of 1.5% attaches to them on the first day of each month until paid. The taxing authority has four ways of collecting delinquent unsecured personal property taxes: (1) bringing a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Clerk and County Recorder s office in order to obtain a lien on certain property of the taxpayer; and (4) seizing and selling personal property, improvements, or possessory interests belonging or assessed to the assessee. Assessed Valuations The assessed valuation of property in the District is established by the County Assessor, except for public utility property which is assessed by the State Board of Equalization. Assessed valuations are reported at 100% of the full value of the property, as defined in Article XIIIA of the California Constitution. The full value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the area, or to reflect declines in property value caused by substantial damage, destruction or other factors, including assessment appeals filed by property owners. For a discussion of how properties currently are assessed, see APPENDIX A DISTRICT GENERAL AND FINANCIAL INFORMATION. Certain classes of property, such as churches, colleges, not-for-profit hospitals, and charitable institutions, are exempt from property taxation and do not appear on the tax rolls. [Remainder of page intentionally left blank] -12-

19 Property within the District has a local secured taxable assessed valuation for fiscal year of $5,924,728,011. Shown in the following table are the assessed valuations for the District from to CABRILLO UNIFIED SCHOOL DISTRICT Assessed Valuation Fiscal Year through Fiscal Year Local Secured Utility Unsecured Total % Change $3,368,230,757 $162,493 $60,300,589 $3,428,693, % ,604,284, ,493 57,941,453 3,662,388, ,974,264, ,922 58,069,829 4,032,523, ,323,627, ,919 63,282,397 4,387,099, ,578,075, ,500 81,469,568 4,659,723, ,850,935, ,500 70,312,903 4,921,435, ,878,990, ,500 81,230,226 4,960,408, ,861,921, ,500 73,983,765 4,936,092, ,931,615, ,000 89,651,741 5,021,417, ,016,918, ,000 83,256,937 5,100,325, ,101,792, ,000 88,078,938 5,190,021, ,321,384, ,000 90,250,928 5,411,785, ,676,276, , ,619,426 5,777,001, ,924,728, ,000 96,505,742 6,021,338, Source: California Municipal Statistics, Inc. [Remainder of page intentionally left blank] -13-

20 Valuation of Single Family Residential Parcels. The following table shows a breakdown of the assessed valuations of improved single-family residential parcels in the District, according to fiscal year assessed valuation. CABRILLO UNIFIED SCHOOL DISTRICT Per Parcel Assessed Valuation of Single Family Homes No. of Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single Family Residential 7,245 $4,610,108,783 $636,315 $580, No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $99, % 7.012% $ 37,997, % 0.824% $100,000 - $199, ,553, $200,000 - $299, ,314, $300,000 - $399, ,586, $400,000 - $499, ,524, $500,000 - $599, ,642, $600,000 - $699, ,194, $700,000 - $799, ,572, $800,000 - $899, ,177, $900,000 - $999, ,284, $1,000,000 - $1,099, ,596, $1,100,000 - $1,199, ,243, $1,200,000 - $1,299, ,266, $1,300,000 - $1,399, ,086, $1,400,000 - $1,499, ,798, $1,500,000 - $1,599, ,183, $1,600,000 - $1,699, ,132, $1,700,000 - $1,799, ,475, $1,800,000 - $1,899, ,991, $1,900,000 - $1,999, ,472, $2,000,000 and greater ,012, Total 7, % $4,610,108, % (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc. [Remainder of page intentionally left blank] -14-

21 Typical Total Tax Rates. Typical tax rates (for Tax Rate Area ) for the District for fiscal years through are shown below. CABRILLO UNIFIED SCHOOL DISTRICT Typical Total Tax Rates (TRA ) General Montara Sanitation District Cabrillo Unified School District San Mateo Community College District Total Source: California Municipal Statistics, Inc. The District is composed of mostly residential properties, with over 61% of total parcels used for residential properties, representing over 86% of the District s assessed valuation in fiscal year Shown in the following table are the secured assessed valuations and parcels by land use for fiscal year CABRILLO UNIFIED SCHOOL DISTRICT Local Secured Property Assessed Valuation and Parcels by Land Use % of No. of % of Non-Residential: Assessed Valuation (1) Total Parcels Total Agricultural/Rural $255,937, % % Commercial/Office 228,223, Industrial 50,563, Recreational 42,709, Government/Social/Institutional 30,159, Miscellaneous 6,925, Subtotal Non-Residential $614,519, % 1, % Residential: Single Family Residence $4,610,108, % 7, % Condominium/Townhouse 112,315, Mobile Home 12,183, Mobile Home Park 8,112, Hotel/Motel 234,453, Residential Units 144,164, Residential Units/Apartments 23,564, Subtotal Residential $5,144,902, % 8, % Vacant Parcels $165,305, % 3, % Total $5,924,728, % 13, % (1) Local Secured Assessed Valuation; excluding tax-exempt property. Source: California Municipal Statistics, Inc. -15-

22 Appeals of Assessed Value General. There are two types of appeals of assessed values that could adversely impact property tax revenues within the District. Appeals may be based on Proposition 8 of November 1978, which requires that for each January 1 lien date, the taxable value of real property must be the lesser of its base year value, annually adjusted by the inflation factor pursuant to Article XIIIA of the State Constitution, or its full cash value, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in value. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS in Appendix A. Under California law, property owners may apply for a reduction of their property tax assessment by filing a written application, in form prescribed by the State Board of Equalization, with the County board of equalization or assessment appeals board. In most cases, the appeal is filed because the applicant believes that present market conditions (such as residential home prices) cause the property to be worth less than its current assessed value. Proposition 8 reductions may also be unilaterally applied by the County Assessor. Any reduction in the assessment ultimately granted as a result of such appeal applies to the year for which application is made and during which the written application was filed. These reductions are subject to yearly reappraisals and are adjusted back to their original values when market conditions improve. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS in Appendix A. A second type of assessment appeal involves a challenge to the base year value of an assessed property. Appeals for reduction in the base year value of an assessment, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. The base year is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date. In , assessed valuation declined in the County by $2 billion, primarily attributable to residential foreclosures in 2009 and The County maintains procedures under Proposition 8 whereby homeowners can file appeals of assessed valuation. The District cannot predict the changes in assessed values that might result from pending or future appeals by taxpayers, or that may occur for any other reason. Any reduction in aggregate District assessed valuation due to appeals, as with any reduction in assessed valuation due to other causes, will cause the annual tax rate levied for general obligation bonds against property in the District to increase accordingly. Property Tax Collections The Board of Supervisors of the County has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan"), as provided for in Section 4701 et seq. of the California Revenue and Taxation Code. Under the Teeter Plan, each entity levying property taxes in the County may draw on the amount of uncollected secured taxes credited to its fund, in the same manner as if the amount credited had been collected. The District participates in the Teeter Plan, and thus receives 100% of secured property taxes levied in exchange for foregoing any interest and penalties collected on delinquent taxes. However, under the statute creating the Teeter Plan, the Board of Supervisors could under certain circumstances terminate the Teeter Plan in its entirety and, in addition, -16-

23 the Board of Supervisors could terminate the Teeter Plan if the delinquency rate for all ad valorem property taxes levied within the District in any year exceeds 3%. In the event that the Teeter Plan were terminated, the amount of the levy of ad valorem property taxes in the District would depend upon the collections of the ad valorem property taxes and delinquency rates experienced with respect to the parcels within the District. The following table shows secured tax charges and delinquencies for taxes collected by the County on all property within the District s boundaries for fiscal years through with respect to the tax levy for debt service on general obligation bonds. CABRILLO UNIFIED SCHOOL DISTRICT Secured Tax Charges and Delinquency Rates Fiscal Years through Secured Tax Charge (1) Amt. Delinquent June 30 % Delinquent June $2,542, $40, % ,567, , ,635, , ,713, , ,081, , Debt service levy only. 2 The County Board of Supervisors can terminate the Teeter Plan with respect to the District if the delinquency rate for ad valorem property taxes within the District in any year exceeds 3%. Source: California Municipal Statistics, Inc. [Remainder of page intentionally left blank] -17-

24 Largest Secured Property Taxpayers in District The largest twenty secured taxpayers in the District account for 6.72% of total secured assessed valuation. The following table shows the 20 largest secured property taxpayers in the District as determined by secured assessed valuation in fiscal year CABRILLO UNIFIED SCHOOL DISTRICT Largest Local Secured Taxpayers Fiscal Year % of Property Owner Primary Land Use Assessed Valuation Total (1) 1. SHC Half Moon Bay LLC Hotel $143,520, % 2. Ocean Colony Partners LP Golf Course 45,289, Nerhan Keet Hotel 27,702, Point Pillar Project Developer Hotel 26,507, Lifemark Group Inc. Cemetery 17,880, Regency Centers LP Shopping Center 15,121, Saguaro National Insurance Co. Undeveloped 13,951, IWF Half Moon Bay LLC Hotel 10,421, M. Keith Waddell, Trust Agricultural 9,829, Skymoon Ranch LLC Agricultural 9,306, Todd E. Gelfand, Trust Residence 9,208, Browning-Ferris Industries Inc. Agricultural 9,010, Skyline Real Estate LLC Commercial 8,789, Longs Drug Store Inc. Shopping Center 8,443, Bay City Flower Co. Agricultural 8,173, Castro Partners LLC Office Building 7,436, Edward A. and Linda J. Andreini Warehouse 7,296, Liquid Sky Properties One LP Restaurant 6,874, Netreit Inc. Office Building 6,737, Bahram and Zohreh Abolmoluki Shopping Center 6,420, $397,923, % (1) Local Secured Assessed Valuation: $5,924,728,011. Source: California Municipal Statistics, Inc. Overlapping Debt Obligations Set forth below is a direct and overlapping debt report (the Debt Report ) prepared by California Municipal Statistics, Inc. for debt issued as of January 1, The Debt Report is included for general information purposes only. The District has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such longterm obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. -18-

25 The contents of the Debt Report are as follows: (1) the first column indicates the public agencies which have outstanding debt as of the date of the Debt Report and whose territory overlaps the District; (2) the second column shows the percentage of the assessed valuation of the overlapping public agency identified in column 1 which is represented by property located within the District; and (3) the third column is an apportionment of the dollar amount of each public agency s outstanding debt (which amount is not shown in the table) to property in the District, as determined by multiplying the total outstanding debt of each agency by the percentage of the District s assessed valuation represented in column Assessed Valuation: $6,021,338,753 CABRILLO UNIFIED SCHOOL DISTRICT Statement of Direct and Overlapping Bonded Debt Dated as of January 1, 2017 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 1/1/17 San Mateo Community College District 3.138% $19,198,692 Cabrillo Unified School District ,409,390 (1) Montara Sanitary District ,715,000 Midpeninsula Regional Open Space District ,205 Granada Sanitary District 1915 Act Bonds ,650,000 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $73,021,287 OVERLAPPING GENERAL FUND DEBT: San Mateo County General Fund Obligations 3.138% $13,089,691 San Mateo County Board of Education Certificates of Participation ,348 City of Half Moon Bay Judgment Obligations ,915,000 Midpeninsula Regional Open Space District Certificates of Participation ,237 TOTAL OVERLAPPING GENERAL FUND DEBT $24,437,276 COMBINED TOTAL DEBT $97,458,563 (2) (1) Excludes the Bonds to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Ratios to Assessed Valuation: Direct Debt ($40,409,390) % Total Direct and Overlapping Tax and Assessment Debt % Combined Total Debt % Source: California Municipal Statistics, Inc. -19-

26 COUNTY INVESTMENT POOL Under the California Education Code, the District is required to pay all monies received from any source into the County of San Mateo Treasury to be held on behalf of the District. The Building Fund for the Bonds, and other of the District s funds, including monies from which debt service is to be paid, will be held by the County Treasurer. The County s Investment Policy for Calendar year 2016 which was approved by the County Board of Supervisors on September 6, 2016 and the Monthly Investment Report for the County Investment Pool as of December, 2016 are attached hereto as APPENDIX G. A wide range of investments is authorized under State law and the County s Investment Policy. In addition, the value of various investments in the Investment Pool will fluctuate on a daily basis as a result of several factors, including generally prevailing interest rates and other economic conditions. For further information concerning County investments, access the County s website: The reference to this internet website is shown for reference and convenience only, the information contained within the website may not be current and has not been reviewed by the District and is not incorporated herein by reference. LEGAL OPINION The proceedings in connection with the issuance of the Bonds are subject to the approval as to their legality by Bond Counsel. A copy of the legal opinion, certified by the official in whose office the original is filed, will be printed on each Bond. Certain legal matters will also be passed upon for the District by Disclosure Counsel. The fees of Bond Counsel and Disclosure Counsel are contingent upon the issuance and delivery of the Bonds. TAX MATTERS Federal tax law contains a number of requirements and restrictions which apply to the Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of bond proceeds and the facilities financed therewith, and certain other matters. The District has covenanted to comply with all requirements that must be satisfied in order for the interest on the Bonds to be excludable from gross income for federal income tax purposes. Failure to comply with certain of such covenants could cause interest on the Bonds to become includable in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. Subject to the District s compliance with the above referenced covenants, under present law, in the opinion of Bond Counsel, interest on the Bonds is excludable from the gross income of the owners thereof for federal income tax purposes, and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, but interest on the Bonds is taken into account, however, in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. In rendering their opinion, Bond Counsel will rely upon certifications of the District with respect to certain material facts within the District s knowledge. Bond Counsel s opinion represents their legal judgment based upon their review of the law and the facts that it deems relevant to render such opinion and is not a guarantee of a result. The Tax Code includes provisions for an alternative minimum tax ( AMT ) for corporations in addition to the corporate regular tax in certain cases. The AMT, if any, depends upon the corporation s -20-

27 alternative minimum taxable income ( AMTI ), which is the corporation s taxable income with certain adjustments. One of the adjustment items used in computing the AMTI of a corporation (with certain exceptions) is an amount equal to 75% of the excess of such corporation s adjusted current earnings over an amount equal to its AMTI (before such adjustment item and the alternative tax net operating loss deduction). Adjusted current earnings would include certain tax exempt interest, including interest on the Bonds. Ownership of the Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, corporations subject to the branch profits tax, financial institutions, certain insurance companies, certain S corporations, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax-exempt obligations. Prospective purchasers of the Bonds should consult their tax advisors as to applicability of any such collateral consequences. The issue price (the Issue Price ) for each maturity of the Bonds is the price at which a substantial amount of such maturity of the Bonds is first sold to the public. The Issue Price of a maturity of the Bonds may be different from the price set forth, or the price corresponding to the yield set forth, on the cover page hereof. To the extent the Issue Price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such 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 Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straightline interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Beneficial Owners of the Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public. Owners of Bonds who dispose of Bonds prior to the stated maturity (whether by sale, redemption or otherwise), purchase Bonds in the initial public offering, but at a price different from the Issue Price, or purchase Bonds subsequent to the initial public offering, should consult their own tax advisors. If a Bond is purchased at any time for a price that is less than the Bond s stated redemption price at maturity (the Reduced Issue Price ), the purchaser will be treated as having purchased a Bond with market discount subject to the market discount rules of the Tax Code (unless a statutory de minimis rule applies). Accrued market discount is treated as taxable ordinary income and is recognized when a Bond is disposed of (to the extent such accrued discount does not exceed gain realized) or, at the purchaser s election, as it accrues. Such treatment would apply to any purchaser who purchases a Bond for a price that is less than its Reduced Issue Price. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of such Bond. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the Bonds. An investor may purchase a Bond at a price in excess of its stated principal amount. Such excess is characterized for federal income tax purposes as bond premium and must be amortized by an investor on a constant yield basis over the remaining term of the Bond in a manner that takes into account potential call dates and call prices. An investor cannot deduct amortized bond premium relating to a tax- -21-

28 exempt bond. The amortized bond premium is treated as a reduction in the tax-exempt interest received. As bond premium is amortized, it reduces the investor s basis in the tax-exempt bond. Investors who purchase a Bond at a premium should consult their own tax advisors regarding the amortization of bond premium and its effect on the Bond s basis for purposes of computing gain or loss in connection with the sale, exchange, redemption or early retirement of the Bond. There are or may be pending in the Congress of the United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or affect the market value of the Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation. The Internal Revenue Service (the Service ) has an ongoing program of auditing tax exempt obligations to determine whether, in the view of the Service, interest on such tax exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the Service will commence an audit of the Bonds. If an audit is commenced, under current procedures the Service may treat the District as a taxpayer and the Bond owners may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Bonds until the audit is concluded, regardless of the ultimate outcome. Payments of interest on, and proceeds of the sale, redemption or maturity of, tax exempt obligations, including the Bonds, are in certain cases required to be reported to the Service. Additionally, backup withholding may apply to any such payments to any Bond owner who fails to provide an accurate Form W-9 Request for Taxpayer Identification Number and Certification, or a substantially identical form, or to any Bond owner who is notified by the Service of a failure to report any interest or dividends required to be shown on federal income tax returns. The reporting and backup withholding requirements do not affect the excludability of such interest from gross income for federal tax purposes. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. Ownership of the Bonds may result in other state and local tax consequences to certain taxpayers. Bond Counsel expresses no opinion regarding any such collateral consequences arising with respect to the Bonds. Prospective purchasers of the Bonds should consult their tax advisors regarding the applicability of any such state and local taxes. The complete text of the final opinion that Bond Counsel expects to deliver upon the issuance of the Bonds is set forth in APPENDIX D PROPOSED FORM OF OPINION OF BOND COUNSEL. NO LITIGATION No litigation is pending or threatened concerning the validity of the Bonds, and a certificate to that effect will be furnished to purchasers at the time of the original delivery of the Bonds. The District is not aware of any litigation pending or threatened that (i) questions the political existence of the District, (ii) contests the District s ability to receive ad valorem taxes or to collect other revenues or (iii) contests the District s ability to issue, sell and retire the Bonds, or the application of the proceeds of the sale thereof. -22-

29 RATINGS Moody s Investors Service ( Moody s ) and Standard & Poor s Ratings Services, a division of The McGraw Hill Companies, Inc. ( S&P ) have assigned the ratings of Aa2 and AA-, respectively, to the Bonds. The District has provided certain additional information and materials to Moody s and S&P (some of which does not appear in this Official Statement). Such ratings reflect only the views of Moody s and S&P and an explanation of the significance of such rating outlook may be obtained only from such rating agency. There is no assurance that any credit ratings given to the Bonds will be maintained for any period of time or that the rating may not be lowered or withdrawn entirely by Moody s or S&P if, in their judgment, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. CONTINUING DISCLOSURE The District will execute a Continuing Disclosure Certificate in connection with the issuance of the Bonds in the form attached hereto as Appendix E. The District has covenanted therein, for the benefit of holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to the District to the Municipal Securities Rulemaking Board (an Annual Report ) not later than nine months after the end of the District s fiscal year (which currently would be March 31), commencing March 31, 2017 with the report for the Fiscal Year, and to provide notices of the occurrence of certain enumerated events. The notices of certain events will be filed by the District with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in an Annual Report or other notices is set forth in APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE. These covenants have been made in order to assist the Underwriter of the Bonds in complying with S.E.C. Rule 15c2-12(b)(5) (the Rule. ) Within the past five years, the District has failed to timely file certain information required to be filed under its outstanding continuing disclosure obligations including the District s audited financial statements for fiscal , secured tax charge and delinquency information for fiscal year , general fund budget information for fiscal year , enrollment for fiscal year and revenue limit information for fiscal years and In addition, certain notices of material events required to be filed under the District s outstanding continuing disclosure undertakings were also not filed. In the past five years, the District has never filed a Notice of Failure to File Annual Report. Additionally, the District has contracted with Isom Advisors, A Division of Urban Futures, Inc., to assist it in preparing and filing the annual reports and notices of enumerated events required under its existing continuing disclosure obligations with respect to the District s outstanding general obligation bonds, including the Bonds. METHOD OF SALE The Bonds were sold at competitive bid on January 18, 2017, as provided in the Official Notice of Sale, dated January 18, 2017 (the Official Notice of Sale ). The Bonds were awarded to Bank of America Merrill Lynch at a purchase price of $20,400, (consisting of the principal amount of the Bonds, plus a net original issue premium of $571, and less an underwriter s discount of $171,771.30). The Official Notice of Sale provided that all Bonds would be purchased if any were purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the Official Notice of Sale, the approval of certain legal matters by Bond Counsel and certain other conditions. The Purchaser has represented to the District that the Bonds have been reoffered to the public at the price or yields stated on the cover page hereof. -23-

30 ADDITIONAL INFORMATION The discussions herein about the Resolution and the Continuing Disclosure Certificate are brief outlines of certain provisions thereof. Such outlines do not purport to be complete and for full and complete statements of such provisions reference is made to such documents. Copies of these documents mentioned are available from the District and following delivery of the Bonds will be on file at the offices of the Paying Agent in San Mateo, California. References are also made herein to certain documents and reports relating to the District; such references are brief summaries and do not purport to be complete or definitive. Copies of such documents are available upon written request to the District. 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 Bonds. The execution and delivery of this Official Statement have been duly authorized by the District. CABRILLO UNIFIED SCHOOL DISTRICT By: /s/ Jane Yuster Superintendent -24-

31 APPENDIX A DISTRICT GENERAL AND FINANCIAL INFORMATION The information in this section concerning the operations of the District and the District s general fund finances is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the debt service on the Bonds is payable from the general fund of the District. The Bonds are payable from the proceeds of an ad valorem tax required to be levied by the County in an amount sufficient for the payment thereof. See SECURITY FOR THE BONDS herein. General Information The District, located south of San Francisco along the west coast of San Mateo County, serves the communities of Montara, Moss Beach, Half Moon Bay, El Granada and Woodside. Currently, the District operates four elementary schools, one intermediate school and one high school. In addition, the District maintains one adult education facility and one alternative high school. Enrollment for fiscal year is 3,269 students. Administration The District is governed by a five-member Governing Board, each member of which is elected to a four-year term. Current members of the Governing Board, together with their office and the date their term expires, are listed below: Key Personnel Name Office Term Expires Freya McCamant President December 2018 Rob Pappalardo Vice President December 2018 Kirk Riemer Clerk December 2018 Sophia Layne Member December 2019 Kimberly Hines Member December 2019 The following is a listing of the key administrative personnel of the District. Name Jane Yuster John Corry Joy Dardenelle Crystal Leach Title Superintendent Assistant Superintendent Personnel/Pupil Services Assistant Superintendent Curriculum & Instruction Chief Business Official Superintendent Jane Yuster. Superintendent Yuster has served as Superintendent of the District since July 1, Prior to joining the District, Superintendent Yuster served as the Assistant Superintendent of Human Resources, Assessment and Student Services at Redwood City School District where she worked since 2008 and the Science Coordinator for the Alameda County Office of Education. She has received certifications from California Association of School Business Officials and the Association of California School Administrators. In addition, Superintendent Yuster formerly served as Chief Executive Officer in the biotechnology industry. Superintendent Yuster earned a Masters of A-1

32 Education from Notre Dame University and is completing a Doctorate in Education from Walden University. District Employees The District employs approximately 159 full-time equivalent certificated academic professionals as well as 81 full-time equivalent classified employees. The certificated employees of the District have assigned the Cabrillo Unified Teachers Association ( CUTA ) as their exclusive bargaining agent. The contract between the District and CUTA expires on June 30, The classified employees have assigned California School Employees Association ( CSEA ) as their exclusive bargaining agent. The contract between the District and CSEA expires on June 30, Retirement Systems The information set forth below regarding the District s retirement programs, other than the information provided by the District regarding its annual contributions thereto, has been obtained from publicly available sources which are believed to be reliable but are not guaranteed as to accuracy or completeness, and should not to be construed as a representation by either the District or the Underwriter. STRS. All full-time certificated employees, as well as certain classified employees, are members of the State Teachers Retirement System ( STRS ). STRS provides retirement, disability and survivor benefits to plan members and beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers Retirement Law. The District is currently required by such statutes to contribute 12.58% of eligible salary expenditures, while participants contribute 8% of their respective salaries. The State also contributes to STRS, currently in an amount equal to 6.30% of teacher payroll. The State s contribution reflects a base contribution of 2.017% and a supplemental contribution that will vary from year-to-year based on statutory criteria. As part of the State Budget, the Governor signed Assembly Bill 1469 ( AB 1469 ) which implemented a new funding strategy for STRS, increasing the employer contribution rate in fiscal year from 8.25% to 8.88% of covered payroll. Such rate increased by 1.85% in fiscal year and will continue to increase annually 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 three year period from through 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 annually 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 STRS 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. A-2

33 Pursuant to A.B. 1469, school district s contribution rates will increase over a seven year phase in period in accordance with the following schedule: Effective Date (July 1) School District Contribution Rate % The District contributed $1,026,713 to STRS for fiscal year , $1,052,314 for fiscal year and $1,042,011 for fiscal year Such contributions were equal to 100% of the required contributions for the respective years. The District estimates a contribution of $2,445,690 for fiscal year and has budgeted a contribution of $2,907,355 for With the implementation of AB 1469, the District anticipates that its contributions to STRS 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 STRS in future fiscal years. PERS. Classified employees working four or more hours per day are members of the Public Employees Retirement System ( PERS ). PERS provides retirement and disability benefits, annual costof-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by the State statutes, as legislatively amended, with the Public Employees Retirement Laws. The District is currently required to contribute to PERS at an actuarially determined rate, which is % of eligible salary expenditures for fiscal year , while participants enrolled in PERS prior to January 1, 2013 contribute 7% of their respective salaries and participants enrolled in PERS subsequent to January 1, 2013 contribute 6% of their respective salaries. Effective July 1, 2014, the Board of Administration of PERS adopted new contribution rates for school districts. The new contribution rates resulted in large part from new demographic assumptions adopted by the Board of Administration in February 2014 which took into account longer life spans of public employees from previous assumptions. Such demographic 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. PERS estimates that the new demographic assumptions could cost public agency employers 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 PERS current assumptions, the required employer contributions may vary. The District contributed $737,432 to PERS for fiscal year , $798,991 for fiscal year and $501,681 for fiscal year , which amounts equaled 100% of required contributions to PERS. The District estimates a contribution of $817,072 for fiscal year and has budgeted a contribution of $1,034,719 for fiscal year State Pension Trusts. Each of STRS and PERS issues a separate comprehensive financial report that includes financial statements and required supplemental information. Copies of such financial reports may be obtained from each of STRS and PERS as follows: (i) STRS, P.O. Box 15275, A-3

34 Sacramento, California ; (ii) PERS, P.O. Box , Sacramento, California Moreover, each of STRS and PERS maintains a website, as follows: (i) STRS: (ii) PERS: However, the information presented in such financial reports or on such websites is not incorporated into this Official Statement by any reference. Both STRS and PERS have substantial statewide unfunded liabilities. The amount of these unfunded liabilities will vary depending on actuarial assumptions, returns on investments, salary scales and participant contributions. The following table summarizes information regarding the actuariallydetermined accrued liability for PERS and STRS as of July 1, FUNDED STATUS STRS (DEFINED BENEFIT PROGRAM) and PERS Actuarial Valuation as of July 1, 2015 (Dollar Amounts in Millions) (1) Plan Accrued Liability Value of Trust Assets Unfunded Liability Public Employees Retirement Fund (PERS) (2) $73,325 $56,814 $(16,511) State Teachers Retirement Fund Defined Benefit Program (STRS) 241, ,553 (76,200) (1) Amounts may not add due to rounding. (2) On April 19, 2016, the PERS Finance and Administration Committee released certain actuarial information to be incorporated into its June 30, 2015 actuarial valuation expected to be released during summer Source: PERS State & Schools Actuarial Valuation; STRS Defined Benefit Program Actuarial Valuation. Unlike PERS, STRS contribution rates for participant employers, employees hired prior to the Implementation Date (defined herein) and the State are set by statute and do not currently vary from yearto-year based on actuarial valuations. As a result of the Reform Act (defined below), the contribution rate for STRS participants hired after the Implementation Date will vary from year-to-year based on actuarial valuations. See California Public Employees Pension Reform Act of 2013 below. In recent years, the combined employer, employee and State contributions to STRS have been significantly less than actuarially required amounts. As a result, and due in part to investment losses, the unfunded liability of STRS has increased significantly. AB 1469 is intended to address this unfunded liability. The District can make no representations regarding the future program liabilities of STRS, or whether the District will be required to make larger contributions to STRS in the future. The District can also provide no assurances that the District s required contributions to PERS will not increase in the future. California Public Employees Pension Reform Act of On September 12, 2012, the Governor signed into law the California Public Employee s Pension Reform Act of 2013 (the Reform Act ), which makes changes to both STRS and PERS, most substantially affecting new employees hired after January 1, 2013 (the Implementation Date ). For STRS participants hired after the Implementation Date, the Reform Act changes the normal retirement age by increasing the eligibility for the 2% age factor (the age factor is the percent of final compensation to which an employee is entitled to for each year of service) from age 60 to 62 and increasing the eligibility of the maximum age factor of 2.4% from age 63 to 65. Similarly, for non-safety PERS participants hired after the Implementation Date, the Reform Act changes the normal retirement age by increasing the eligibility for the 2% age factor from age 55 to 62 and increases the eligibility requirement for the maximum age factor of 2.5% to age 67. Among the other changes to PERS and STRS, the Reform Act also: (i) requires all new participants enrolled in PERS and STRS after the Implementation Date to contribute at least 50% of the total annual normal cost of their pension benefit each year as determined by an actuary, (ii) requires STRS and PERS to determine the final compensation amount for employees based upon the highest annual compensation earnable averaged over a consecutive 36-month period as the basis for calculating retirement benefits for new participants enrolled after the Implementation Date (currently 12 months for STRS members who retire with 25 years of service), and (iii) caps pensionable compensation for new participants enrolled after the A-4

35 Implementation Date at 100% of the federal Social Security contribution and benefit base for members participating in Social Security or 120% for members not participating in social security, while excluding previously allowed forms of compensation under the formula such as payments for unused vacation, annual leave, personal leave, sick leave, or compensatory time off. GASB Statement Nos. 67 and 68. On June 25, 2012, GASB approved Statements Nos. 67 and 68 ( Statements ) with respect to pension accounting and financial reporting standards for state and local governments and pension plans. The new Statements, No. 67 and No. 68, replace GASB Statement No. 27 and most of Statements No. 25 and No. 50. The changes impact the accounting treatment of pension plans in which state and local governments participate. Major changes include: (1) the inclusion of unfunded pension liabilities on the government s balance sheet (currently, such unfunded liabilities are typically included as notes to the government s financial statements); (2) more components of full pension costs being shown as expenses regardless of actual contribution levels; (3) lower actuarial discount rates being required to be used for underfunded plans in certain cases for purposes of the financial statements; (4) closed amortization periods for unfunded liabilities being required to be used for certain purposes of the financial statements; and (5) the difference between expected and actual investment returns being recognized over a closed five-year smoothing period. In addition, according to GASB, Statement No. 68 means that, for pensions within the scope of the Statement, a cost-sharing employer that does not have a special funding situation is required to recognize a net pension liability, deferred outflows of resources, deferred inflows of resources related to pensions and pension expense based on its proportionate share of the net pension liability for benefits provided through the pension plan. Because the accounting standards do not require changes in funding policies, the full extent of the effect of the new standards on the District is not known at this time. The reporting requirements for pension plans took effect for the fiscal year beginning July 1, 2013 and the reporting requirements for government employers, including the District, took effect for the fiscal year beginning July 1, The District s proportionate shares of the net pension liability of STRS and PERS, as of June 30, 2015, are as shown in the following table. Pension Plan Proportionate Share of Net Pension Liability STRS $16,632,360 PERS 4,733,965 Total $21,366,325 Source: The District. For further information about the District s contributions to STRS and PERS, see Note 9 in the the District s audited financial statements for fiscal year ended June 30, 2015 attached hereto as Appendix C. Other Post-Employment Benefits In June 2004, the Governmental Accounting Standards Board ( GASB ) pronounced Statement No. 45, Accounting and Financial Reporting by Employers for Post Employment Benefits Other Than Pensions. The pronouncement required public agency employers providing healthcare benefits to retirees to recognize and account for the costs for providing these benefits on an accrual basis and provide footnote disclosure on the progress toward funding the benefits. The implementation date for this pronouncement was staggered in three phases based upon the entity s annual revenues, similar to the implementation for GASB Statement No. 34 and 35. GASB Statement No. 45 ( GASB 45 ) was effective for the District for the fiscal year ending June 30, A-5

36 The District does not provide post-employment healthcare benefits to its employees. Accounting Practices The accounting practices of the District conform to generally accepted accounting principles in accordance with policies and procedures of the California School Accounting Manual. This manual, according to Section of the California Education Code, is to be followed by all California school districts. The financial resources of the District are divided into separate funds for which separate accounts are maintained for recording cash, other resources and all related liabilities, obligations and equities. The major fund classification is the general fund which accounts for all financial resources not required to be accounted for in another fund. The District's fiscal year begins on July 1 and ends on June 30. For more information on the District s basis of accounting and fund groups, see APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2015 Note 1 attached hereto. The Governmental Accounting Standards Board ( GASB ) published its Statement No. 34 Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments on June 30, Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management s Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting, (iii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting, and (iv) required supplementary information. The District s financial statements are in compliance with Statement No. 34 requirements. Financial Statements Generally. The District's Audited Financial Statements for the fiscal year were prepared by Chavan & Associates LLP (the Auditor ), San Jose, California. Audited financial statements for the District for the fiscal year ended June 30, 2015 and prior fiscal years are on file with the District and available for public inspection at the Superintendent s Office. See Appendix B hereto for the Audited Financial Statements. Copies of such financial statements will be mailed to prospective investors and their representatives upon written request to the District. The District has not requested nor did the District obtain permission from the Auditor to include the audited financial statements as an appendix to this Official Statement. Accordingly, the Auditor has not performed any post-audit review of the financial condition or operations of the District. Summary Financial Information. The following tables show (i) the audited income and expense statements for the District for the fiscal years through and (ii) unaudited actual income and expense statements for the District for fiscal year and the adopted budget and first interim figures for fiscal year A-6

37 CABRILLO UNIFIED SCHOOL DISTRICT Summary of General Fund Revenues, Expenditures and Changes in Fund Balance For Fiscal Years through Audit Audit Audit Audit REVENUES Revenue Limit Sources: $19,979,296 $21,204,063 $21,401,907 $24,111,560 Federal revenues 2,217,328 1,349,258 1,114,050 1,392,905 Other State revenues 2,612,540 2,525,258 1,963,069 1,892,127 Other local revenues 4,782,230 3,709,390 3,591,390 3,313,922 Total Revenues 29,591,394 28,687,797 28,070,416 30,710,514 EXPENDITURES Certificated salaries 12,412,118 12,965,753 13,177,289 14,340,109 Classified salaries 4,143,851 4,116,003 4,550,849 4,637,182 Employee benefits 6,897,447 6,673,354 5,982,034 6,570,915 Books and supplies 576, , ,557 1,032,470 Services and other operating expenditures 2,907,909 2,990,511 3,989,148 3,459,082 Capital outlay 1,707, , ,647 Other outgo 454, , , ,458 Total Expenditures 29,099,919 28,487,273 29,153,259 30,567,863 Excess (Deficiency) of Revenues Over/(Under) Expenditures 491, ,524 (1,082,843) 142,651 Other Financing Sources/(Uses) Operating Transfers In 1,027, Operating Transfers Out (1,063,969) (61,195) Total Other Financing Sources/(Uses) (36,573) (61,195) Net Change in Fund Balances 454, ,329 (1,082,843) 142,651 Fund Balance, beginning 3,266,902 $3,721,804 3,861,133 2,778,290 Fund balance, ending $3,721,804 $ 3,861,133 $ 2,778,290 $2,920,941 Source: Cabrillo Unified School District. A-7

38 CABRILLO UNIFIED SCHOOL DISTRICT Comparison of General Fund Revenues, Expenditures and Changes in Fund Balance Unaudited Actual Figures and Adopted Budget for Unaudited Actuals Adopted Budget First Interim Report Revenues LCFF Sources $26,654,404 $28,127,513 $28,114,098 Federal revenues 1,374,340 1,350,686 1,542,330 Other state revenues 4,098,687 1,659,155 2,885,399 Other local revenues 3,699,739 2,816,379 3,156,796 Total Revenues 35,827,170 33,953,733 35,698,623 Expenditures Certificated Salaries 14,784,215 14,792,100 14,318,048 Classified Salaries 5,334,857 5,346,177 5,373,155 Employee Benefits 7,961,466 7,699,365 8,515,386 Books and Supplies 1,339,236 1,401,504 1,841,809 Services and Other Operating Expenditures 3,995,041 4,974,301 5,186,538 Capital outlay Other Outgo (excluding Transfer of Indirect Costs) 218, , ,200 Other Outgo Transfers of Indirect Costs (7,085) (9,412) (9,412) Total Expenditures 33,626,408 34,704,035 35,485,724 Excess of Revenues Over/(Under) Expenditures 2,200,762 (750,302) 212,899 Other Financing Sources (Uses) Operating Transfers In Operating Transfers Out 88, , ,226 Total Other Financing Sources (Uses) (88,000) (139,053) (200,226) Net Change in Fund Balance 2,112,762 (889,355) 12,673 Fund Balance, July 1 2,852,545 4,965,307 4,965,307 Fund Balance, June 30 $4,965,307 $4,075,952 $4,977,980 Source: Cabrillo Unified School District. District Reserves. In general, the State requires that California school districts maintain the equivalent of 3 percent of annual general fund expenditures in reserve to be available during financial crisis. For , the District s reserve for economic uncertainty was approximately 13.5%, for is estimated to be approximately 9.3% and for is projected to be 8.3% of total expenditures. See State of California Budgets - SB 858 herein for a discussion of recent changes to laws relating to school district reserves. Basic Aid District in Prior Fiscal Years. From fiscal year through fiscal year , the District s local property taxes exceeded the State s calculated revenue limit for the District, resulting in the District being treated as a Basic Aid district, meaning that the District did not receive a revenue A-8

39 limit entitlement from the State, but was funded from local property taxes. During normal financial circumstances a school district would have to grow into basic aid status due to increases in property tax values exceeding the district s statutory revenue limit calculation. However, for the District (and many other districts in California), from through , the State s severe deficit to revenue limit income caused the District to fall into basic aid status. Likewise, under normal circumstances, a Basic Aid district would be able to retain property tax revenues in excess of its statutory revenue limit calculation, but due to the State s budget difficulties, commencing in fiscal year , Basic Aid districts, including the District, had to forfeit their fair share of certain State-funded categorical funds, being $250 per ADA, provided that such reduction could not take the Basic Aid district below its revenue limit entitlement. The result was that some of the excess local property taxes which exceeded a district s revenue limit had to be redirected to the State, and in the case of the District, the District was not able to retain any of its local property tax revenues above the revenue limit from through Due to the adoption by the State of a new education funding model, the Local Control Funding Formula (the LCFF ), funding beginning in fiscal year was based on different factors than in prior fiscal years. With the implementation of the LCFF, as of , the District s local property tax revenues no longer exceed its State funding entitlement and it is no longer a Basic Aid District. See - State Funding of Education - Local Control Funding Formula below for more information about the LCFF. Parcel Taxes. In June 2010, the community responded to the fiscal crisis imposed on the District by passing Measure E, an annual parcel tax of $150 for five years which is set to expire on June 30, Measure E revenues contribute approximately $1.7 million per year, thereby offsetting losses from State funding. In June 2014, the voters within the District approved a continuation of Measure E. The continuation of Measure E imposes an annual parcel tax of $150 for five years beginning in fiscal year , as the initial Measure E expires, and ending in fiscal year District Budget Process The District is required by provisions of the State Education Code to maintain a balanced budget each year, where the sum of expenditures plus the ending fund balance cannot exceed revenues plus the carry-over fund balance from the previous year. The State Department of Education imposes a uniform budgeting format for all California school districts. Under current law, the District Board of Education is required to approve an adopted budget by July 1 of each fiscal year. Interim Certifications Regarding Ability to Meet Financial Obligations. Under the provisions of AB 1200, each school district is required to file interim certifications with the county office of education as to its ability to meet its financial obligations for the remainder of the then-current fiscal year and, based on current forecasts, for the subsequent two fiscal years. The county office of education reviews the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that will be unable to meet its financial obligations for the remainder of the fiscal year or subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations for the current fiscal year or subsequent two fiscal years. Under California law, any school district and office of education that has a qualified or negative certification in any fiscal year may not issue, in that fiscal year or in the next succeeding fiscal year, certificates of participation, tax anticipation notes, revenue bonds or any other debt instruments that do A-9

40 not require the approval of the voters of the district, unless the applicable county superintendent of schools determines that the district s repayment of indebtedness is probable. District s Budget Approval/Disapproval and Certification History. All of the District s Interim Financial Reports have received positive certifications pursuant to AB 1200 in the last five years, and each of its budgets has been approved by the San Mateo County Superintendent of Schools. State Funding of Education On June 27, 2013, the State adopted a new method for funding school districts commonly known as the Local Control Funding Formula. The Local Control Funding Formula will be implemented in stages, beginning in fiscal year and will be fully implemented in fiscal year Prior to adoption of the Local Control Funding Formula, the State used a revenue limit system described below. Local Control Funding Formula. State Assembly Bill 97 (Stats. 2013, Chapter 47) ( AB 97 ), enacted as a part of the State Budget (defined below) enacted the Local Control Funding Formula beginning in fiscal year , which replaced the prior revenue limit funding system and many categorical programs. See -Revenue Limit Funding System Below. The Local Control Funding Formula distributes resources to schools through a guaranteed base revenue limit funding grant (the Base Grant ) per unit of ADA. The average Base Grant is $7,643 per unit of ADA, which is $2,375 more than the average revenue limit. Additional supplemental funding is made available based on the proportion of English language learners, low-income students and foster youth. The Local Control Funding Formula replaces the existing revenue limit funding system and many categorical programs. The District expects revenues to increase as a result of the implementation of the Local Control Funding Formula. The primary component of AB 97, as amended by SB 91, is the implementation of the Local Control Funding Formula ( LCFF ), which replaces the revenue limit funding system for determining State apportionments, as well as the majority of categorical program funding. State allocations will be provided on the basis of target base funding grants per unit of ADA (a Base Grant ) assigned to each of four grade spans. Full implementation of the LCFF is expected to occur over a period of several fiscal years. Beginning in fiscal year , an annual transition adjustment is required to be calculated for each school district, equal to such district s proportionate share of appropriations included in the State budget to close the gap between the prior-year funding level and the target allocation following full implementation of the LCFF. In each year, school districts will have the same proportion of their respective funding gaps closed, with dollar amounts varying depending on the size of a district s funding gap. The Base Grants per unit of ADA for each grade span are as follows: (i) $6,845 for grades K-3; (ii) $6,947 for grades 4-6; (iii) $7,154 for grades 7-8; and (iv) $8,289 for grades Beginning in fiscal year , and in each subsequent year, the Base Grants are to be adjusted for cost-of-living increases by applying the implicit price deflator for government goods and services. Following full implementation of the LCFF, the provision of COLAs will be subject to appropriation for such adjustment in the annual State budget. The differences among Base Grants are linked to differentials in statewide average revenue limit rates by district type, and are intended to recognize the generally higher costs of education at higher grade levels. The Base Grants for grades K-3 and 9-12 are subject to adjustments of 10.4% and 2.6%, respectively, to cover the costs of class size reduction in early grades and the provision of career technical education in high schools. Following full implementation of the LCFF, and unless otherwise collectively bargained for, school districts serving students in grades K-3 must maintain an average class enrollment of 24 or fewer students in grades K-3 at each school site in order to continue receiving the adjustment to A-10

41 the K-3 Base Grant. Such school districts must also make progress towards this class size reduction goal in proportion to the growth in their funding over the implementation period. Additional add-ons are also provided to school districts that received categorical block grant funding pursuant to the Targeted Instructional Improvement and Home-to-School Transportation programs during fiscal year School districts that serve students of limited English proficiency ( EL students), students from low income families that are eligible for free or reduced priced meals ( LI students) and foster youth are eligible to receive additional funding grants. Enrollment counts are unduplicated, such that students may not be counted as both EL and LI (foster youth automatically meet the eligibility requirements for free or reduced priced meals and are not discussed separately herein). A supplemental grant add-on (each, a Supplemental Grant ) is authorized for school districts that serve EL/LI students, equal to 20% of the applicable Base Grant multiplied by such districts percentage of unduplicated EL/LI student enrollment. School districts whose EL/LI populations exceed 55% of their total enrollment are eligible for a concentration grant add-on (each, a Concentration Grant ) equal to 50% of the applicable Base Grant multiplied by the percentage of such district s unduplicated EL/LI student enrollment in excess of the 55% threshold. The following table sets forth the ADA by grade span, enrollment and the percentage of EL/LI enrollment for fiscal years through and projections through ADA, ENROLLMENT AND ENGLISH LANGUAGE/LOW INCOME ENROLLMENT Fiscal Years through Cabrillo Unified School District ADA Fiscal Year TK Total Enrollment Enrollment % of EL/LI Enrollment ,334 46% , , , Projected. Source: Cabrillo Unified School District. For certain school districts that would have received greater funding levels under the prior revenue limit system, the LCFF provides for a permanent economic recovery target ( ERT ) add-on, equal to the difference between the revenue limit allocations such districts would have received under the prior system in fiscal year , and the target LCFF allocations owed to such districts in the same year. To derive the projected funding levels, the LCFF assumes the discontinuance of deficit revenue limit funding, implementation of a 1.94% COLA in fiscal years through , and restoration of categorical funding to pre-recession levels. The ERT add-on will be paid incrementally over the implementing period of the LCFF. The District does not qualify for the ERT add-on. The sum of a school district s adjusted Base, Supplemental and Concentration Grants will be multiplied by such district s P-2 ADA for the current or prior year, whichever is greater (with certain adjustments applicable to small school districts). This funding amount, together with any applicable ERT or categorical block grant add-ons, will yield a district s total LCFF allocation. Generally, the amount of annual State apportionments received by a school district will amount to the difference between such total LCFF allocation and such district s share of applicable local property taxes. Most school districts receive A-11

42 a significant portion of their funding from such State apportionments. As a result, decreases in State revenues may significantly affect appropriations made by the Legislature to school districts. Certain schools districts known as basic aid districts, have allocable local property tax collections that equal or exceed such districts total LCFF allocation, and result in the receipt of no State apportionment aid. Basic aid school districts receive only special categorical funding, which is deemed to satisfy the basic aid requirement of $120 per student per year guaranteed by Article IX, Section 6 of the State Constitution. The implication for basic aid districts is that the legislatively determined allocations to school districts, and other politically determined factors, are less significant in determining their primary funding sources. Rather, property tax growth and the local economy are the primary determinants. From fiscal years through fiscal year , the District qualified as basic aid as a result of decreases in State revenue limit funding. As a result of the implementation of LCFF, the District no longer qualifies as a basic aid District. As of fiscal year , the District is an LCFF District. Accountability. The State Board of Education has promulgated regulations regarding the expenditure of supplemental and concentration funding, including a requirement that school districts increase or improve services for EL/LI students in proportion to the increase in funds apportioned to such district on the basis of the number and concentration of such EL/LI students, as well as the conditions under which school district can use supplemental or concentration funding on a school-wide or districtwide basis. School districts are also required to adopt local control and accountability plans ( LCAPs ) disclosing annual goals for all students, as well as certain numerically significant student subgroups, to be achieved in eight areas of State priority identified by the LCFF. LCAPs may also specify additional local priorities. LCAPs must specify the actions to be taken to achieve each goal, including actions to correct identified deficiencies with regard to areas of State priority. LCAPs are required to be adopted every three years, beginning in fiscal year , and updated annually thereafter. The State Board of Education has developed and adopted a template LCAP for use by school districts. Support and Intervention. AB 97, as amended by SB 91, establishes a new system of support and intervention to assist school districts meet the performance expectations outlined in their respective LCAPs. School districts must adopt their LCAPs (or annual updates thereto) in tandem with their annual operating budgets, and not later than five days thereafter submit such LCAPs or updates to their respective county superintendents of schools. On or before August 15 of each year, a county superintendent may seek clarification regarding the contents of a district s LCAP (or annual update thereto), and the district is required to respond to such a request within 15 days. Within 15 days of receiving such a response, the county superintendent can submit non-binding recommendations for amending the LCAP or annual update, and such recommendations must be considered by the respective school district at a public hearing within 15 days. A district s LCAP or annual update must be approved by the county superintendent by October 8 of each year if the superintendent determines that (i) the LCAP or annual update adheres to the State template, and (ii) the district s budgeted expenditures are sufficient to implement the actions and strategies outlined in the LCAP. A school district is required to receive additional support if its respective LCAP or annual update thereto is not approved, if the district requests technical assistance from its respective county superintendent, or if the district does not improve student achievement across more than one State priority for one or more student subgroups. Such support can include a review of a district s strengths and weaknesses in the eight State priority areas, or the assignment of an academic expert to assist the district identify and implement programs designed to improve outcomes. Assistance may be provided by the California Collaborative for Educational Excellence, a state agency created by the LCFF and charged with assisting school districts achieve the goals set forth in their LCAPs. On or before October 1, 2015, A-12

43 the State Board of Education is required to develop rubrics to assess school district performance and the need for support and intervention. The State Superintendent of Public Instruction (the State Superintendent ) is further authorized, with the approval of the State Board of Education, to intervene in the management of persistently underperforming school districts. The State Superintendent may intervene directly or assign an academic trustee to act on his or her behalf. In so doing, the State Superintendent is authorized (i) to modify a district s LCAP, (ii) impose budget revisions designed to improve student outcomes, and (iii) stay or rescind actions of the local governing board that would prevent such district from improving student outcomes; provided, however, that the State Superintendent is not authorized to rescind an action required by a local collective bargaining agreement. Revenue Limit Funding System. Prior to the implementation of the LCFF, annual State apportionments of basic and equalization aid to school districts for general purposes were computed up to a revenue limit (described below) per unit of average daily attendance ( ADA ). Generally, such apportionments amounted to the difference between the District s revenue limit and the District s local property tax allocation. Revenue limit calculations were adjusted annually in accordance with a number of factors designed primarily to provide cost of living increases and to equalize revenues among all of the same type of California school districts (i.e., unified, high school or elementary). State law also provided for State support of specific school related programs, including summer school, adult education, deferred maintenance of facilities, pupil transportation, portable classrooms and other capital outlays and various categorical aids. The State revenue limit was calculated three times a year for each school district. The first calculation was performed for the February 20th First Principal Apportionment, the second calculation for the June 25th Second Principal Apportionment, and the final calculation for the end of the year Annual Principal Apportionment. Calculations were reviewed by the County Office of Education and submitted to the State Department of Education to review the calculations for accuracy, calculate the amount of State aid owed to such school district and notify the State Controller of the amount, who then distributed the State aid. The calculation of the amount of State aid a school district was entitled to receive each year was a five-step process. First, the prior year State revenue limit per ADA was established, with recalculations as are necessary for adjustments for equalization or other factors. Second, the adjusted prior year State revenue limit per ADA was inflated according to formulas based on the implicit price deflator for government goods and services and the statewide average State revenue limit per ADA for the school districts. Third, the current year s State revenue limit per ADA for each school district was multiplied by such school district s ADA for either the current or prior year, whichever is greater. Fourth, revenue limit add ons were calculated for each school district if such school district qualified for the add ons. Add ons included the necessary small school district adjustments, meals for needy pupils and small school district transportation, and were added to the State revenue limit for each qualifying school district. Finally, local property tax revenues were deducted from the State revenue limit to arrive at the amount of State aid based on the State revenue limit each school district was entitled to for the current year. California school districts receive a significant portion of their funding from State appropriations. As a result, decreases in State revenues may affect appropriations made by the Legislature to school districts. A-13

44 Revenue Sources The District categorizes its general fund revenues into four sources: CABRILLO UNIFIED SCHOOL DISTRICT District Revenue Sources Percentage of Total District General Fund Revenues Revenue Source (1) (2) Revenue limit/lcff sources (3) 76.2% 78.5% 74.4% 78.6% Federal revenues Other State revenues Other local revenues (3) (1) Estimated. (2) Budgeted. (3) The District was a Basic Aid District from fiscal year through during which period most revenue limit sources were derived from local property tax revenues and not from the State. As of , the District is an LCFF district. Source: Cabrillo Unified School District. Each of these revenue sources is described below. LCFF Sources. Funding of the District s LCFF entitlement is provided by a mix of (1) local property taxes and (2) State apportionments of funding under the LCFF. Generally, the State apportionments will amount to the difference between the District's LCFF entitlement and its local property tax revenues. See - State Funding of Education Local Control Funding Formula above for more information regarding the LCFF. Beginning in , Proposition 13 and its implementing legislation provided for each county to levy (except for levies to support prior voter-approved indebtedness) and collect all property taxes, and prescribed how levies on county-wide property values are to be shared with local taxing entities within each county. As described in this Official Statement, with the implementation of the LCFF in fiscal year , the amount of State funding provided to school districts is determined with a funding model which attempts to better meet the needs of students, particularly those students which come from lowincome families or are English language learners which may require more support for success in school, and which provides local school officials with the ability to decide how best to meet the needs of their students. The LCFF affects how much funding a district will receive, but generally not the source of such funding, being its share of local property taxes together with the State funding provided in the LCFF. Federal Revenues. The federal government provides funding for several District programs, including special education programs, programs under the Educational Consolidation and Improvement Act, and specialized programs such as No Child Left Behind and Safe and Drug Free Schools. Other State Revenues. The District receives some other State revenues. These other State revenues are primarily restricted revenues funding items such as the Special Education Master Plan, Economic Impact Aid, School Improvement Program, instructional materials, and various block grants. The District receives State aid from the California State Lottery (the "Lottery"), which was established by a constitutional amendment approved in the November 1984 general election. Lottery revenues must be used for the education of students and cannot be used for non-instructional purposes such as real property acquisition, facility construction, or the financing of research. Moreover, State A-14

45 Proposition 20 approved in March 2000 requires that 50% of the increase in Lottery revenues over levels must be restricted to use on instructional material. Other Local Revenues. In addition to property taxes, the District receives additional local revenues from items such as interest earnings, interagency services and other local sources. District Long-Term Debt In August 1996, the District issued $34,996,263 aggregate issue amount of its 1996 General Obligation Bonds, Series A (the 1996 Bonds ) on October 25, 2012, the District issued $18,000,000 of its General Obligation Bonds, Election of 2012, Series A (the Series A Bonds ) and on January 28, 2015, the District issued $20,000,000 aggregate principal amount of General Obligation Bonds, 2012 Election, Series B (the Series B Bonds ) under the 2012 Authorization. See DEBT SERVICE SCHEDULES in the front part of the Official Statement for a table showing the debt service due on the 1996 Bonds, the Series A Bonds and the Series B Bonds. The Bonds are payable from the proceeds of ad valorem taxes levied for that purpose on a parity with all general obligation bonds of the District. The District has never defaulted on the payment of principal or interest on any of its indebtedness. STATE FUNDING OF EDUCATION; RECENT STATE BUDGETS In addition to funding in connection with the revenue limit and basic aid determination, California school districts receive a significant portion of their funding from State appropriations. Propositions 98 and 111 Proposition 98. On November 8, 1988, California voters approved Proposition 98, a combined initiative constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act (the Accountability Act ). Certain provisions of the Accountability Act have, however, been modified by Proposition 111, discussed below, the provisions of which became effective on July 1, The Accountability Act changes State funding of public education below the university level and the operation of the State s appropriations limit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (hereinafter referred to collectively as K-14 school districts ) at a level equal to the greater of (a) the same percentage of General Fund revenues as the percentage appropriated to such districts in , and (b) the amount actually appropriated to such districts from the General Fund in the previous fiscal year, adjusted for increases in enrollment and changes in the cost of living. The Accountability Act permits the Legislature to suspend this formula for a one-year period. 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 school districts. Any such transfer to K-14 school districts would be excluded from the appropriations limit for K-14 school districts and the K-14 school district appropriations limit 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 school districts for subsequent years, creating further pressure on other portions of the State budget, particularly if revenues decline in a year following an Article XIIIB surplus. The maximum amount of excess tax revenues which could be transferred to K-14 school districts is 4% of the minimum State spending for education mandated by the Accountability Act. A-15

46 Since the Accountability Act is unclear in some details, there can be no assurances that the Legislature or a court might not interpret the Accountability Act to require a different percentage of General Fund revenues to be allocated to K-14 school districts, or to apply the relevant percentage to the State s budgets in a different way than is proposed in the Governor s Budget. Proposition 111. On June 5, 1990, the voters approved Proposition 111 (Senate Constitutional Amendment No. 1) called the Traffic Congestion Relief and Spending Limit Act of 1990 ( Proposition 111 ) which further modified Article XIIIB and Sections 8 and 8.5 of Article XVI of the State Constitution with respect to appropriations limitations and school funding priority and allocation. The most significant provisions of Proposition 111 are summarized as follows: a. Annual Adjustments to Spending Limit. The annual adjustments to the Article XIIIB spending limit were liberalized to be more closely linked to the rate of economic growth. Instead of being tied to the Consumer Price Index, the change in the cost of living is now measured by the change in California per capita personal income. The definition of change in population specifies that a portion of the State s spending limit is to be adjusted to reflect changes in school attendance. b. Treatment of Excess Tax Revenues. Excess tax revenues with respect to Article XIIIB are now determined based on a two-year cycle, so that the State can avoid having to return to taxpayers excess tax revenues in one year if its appropriations in the next fiscal year are under its limit. In addition, the Proposition 98 provision regarding excess tax revenues was modified. After any two-year period, if there are excess State tax revenues, 50% of the excess are to be transferred to K-14 school districts with the balance returned to taxpayers; under prior law, 100% of excess State tax revenues went to K-14 school districts, but only up to a maximum of 4% of the schools minimum funding level. Also, reversing prior law, any excess State tax revenues transferred to K-14 school districts are not built into the school districts base expenditures for calculating their entitlement for State aid in the next year, and the State s appropriations limit is not to be increased by this amount. c. Exclusions from Spending Limit. Two exceptions were added to the calculation of appropriations which are subject to the Article XIIIB spending limit. First, there are excluded all appropriations for qualified capital outlay projects as defined by the Legislature. Second, there are excluded any increases in gasoline taxes above the 1990 level (then nine cents per gallon), sales and use taxes on such increment in gasoline taxes, and increases in receipts from vehicle weight fees above the levels in effect on January 1, These latter provisions were necessary to make effective the transportation funding package approved by the Legislature and the Governor, which expected to raise over $15 billion in additional taxes from 1990 through 2000 to fund transportation programs. d. Recalculation of Appropriations Limit. The Article XIIIB appropriations limit for each unit of government, including the State, is to be recalculated beginning in fiscal year It is based on the actual limit for fiscal year , adjusted forward to as if Proposition 111 had been in effect. e. School Funding Guarantee. There is a complex adjustment in the formula enacted in Proposition 98 which guarantees K-14 school districts a certain amount of State general fund revenues. Under prior law, K-14 school districts were guaranteed the greater of (1) 40.9% of State general fund revenues (the first test ) or (2) the amount appropriated in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to A-16

47 per capita personal income) and enrollment (the second test ). Under Proposition 111, schools will receive the greater of (1) the first test, (2) the second test, or (3) a third test, which will replace the second test in any year when growth in per capita State general fund revenues from the prior year is less than the annual growth in California per capital personal income. Under the third test, schools will receive the amount appropriated in the prior year adjusted for change in enrollment and per capita State general fund revenues, plus an additional small adjustment factor. If the third test is used in any year, the difference between the third test and the second test will become a credit to schools which will be paid in future years when State general fund revenue growth exceeds personal income growth. State Budget Measures The following information concerning the State s budgets has been obtained from publicly available information which the District believes to be reliable; however, the District does not guaranty the accuracy or completeness of this information and has not independently verified such information State Budget. Governor Brown signed the State budget for fiscal year (the State Budget ) on June 27, The State Budget included general fund revenues and transfers of $120 billion for fiscal year , an increase of approximately $5 billion over the State Budget. General fund expenditures for fiscal year under the State budget also increased approximately $1 billion to $115.5 billion. For the current budget year, general fund revenues and transfers total $125 billion and expenditures reach $122.5 billion under the State Budget. The Rainy Day Fund balance for remains generally unchanged from the State Budget with a balance of $3.4 billion and for , an additional $2 billion deposit over the constitutionally required $1.3 billion will bring the Rainy Day Fund balance to approximately $6.7 billion at the close of Included in the State Budget are approximately $20 billion in measures aimed at addressing issues of poverty including implementation of a State-wide minimum wage of $10.50 per hour, a cost of living increase for Supplemental Social Security Income/State Supplementary Payments, a repeal of the CalWORKs maximum family grant rule and limitations on asset recovery from the estates of Medi-Cal recipients. The State Budget also includes $3.6 billion for affordable housing and homelessness programs and $2 billion for infrastructure improvements. The State Budget includes total K-12 funding of approximately $88.3 billion ($51.6 billion general fund and $36.7 billion other funds). Proposition 98 funding totals $71.9 billion, an increase of $3.5 billion over the State Budget and the Proposition 98 maintenance factor to repay past reductions in K-12 funding is reduced to $9,08 million. Significant features of the State Budget pertaining to K-12 education are as follows: LCFF $2.9 billion Proposition 98 funding to continue the implementation of the LCFF with the new funding aimed at Supplemental Grants and Concentration Grants. The increase will bring the total LCFF to 96% of full implementation. College Readiness Block Grant $200 million Proposition 98 funds for grants to school districts and charter schools that serve high school students to support access to higher education and transition to higher education. Funds will be allocated based on the number of students in grades 9 through 12 that are English-learners, low-income or foster youth. Integrated Teacher Preparation Grant Program $10 million Proposition 98 funds for the Integrated Teacher Preparation Grant Program, which provides competitive grants to colleges and A-17

48 universities to develop or improve teacher credential programs in connection with a bachelor s degree. Classified School Employees Credentialing Program $20 million Proposition 98 funds to establish the California Classified School Employees Credentialing Program and provide grants to K-12 local education agencies to support recruitment of non-certified school employees and prepares them to become certificated classroom teachers. California Center on Teacher Careers $5 million Proposition 98 funds to establish a multi-year competitive grant, which will be awarded to a local education agency to establish and operate the California Center on Teaching Careers. The California Center on Teaching Careers, once established, will recruit individuals to the teaching profession, host a referral database for teachers seeking employment, develop and distribute recruitment publications, conduct outreach activities to high school and college students, provide statewide public service announcements related to teacher recruitment, and provide prospective teachers information on credential requirements, financial aid and loan assistance programs. California Collaborative for Educational Excellence $24 million Proposition 98 funds for the California Collaborative for Educational Excellence to, among other things, support statewide professional development training relating to evaluation methods and metrics and implement a pilot program related to advising and assisting local education agencies on improving pupil outcomes. Charter School Startup Grants $20 million Proposition 98 funds to support operational startup costs for new charter schools in 2016 and Multi-Tiered Systems of Support $20 million Proposition 98 funds to build upon the $10 million investment included in the State Budget for an increased number of local educational agencies to provide academic and behavioral supports in a coordinated and systematic way. Such funds to, among other things, assist local education agencies as they provide services that support academic, behavioral, social and emotional needs and improve outcomes for students. Safe Drinking Water in Schools $9.5 million Proposition 98 funds to create a grant program to improve access to safe drinking water for schools located in isolated areas and economically disadvantaged areas. The program will be developed and administered by the State Water Resources Control Board in consultation with the California Department of Education. Proposition 47 $18 million Proposition 98 funds allocated to a grant program for truancy and dropout prevention, consistent with Proposition 47. Proposed State Budget. On January 10, 2017, Governor Brown released the proposed budget for the State for fiscal year (the Proposed State Budget ) which reflects decreased revenues and lower wage growth from prior years budget expectations. $3.2 billion in budget balancing proposals relative to the State Budget are included in the Proposed State Budget including a $1.7 billion adjustment to the Prop 98 Guarantee, recapturing $900 million of uncommitted one time funds and maintaining spending levels flat (for $600 million in expenditure reductions). Under the Proposed State Budget, general fund revenues and transfers total $125 billion with expenditures totaling $122.5 billion and the Rainy Day Balance is proposed to reach $7.8 billion in A-18

49 With respect to K-12 education, total per pupil spending is projected to be $14,822 in and $15,216 in Due to the decreased revenue projections in the Proposed State Budget, the Proposition 98 minimum funding guarantee for is reduced by $506 million to $71.4 billion and for is decreased by $953 million to $73.5 billion. LCFF funding under the Proposed State Budget is increased by $744 million, an amount which is equal to a 1.48% COLA for each local education agency above its LCFF funding level, to $73.5 billion. Full implementation of the LCFF remains at approximately 96% of full funding, the same as for Significant provisions of the Proposed State Budget effecting K-12 education are as follows: One Time LCFF Formula Cost Shift Deferral of $859.1 million in LCFF funding from June, 2017 to July, Shift One Time Discretionary Funding Deferral of $310 million of one time discretionary funding attributable to the fiscal year to as a result of the reduction to the Proposition 98 guarantee in Proposition 39 $422.9 million to support school district and charter school energy efficiency projects. Career Technical Education Funding $200 million for the Career Technical Education Incentive Grant Program, the final installment of a three year program initiated in the State Budget. Charter School Growth $93 million Proposition 98 funds to support projected charter school ADA growth. County Offices of Education LCFF $2.4 million Proposition 98 funding to support a COLA and ADA changes for county offices of education. Local Property Tax Adjustments A decrease of $149.2 million Proposition 98 funding for school districts and county offices of education in as a result of higher offsetting property tax revenues. A decrease of $922.7 million in Proposition 98 funding for school districts and county offices of education in as a result of increased offsetting local property tax revenues. Litigation Regarding State Budgetary Provisions. On September 28, 2011, the California School Boards Association, the Association of California School Administrators, the Los Angeles Unified School District, the San Francisco Unified School District and the Turlock Unified School District filed a petition for a writ of mandate in the Superior Court of the State of California in and for the County of San Francisco (the CSBA Petition ). The petitioners alleged that the fiscal year State budget improperly diverted sales tax revenues away from the State general fund, resulting in a reduction to the minimum funding guarantee of approximately $2.1 billion. The CSBA Petition sought an order from the Court compelling the State Director of Finance, State Superintendent and the State Controller to recalculate the minimum funding guarantee in accordance with the provisions of the California Constitution. On May 31, 2012, the court denied the CSBA Petition, finding that Proposition 98 does not prohibit the State from assigning sales tax revenues to a special fund that previously were deposited into A-19

50 the State general fund. The Court also found that, upon doing so, the State was not required to rebench the minimum funding guarantee. On July 27, 2012, the petitioners filed a notice of appeal of the court s decision. On March 1, 2013, the California State Court of Appeals, First District, determined that the lawsuit was made moot by the passage of Proposition 30 (See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES- Proposition 30 below); the court did not rule on the merits of the case. Future Actions. The State has in past years experienced budgetary difficulties and has balanced its budget by requiring local political subdivisions to fund certain costs theretofore borne by the State. No prediction can be made as to whether the State will take further measures which would, in turn, adversely affect the District. Further State actions taken to address its budgetary difficulties could have the effect of reducing District support indirectly, and the District is unable to predict the nature, extent or effect of such reductions. The District cannot predict whether the State will encounter budgetary difficulties in the current or future fiscal years. The District also cannot predict the impact future State Budgets will have on District finances and operations or what actions the State Legislature and the Governor may take to respond to changing State revenues and expenditures. Current and future State Budgets will be affected by national and State economic conditions and other factors which the District cannot control. California Drought Conditions. California is experiencing water shortfalls as a result of the driest conditions in recorded State history. On January 17, 2014, Governor Brown declared a State-wide Drought State of Emergency for California and directed State officials to take all necessary actions to prepare for water shortages. As part of his State of Emergency declaration, the Governor directed State officials to assist agricultural producers and communities that may be economically impacted by dry conditions. Following the Governor s declaration, the California State Water Resources Control Board (the Water Board ) issued a statewide notice of water shortages and potential future curtailment of water right diversions. On April 1, 2015, the Governor issued an executive order mandating certain conservation measures including a requirement that the Water Board impose restrictions to achieve a statewide 25% reduction in urban water usage through February 28, With emergency drought conditions persisting, on May 5, 2015, the State Water Resources Control Board adopted an emergency regulation requiring an immediate 25 percent reduction in overall potable urban water use statewide in accordance with the Governor s April 1 Executive Order. These actions follow the release of water production figures for the month of March which registered only a slight increase from the amount of water saved in the prior month. The amount of water conserved in March 2015, as compared to March 2013 was 3.6 percent, up less than one percent from February s results. Most recently, on May 9, 2016, the Governor issued an executive order ordering the Department of Water Resources, the Water Board and the California Public Utilities Commission to update and extend temporary water restrictions through the end of January 2017, and to take actions to transition to permanent, long-term improvements in water use. Following the Governor s executive order, on May 18, 2016, the Water Board adopted a localized stress test approach of water conservation, under which local urban water agencies are required to ensure a three-year supply of water assuming three years of drought conditions. Agencies that project a water shortage at the end of the three-year period under the stress test are required to implement conservation measures through January 2017 equal to the percentage of water shortage projected. The District cannot make any representation regarding the effects that the current drought has had, or, if it should continue, may have on the value of taxable property within the District, or to what extent the drought could cause disruptions to agricultural production, reduce land values adversely impact other economic activity within the boundaries of the District. A-20

51 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Principal of and interest on the Bonds are payable from the proceeds of an ad valorem tax levied by the County for the payment thereof. Articles XIIIA, XIIIB, XIIIC, and XIIID of the State Constitution, Propositions 62, 98, 111 and 218, and certain other provisions of law discussed below, are included in this section to describe the potential effect of these Constitutional and statutory measures on the ability of the District to levy taxes and spend tax proceeds for operating and other purposes, and it should not be inferred from the inclusion of such materials that these laws impose any limitation on the ability of the District to levy taxes for payment of the Bonds. The tax levied by the County for payment of the Bonds was approved by the District's voters in compliance with Article XIIIA and all applicable laws. Article XIIIA of the California Constitution Article XIIIA of the State Constitution ( Article XIIIA ) limits the amount of ad valorem taxes on real property to 1% of full cash value as determined by the County assessor. Article XIIIA defines full cash value to mean the county assessor s valuation of real property as shown on the bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed or a change in ownership has occurred after the 1975 assessment, subject to exemptions in certain circumstances of property transfer or reconstruction. Determined in this manner, the full cash value is also referred to as the base year value. The full cash value is subject to annual adjustment to reflect increases, not to exceed 2% for any year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors. Article XIIIA has been amended to allow for temporary reductions of assessed value in instances where the fair market value of real property falls below the base year value. Proposition 8 approved by the voters in November of 1978 provides for the enrollment of the lesser of the base year value or the market value of real property, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property, or other factors causing a similar decline. In these instances, the market value is required to be reviewed annually until the market value exceeds the base year value. Reductions in assessed value could result in a corresponding increase in the annual tax rate levied by the County to pay debt service on outstanding general obligation bonds of the District, including the Bonds. See TAX BASE FOR REPAYMENT OF THE BONDS Assessed Valuations herein. Article XIIIA requires a vote of two-thirds of the qualified electorate of a city, county, special district or other public agency to impose special taxes, while totally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. Article XIIIA exempts from the 1% tax limitation any taxes above that level required to pay debt service (a) on any indebtedness approved by the voters prior to July 1, 1978, or (b) as the result of an amendment approved by State voters on June 3, 1986, on any bonded indebtedness approved by two-thirds or more of the votes cast by the voters for the acquisition or improvement of real property on or after July 1, 1978, or (c) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% or more of the votes cast on the proposition, but only if certain accountability measures are included in the proposition. The tax for payment of principal of and interest on the Bonds falls within the exception described in (c) of the immediately preceding sentence. In addition, Article XIIIA requires the approval of two-thirds or more of all members of the State Legislature to change any State taxes for the purpose of increasing tax revenues. A-21

52 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 annual adjustment not to exceed 2% are allocated among the various jurisdictions in the taxing area based upon their respective situs. Any such allocation made to a local agency continues as part of its allocation in future years. Beginning in fiscal year , assessors in California no longer record property values on tax rolls at the assessed value of 25% of market value which was expressed as $4 per $100 of assessed value. All taxable property is now shown at 100% of assessed 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 taxable value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value. Both the United States Supreme Court and the California State Supreme Court have upheld the general validity of Article XIIIA. Unitary Property Some amount of property tax revenue of the District is derived from utility property which is considered part of a utility system with components located in many taxing jurisdictions ( unitary property ). Under the State Constitution, such property is assessed by the State Board of Equalization ( SBE ) as part of a going concern rather than as individual pieces of real or personal property. Stateassessed unitary and certain other property is allocated to the County by SBE, taxed at special countywide rates, and the tax revenues distributed to taxing jurisdictions (including the District) according to statutory formulae generally based on the distribution of taxes in the prior year. The California electric utility industry has been undergoing significant changes in its structure and in the way in which components of the industry are regulated and owned. Sale of electric generation assets to largely unregulated, nonutility companies may affect how those assets are assessed, and which local agencies are to receive the property taxes. The District is unable to predict the impact of these changes on its utility property tax revenues, or whether legislation may be proposed or adopted in response to industry restructuring, or whether any future litigation may affect ownership of utility assets or the State s methods of assessing utility property and the allocation of assessed value to local taxing agencies, including the District. Because the District is not a basic aid district, taxes lost through any reduction in assessed valuation will be compensated by the State as equalization aid under the State s school financing formula. See DISTRICT FINANCIAL INFORMATION State Funding of Education herein. Article XIIIB of the California Constitution Article XIIIB of the State Constitution ( Article XIIIB ), as subsequently amended by Propositions 98 and 111, respectively, limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living A-22

53 and in population and for transfers in the financial responsibility for providing services and for certain declared emergencies. As amended, Article XIIIB defines (a) change in the cost of living with respect to school districts to mean the percentage change in California per capita income from the preceding year, and (b) change in population with respect to a school district to mean the percentage change in the average daily attendance of the school district from the preceding fiscal year. For fiscal years beginning on or after July 1, 1990, the appropriations limit of each entity of government shall be the appropriations limit for the fiscal year adjusted for the changes made from that fiscal year pursuant to the provisions of Article XIIIB, as amended. The appropriations of an entity of local government subject to Article XIIIB limitations include the proceeds of taxes levied by or for that entity and the proceeds of certain state subventions to that entity. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to the entity from (a) regulatory licenses, user charges and user fees (but only to the extent that these proceeds exceed the reasonable costs in providing the regulation, product or service), and (b) the investment of tax revenues. Appropriations subject to limitation do not include (a) refunds of taxes, (b) appropriations for certain debt service, (c) appropriations required to comply with certain mandates of the courts or the federal government, (d) appropriations of certain special districts, (e) appropriations for all qualified capital outlay projects as defined by the Legislature, (f) appropriations derived from certain fuel and vehicle taxes and (g) appropriations derived from certain taxes on tobacco products. Article XIIIB includes a requirement that all revenues received by an entity of government other than the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years. Article XIIIB also includes a requirement that 50% of all revenues received by the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be transferred and allocated to the State School Fund pursuant to Section 8.5 of Article XVI of the State Constitution. See Proposition 98 and Proposition 111 below. 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 (respectively, Article XIIIC and Article XIIID ), which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing and future taxes, assessments, fees and charges. According to the Title and Summary of Proposition 218 prepared by the California Attorney General, Proposition 218 limits the authority of local governments to impose taxes and property-related assessments, fees and charges. Among other things, Article XIIIC establishes that every tax is either a general tax (imposed for general governmental purposes) or a special tax (imposed for specific purposes), prohibits special purpose government agencies such as school college 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 A-23

54 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 one 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. Proposition 26 On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution to expand the definition of tax to include any levy, charge, or exaction of any kind imposed by a local government except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor s burdens on, or benefits received from, the governmental activity Proposition 39 On November 7, 2000, California voters approved an amendment (commonly known as Proposition 39) to the California Constitution. This amendment (1) allows school facilities bond measures to be approved by 55% (rather than two-thirds) of the voters in local elections and permits property taxes to exceed the current 1% limit in order to repay the bonds and (2) changes existing statutory law regarding charter school facilities. As adopted, the constitutional amendment may be changed only with another Statewide vote of the people. The statutory provisions could be changed by a majority vote of both houses of the Legislature and approval by the Governor, but only to further the purposes of the proposition. The local school jurisdictions affected by this proposition are K-12 school districts, including the District, community college districts, and county offices of education. As noted above, the California Constitution previously limited property taxes to 1% of the value of property, and property taxes could only exceed this limit to pay for (1) any local government debts approved by the A-24

55 voters prior to July 1, 1978 or (2) bonds to buy or improve real property that receive two-thirds voter approval after July 1, The 55% vote requirement applies only if the local bond measure presented to the voters includes: (1) a requirement that the bond funds can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities; (2) a specific list of school projects to be funded and certification that the school board has evaluated safety, class size reduction, and information technology needs in developing the list; and (3) a requirement that the school board conduct annual, independent financial and performance audits until all bond funds have been spent to ensure that the bond funds have been used only for the projects listed in the measure. Legislation approved in June 2000 placed certain limitations on local school bonds to be approved by 55% of the voters. These provisions require that the tax rate per $100,000 of taxable property value projected to be levied as the result of any single election be no more than $60 (for a unified school district), $30 (for a high school or elementary school district), or $25 (for a community college district), when assessed valuation is projected to increase in accordance with Article XIIIA of the Constitution. These requirements are not part of Proposition 39 and can be changed with a majority vote of both houses of the Legislature and approval by the Governor. Jarvis v. Connell On May 29, 2002, the California Court of Appeal for the Second District decided the case of Howard Jarvis Taxpayers Association, et al. v. Kathleen Connell (as Controller of the State of California (the Controller )). The Court of Appeal held that either a final budget bill, an emergency appropriation, a self-executing authorization pursuant to state statutes (such as continuing appropriations) or the California Constitution or a federal mandate is necessary for the Controller to disburse funds. The foregoing requirement could apply to amounts budgeted by the District as being received from the State. To the extent the holding in such case would apply to State payments reflected in the District s budget, the requirement that there be either a final budget bill or an emergency appropriation may result in the delay of such payments to the District if such required legislative action is delayed, unless the payments are self-executing authorizations or are subject to a federal mandate. On May 1, 2003, the California Supreme Court upheld the holding of the Court of Appeal, stating that the Controller is not authorized under State law to disburse funds prior to the enactment of a budget or other proper appropriation, but under federal law, the Controller is required, notwithstanding a budget impasse and the limitations imposed by State law, to timely pay those State employees who are subject to the minimum wage and overtime compensation provisions of the federal Fair Labor Standards Act. Proposition 1A and Proposition 22 On November 2, 2004, California voters approved Proposition 1A, which amends the State constitution to significantly reduce the State s authority over major local government revenue sources. Under Proposition 1A, the State cannot (i) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (ii) shift property taxes from local governments to schools or community colleges, (iii) change how property tax revenues are shared among local governments without two-third approval of both houses of the State Legislature or (iv) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also amends the State Constitution to require the State to suspend certain State laws creating mandates in any year that the State does not fully reimburse local governments for their costs to comply with the mandates. This provision does not apply to mandates relating to schools or community colleges or to those mandates relating to employee rights. A-25

56 Proposition 22, The Local Taxpayer, Public Safety, and Transportation Protection Act, approved by the voters of the State on November 2, 2010, prohibits the State from enacting new laws that require redevelopment agencies to shift funds to schools or other agencies and eliminates the State s authority to shift property taxes temporarily during a severe financial hardship of the State. In addition, Proposition 22 restricts the State s authority to use State fuel tax revenues to pay debt service on state transportation bonds, to borrow or change the distribution of state fuel tax revenues, and to use vehicle license fee revenues to reimburse local governments for state mandated costs. Proposition 22 impacts resources in the State s general fund and transportation funds, the State s main funding source for schools and community colleges, as well as universities, prisons and health and social services programs. According to an analysis of Proposition 22 submitted by the Legislative Analyst s Office (the LAO ) on July 15, 2010, the expected reduction in resources available for the State to spend on these other programs as a consequence of the passage of Proposition 22 was expected to be approximately $1 billion in fiscal year , with an estimated immediate fiscal effect equal to approximately 1% of the State s total general fund spending. The longer-term effect of Proposition 22, according to the LAO analysis, will be an increase in the State s general fund costs by approximately $1 billion annually for several decades. On December 30, 2011, the California Supreme Court issued its decision in the case of California Redevelopment Association v. Matosantos, finding ABx1 26, a trailer bill to the State budget, to be constitutional. As a result, all redevelopment agencies in California were dissolved as of February 1, 2012, and all net tax increment revenues, after payment of redevelopment bonds debt service and administrative costs, will be distributed to cities, counties, special districts and school districts. The Court also found that ABx1 27, a companion bill to ABx1 26, violated the California Constitution, as amended by Proposition 22. ABx1 27 would have permitted redevelopment agencies to continue operations provided their establishing cities or counties agreed to make specified payments to school districts and county offices of education, totaling $1.7 billion statewide. ABx1 26 was modified by Assembly Bill No (Chapter 26, Statutes of ), which, together with ABx1 26, is referred to herein as the Dissolution Act. The Dissolution Act provides that all rights, powers, duties and obligations of a redevelopment agency that have not been repealed, restricted or revised pursuant to ABx1 26 will be vested in a successor agency, generally the county or city that authorized the creation of the redevelopment agency (each, a Successor Agency ). All property tax revenues that would have been allocated to such redevelopment agency will be allocated to the Successor Agency, to be used for the payment of pass-through payments to local taxing entities and to any other enforceable obligations (as defined in the Dissolution Act), as well to pay certain administrative costs. The Dissolution Act defines enforceable obligations to include bonds, loans, legally requirement payments, judgments or settlements, legal binding and enforceable obligations, and certain other obligations. Tax revenues in excess of such amounts, if any, will be distributed to local taxing entities in the same proportions as other tax revenues. The District can make no representations as to the extent to which its revenue limit apportionments may be offset by the future receipt of pass through tax increment revenues, or any other surplus property tax revenues pursuant to the Dissolution Act. Proposition 30 On November 6, 2012, voters approved the Temporary Taxes to Fund Education, Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment (also known as Proposition 30 ), which temporarily increases the State Sales and Use Tax and personal income tax rates on higher incomes. Proposition 30 temporarily imposes an additional tax on all retailers, at the rate of 0.25% of gross receipts from the sale of all tangible personal property sold in the State from January 1, 2013 to December 31, Proposition 30 also imposes an additional excise tax on the storage, use, or other consumption in the State of tangible personal property purchased from a retailer on and after January 1, A-26

57 2013 and before January 1, 2017, for storage, use, or other consumption in the State. This excise tax will be levied at a rate of 0.25% of the sales price of the property so purchased. For personal income taxes imposed beginning in the taxable year commencing January 1, 2012 and ending January 1, Proposition 30 increases the marginal personal income tax rate by: (i) 1% for taxable income over $250,000 but less than $300,000 for single filers (over $500,000 but less than $600,001 for joint filers and over $340,000 but less than $408,001 for head-of-household filers), (ii) 2% for taxable income over $300,000 but less than $500,001 for single filers (over $600,000 but less than $1,000,001 for joint filers and over $408,000 but less than $680,001 for head-of-household filers), and (iii) 3% for taxable income over $500,000 for single filers (over $1,000,000 for joint filers and over $680,000 for head-of-household filers). The revenues generated from the temporary tax increases will be included in the calculation of the Proposition 98 minimum funding guarantee for school districts and community college districts. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES Proposition 98 and Proposition 111 herein. From an accounting perspective, the revenues generated from the temporary tax increases are deposited into the State account created pursuant to Proposition 30 called the Education Protection Account (the EPA ). Pursuant to Proposition 30, funds in the EPA are allocated quarterly, with 89% of such funds provided to schools districts and 11% provided to community college districts. The funds are distributed to school districts and community college districts in the same manner as existing unrestricted per-student funding, except that no school district will receive less than $200 per unit of ADA and no community college district will receive less than $100 per full time equivalent student. The governing board of each school district and community college district is granted sole authority to determine how the moneys received from the EPA are spent, provided that, the appropriate governing board is required to make these spending determinations in open session at a public meeting and such local governing boards are prohibited from using any funds from the EPA for salaries or benefits of administrators or any other administrative costs. Proposition 55 Based on the semi-official election results from the November 8, 2016 general election, the voters in the State approved the Tax Extension of Education and Healthcare Initiative ( Proposition 55 ) which extends the increase in personal income tax on high-income taxpayers imposed under Proposition 30 until Proposition 55 does not extend the sales tax increase imposed under Proposition 30 which will expire in Proposition 2 Proposition 2, a legislatively referred Constitutional amendment approved by the voters in November, 2014 ( Proposition 2 ), changed the way in which the State pays off existing debts, funds its reserves and draws from those reserves in times of economic slowdowns, as well as requires that reserves be set aside for schools and community colleges under certain circumstances. In addition, as a result of the passage of Proposition 2, new rules for school district reserves were implemented. Under Proposition 2, the State is required annually to deposit 1.5% of general fund revenues into the Budget Stabilization Account ( BSA ). From fiscal year through , under Proposition 2, one half of the amount required to be deposited to the BSA must be applied to the payment of debts for pension and retiree benefits and specified debts to local governments and certain other State accounts. In years when capital gains tax revenues exceed 8% of general fund revenues, a portion of such excess capital gains tax revenue is also required to be applied to the pay down of State debt. Deposits to the BSA are required until the amount on hand in the BSA reaches 10% of general fund revenues. Once the maximum has been reached, the required deposit amount may be applied to other expenditures. A-27

58 In the event the Governor were to declare a budget emergency, Proposition 2 would permit a smaller deposit to the BSA. A budget emergency may be called if there is a natural disaster such as an earthquake or flood or general fund revenues reach a certain minimum level. Withdrawals from the BSA, under Proposition 2, are permitted upon a majority vote of the legislature only when the Governor has declared a budget emergency. If a budget emergency is called for two straight years in a row, in the second budget emergency year, the entire amount on hand might be withdrawn. Public School System Stabilization Account. In the event capital gains tax revenues collected by the State in any given fiscal year exceed 8% of general fund revenues, a portion of such excess is required to be deposited into the newly established under Proposition 2 Public School System Stabilization Account (the PSSSA ) which serves as a reserve account for school funding in years when the State budget is smaller. SB 858. Senate Bill 858 ( SB 858 ) became effective upon the passage of Proposition 2. SB 858 includes provisions which could limit the amount of reserves that may be maintained by a school district in certain circumstances. Under SB 858, in any fiscal year immediately following a fiscal year in which the State has made a transfer into the PSSSA, 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 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 ADA 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 three-year 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 Bonds are payable from ad valorem taxes to be levied within the District pursuant to the California Constitution and other State law. Accordingly, the District does not expect SB 858 to adversely affect its ability to pay the principal of and interest on the Bonds as and when due. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID of the California Constitution and Propositions 26, 30, 55 and 2 were each adopted as measures that qualified for the ballot pursuant to the State s initiative process. From time to time other initiative measures could be adopted further affecting District revenues or the District s ability to expend revenues. The nature and impact of these measures cannot be anticipated by the District. A-28

59 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2015 B-1

60 [THIS PAGE INTENTIONALLY LEFT BLANK]

61 CABRILLO UNIFIED SCHOOL DISTRICT COUNTY OF SAN MATEO HALF MOON BAY, CALIFORNIA AUDIT REPORT JUNE 30, 2015 CHAVAN & ASSOCIATES, LLP CERTIFIED PUBLIC ACCOUNTANTS 1475 SARATOGA AVE., SUITE 180 SAN JOSE, CA 95129

62 CABRILLO UNIFIED SCHOOL DISTRICT SAN MATEO COUNTY TABLE OF CONTENTS TITLE PAGE FINANCIAL SECTION: Independent Auditor s Report Management s Discussion and Analysis Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Position Statement of Activities Fund Financial Statements: Governmental Funds Balance Sheet Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities Statement of Fiduciary Net Position Statement of Changes in Fiduciary Net Position Notes to the Basic Financial Statements REQUIRED SUPPLEMENTARY INFORMATION: Schedule of Revenues, Expenditures and Changes in Fund Balance Budget to Actual (GAAP) - General Fund Schedule of Pension Plan Contributions Schedule of Proportionate Share of Net Pension Liabilities SUPPLEMENTARY INFORMATION: Combining Statements - Nonmajor Funds: Nonmajor Governmental Funds - Combining Balance Sheet Nonmajor Governmental Funds - Combining Schedule of Revenues, Expenditures and Changes in Fund Balances State and Federal Award Compliance Section: Organization Schedule of Average Daily Attendance Schedule of Instructional Time Offered Schedule of Financial Trends and Analysis Schedule of Expenditures of Federal Awards Reconciliation of Annual Financial Budget Report (SACS) with Audited Financial Statements Notes to State and Federal Award Compliance Section

63 CABRILLO UNIFIED SCHOOL DISTRICT SAN MATEO COUNTY TABLE OF CONTENTS OTHER INDEPENDENT AUDITOR S REPORTS: Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor s Report on Compliance for Each Major Federal Program; Report on Internal Control over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A Independent Auditors' Report on Compliance with Requirements that Could Have a Direct and Material Effect on State Programs FINDINGS AND RECOMMENDATIONS: Schedule of Findings and Questioned Costs Status of Prior Year Findings and Recommendations... 70

64 FINANCIAL SECTION

65 The Honorable Board of Trustees Cabrillo Unified School District Half Moon Bay, California Report on the Financial Statements INDEPENDENT AUDITOR S REPORT We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Cabrillo Unified School District (the District ), as of and for the year ended June 30, 2015, 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 The District s management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, 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 Educational Agencies, prescribed in the California Code of Regulations, Title 5, Section and following. 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. Page Saratoga Ave, Suite 180, San Jose, CA Tel: E-Fax: info@cnallp.com

66 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the District, as of June 30, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, budgetary comparison information, schedule of pension contributions, and schedule of proportionate share of net pension liability, as listed in the table of contents, 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 Cabrillo Unified School District s basic financial statements. The combining and individual nonmajor fund financial statements, 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 information listed in the supplementary section of the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and other schedules listed in the supplementary section of the table of contents is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements and other schedules listed in the supplementary section of the table of contents are fairly stated, in all material respects, in relation to the basic financial statements as a whole. Page Saratoga Ave, Suite 180, San Jose, CA Tel: E-Fax: info@cnallp.com

67 New Accounting Principles As discussed in Notes 1 and 9 to the financial statements, the District adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, effective June 30, 2015 and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date and amendment of GASB Statement No. 68. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 16, 2015 on our consideration of the District s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, 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 the District s internal control over financial reporting and compliance. November 16, 2015 San Jose, California Page Saratoga Ave, Suite 180, San Jose, CA Tel: E-Fax: info@cnallp.com

68 Management s Discussion and Analysis

69 CABRILLO UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 INTRODUCTION The Management s Discussion and Analysis (MD&A) is a required section of the District s annual financial report, as shown in the overview below. The purpose of the MD&A is to presents discussion and analysis of the District s financial performance during the fiscal year that ended on June 30, This report will (1) focus on significant financial issues, (2) provide an overview of the District s financial activity, (3) identify changes in the District s financial position, (4) identify any individual fund issues or concerns, and (5) provide descriptions of significant asset and debt activity. This information, presented in conjunction with the annual Basic Financial Statements, is intended to provide a comprehensive understanding of the District s operations and financial standing. Required Components of the Annual Financial Report Management s Discussion & Analysis Basic Financial Statements Government-Wide Financial Statements Fund Financial Statements Notes to the Financial Statements FINANCIAL HIGHLIGHTS Key financial highlights for the fiscal year ended June 30, 2015 were as follows: Total net position decreased by $23,535,991 or 54% from June 30, 2014 to June 30, 2015, mainly because the District implemented GASB No. 68 which required a decrease to net position of $24,900,795 in order to record the District s proportionate share of net pension obligations for PERS and STRS. General revenues accounted for $32,522,715 which is 89% of all revenues. Program specific revenues in the form of operating grants and contributions, and charges for services accounted for $4,800,379 or 13% of total revenues of $37,323,094. The District had $35,958,290 in expenses, which was directly supported by program specific revenues as noted in the second bullet. Total fund balances of governmental funds (i.e. General Fund, Building Fund, and Bond Fund) increased by $17,396,628, or 71% from June 30, 2014 to June 30, Among major funds, the General Fund had $30,710,513 in revenues and $30,567,862 in expenditures. The General Fund s fund balance increased by $142,651 from June 30, 2014 to June 30,

70 USING THE ANNUAL REPORT CABRILLO UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 This annual report consists of a series of basic financial statements and notes to those statements. These statements are organized so the reader can understand the District as an entire operating entity. The statements provide an increasingly detailed look at specific financial activities. The Statement of Net Position and Statement of Activities comprise the government-wide financial statements and provide information about the activities of the whole District, presenting both an aggregate view of the District s finances and a longer-term view of those finances. Fund financial statements provide the next level of detail. For governmental funds, these statements tell how services were financed in the short-term as well as what remains for future spending. The fund financial statements also look at the District s most significant funds with all other non-major funds presented in total in one column. In the case of the District, the General Fund is by far the most significant fund. The basic financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. OVERVIEW OF THE FINANCIAL STATEMENTS The full annual financial report is a product of three separate parts: the basic financial statements, supplementary information, and this section, the Management s Discussion and Analysis. The three sections together provide a comprehensive financial overview of the District. The basic financials are comprised of two kinds of statements that present financial information from different perspectives, government-wide and fund statements. Government-wide financial statements, which comprise the first two statements, provide both shortterm and long-term information about the District s overall financial position. Individual parts of the District, which are reported as fund financial statements, focus on reporting the District s operations in more detail. These fund financial statements comprise the remaining statements. Notes to the financials, which are included in the financial statements, provide more detailed data and explain some of the information in the statements. The required supplementary information section provides further explanations and provides additional support for the financial statements. GOVERNMENT-WIDE FINANCIAL STATEMENTS - STATEMENT OF NET POSITION AND THE STATEMENT OF ACTIVITIES While this document contains the large number of funds used by the District to provide programs and activities, the view of the District as a whole looks at all financial transactions and asks the question, How did we do financially during the fiscal year ? The Statement of Net Position and the Statement of Activities answer this question. These statements include all assets and liabilities using the accrual basis of accounting similar to the accounting practices used by most private-sector companies. This basis of accounting takes into account all of the current year revenues and expenses regardless of when cash is received or paid. These two statements report the District s net position and changes in net position. This change in net position is important because it tells the reader that, for the District as a whole, the financial position of the District has improved or diminished. The causes of this change may be the result of many factors, some financial, and some not. Non-financial factors include the District s property tax base, current 5

71 CABRILLO UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 property tax laws in California restricting revenue growth, facility conditions, required educational programs and other factors. In the Statement of Net Position and the Statement of Activities, the District reports governmental activities. Governmental activities are the activities where most of the District s programs and services are reported including, but not limited to, instruction, support services, operation and maintenance of plant, pupil transportation and extracurricular activities. The District does not have any business type activities. REPORTING THE DISTRICT S MOST SIGNIFICANT FUNDS Fund Financial Statements The analysis of the District s major funds begins on page 15. Fund financial reports provide detailed information about the District s major funds. The District uses many funds to account for a multitude of financial transactions. These fund financial statements focus on each of the District s most significant funds. The District s major governmental funds are the General Fund, Building Fund, and Bond Interest and Redemption Fund. Governmental Funds Most of the District s activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end available for spending in the future periods. 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 future to finance educational programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds is reconciled in the financial statements. Fiduciary funds The district is the trustee, or fiduciary, for an expendable trust fund. All of the district s fiduciary activities are reported in a separate Statement of Fiduciary Net Position. We exclude these activities from the district s fund and government-wide financial statements because the district cannot use these assets to finance its operations. THE DISTRICT AS A WHOLE Recall that the Statement of Net Position provides the perspective of the District as a whole. Total assets of governmental activities increased by $17,829,477. Net capital assets increased by $1,160,106 because of current year depreciation. Unrestricted net position of the District, which does not have constraints from grantors, legal requirements, or legislation, decreased by $22,466,443, mainly because the District implemented GASB No

72 CABRILLO UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 Table 1 provides a summary of the District s net position as of June 30, 2015 as compared to June 30, 2014: Table 1 - Summary of Net Position Increase (Decrease) Percent Assets Current Assets $ 43,907,606 $ 27,238,235 $ 16,669, % Capital Assets 51,151,823 49,991,717 1,160, % Total Assets 95,059,429 77,229,952 17,829, % Deferred Outflows of Resources 2,743,140-2,743, % Liabilities Current and Other Liabilities 3,544,406 3,871,967 (327,561) -8.5% Long-Term Liabilities 68,269,051 29,488,726 38,780, % Total Liabilities 71,813,457 33,360,693 38,452, % Deferred Inflows of Resources 5,655,844-5,655, % Net Position Net Investment in Capital Assets 33,628,956 34,866,924 (1,237,968) -3.6% Restricted 9,110,733 8,942, , % Unrestricted (22,406,421) 60,022 (22,466,443) % Total Net Position $ 20,333,268 $ 43,869,259 $ (23,535,991) -53.7% Table 2 shows the changes in net position from fiscal year to : Table 2 - Change in Net Position Increase (Decrease) Percent Revenues Program Revenues: Charges for Services $ 454,009 $ 393,016 $ 60, % Operating Grants and Contributions 4,346,370 4,332,884 13, % General Revenues: Property Taxes 17,314,636 27,060,926 (9,746,290) -36.0% Grants and Entitlements - Unrestricted 14,450,113 1,819,386 12,630, % Other 757, , , % Total Revenues 37,323,094 34,210,606 3,112, % Program Expenses Instruction 18,395,430 18,744,766 (349,336) -1.9% Instruction-Related Services 4,902,387 4,524, , % Pupil Services 3,142,127 3,127,185 14, % General Administration 1,966,493 2,157,306 (190,813) -8.8% Plant Services 2,671,238 3,904,365 (1,233,127) -31.6% Community Services 118, ,019 16, % Ancillary Services 432, ,171 37, % Payments to Other Agencies 543, ,382 (84,237) -13.4% Interest and Fiscal Charges 3,786,401 2,994, , % Total Expenses 35,958,290 36,577,294 (619,004) -1.7% Change in Net Position $ 1,364,804 $ (2,366,688) $ 3,731, % Prior Period Restatement (24,900,795) - (24,900,795) 100.0% Change in Net Position Including Restatemen $ (23,535,991) $ (2,366,688) $ (21,169,303) 894.5% 7

73 CABRILLO UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 Property taxes comprised 79% of District revenues and direct instruction costs comprised 51% of District expenses for fiscal year These percentages are consistent with Total revenues increased by 7% and total expenses decreased by 4% for fiscal year The following is a summary of government-wide revenues for the fiscal years ended June 30, 2014 and 2015: The following is a summary of expenses by function for the fiscal years ended June 30, 2014 and 2015: 8

74 CABRILLO UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 GOVERNMENTAL ACTIVITIES The Statement of Activities shows the cost of program services and the charges for services and grants offsetting those services. Table 3 shows the net cost of services as compared to the prior fiscal year. That is, it identifies the cost of these services supported by general revenues for the government-wide statements (not the General Fund). Table 3 - Net Cost of Services Increase Function (Decrease) Percent Instruction $ 16,379,769 $ 17,330,418 $ (950,649) -5.5% Instruction-Related Services 4,361,681 3,786, , % Pupil Services 1,967,594 2,100,889 (133,295) -6.3% General Administration 1,893,104 2,118,838 (225,734) -10.7% Plant Services 2,596,582 3,737,258 (1,140,676) -30.5% Community Services 98,197 88,073 10, % Ancillary Services 270, ,199 5, % Payments to Other Agencies (195,635) (569,694) 374, % Interest and Fiscal Charges 3,786,401 2,994, , % Total Net Cost of Services $ 31,157,911 $ 31,851,394 $ (693,483) -2.2% Direct Instruction expenses include activities directly dealing with the teaching of pupils and the interaction between teacher and pupil. Pupil Services and Instruction-Related Services include the activities involved with assisting staff with the content and process of teaching to pupils. General Administration includes the costs for the Board of Trustees, administration, fiscal and business services and other expenses associated with administrative and financial supervision of the District. Plant Services include the operation and maintenance of plant activities, which involve keeping the school grounds, buildings, and equipment in an effective working condition. Community services include activities concerned with providing services to community participants other than students. Ancillary services include school-sponsored activities during or after the school day that are not essential to the delivery of instructional services. Interest and Fiscal Charges involve the transactions associated with the payment of interest and other related charges to debt of the District. The dependence upon tax and local revenues is apparent, 89% of the District s activities are supported through taxes, grants and entitlements, and other general revenues. The community, as a whole, is the primary support for the District. 9

75 THE DISTRICT S FUNDS CABRILLO UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 The District s governmental funds report a combined fund balance of $42,063,200, which is an increase of $17,396,628 from last year s total. Table 4 provides an analysis of the District s fund balances and the total change in fund balances from the prior year. Table 4 - Change in Fund Balances Increase Funds (Decrease) General Fund $ 2,920,940 $ 2,778,290 $ 142,650 Adult Education Fund 22,428 26,638 (4,210) Child Development Fund 103,364 99,300 4,064 Cafeteria Fund 33, ,689 (68,595) Deferred Maintenance Fund Building Fund 30,393,045 14,065,108 16,327,937 Capital Facilities Fund 1,328,945 1,095, ,174 Bond Interest & Redemption Fund 7,261,092 6,499, ,316 Total Governmental Fund Balances $ 42,063,200 $ 24,666,572 $ 17,396,628 GENERAL FUND BUDGETING HIGHLIGHTS The District s budget is prepared according to California law and in the modified accrual basis of accounting. During the course of the fiscal year, the District revised its General Fund budget twice, at 1 st Interim and 2 nd interim, which resulted in a decrease in budgeted expenditures of $1,708,033 from the original to final budget. For the General Fund, the final budget basis revenue and other financing sources estimate was $29,446,179. The original budgeted estimate was $27,786,

76 CABRILLO UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 CAPITAL ASSETS At the end of the fiscal year 2015, the District had $70,879,095 invested in land, buildings, furniture and equipment, and vehicles located at the District s school sites. Table 5 shows June 30, 2015 balances as compared to June 30, Table 5 - Summary of Capital Assets Net of Depreciation Net Net Percentage Capital Asset Capital Asset Capital Asset Change Land $ 1,456,448 $ 1,456, % Site Improvements 4,048,195 4,082, % Buildings and Improvements 42,685,806 43,495, % Furniture and Equipment 406, , % Work-in-Progress 2,554, , % Totals $ 51,151,823 $ 49,991, % Overall capital assets increased by 2.3% from fiscal year 2014 to fiscal year LONG TERM DEBT Table 6 summarizes the percent changes in Long-term Debt over the past two years. Table 6 - Long-term Debt Percentage Type of Debt Change General obligation bonds $ 45,269,904 $ 27,542, % Unamortized bond premiums - net 2,646,008 1,647, % Net Pension Liability 20,054, % Compensated absences 298, , % Total Debt $ 68,269,051 $ 29,488, % FACTORS BEARING ON THE DISTRICT S FUTURE Due to changes in State funding, the District will potentially increase revenue based on the target LCFF. However, the new funding model includes only statutory funding requirements for cost of living adjustments and fluctuates according to State revenue. With an eight year planned implementation of the LCFF, the State revenue is likely to fluctuate significantly from current projections and could cause an operating deficit for the District. The District has adequate reserves to fund short-term fluctuations, but must maintain significantly higher reserves in order to address potential long-term downturns in State revenue. 11

77 CABRILLO UNIFIED SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, parents, 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 regarding this report or need additional financial information, contact Crystal Leach, Chief Business Official, Cabrillo Unified School District, 498 Kelly Avenue, Half Moon Bay, CA 94019, (650)

78 Basic Financial Statements

79 CABRILLO UNIFIED SCHOOL DISTRICT STATEMENT OF NET POSITION JUNE 30, 2015 Governmental Activities Assets Current assets: Cash in county treasury $ 41,231,866 Cash in revolving fund 25,000 Cash with fiscal agent 83,920 Accounts receivable 2,548,783 Inventories 18,037 Total current assets 43,907,606 Capital assets - net 51,151,823 Total Assets $ 95,059,429 Deferred Outflows of Resources Pension plan contributions $ 2,743,140 Liabilities Accounts payable $ 1,612,428 Unearned revenue 231,978 Accrued interest 1,700,000 Total current liabilities: 3,544,406 Long-term liabilities: Due within one year 2,024,371 Due after one year 66,244,680 Total long-term liabilities 68,269,051 Total Liabilities $ 71,813,457 Deferred Inflows of Resources Net difference between projected and actual earnings from pension plans $ 5,655,844 Net Position Net investment in capital assets $ 33,628,956 Restricted for: Capital projects 1,328,945 Debt service 7,261,092 Educational programs 395,289 Other purposes (expendable) 125,407 Total restricted net position 9,110,733 Unrestricted (22,406,421) Total Net Position $ 20,333,268 The notes to the financial statements are an integral part of this statement. 13

80 CABRILLO UNIFIED SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2015 Program Revenues Net (Expense) Operating Revenue and Charges for Grants and Changes in Expenses Services Contributions Net Position Governmental activities Instruction $ 18,395,430 $ 29,077 $ 1,986,584 $ (16,379,769) Instruction-related services: Supervision of instruction 1,904,264 7, ,197 (1,451,847) Instruction library, media and technology 747,261 4,776 38,658 (703,827) School site administration 2,250,862 4,374 40,481 (2,206,007) Pupil services: Home-to-school transportation 520,299-17,185 (503,114) Food services 764, , ,277 (16,797) All other pupil services 1,857,401 11, ,981 (1,447,683) General administration: Data processing 98,426 1,462 11,572 (85,392) All other general administration 1,868,067 7,253 53,102 (1,807,712) Plant services 2,671,238 8,720 65,936 (2,596,582) Community services 118,736 2,303 18,236 (98,197) Ancillary services 432,333 4, ,163 (270,218) Payments to other agencies 543, , , ,635 Interest on long-term debt 3,786, (3,786,401) Total governmental activities $ 35,958,290 $ 454,009 $ 4,346,370 (31,157,911) General revenues: Taxes and subventions: Taxes levied for general purposes 10,486,715 Taxes levied for debt service 5,162,028 Taxes levied for other specific purpose 1,665,893 Federal and state aid non restricted to specific purposes 14,450,113 Interest and investment earnings 343,027 Miscellaneous 414,939 Total general revenues 32,522,715 Change in net position 1,364,804 Net position beginning 43,869,259 Prior period adjustment - GASB 68 (24,900,795) Net assets beginning - adjusted 18,968,464 Net position ending $ 20,333,268 The notes to the financial statements are an integral part of this statement. 14

81 CABRILLO UNIFIED SCHOOL DISTRICT GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2015 Bond Other Interest and Nonmajor Total General Building Redemption Governmental Governmental Fund Fund Fund Funds Funds Assets Cash and investments $ 1,673,210 $ 30,595,646 $ 7,249,900 $ 1,713,110 $ 41,231,866 Cash in revolving fund 25, ,000 Cash with fiscal agent 79,542 4, ,920 Accounts receivable 2,312,990 56,440 11, ,161 2,548,783 Due from other funds 444, ,325 Prepaid items and stores inventories 6, ,052 18,037 Total Assets $ 4,542,052 $ 30,656,464 $ 7,261,092 $ 1,892,323 $ 44,351,931 Liabilities and Fund Balances Liabilities: Accounts payable $ 1,389,134 $ 207,811 $ - $ 15,483 $ 1,612,428 Due to other funds - 55, , ,325 Unearned revenue 231, ,978 Total Liabilities 1,621, , ,200 2,288,731 Fund balances: Nonspendable: Revolving fund 25, ,000 Stores inventories 6, ,051 18,040 Restricted for: Educational programs 395, ,288 Debt service - - 7,261,092-7,261,092 Child development , ,364 Cafeteria programs ,043 22,043 Capital projects - 30,393,045-1,328,945 31,721,990 Assigned for: Adult education ,428 22,428 Site repairs Educational programs 68, ,399 Unassigned: Economic uncertainties 895, ,906 Unappropriated 1,529, ,529,358 Total Fund Balances 2,920,940 30,393,045 7,261,092 1,488,123 42,063,200 Total Liabilities and Fund Balances $ 4,542,052 $ 30,656,464 $ 7,261,092 $ 1,892,323 $ 44,351,931 The notes to the financial statements are an integral part of this statement. 15

82 CABRILLO UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2015 Total fund balances - governmental fund $ 42,063,200 Amounts reported in the Statement of Net Position are different becaus Capital assets used in governmental activities are not financial resources and therefore are no reported as assets in the governmental funds Capital assets at cost $ 70,879,095 Accumulated depreciation (19,727,272) 51,151,823 Interest payable on long-term debt does not require the use of current financia resources and, therefore, is not reported in the governmental fund (1,700,000) Contributions made to pension plans will not be included in the calculation to the District's net pension liability of the plan year included in this report and have been deferred and reported as deferred outflows of resources. 2,743,140 The difference between projected and actual earnings from pension plan assets is not included in the plan's actuarial study until the next fiscal year and are reported as deferred inflows of resources in the statement of net position. (5,655,844) Long-term liabilities are not due and payable in the current period and, therefore, are not reported as liabilities in the governmental funds. Long-term liabilities at year-end consist o General obligation bonds $ 45,269,904 Unamortized bond premium 2,646,008 Net pension liabilities 20,054,314 Compensated absences (vacation) 298,825 (68,269,051) Total net position - governmental activitie $ 20,333,268 The notes to the financial statements are an integral part of this statement. 16

83 CABRILLO UNIFIED SCHOOL DISTRICT GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE FISCAL YEAR ENDED JUNE 30, 2015 Bond Other Interest and Nonmajor Total General Building Redemption Governmental Governmental Fund Fund Fund Funds Funds Revenues: LCFF sources $ 24,111,560 $ - $ - $ 27,850 $ 24,139,410 Federal revenue 1,392, ,028 1,947,933 Other state 1,892,127-27,328 48,774 1,968,229 Other local 3,313, ,482 5,166, ,434 9,198,884 Total revenues 30,710, ,482 5,193,375 1,169,086 37,254,456 Expenditures: Current Instruction 17,760, ,061 17,770,185 Instruction-related services: Supervision of instruction 2,030, ,500 2,032,283 Instruction library, media and technology 767, ,937 School site administration 2,391, ,391,741 Pupil services: Home-to-school transportation 479, ,483 Food services 1, , ,817 All other pupil services 1,982, ,982,270 General administration: Data processing 105, ,043 All other general administration 1,940, ,679 1,974,836 Plant services 2,062, ,432-85,453 2,378,746 Facilities acquisition and construction 10,100 3,463, ,473,214 Ancillary Services 432, ,333 Community services 60, , ,736 Payments to other agencies 543, ,145 Debt service: Principal - - 2,272,770-2,272,770 Interest and fees - 160,000 3,226,705-3,386,705 Total expenditures 30,567,862 3,853,546 5,499,475 1,004,361 40,925,244 Excess (deficiency) of revenues over (under) expenditures 142,651 (3,672,064) (306,100) 164,725 (3,670,788) Other financing sources (uses): Proceeds from Long-Term Debt - 20,000, ,000,000 Premium from bond issuance - - 1,067,416-1,067,416 Total other financing sources (uses) - 20,000,000 1,067,416-21,067,416 Net changes in fund balances 142,651 16,327, , ,725 17,396,628 Fund balances beginning 2,778,290 14,065,108 6,499,776 1,323,398 24,666,572 Fund balances ending $ 2,920,941 $ 30,393,044 $ 7,261,092 $ 1,488,123 $ 42,063,200 The notes to the financial statements are an integral part of this statement. 17

84 CABRILLO UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES AND EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2015 Total net change in fund balances - governmental funds $ 17,396,628 Capital outlays are reported in the governmental funds as expenditures. However, in the Statement of Activities, the costs of those assets are allocated over their estimated useful lives as depreciation expense. Capital asset additions from capital outlay $ 3,038,624 Depreciation expense (1,878,518) 1,160,106 The governmental funds report bond proceeds as an other financing source, while repayment of bond principal is reported as an expenditure. Interest is recognized as an expenditure in the governmental funds when it is due. The net effect of these differences in the treatment of general obligation bonds and related items are as follows: Proceeds from bond issuance $ (20,000,000) Bond premiums (1,067,416) Repayment of bond principal 2,272,770 (18,794,646) In governmental funds, if debt is issued at a premium or at a discount, the premium or discount is recognized as an other financing source or other financing use in the period it is incurred. In the government-wide statements, the premium or discount is amortized as interest over the life of the debt. The difference between premiums or discounts recognized in the current period and amortized over future periods is: 68,635 In governmental fundsm actual contributions to pension plans are reported as expenditures in the year incurred. However, in the government-wide statement of activities, only the curent year pension expense as noted in the plans' valuation reports is reported as an expense, as adjusted for deferred inflows and outflows of resources. 1,933,777 Interest on long-term debt in the Statement of Activities differs from the amount reported in the governmental funds because interest is recognized 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. (399,696) Changes in net position of governmental activities $ 1,364,804 The notes to the financial statements are an integral part of this statement. 18

85 CABRILLO UNIFIED SCHOOL DISTRICT FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2015 Assets: School Associated Scholarship Student Body Fund Agency Fund Total Cash on hand and in banks $ 140,156 $ 145,869 $ 286,025 Total Assets $ 140,156 $ 145,869 $ 286,025 Liabilities: Due to student groups $ - $ 145,869 $ 145,869 Total Liabilities $ - $ 145,869 $ 145,869 Net Position: Restricted $ 140,156 $ - $ 140,156 Total Net Position $ 140,156 $ - $ 140,156 The notes to the financial statements are an integral part of this statement. 19

86 CABRILLO UNIFIED SCHOOL DISTRICT FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE FISCAL YEAR ENDED JUNE 30, 2015 School Scholarship Fund Additions Other Local $ 153,611 Deductions Scholarships 167,651 Changes in net position (14,040) Net position beginning 154,196 Net position ending $ 140,156 The notes to the financial statements are in integral part of this statement. 20

87 Notes to the Basic Financial Statements

88 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES A. Accounting Principles Cabrillo Unified School District (the District ) accounts for its financial transactions in accordance with the policies and procedures of the Department of Education s California School Accounting Manual. The accounting policies of the District conform to generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB) and the American Institute of Certified Public Accountants (AICPA). B. Reporting Entity The District is the level of government primarily accountable for activities related to public education. The governing authority consists of five elected officials who, together, constitute the Board of Trustees. The District s combined financial statements include the accounts of all its operations. The District evaluated whether any other entity should be included in these financial statements using the criteria established by GASB. Component Units: The District evaluated whether any other entity should be included in these financial statements. The basic, but not the only, criterion for including a governmental department, agency, institution, commission, public authority, or other governmental organization in a governmental unit s reporting entity for financial reports is the ability of the governmental unit s elected officials to exercise oversight responsibility over such agencies. Oversight responsibility implies that one governmental unit is dependent on another and that the dependent unit should be reported as part of the other. Oversight responsibility is derived from the governmental unit s power and includes, but is not limited to: Financial interdependency Selection of governing authority Designation of management Ability to significantly influence operations Accountability for fiscal matters Accordingly, for the year ended June 30, 2015, the District does not have any component units and is not a component unit of any other reporting entity. C. Basis of Presentation Government-wide Financial Statements: The government-wide financial statements (i.e., the Statement of Net Position and the Statement of Activities) report information on all of the non-fiduciary activities of the District. Eliminations have been made to minimize the effect of interfund of activities. The government-wide statements are prepared using the economic resources measurement focus. This is the same approach used in the preparation of the proprietary fund and fiduciary fund financial statements but differs from the manner in which governmental fund financial statements are prepared. 21

89 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 Governmental fund financial statements, therefore, includes a reconciliation with brief explanations to better identify the relationship between the government-wide statements and the statements for the governmental funds. The government-wide statement of activities presents a comparison between direct expenses and program revenues for each function or program of the District s governmental activities. Direct expenses are those that are specifically associated with a service, program, or department and are therefore clearly identifiable to a particular function. The District does not allocate indirect expenses to functions in the statement of activities. Program revenues include charges paid by the recipients of goods or services offered by a program, as well as 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 of the District, with certain exceptions. The comparison of direct expenses with program revenues identifies the extent to which each governmental function is self-financing or draws from the general revenues of the District. Fund Financial Statements: Fund financial statements report detailed information about the District. The focus of governmental fund financial statements is on major funds rather than reporting funds by type. Each major governmental fund is presented in a separate column, and all non-major funds are aggregated into one column. Fiduciary funds are reported by fund type. The accounting and financial treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using a flow of current financial resources measurement focus. With this measurement focus, only current assets, deferred outflows of resources, current liabilities and deferred inflows of resources are generally included on the balance sheet. The Statement of Revenues, Expenditures, and Changes in Fund Balances for these funds present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net current assets. Fiduciary funds are reported using the economic resources measurement focus. D. Basis of Accounting Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Government-wide financial statements are prepared using the accrual basis of accounting. Governmental funds use the modified accrual basis of accounting. Fiduciary funds use the accrual basis of accounting. Revenues - Exchange and Non-exchange Transactions: Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded under the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the District, available means collectible within the current period or within 60 days after yearend. 22

90 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, grants, and entitlements. Under the accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants and entitlements is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are to be used or the fiscal year when use is first permitted; matching requirements, in which the District must provide local resources to be used for a specific purpose; and expenditure requirements, in which the resources are provided to the District on a reimbursement basis. Under the modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. Deferred Outflows/Deferred Inflows: Deferred outflows of resources are consumptions of net assets by the government that are applicable to a future reporting period. For example, prepaid items and deferred charges. Deferred inflows of resources are acquisitions of net assets by the government that are applicable to a future reporting period. For example, unearned revenue and advance collections. Unearned Revenue: Unearned revenue arises when assets are received before revenue recognition criteria have been satisfied. Grants and entitlements received before eligibility requirements are met are recorded as deferred inflows of resources from unearned revenue. In the governmental fund financial statements, receivables associated with non-exchange transactions that will not be collected within the availability period have been recorded as deferred inflows of resources from unearned revenue. Expenses/Expenditures: On the accrual basis of accounting, expenses are recognized at the time a liability is incurred. On the modified accrual basis of accounting, expenditures are generally recognized in the accounting period in which the related fund liability is incurred, as under the accrual basis of accounting. However, under the modified accrual basis of accounting, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Allocations of cost, such as depreciation and amortization, are not recognized in the governmental funds. When both restricted and unrestricted resources are available for use, it is the District s policy to use restricted resources first, then unrestricted resources as they are needed. E. Fund Accounting The accounts of the District are organized on the basis of funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of selfbalancing accounts that comprise its assets, deferred outflows of resources, liabilities, deferred inflows of resources, fund equity or retained earnings, revenues, and expenditures or expenses, as appropriate. District resources are allocated to and accounted for in individual funds based upon the purpose for which they are to be spent and the means by which spending activities are controlled. The District s accounts are organized into major, nonmajor, and fiduciary funds as follows: 23

91 Major Governmental Funds: CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 The General Fund is the general operating fund of the District. It is used to account for all financial resources except those required to be accounted for in another fund and includes transactions accounted for in the Special Reserve Fund for Other Than Capital Outlay and Special Reserve Fund for Postemployment Benefits. The Building Fund is used to account for proceeds from the sale of real property and account for the acquisition of major governmental capital facilities and buildings from the sale of bond proceeds. The Bond Interest and Redemption Fund is used to account for the interest and redemption of principal of general obligation bonds. Non-major Governmental Funds: Special Revenue Funds are used to account for the proceeds of specific revenue sources that are restricted or committed for purposes other than debt service or capital projects. The restricted or committed resources need to comprise a substantial portion of the inflows reported in the special revenue fund. The District maintains four nonmajor special revenue funds: The Adult Education Fund is used to account for resources committed to adult education programs maintained by the District. The Child Development Fund is used to account for resources committed child development programs maintained by the District. The Cafeteria Fund is used to account for revenues received and expenditures made to operate the District s food service programs. The Deferred Maintenance Fund is used for the purpose of major repair or replacement of District property. Capital Projects Funds are used to account for resources restricted, committed or assigned for capital outlays. The District maintains one nonmajor capital projects fund: The Capital Facilities Fund is used to account for resources received from developer impact fees assessed under provisions of the California Environmental Quality Act ("CEQA"). Fiduciary Funds: Private-Purpose Trust Funds are used to account for assets held by the District as trustee. The District maintains one trust fund, the Scholarship fund, which is used to provide financial assistance to students of the District. Agency Funds are used to account for assets of others for which the District acts as an agent. The District maintains an agency fund for the student body accounts. The student body funds are used to account for the raising and expending of money to promote the general welfare, morale, and educational experience of the student body. 24

92 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 In order to comply with the requirements of GASB 54, the District has combined transactions in the Special Reserve fund for Other than Capital Outlay (Special Reserve Fund) with the General Fund because it does not meet the definition of a special revenue fund as defined by GASB 54. F. Budgets and Budgetary Accounting Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all governmental funds. By state law, the District s governing board must adopt a final budget no later than July 1. A public hearing must be conducted to receive comments prior to adoption. The District s governing board satisfied these requirements. These budgets are revised by the District s governing board during the year to give consideration to unanticipated income and expenditures. The original and final revised budgets for the General Fund are presented as Required Supplementary Information. Formal budgetary integration was employed as a management control device during the year for all budgeted funds. The District employs budget control by minor object and by individual appropriation accounts. Expenditures cannot legally exceed appropriations by major object account. In comparing the budget and actual expenditures in the General Fund for FY , the expenditures exceeded the final budget amounts in the following categories: Certificated Salaries, Classified Salaries, Services and Other Operating Expenditures, and Other Outgo. Fund balance was more than adequate to cover the excess appropriations. G. Encumbrances Encumbrance accounting is used in all budgeted funds to reserve portions of applicable appropriations for which commitments have been made. Encumbrances are recorded for purchase orders, contracts, and other commitments when they are written. Encumbrances are liquidated when the commitments are paid. All encumbrances are liquidated on June 30. H. Pensions For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the District s California Public Employees Retirement System (CalPERS) and California State Teachers Retirement System plans (Plans) and addition to/deduction from the Plans fiduciary net position have been determined on the same basis as they are reported by CalPERS and STRS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. I. Assets, Liabilities, and Equity a) Cash and Investments Cash balances held in banks and in revolving funds are insured to $250,000 by the Federal Deposit Insurance Corporation. 25

93 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 In accordance with Education Code Section 41001, the District maintains substantially all of its cash in the County Treasury. The county pools these funds with those of other districts in the county and invests the cash. These pooled funds are carried at cost, which approximates market value. Interest earned is deposited quarterly into participating funds. Any investment losses are proportionately shared by all funds in the pool. All District-directed investments are governed by Government Code Section and Treasury investment guidelines. The guidelines limit specific investments to government securities, domestic chartered financial securities, domestic corporate issues, and California municipal securities. The District s securities portfolio is held by the County Treasurer. Interest earned on investments is recorded as revenue of the fund from which the investment was made. b) Inventories and Prepaid Expenditures Inventories Inventories are recorded using the purchases method, in that inventory acquisitions are initially recorded as expenditures. Reported inventories are equally offset by a fund balance reserve, which indicates that these amounts are not available for appropriation and expenditure even though they are a component of net current assets. The District s central warehouse inventory is valued at cost and consists of expendable supplies held for consumption. Prepaid expenditures The District has the option of reporting expenditures in governmental funds for prepaid items either when purchased or during the benefiting period. The District has chosen to report the expenditure during the benefiting period, thus recording a prepaid expenditure in the Statement of Net Position. c) Capital Assets Capital assets are those purchased or acquired with an original cost of $15,000 or more and are reported at historical cost or estimated historical cost. Contributed assets are reported at fair market value as of the date received. Additions, improvements, and other capital outlays that significantly extend the useful life of an asset are capitalized. The costs of normal maintenance and repairs that do not add to the value of the assets or materially extend the asset s lives are not capitalized, but are expensed as incurred. Depreciation on all capital assets is computed using a straight-line basis over the following estimated useful lives: Assets Years Improvement of sites 20 Buildings 50 Portable buildings 20 Building improvements 20 Furniture and fixtures 20 Playground equipment 20 Food services equipment 15 Transportation equipment 15 Telephone system 10 Vehicles 8 Computer and office equipment 5 26

94 d) Unearned Revenue CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 Cash received for federal and state special projects and programs is recognized as revenue to the extent that qualified expenditures have been incurred and timing requirements have been met. Unearned revenue is recorded to the extent that cash received on specific projects and programs exceeds qualified expenditures. Unearned revenue in the funds is recorded for grant and entitlement receivables that are not available within ninety days of year end and for cash receipts from grants and entitlements for which the District has not met the eligibility requirements for recognizing revenue. e) Compensated Absences All vacation pay is accrued when incurred in the government-wide financial statements. A liability for these amounts is reported in the governmental funds only if they have matured, for example, as a result of employee resignations and retirements. Accumulated sick leave benefits are not recognized as liabilities of the District. The District s policy is to record sick leave as an operating expense in the period taken, since such benefits do not vest, nor is payment probable; however, unused sick leave is added to the creditable service period for calculation of retirement benefits when the employee retires. f) Long-Term Liabilities In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the Statement of Net Position. Bond premiums and discounts are deferred and amortized over the life of the bonds. Bonds payable are reported net of applicable bond premium or discount. Issuance costs are expensed in the period incurred. In the fund financial statements, governmental funds recognize bond premiums and discounts as well as bond issuance costs, during the current period. The face amount of the debt issued, premiums, or discounts are reported as other financing sources/uses. g) Fund Balance Reserves and Designations The District maintains a minimum unassigned fund balance of not less than 3 percent of budgeted general fund expenditures and other financing uses as a reserve for economic uncertainties. The District believes a reserve of this level is prudent to maintain a high bond rating and to protect the District from the effects of fluctuations in property tax revenues to which basic aide districts are vulnerable. Because amounts in the nonspendable, restricted, committed, and assigned categories are subject to varying constraints on their use, the reserve for economic uncertainties consists of balances that are otherwise unassigned. In accordance with Government Accounting Standards Board 54, Fund Balance Reporting and Governmental Fund Type Definitions, the District classifies governmental fund balances as follows: Nonspendable fund balance includes amounts that cannot be spent either because it is not in spendable form or because of legal or contractual constraints. 27

95 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 Restricted fund balance includes amounts that are constrained for specific purposes which are externally imposed by providers, such as creditors or amounts constrained due to constitutional provisions or enabling legislation. Committed fund balances includes amounts that are constrained for specific purposes that are internally imposed by the government through formal action of the highest level of decision making authority and does not lapse at year-end. Committed fund balances are imposed by the District s board of education. Assigned fund balance includes amounts that are intended to be used for specific purposes that are neither considered restricted or committed. Fund balance may be assigned by the Superintendent and the Chief Business Official. Unassigned fund balance includes positive amounts within the general fund which has not been classified within the above mentioned categories and negative fund balances in other governmental funds. The District uses restricted/committed amounts to be spent first when both restricted and unrestricted fund balance is available unless there are legal documents/contracts that prohibit doing this, such as a grant agreement requiring dollar for dollar spending. Additionally, the District would first use committed, then assigned, and lastly unassigned amounts of unrestricted fund balance when expenditures are made. h) Net Position Net position represents the difference between assets, deferred outflows of resources, liabilities and deferred inflows of resources. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. In addition, deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets or related debt also are included in the net investment in capital assets component of net position. Net position is reported as restricted when there are limitations imposed on its use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors, laws or regulations of other governments. The District applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available. Capital Projects restrictions will be used for the acquisition and construction of capital facilities. Debt Service restrictions reflect the cash balances in the debt service funds that are restricted for debt service payments by debt covenants. Educational Program restrictions reflect the amounts to be expended for federal and state funded educational programs. Other Purposes (Expendable) reflect the fluctuations of the fair market values for the cash investment in the county pool. 28

96 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 i) Local Control Funding Formula and Property Taxes The Local Control Funding Formula (LCFF) creates base, supplemental, and concentration grants in place of most previously existing K 12 funding streams, including revenue limits and most state categorical programs. The revenue limit was a combination of local property taxes, state apportionments, and other local sources. The Budget Act provides $2.1 billion for school districts and charter schools and $32 million for COEs to support the first-year implementation of the LCFF. Until full implementation, however, local educational agencies (LEAs) will receive roughly the same amount of funding they received in plus an additional amount each year to bridge the gap between current funding levels and the new LCFF target levels. The budget projects the time frame for full implementation of the LCFF to be eight years. The LCFF includes the following components for school districts and charter schools: Provides a base grant for each LEA equivalent to $7,643 per average daily attendance (ADA). The actual base grants would vary based on grade span. Provides an adjustment of 10.4 percent on the base grant amount for kindergarten through grade three (K 3). As a condition of receiving these funds, the LEA shall progress toward an average class enrollment of no more than 24 pupils in kindergarten through grade three, unless the LEA has collectively bargained an annual alternative average class enrollment in those grades for each school site. Provides an adjustment of 2.6 percent on the base grant amount for grades nine through twelve. Provides a supplemental grant equal to 20 percent of the adjusted base grant for targeted disadvantaged students. Targeted students are those classified as English learners (EL), eligible to receive a free or reduced-price meal (FRPM), foster youth, or any combination of these factors (unduplicated count). Provides a concentration grant equal to 50 percent of the adjusted base grant for targeted students exceeding 55 percent of an LEA s enrollment. Provides for additional funding based on an economic recovery target to ensure that virtually all districts are at least restored to their state funding levels (adjusted for inflation) and also guarantees a minimum amount of state aid to LEAs. The county is responsible for assessing, collecting, and apportioning property taxes. Taxes are levied for each fiscal year on taxable real and personal property in the county. The levy is based on the assessed values as of the preceding March 1, which is also the lien date. Property taxes on the secured roll are due on August 31 and February 1, and taxes become delinquent after December 10 and April 10, respectively. Property taxes on the unsecured roll are due on the lien date (March 1), and become delinquent if unpaid by August 31. Secured property taxes are recorded as revenue when apportioned, in the fiscal year of the levy. The county apportions secured property tax revenue in accordance with the alternate method of distribution prescribed by Section 4705 of the California Revenue and Taxation Code. This alternate method provides for crediting each applicable fund with its total secured taxes upon completion of the secured tax roll - approximately October 1 of each year. 29

97 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 The County Auditor reports the amount of the District s allocated property tax revenue to the California Department of Education. Property taxes are recorded as local revenue limit sources by the District. j) Risk management The District is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets, errors and omissions, injuries to employees, and natural disasters. The District has joined together with other school districts in the County to form the San Mateo County Schools Insurance Group ("SMCSIG ) public entity risk pool. The District pays an annual premium for its property and casualty, workers compensation, and liability insurance coverage. The Joint Powers Agreements provide that SMCSIG will be self-sustaining through member premiums and will reinsure through commercial companies for claims in excess of self-insured levels. There were no significant reductions in insurance coverage from coverage in the prior year and no insurance settlement exceeding insurance coverage. k) Accounting Estimates The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. l) Subsequent Events Management has reviewed subsequent events and transactions that occurred after the date of the financial statements through the date the financial statements were issued. The financial statements include all events or transactions, including estimates, required to be recognized in accordance with generally accepted accounting principles. Management has determined that there are no non-recognized subsequent events that require additional disclosure. J. Implemented New Accounting Pronouncements GASB Statement No Accounting and Financial Reporting for Pensions - an amendment of GASB Statement No. 27 (Issued 06/12). 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 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. This Statement establishes a definition of a pension plan that reflects the primary activities associated with the pension arrangement-determining pensions, accumulating and managing assets dedicated for pensions, and paying benefits to plan members as they come due. This Statement has been implemented as of June 30, 2015 resulting in a prior period adjustment of $5,940,446 related to CalPERS and $18,960,349 related to CalSTRS totaling $24,900,795 in the government-wide net position but had no impact on governmental fund balances. See Note 9 for information related to the financial statement impact of this statement. 30

98 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 GASB Statement No. 69 In January, 2013, GASB issued Statement No. 69, Government Combinations and Disposal of Government Operations. This Statement establishes accounting and financial reporting standards related to government combinations and disposal of government operations. As used in this Statement, combinations includes a variety of transactions referred to as mergers, acquisitions, and transfers of operations. There was no financial statement effect related to this Statement. GASB Statement No. 70 In April, 2013, GASB issued Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees. Some governments extend financial guarantees for the obligations of another government, a not-for-profit entity, or private entity without directly receiving equal or approximately equal value in exchange (a nonexchange transaction). The District does not participate in nonexchange financial guarantees. Therefore, this Statement had no financial statement effect. GASB Statement No. 71 In November, 2013, GASB issued Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date an amendment of GASB Statement No. 68. The objective of this Statement is to address an issue regarding application of the transition provisions of Statement No. 68, Accounting and Financial Reporting for Pensions. The issue relates to amounts associated with contributions, if any, made by a state or local government employer or nonemployer contributing entity to a defined benefit pension plan after the measurement date of the government s beginning net pension liability. The provisions of this Statement were required to be applied simultaneously with the provisions of Statement 68 and have been implemented as of June 30, See Note 10 for information related to the financial statement impact of this statement. K. Upcoming Accounting and Reporting Changes GASB Statement No. 72 In February, 2015, GASB issued Statement No. 72, Fair Value Measurement and Application. This Statement addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2015 (fiscal year ending June 30, 2016). The District is in the process of determining the impact this statement will have on the financial statements, but does not anticipate a material impact on its financial statements. GASB Statement No. 73 Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. Effective date: the provisions in Statement 73 are effective for fiscal years beginning after June 15, 2015 except those provisions that address employers and governmental nonemployer contributing entities for pensions that are not within the scope of Statement 68, which are effective for fiscal years beginning after June 15, The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits with regard to providing decision-useful information, supporting assessments of accountability and interperiod 31

99 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 equity, and creating additional transparency. This Statement also clarifies the application of certain provisions of Statements 67 and 68 with regard to the following issues: Information that is required to be presented as notes to the 10-year schedules of required supplementary information about investment-related factors that significantly affect trends in the amounts reported Accounting and financial reporting for separately financed specific liabilities of individual employers and nonemployer contributing entities for defined benefit pensions Timing of employer recognition of revenue for the support of nonemployer contributing entities not in a special funding situation. The District is in the process of determining the impact this statement will have on the financial statements, but does not anticipate a material impact on its financial statements. GASB Statement No. 74 Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. Effective date: the provisions in Statement 74 are effective for fiscal years beginning after June 15, The objective of this Statement is to improve the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. This Statement replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans. It also includes requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement 43, and Statement No. 50, Pension Disclosures. The scope of this Statement includes OPEB plans defined benefit and defined contribution administered through trusts that meet the following criteria: Contributions from employers and nonemployer contributing entities to the OPEB plan and earnings on those contributions are irrevocable. OPEB plan assets are dedicated to providing OPEB to plan members in accordance with the benefit terms. OPEB plan assets are legally protected from the creditors of employers, nonemployer contributing entities, and the OPEB plan administrator. If the plan is a defined benefit OPEB plan, plan assets also are legally protected from creditors of the plan members. Management anticipates that this statement will not have a direct impact on the District s financial statements. GASB Statement No. 75 Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. Effective date: the provisions in Statement 75 are effective for fiscal years beginning after June 15, The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. This Statement replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB 32

100 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB. Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes new accounting and financial reporting requirements for OPEB plans. The scope of this Statement addresses accounting and financial reporting for OPEB that is provided to the employees of state and local governmental employers. This Statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. For defined benefit OPEB, this Statement identifies the methods and assumptions that are required to 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 defined benefit OPEB also are addressed. In addition, this Statement details the recognition and disclosure requirements for employers with payables to defined benefit OPEB plans that are administered through trusts that meet the specified criteria and for employers whose employees are provided with defined contribution OPEB. This Statement also addresses certain circumstances in which a nonemployer entity provides financial support for OPEB of employees of another entity. In this Statement, distinctions are made regarding the particular requirements depending upon whether the OPEB plans through which the benefits are provided are administered through trusts that meet the following criteria: Contributions from employers and nonemployer contributing entities to the OPEB plan and earnings on those contributions are irrevocable. OPEB plan assets are dedicated to providing OPEB to plan members in accordance with the benefit terms. OPEB plan assets are legally protected from the creditors of employers, nonemployer contributing entities, the OPEB plan administrator, and the plan members. The District is in the process of determining the impact this statement will have on the financial statements. GASB Statement No. 76 The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. Effective date: the provisions in Statement 76 are effective for reporting periods beginning after June 15, The objective of this Statement is to identify in the context of the current governmental financial reporting environment the hierarchy of generally accepted accounting principles (GAAP). The GAAP hierarchy consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. This Statement supersedes Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2015, and should be applied retroactively. Management anticipates that this statement will not have a material impact on the District s financial statements. 33

101 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 GASB Statement No. 77 Tax Abatement Disclosures. Effective date: the requirements of this Statement are effective for reporting periods beginning after December 15, This Statement requires governments that enter into tax abatement agreements to disclose the following information about the agreements: Brief descriptive information, such as the tax being abated, the authority under which tax abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions for recapturing abated taxes, and the types of commitments made by tax abatement recipients The gross dollar amount of taxes abated during the period Commitments made by a government, other than to abate taxes, as part of a tax abatement agreement. Management anticipates that this statement will not have a material impact on the District s financial statements. NOTE 2 - CASH AND INVESTMENTS A summary of cash and investments as of June 30, 2015 is as follows: Carrying Fair Investment Deposit or Investment Amount Value Rating Government-Wide Statements: Cash in county treasury investment pool $ 41,231,866 $ 41,227,743 AA Cash in revolving fund 25,000 25,000 n/a Cash with fiscal agent 83,920 83,920 n/a Total Government-Wide Cash and Investments 41,340,786 41,336,663 Fiduciary Funds: Cash in banks 286, ,025 n/a Total Cash and Investments $ 41,626,811 $ 41,622,688 Cash in Banks and in Revolving Funds Cash balances in banks and revolving funds are insured up to $250,000 per bank by the Federal Deposit Insurance Corporation ("FDIC"). These accounts are held within various financial institutions. As of June 30, 2015, the bank balance of the District s accounts with banks was $289,362. Cash in County Treasury The District is considered to be an involuntary participant in an external investment pool as the District is required to maintain substantially all of its cash with the County Treasurer in accordance with Education Code Section 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. Policies and Practices The District is authorized under California Government Code Section 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 34

102 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 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. Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are described below: 1. 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 the changes in market interest rates. The District manages its exposure to interest rate risk by investing in the County Treasury. The District maintains cash with the San Mateo County Investment Pool. The pool has a fair value of approximately $1.275 billion and an amortized book value of $1.275 billion. 2. Credit Risk Credit risk is the risk of loss due to the failure of the security issuer. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The investment with the San Mateo County Investment Pool is governed by the County s general investment policy. The investment with the San Mateo County Investment Pool is rated at least Aa1 by Moody s Investor Service. 3. Custodial Credit Risk Deposits Custodial credit risk 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 agencies. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105 percent of the secured deposits. 4. Concentration of Credit Risk The investment policy of the District contains no limitations on the amount that can be invested in any one issuer beyond the amount stipulated by the California Government code. District investments that are greater than 5 percent of total investments are in either an external investment pool or mutual funds and are therefore exempt. 35

103 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 NOTE 3 - ACCOUNTS RECEIVABLE Accounts receivable consisted of the following as of June 30, 2015: Bond Interest & General Building Redemption Nonmajor Receivables Fund Fund Fund Funds Total Federal Government: Child Nutrition $ - $ - $ - $ 103,292 $ 103,292 Special Ed: IDEA 266, ,046 Vocational Programs 15, ,978 Title I 146, ,665 Title II 29, ,265 Title III 94, ,219 Workability II 17, ,175 State Government: After School Education and Safety 11, ,250 Special Education 184, ,608 Transportation Lottery 114, ,002 Local Government: Other Local Resources 649,858 3,749-62, ,632 Interest ,192-11,192 Other Resources 783,546 52,691-2, ,081 Accounts Receivable $ 2,312,990 $ 56,440 $ 11,192 $ 168,161 $ 2,548,783 NOTE 4 - CAPITAL ASSETS AND DEPRECIATION Capital asset activities for the year ended June 30, 2015 were as follows: Balance Adjustments & Balance Capital Assets July 01, 2014 Additions Deletions June 30, 2015 Land - not depreciable $ 1,456,448 $ - $ - $ 1,456,448 Work-in-progress - not depreciable 506,770 2,216, ,224 2,554,481 Sites and improvements 4,743, ,194-4,972,796 Buildings and improvements 59,815, ,466-60,554,896 Furniture and equipment 1,318,221 22,253-1,340,474 Total capital assets 67,840,471 3,207, ,224 70,879,095 Less accumulated depreciation for: Sites and improvements 661, , ,601 Buildings and improvements 16,320,254 1,548,836-17,869,090 Furniture and equipment 867,272 66, ,581 Total accumulated depreciation 17,848,754 1,878,518-19,727,272 Total capital assets - net depreciation $ 49,991,717 $ 1,329,330 $ 169,224 $ 51,151,823 36

104 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 Depreciation expense was charged to governmental activities as follows: Depreciation expense was charged to governmental activities as follows: Instruction $ 1,744,637 Instruction library, media and technology 27,699 School site administration 9,784 Home-to-school transportation 71,020 All other general administration 17,631 Plant services 7,746 Total depreciation expense $ 1,878,517 NOTE 5 - INTERFUND TRANSACTIONS Interfund transactions are reported as either loans, services provided, reimbursements, or transfers. Loans are reported as interfund receivables and payables (Due From/To), as appropriate, and are subject to elimination upon consolidation. Services provided, deemed to be at market or near market rates, are treated as revenues and expenditures/expenses. Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund, and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers among governmental funds are netted as part of the reconciliation to the government-wide financial statements. Interfund Receivables/Payables (Due From/Due To) Interfund receivables and payables consisted of the following as of June 30, 2015: Interfund Transfers Due From (Receivable-in) General Total Due To (Payable-in) Fund Due To Building Fund $ 55,608 $ 55,608 Nonmajor Funds 388, ,717 Total Due From $ 444,325 $ 444,325 Interfund transfers consist of operating transfers from funds receiving revenue to funds through which the resources are to be expended. The District did not have any interfund transfers during the fiscal year ended June 30, NOTE 6 - LONG-TERM DEBT Schedule of Changes in Long-term Debt The following is the schedule of changes in long-term debt for the fiscal year ended June 30, 2015: Balance Balance Due Within Long Term Debt July 01, 2014 Additions Deductions June 30, 2015 One Year General Obligation Bonds $ 27,542,674 $ 20,000,000 $ 2,272,770 $ 45,269,904 $ 1,918,920 Unamortized Bond Premium 1,647,226 1,067,416 68,634 2,646, ,441 Net Pension Liabilities - 20,054,314-20,054,314 - Compensated Absences 298, ,825 - Total Long-Term Debt $ 29,488,725 $ 41,121,730 $ 2,341,404 $ 68,269,051 $ 2,024,361 37

105 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 Payments on the general obligation bonds are made from the Bond Interest and Redemption Fund using local revenues. General Obligation Bonds Payable On August 1, 1996, the District issued $34,996,263 in General Obligation Bonds (the Bonds ). The County Treasurer levies annual ad valorem taxes for required debt service payments. Bond proceeds have been and will be used for improvements and construction at the District s school sites. On October 25, 2012, the District issued $19,715,860 in General Obligation Bonds. This included principal of $18,000,000, with a premium of $1,715,860. The bonds mature on August 1, Total debt service for the bonds is $27,843,608. Bond proceeds will be used for improvements and construction at the District s school sites. On January 14, 2015, the District issued $21,067,416 in General Obligation Bonds. This included principal of $20,000,000, with a premium of $1,067,416. The bonds mature on August 1, Total debt service for the bonds is $35,591,991. Bond proceeds will be used for improvements and construction at the District s school sites. Bonds Bonds Issue Maturity Interest Original Outstanding Outstanding Bond Date Date Rate Issue July 01, 2014 Issued Redeemed June 30, /1/96 8/1/ % $ 34,996,263 $ 10,467,674 $ - $ 1,337,770 $ 9,129, A 10/25/12 8/1/ % 18,000,000 17,075, ,000 16,140, B 1/14/2015 8/1/44 2.0%-5.0% 20,000,000-20,000,000-20,000,000 Total General Obligation Bonds $ 52,996,263 $ 27,542,674 $ 20,000,000 $ 2,272,770 $ 45,269,904 As of June 30, 2015, the annual debt service requirements of the general obligation bonds were as follows: Fiscal Year Principal Interest Total 2016 $ 1,918,920 $ 4,059,174 $ 5,978, ,941,595 4,259,150 7,200, ,503,599 4,464,920 6,968, ,799,487 4,696,633 6,496, ,839,765 4,961,304 6,801, ,356,538 17,913,514 24,270, ,775,000 4,792,668 10,567, ,960,000 3,627,896 10,587, ,755,000 2,180,513 9,935, ,420, ,400 8,208,400 Total $ 45,269,904 $ 51,744,172 $ 97,014,076 NOTE 7 - JOINT POWERS AGREEMENTS The District participates in a joint powers agreement ("JPA") with the San Mateo County Schools Insurance Group ("SMCSIG"). A board consisting of a representative from each member district governs the JPA. The governing board controls the operation of the JPA independent of any influence by the District beyond the District s representation on the governing board. The JPA is independently accountable for its fiscal matters. Budgets are not subject to any approval other than that of the governing board. Member districts share surpluses and deficits proportionately to their participation. The 38

106 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 relationship between the District and the JPA is such that the JPA not a component unit of the District for financial reporting purposes. The following is a summary of coverage provided by SMCSIG JPA and its most recent financial statement information: Risk Management JPA's SMCSIG June 30, 2014 Total Assets $ 17,343,941 Total Liabilities 8,411,639 Total Equity 8,932,302 Total Revenues 35,889,261 Total Expenditures 35,880,935 NOTE 8 - COMMITMENTS AND CONTINGENCIES Litigation Various claims involving the District are currently outstanding. However, management believes, based on consultation with legal counsel, that the ultimate resolution of these matters will not have a material adverse effect on the District s financial position or results of operations. Federal and State Allowances, Award, and Grants The District has received federal and state funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could generate expenditure disallowances under terms of the grants, it is believed that any required reimbursement will not be material. NOTE 9 - EMPLOYEE RETIREMENT SYSTEMS A. California Public Employees Retirement System (CalPERS/PERS) Pension Plan General Information about the PERS Pension Plan Plan Description - All qualified permanent and probationary employees are eligible to participate in the District s Miscellaneous Employee Pension Plan (the Plan), a cost-sharing multiple employer defined benefit pension plans administered by the California Public Employees Retirement System (CalPERS). Benefit provisions under the Plans are established by State statute and District resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. Benefits Provided - CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the 39

107 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 Optional Settlement 2W Death Benefit. The cost of living adjustments for the Plan are applied as specified by the Public Employees Retirement Law. The Plans provisions and benefits in effect at June 30, 2015, are summarized as follows: Hire date Prior to January 1, 2013 On or after January 1, 2013 Benefit formula Benefit vesting schedule 5 Years 5 Years Benefit payments Monthly for Life Monthly for Life Retirement age Monthly benefits as a % of eligible compensation 2% 2% Required employee contribution rates 8% 6% Required employer contribution rates 11.44% 6% Employees Covered - At June 30, 2015, the following employees were covered by the benefit terms for the Plan: Inactive employees receiving benefits 84 Inactive employees entitled to but not receiving benefits 80 Active members 117 Total Employees Covered 281 Contributions - Section 20814(c) of the California Public Employees Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for the Plan are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The District is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the year ended June 30, 2015, the contributions recognized as part of pension expense for the Plan were as follows: Contributions - employer $ 501,681 Contributions - employee $ 310,341 40

108 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to PERS As of June 30, 2015, the District reported net pension liabilities for its proportionate shares of the net pension liability of the Plan as follows: Proportionate Share of Net Pension Liability Miscellaneous Plan $ 4,733,965 The District s net pension liability for the Plan is measured as the proportionate share of the net pension liability. The net pension liability of the Plan is measured as of June 30, 2014, and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2013 rolled forward to June 30, 2014 using standard update procedures. The District s proportion of the net pension liability was based on a projection of the District s long-term share of contributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined. The District s proportionate share of the net pension liability for the Plan as of June 30, 2013 and 2014 was as follows: Proportion - June 30, % Proportion - June 30, % Change % For the year ended June 30, 2015, the District recognized pension expense of $406,661 for the Plan. At June 30, 2015, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Pension contributions subsequent to measurement date Net differences between projected and actual earnings on plan investments Total Deferred Outflows of Resources 832,772 Deferred Inflows of Resources $ $ - - 1,626,644 $ 832,772 $ 1,626,644 The District reported $832,772 as deferred outflows of resources related to contributions subsequent to the measurement date that will be recognized as a reduction of the net pension liability in the year ended June 30,

109 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Recognized to Pension Fiscal Year Ended June 30 Expense 2016 $ 406, , , ,661 Total $ 1,626,644 Actuarial Assumptions - The total pension liabilities in the June 30, 2013 actuarial valuations were determined using the following actuarial assumptions: Valuation Date June 30, 2013 Measurement Date June 30, 2014 Actuarial Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 7.50% Inflation 2.75% Payroll Growth 3.00% Projected Salary Increase 3.3% % (1) Investment Rate of Return 7.5% (2) Mortality (3) (1) Depending on age, service and type of employment (2) Net of pension plan investment expenses, including inflation (3) Derived using CalPERS' membership data for all funds The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2013 valuation were based on the results of a January 2014 actuarial experience study for the period 1997 to Further details of the Experience Study can be found on the CalPERS website. Discount Rate - The discount rate used to measure the total pension liability was 7.50 percent for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for the Plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.50 percent discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 7.50 percent will be applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report that can be obtained from the CalPERS website. According to Paragraph 30 of Statement 68, the long-term discount rate should be determined without reduction for pension plan administrative expense. The 7.50 percent investment return 42

110 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 assumption used in this accounting valuation is net of administrative expenses. Administrative expenses are assumed to be 15 basis points. An investment return excluding administrative expenses would have been 7.65 percent. Using this lower discount rate has resulted in a slightly higher Total Pension Liability and Net Pension Liability. CalPERS checked the materiality threshold for the difference in calculation and did not find it to be a material difference. CalPERS is scheduled to review all actuarial assumptions as part of its regular Asset Liability Management (ALM) review cycle that is scheduled to be completed in February Any changes to the discount rate will require Board action and proper stakeholder outreach. For these reasons, CalPERS expects to continue using a discount rate net of administrative expenses for GASB 67 and 68 calculations through at least the fiscal year. CalPERS will continue to check the materiality of the difference in calculation until such time as we have changed our methodology. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds asset classes, expected compound returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. The table below reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses. New Strategic Real Return Real Return Asset Class Allocation Years 1-10 (a) Years 11+ (b) Global Equity 47.00% 5.25% 5.71% Global Fixed Income 19.00% 0.99% 2.43% Inflation Sensitive 6.00% 0.45% 3.36% Private Equity 12.00% 6.83% 6.95% Real Estate 11.00% 4.50% 5.13% Infrastructure and Forestland 3.00% 4.50% 5.09% Liquidity 2.00% -0.55% -1.05% Total % (a) An expected inflation of 2.5% used for this period. (b) An expected inflation of 3.0% used for this period. 43

111 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate - The following presents the District s proportionate share of the net pension liability for the Plan, calculated using the discount rate for the Plan, as well as what the District s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate: 1% Decrease 6.50% Net Pension Liability $ 8,304,456 Current Discount Rate 7.50% Net Pension Liability $ 4,733,965 1% Increase 8.50% Net Pension Liability $ 1,750,461 Pension Plan Fiduciary Net Position - Detailed information about each pension plan s fiduciary net position is available in the separately issued CalPERS financial reports. B. California State Teachers Retirement System (STRS) Pension Plan General Information about the STRS Pension Plan Plan Description - The District contributes to the State Teachers Retirement System (STRS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by STRS. The plan provides retirement, disability, and survivor benefits to beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the State Teachers Retirement Law. STRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Benefits Provided - STRS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. The cost of living adjustments for the Plan are applied as specified by the retirement Law. The Plan s provisions and benefits in effect at June 30, 2015, are summarized as follows: Prior to On or after Hire date January 01, 2013 January 01, 2013 Benefit formula Benefit vesting schedule 5 Years 5 Years Benefit payments Monthly for Life Monthly for Life Retirement age Monthly benefits as a % of eligible compensation 2% 2% Required employee contribution rates 8% 8% Required employer contribution rates 8.25% 8% 44

112 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 Employees Covered - At June 30, 2015, the following employees were covered by the benefit terms for the Plan: Inactive employees receiving benefits 75 Inactive employees entitled to but not receiving benefits 51 Active members 117 Total Employees Covered 243 Contributions - As part of the annual valuation process, the Normal Cost rate is determined as the basis for setting the base member contribution rate for the following fiscal year. Generally, the base member contribution rate is one-half of the Normal Cost rate within certain parameters. Required member, employer and state contribution rates are set by the California Legislature and Governor and detailed in Teachers' Retirement Law. Contribution rates are expressed as a level percentage of payroll using the entry age normal actuarial cost method. For the year ended June 30, 2015, the contributions recognized as part of pension expense for the Plan were as follows: Contributions - employer $ 1,042,011 Contributions - employee $ 633,920 Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to STRS As of June 30, 2015, the District reported net pension liabilities for its proportionate shares of the net pension liability of the Plan as follows: Proportionate Share of Net Pension Liability Miscellaneous Plan $ 16,362,360 The District s net pension liability for the Plan is measured as the proportionate share of the net pension liability. The net pension liability of the Plan is measured as of June 30, 2014, and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2013 rolled forward to June 30, 2014 using standard update procedures. The District s proportion of the net pension liability was based on a projection of the District s long-term share of contributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined. The District s proportionate share of the net pension liability for the Plan as of June 30, 2013 and 2014 was as follows: Proportion - June 30, % Proportion - June 30, % Change % 45

113 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 For the year ended June 30, 2015, the District recognized pension expense of $1,007,160 for the Plan. At June 30, 2015, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Pension contributions subsequent to measurement date Amortization of differences in earnings and proportions Net differences between projected and actual earnings on plan investments Total Deferred Outflows of Resources 1,910,368 Deferred Inflows of Resources $ $ - - (1,007,160) - 5,036,360 $ 1,910,368 $ 4,029,200 The District reported $1,910,368 as deferred outflows of resources related to contributions subsequent to the measurement date that will be recognized as a reduction of the net pension liability in the year ended June 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Recognized to Pension Fiscal Year Ended June 30 Expense 2016 $ 1,007, ,007, ,007, ,007,720 Total $ 4,029,200 46

114 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 Actuarial Assumptions - The total pension liabilities in the June 30, 2013 actuarial valuations were determined using the following actuarial assumptions: Valuation Date June 30, 2013 Measurement Date June 30, 2014 Actuarial Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 7.60% Inflation 3.00% Payroll Growth 3.75% Projected Salary Increase 0.5% - 5.6% (1) Investment Rate of Return 7.60% (2) Mortality (3) (1) Depending on age, service and type of employment (2) Net of pension plan investment expenses, including inflation (3) Derived using STRS' membership data for all funds Discount Rate - The discount rate used to measure the total pension liability was 7.60 percent. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and employers will be made at statutory contribution rates in accordance with the rate increases per AB Projected inflows from investment earnings were calculated using the long term assumed investment rate of return (7.60 percent) and assuming that contributions, benefit payments, and administrative expense occur midyear. Based on those assumptions, the plan s fiduciary net position was projected to be available to make all projected future benefit payments to current plan members. Therefore, the long-term assumed investment rate of return was applied to all periods of projected benefit payments to determine the total pension liability. The table below reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses. New Strategic Real Return Asset Class Allocation Years 1-10 (a) Global Equity 47.00% 4.50% Fixed Income 20.00% 0.20% Inflation Sensitive 5.00% 3.20% Private Equity 12.00% 6.20% Real Estate 15.00% 4.35% Liquidity 1.00% 0.00% Total % (a) 10-year geometric average. 47

115 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015 Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate - The following presents the District s proportionate share of the net pension liability for the Plan, calculated using the discount rate for the Plan, as well as what the District s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate: 1% Decrease 6.50% Net Pension Liability $ 25,504,640 Current Discount Rate 7.50% Net Pension Liability $ 16,362,360 1% Increase 8.50% Net Pension Liability $ 8,739,360 Pension Plan Fiduciary Net Position - Detailed information about each pension plan s fiduciary net position is available in the separately issued STRS financial reports. 48

116 REQUIRED SUPPLEMENTARY INFORMATION

117 CABRILLO UNIFIED SCHOOL DISTRICT SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET TO ACTUAL (GAAP) GENERAL FUND FOR THE FISCAL YEAR ENDED JUNE 30, 2015 Budgeted Amounts Variance with Final Budget Actual Positive - Original Final (GAAP Basis) (Negative) Revenues: LCFF sources $ 22,660,529 $ 23,063,701 $ 24,111,560 $ 1,047,859 Federal revenues 1,319,010 1,821,475 1,392,905 (428,570) Other state 865,389 1,174,951 1,892, ,176 Other local 2,941,245 3,386,052 3,313,922 (72,130) Total revenues 27,786,173 29,446,179 30,710,514 1,264,335 Expenditures: Certificated salaries 12,623,926 14,009,684 14,340,109 (330,425) Classified salaries 4,131,747 4,530,332 4,637,182 (106,850) Employee benefits 6,292,533 6,419,507 6,570,915 (151,408) Books and supplies 1,352,386 1,008,680 1,032,470 (23,790) Services and other operating expenditures 3,233,557 3,379,378 3,459,082 (79,704) Capital outlay 20,000 7,470 7,647 (177) Other outgo 501, , ,458 (11,992) Total expenditures 28,155,484 29,863,517 30,567,863 (704,346) Excess (deficiency) of revenues over (under) expenditures (369,311) (417,338) 142, ,989 Change in fund balance (369,311) (417,338) 142, ,989 Fund balances beginning 2,778,290 2,778,290 2,778,290 - Fund balances ending $ 2,408,979 $ 2,360,952 $ 2,920,941 $ 559,989 49

118 CABRILLO UNIFIED SCHOOL DISTRICT SCHEDULE OF PENSION PLAN CONTRIBUTIONS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 CalPERS 2015 Contractually Required Contributions (Actuarially Determined) $ 501,091 Contributions in Relation to Actuarially Determined Contributions 501,091 Contribution Deficiency (Excess) - Covered Employee Payroll $ 4,346,748 Contributions as a Percentage of Covered Payroll 11.53% Notes to Schedule: Valuation Date: June 30, 2013 Assumptions Used: Entry Age Method used for Actuarial Cost Method Level Percentage of Payroll (Closed) Used Amortization Method 3.9 Years Remaining Amortization Period Inflation Assumed at 2.75% Investment Rate of Returns set at 7.5% CalPERS mortality table using 20 years of membership data for all funds STRS 2015 Contractually Required Contributions (Actuarially Determined) $ 1,042,011 Contributions in Relation to Actuarially Determined Contributions 1,042,011 Contribution Deficiency (Excess) - Covered Employee Payroll $ 7,696,080 Contributions as a Percentage of Covered Payroll 13.54% Notes to Schedule: Valuation Date: June 30, 2013 Assumptions Used: Entry Age Method used for Actuarial Cost Method Level Percentage of Payroll (Closed) Used Amortization Method 3.9 Years Remaining Amortization Period Inflation Assumed at 2.75% Investment Rate of Returns set at 7.5% CalPERS mortality table using 20 years of membership data for all funds ** Fiscal year 2015 was the first year of implementation, therefore only one year is shown 50

119 CABRILLO UNIFIED SCHOOL DISTRICT SCHEDULE OF PROPORTIONATE SHARE OF NET PENSION LIABILITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2015 CalPERS 2015 District's Proportion of Net Pension Liability % District's Proportionate Share of Net Pension Liability $ 4,733,965 District's Covered Employee Payroll $ 4,346,748 District's Proportionate Share of NPL as a % of Covered Employee Payroll % Plan's Fiduciary Net Position as a % of the TPL 83.38% STRS 2015 District's Proportion of Net Pension Liability % District's Proportionate Share of Net Pension Liability $ 15,320,349 District's Covered Employee Payroll $ 7,696,080 District's Proportionate Share of NPL as a % of Covered Employee Payroll % Plan's Fiduciary Net Position as a % of the TPL 76.52% ** Fiscal year 2015 was the first year of implementation, therefore only one year is shown 51

120 SUPPLEMENTARY INFORMATION

121 Nonmajor Governmental Funds Combining Schedules

122 CABRILLO UNIFIED SCHOOL DISTRICT NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2015 Special Revenue Funds Capital Projects Fund Adult Child Deferred Capital Total Nonmajor Education Development Cafeteria Maintenance Facilities Governmental Fund Fund Fund Fund Fund Funds Assets Cash and investments $ 17,922 $ 102,264 $ 194,404 $ 95,337 $ 1,303,183 $ 1,713,110 Accounts receivable 7,160 31, , , ,161 Prepaid items and inventory , ,052 Total Assets $ 25,082 $ 133,751 $ 309,075 $ 95,470 $ 1,328,945 $ 1,892,323 Liabilities and Fund Balances Liabilities: Accounts payable $ 1,500 $ - $ 13,983 $ - $ - $ 15,483 Due to other funds 1,154 30, ,998 95, ,717 Total Liabilities 2,654 30, ,981 95, ,200 Fund Balances: Nonspendable stores inventories , ,051 Restricted for child development - 103, ,364 Restricted for cafeteria programs , ,043 Restricted for capital projects ,328,945 1,328,945 Assigned for site repairs Assigned for adult education 22, ,428 Total Fund Balances 22, ,364 33, ,328,945 1,488,123 Total Liabilities and Fund Balances $ 25,082 $ 133,751 $ 309,075 $ 95,470 $ 1,328,945 $ 1,892,323 52

123 CABRILLO UNIFIED SCHOOL DISTRICT NONMAJOR GOVERNMENTAL FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE FISCAL YEAR ENDED JUNE 30, 2015 Special Revenue Funds Capital Projects Fund Adult Child Deferred Capital Total Nonmajor Education Development Cafeteria Maintenance Facilities Governmental Fund Fund Fund Fund Fund Funds Revenues: LCFF sources $ - $ - $ - $ 27,850 $ - $ 27,850 Federal revenue , ,028 Other state , ,774 Other local 7,351 62, , , ,434 Total revenues 7,351 62, ,974 28, ,092 1,169,086 Expenditures: Current Instruction 10, ,061 Instruction-related services: Supervision of instruction 1, ,500 Pupil services: Food services , ,319 General administration: All other general administration , ,679 Plant services - - 3,571 27,964 53,918 85,453 Community services - 58, ,349 Total expenditures 11,561 58, ,569 27,964 53,918 1,004,361 Excess (deficiency) of revenues over (under) expenditures (4,210) 4,064 (68,595) , ,725 Change in fund balances (4,210) 4,064 (68,595) , ,725 Fund balances beginning 26,638 99, ,689-1,095,771 1,323,398 Fund balances ending $ 22,428 $ 103,364 $ 33,094 $ 292 $ 1,328,945 $ 1,488,123 53

124 STATE AND FEDERAL AWARD COMPLIANCE SECTION

125 CABRILLO UNIFIED SCHOOL DISTRICT ORGANIZATION FOR THE FISCAL YEAR ENDED JUNE 30, 2015 Cabrillo Unified School District, located just south of San Francisco on the beautiful Pacific Coast, was established on July 1, 1965 and encompasses an area of approximately 135 square miles. The District currently operates four elementary schools, one intermediate school, one high school, a continuation school, and an adult education program. The Board of Education for the fiscal year ended June 30, 2015, was comprised of the following members: Governing Board Name Office Term Expires Kate Livingston President 2016 Michael Ahern Vice President 2016 Kirk Riemer Clerk 2018 Freya McCamant Member 2018 Rob Pappalardo Member 2018 Administration Tony Roehrick, Superintendent 54

126 CABRILLO UNIFIED SCHOOL DISTRICT SCHEDULE OF AVERAGE DAILY ATTENDANCE FOR THE FISCAL YEAR ENDED JUNE 30, 2015 Second Period Annual Report Report Elementary: Grades TK/K through three 1,002 1,005 Grades four through six Grades seven and eight Elementary Totals 2,210 2,214 High School: Grades nine through twelve, regular classes High School Totals ADA Totals 3,201 3,196 55

127 CABRILLO UNIFIED SCHOOL DISTRICT SCHEDULE OF INSTRUCTIONAL TIME OFFERED FOR THE FISCAL YEAR ENDED JUNE 30, 2015 Reduced Reduced Number Number of Days of Days Actual Actual Minutes Minutes Traditional Multitrack Grade Level Minutes Minutes Requirements Requirements Actual Minutes Calendar Calendar Status Kindergarten 36,000 35,000 36,000 35,000 39, In compliance Grade 1 43,700 42,486 50,400 49,000 49, In compliance Grade 2 43,700 42,486 50,400 49,000 49, In compliance Grade 3 43,700 42,486 50,400 49,000 49, In compliance Grade 4 56,400 54,833 54,000 52,500 55, In compliance Grade 5 56,400 54,833 54,000 52,500 55, In compliance Grade 6 56,400 54,833 54,000 52,500 65, In compliance Grade 7 58,747 57,115 54,000 52,500 65, In compliance Grade 8 58,747 57,115 54,000 52,500 65, In compliance Grade 9 64,590 62,796 64,800 63,000 75, In compliance Grade 10 64,590 62,796 64,800 63,000 75, In compliance Grade 11 64,590 62,796 64,800 63,000 75, In compliance Grade 12 64,590 62,796 64,800 63,000 75, In compliance 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 School districts that have met their LCFF targets or have not met their LCFF targets, but received longer day and year incentive funding, cannot provide less than the minutes requirements; reduced by 5 days for fiscal year There is no longer a requirement to offer minutes offered in for districts that exceeded the minutes listed in the statute and met their LCFF target, or districts that received incentive funding for longer instructional day and year, or for a district that did not meet its LCFF target and participated in the longer day incentive but not the longer year incentive. The District met its LCFF target and has received incentive funding for increasing instructional time as provided by the incentives for longer instructional day and year. Therefore, the District was required to meet the minutes requirements reduced by 5 days for the fiscal year. 56

128 CABRILLO UNIFIED SCHOOL DISTRICT SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 (Budget 1 ) General Fund Revenues and other financial sources $ 31,070,503 $ 30,710,513 $ 28,070,416 $ 28,687,797 Expenditures 31,118,220 30,567,862 29,153,259 28,487,273 Other uses and transfers (out) ,195 Total outgo 31,118,220 30,567,862 29,153,259 28,548,468 Change in fund balance $ (47,717) $ 142,651 $ (1,082,843) $ 139,329 Ending fund balance $ 2,873,224 $ 2,920,941 $ 2,778,290 $ 3,861,133 Available reserves 2 $ 2,094,622 $ 2,425,263 $ 1,504,470 $ 3,086,349 Designated for economic uncertainty $ 933,547 $ 895,906 $ - $ - Unassigned fund balance $ 1,161,075 $ 1,529,357 $ 1,504,470 $ 3,086,349 Available reserves as a percentage of total outgo 7% 8% 5% 11% Total long-term liabilities $ 66,244,680 $ 68,269,051 $ 29,488,726 $ 31,769,019 Average daily attendance (ADA) at P-2 3,214 3,201 3,202 3,153 ADA has increased by 48 since The district anticipates an increase of 13 ADA. The general fund balance has decreased by $940,192 since For a district this size, the state recommends available reserves of at least 3% of total general fund expenditures, transfers out, other uses (total outgo). The district operated at a surplus in the two of the past three years. Total long-term debt has increased by $36,500,032 over the past three years. 1 Budget numbers are based on the first adopted budget of the fiscal year 2015/16. 2 Available reserves consists of all unassigned fund balances in the general fund, which includes the reserve for economic uncertainties. 57

129 CABRILLO UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 PROGRAM NAME Federal Pass Catalog Through Program Number Number Expenditures U. S. DEPARTMENT OF AGRICULTURE Passed Through California Department of Education National School Lunch Program (1) $ 555,028 TOTAL U.S. DEPARTMENT OF AGRICULTURE 555,028 U. S. DEPARTMENT OF EDUCATION Passed Through California Department of Education Special Education Cluster Special Ed: IDEA Basic Local Assistance Entitlement, Part B, Sec ,732 Special Ed: IDEA Preschool Grants, Part B, Sec ,222 Special Ed: IDEA Preschool Local Entitlement, Part B, Sec ,841 Special Ed: IDEA Preschool Staff Development, Part B, Sec Total Special Education Cluster 596,932 Title I Cluster NCLB: Title I, Part A, Basic Grants Low-Income and Neglected ,054 NCLB: Title I, Part C, Migrant Ed ,330 Migrant Education Summer Program ,840 Even Start Migrant Education ,332 Total Title I Cluster 397,556 Department of Rehab: Workability II, Transition Partnership ,215 Carl D. Perkins Career and Technical Education: Secondary, Section ,040 NCLB: Title II, Part A, Teacher Quality ,685 NCLB: Title III, Immigrant Education Program ,834 TOTAL U. S. DEPARTMENT OF EDUCATION 1,196,262 TOTAL FEDERAL PROGRAMS $ 1,751,290 (1) Audited as major program 58

130 CABRILLO UNIFIED SCHOOL DISTRICT RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT (SACS) WITH AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 Special Reserve Other Fund for Other Bond Interest Nonmajor General Than Capital Building and Redemption Governmental Fund Outlay Fund Fund Funds June 30, 2015 Annual Financial and Budget Report (SACS) Fund Balances $ 2,852,541 $ 68,399 $ 30,393,045 $ 7,261,092 $ 1,488,123 Adjustments & Reclassifications: Special Reserve Fund for Other Than Capital Outlay: Cash with County Treasury 68,286 (68,286) Accounts receivable 113 (113) June 30, 2015 Audited Financial Statements Fund Balances $ 2,920,940 $ - $ 30,393,045 $ 7,261,092 $ 1,488,123 59

131 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO STATE AND FEDERAL AWARD COMPLIANCE SECTION FOR THE FISCAL YEAR ENDED JUNE 30, PURPOSE OF SCHEDULES A. Schedule of Average Daily Attendance Average daily attendance is a measurement of the number of pupils attending classes in the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments in state funds are made to school Districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs. B. Schedule of Instructional Time The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day and Longer Instructional Year. This schedule presents information on the amount of instructional time offered by the District and whether the District complied with the provisions of Education Code Sections through C. Schedule of 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. D. Schedule of Expenditures of Federal Awards OMB Circular A-133 requires a disclosure of the financial activities of all federally funded programs. This schedule was prepared to comply with OMB Circular A-133 requirements. E. Reconciliation of Annual Financial and Budget Report with Audited Financial Statements This schedule provides the information necessary to reconcile the fund balances of all funds reported on the SACS report to the audited financial statements. 2. RESULTS OF RECONCILIATIONS OF EXPENDITURES PER SCHEDULE OF GRANT ACTIVITY WITH THE DISTRICT S ACCOUNTING SYSTEM There were no material unreconciled differences between the District s records and the Schedule of Federal Grant Activity as shown on the Schedule of Expenditures of Federal Awards. 60

132 CABRILLO UNIFIED SCHOOL DISTRICT NOTES TO STATE AND FEDERAL AWARD COMPLIANCE SECTION FOR THE FISCAL YEAR ENDED JUNE 30, BASIS OF PRESENTATION - 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 OMB 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 basic financial statements. 4. EARLY RETIREMENT INCENTIVE PROGRAM The District has not adopted an early retirement incentive program, pursuant to Education Code Sections and 44929, whereby the service credit to eligible employees is increased to two years. 61

133 OTHER INDEPENDENT AUDITOR S REPORTS

134 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS The Honorable Board of Trustees Cabrillo Unified School District Half Moon Bay, California We have audited, 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, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the District as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the District s basic financial statements, and have issued our report thereon dated November 16, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the 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 the District s internal control. Accordingly, we do not express an opinion on the effectiveness of the District s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control over financial reporting 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 financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control over financial reporting 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 the 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 Page Saratoga Ave, Suite 180, San Jose, CA Tel: E-Fax: info@cnallp.com

135 material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. November 16, 2015 San Jose, California Page Saratoga Ave, Suite 180, San Jose, CA Tel: E-Fax: info@cnallp.com

136 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY OMB CIRCULAR A-133 The Honorable Board of Trustees Cabrillo Unified School District Half Moon Bay, California Report on Compliance for Each Major Federal Program We have audited Cabrillo Unified School District s compliance with the types of compliance requirements described in OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of Cabrillo Unified School District s major federal programs for the year ended June 30, Cabrillo 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 Cabrillo 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 Cabrillo 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 the Cabrillo Unified School District s compliance. Opinion on Each Major Federal Program In our opinion, Cabrillo 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 Cabrillo 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 Cabrillo 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 Page Saratoga Ave, Suite 180, San Jose, CA Tel: E-Fax: info@cnallp.com

137 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 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 Cabrillo 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. Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Cabrillo Unified School District as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise Cabrillo Unified School District s basic financial statements. We issued our report thereon dated November 16, 2015, which contained an unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the basic financial statements. Such 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. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the 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 schedule of expenditure of federal awards is fairly stated in all material respects in relation to the financial statements as a whole. November 16, 2015 San Jose, California Page Saratoga Ave, Suite 180, San Jose, CA Tel: E-Fax: info@cnallp.com

138 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON STATE PROGRAMS The Honorable Board of Trustees Cabrillo Unified School District Half Moon Bay, California Compliance We have audited the Cabrillo Unified School District's (the District) compliance with the types of State compliance requirements described in the Standards and Procedures for Audits of California K-12 Local Educational Agencies , published by the Education Audit Appeals Panel, for the year ended June 30, The applicable State compliance requirements are identified in the table below. Management s Responsibility Compliance with the requirements referred to above is the responsibility of the District s management. Auditors Responsibility Our responsibility is to express an opinion on the District s compliance with the State laws and regulations based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Standards and Procedures for Audits of California K-12 Local Educational Agencies , published by the Education Audit Appeals Panel. Those standards and the Standards and Procedures for Audits of California K-12 Local Educational Agencies , 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 compliance with the state laws and regulations described in the schedule below occurred. An audit includes examining, on a test basis, evidence supporting the District s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the District s compliance with those requirements. In connection with the compliance audit referred to above, we selected and tested transactions and records to determine the District's compliance with the state laws and regulations applicable to the following items: Description Local Education Agencies Other than Charter Schools: Attendance Teacher Certification and Misassignments Kindergarten Continuance Independent Study Continuation Education Instructional Time Instructional Materials Ratios of Administrative Employees to Teachers Classroom Teacher Salaries Procedures Performed Yes Yes Yes No No Yes Yes Yes Yes Page Saratoga Ave, Suite 180, San Jose, CA Tel: E-Fax: info@cnallp.com

139 Procedures Description Performed Early Retirement Incentive N/A Gann Limit Calculation Yes School Accountability Report Card Yes Juvenile Court Schools N/A Middle or Early College High Schools N/A K-3 Grade Span Adjustment Yes Transportation Maintenance of Effort Yes Regional Occupational Centers or Programs Maintenance of Effort N/A Adult Education Maintenance of Effort N/A School Districts, County Offices of Education, and Charter Schools California Clean Energy Job Acts Yes After School Education and Safety Program: General Requirements Yes After School Yes Before School N/A Proper Expenditure of Education Protection Account Funds Yes Common Core Implementation Funds Yes Unduplicated Local Control Funding Formula Pupil Counts Yes Local Control and Accountability Plan Yes Charter Schools: Attendance N/A Mode of Instruction N/A Nonclassroom-Based Instruction/Independent Study for Charter Schools N/A Determination of Funding for Nonclassroom - Based Instruction N/A Annual Instructional Minutes - Classroom Based N/A Charter School Facility Grant Program N/A We did not perform the audit procedures for Continuation Education and Full-time Independent Study programs because the ADA was under the level that requires testing. Opinion In our opinion, Cabrillo Unified School District complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on State Programs for the fiscal year ended June 30, Purpose of This Report The purpose of this report is solely to describe the scope of our testing over compliance and the results of that testing based on the Standards and Procedures for Audits of California K-12 Local Educational Agencies Accordingly, this report is not suitable for any other purpose. November 16, 2015 San Jose, California Page Saratoga Ave, Suite 180, San Jose, CA Tel: E-Fax: info@cnallp.com

140 FINDINGS AND RECOMMENDATIONS

141 CABRILLO UNIFIED SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 Section I - Summary of Auditor's Results Financial Statements Type of auditor's report issued Unmodified Internal control over financial reporting: Material weaknesses? Yes x No Significant deficiencies identified not considered to be material weaknesses? Yes x No Non-compliance material to financial statements noted? Yes x No Federal Awards Internal control over major programs: Material weaknesses? Yes x No Significant deficiencies identified not considered to be material weaknesses? Yes x No Type of auditor's report issued on compliance over major programs Unmodified Any audit findings disclosed that are required to be reported in accordance with Circular A-133 Section.510(a)? Yes x No Identification of Major Programs: CFDA Numbers Name of Federal Program National School Lunch Program Dollar threshold used to distinguish between type A and type B programs: $ 300,000 Auditee qualified as low risk auditee? x Yes No State Awards Internal control over state programs: Material weaknesses? Yes x No Significant deficiencies identified not considered to be material weaknesses? Yes x No Type of auditor's report issued on compliance over state programs: Unmodified 68

142 CABRILLO UNIFIED SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 Section II - Financial Statement Findings None Section III - Federal Award Findings and Questioned Costs None Section IV - State Award Findings and Questioned Costs None 69

143 CABRILLO UNIFIED SCHOOL DISTRICT STATUS OF PRIOR YEAR FINDINGS AND RECOMMENDATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 Section II - Financial Statement Findings None Section III - Federal Award Findings and Questioned Costs None Section IV - State Award Findings and Questioned Costs None * * * The audit staff wishes to express their thanks and appreciation for the help and cooperation of the District office staff during the course of our audit. 70

144 [THIS PAGE INTENTIONALLY LEFT BLANK]

145 APPENDIX C GENERAL INFORMATION ABOUT THE COUNTY OF SAN MATEO The following information concerning the County of San Mateo is included only for the purpose of supplying general information regarding the area of the District. The Bonds are not a debt of the County, the State or any of its political subdivisions, and neither the County, the State nor any of its political subdivisions is liable therefor. General San Mateo County (the County ) is located between California coast south of the City and County of San Francisco and north of Santa Clara County and west of the San Francisco Bay. The County is a major employment base, and is also accessible to the San Jose and Silicon Valley areas south via Interstate 280 or U.S. Highway 101. Population The following table summarizes the population of the County and the State in 1990, 2000, 2010 and from 2012 through REDWOOD CITY, SAN MATEO COUNTY AND STATE OF CALIFORNIA Population Estimates (As of January 1) San Mateo County State of California Year 1990 (1) 649,623 29,758, (1) 707,163 33,873, ,614 37,223, ,256 37,881, ,626 37,239, ,145 38,567, ,155 38,907, ,041 39,255,883 (1) As of April 1. Source: California Department of Finance. C-1

146 Employment and Industry The following table summarizes the civilian labor force, employment and unemployment in the County for the calendar years 2011 through These figures are county-wide statistics and may not necessarily accurately reflect employment trends in the District. SAN MATEO COUNTY Civilian Labor Force, Employment and Unemployment (Annual Averages) Civilian Labor Force (1) 399, , , , ,000 Employment 369, , , , ,000 Unemployment 30,000 26,400 22,000 18,100 15,000 Unemployment Rate 7.5% 6.4% 5.3% 4.2% 3.4% Wage and Salary Employment: (2) Agriculture 1,600 1,600 1,700 1,800 1,800 Mining, Logging and Construction 14,500 15,300 16,800 19,300 23,100 Manufacturing 25,500 24,400 25,500 25,500 25,500 Wholesale Trade 11,100 11,500 11,200 11,600 12,100 Retail Trade 33,200 33,200 34,100 34,900 33,900 Transportation, Warehousing, 24,200 25,600 27,100 27,800 28,300 Utilities Information 17,900 20,900 23,800 26,300 28,100 Finance and Insurance 13,500 13,800 13,900 14,300 14,800 Real Estate and Rental and Leasing 5,900 6,200 6,300 6,300 6,800 Professional and Business Services 64,100 69,800 71,200 75,200 76,500 Educational and Health Services 37,200 38,100 40,500 43,000 44,300 Leisure and Hospitality 35,500 36,800 39,400 40,900 42,500 Other Services 12,200 12,900 13,400 13,900 14,000 Federal Government 3,800 3,700 3,600 3,700 3,800 State Government Local Government 26,200 26,000 26,200 27,000 28,300 Total, All Industries (3) 327, , , , ,100 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (3) Totals may not add due to rounding. Source: State of California Employment Development Department. C-2

147 Major Employers The following tables list the major employers within the County in 2016 and the City as of June 30, COUNTY OF SAN MATEO Major Employers 2016 (Listed Alphabetically) Employer Name AR Dental Care Electric Charging Station Electronic Arts Inc. Facebook Inc. Forced Dump Debris Box Service Franklin Resources Inc. Franklin Templeton Investments Genentech Inc. Gilead Sciences Inc. Guckenheimer Inc. Hyatt Regency San Francisco Kaiser Permanente Medical Center Kaiser Permanente South San Francisco Lucill Packard Children s Hospital Motif Inc. Oracle Corporation San Francisco International Airport San Mateo County Behavior San Mateo County Medical Center Sciex LLC SRI International Inc. US Interior Department Visa Inc. Visa International Service Association Visa USA Inc. Industry Dentists Research Service Game Designers Social Media Garbage Collection Asset Management Investments Pharmaceutical Products Biological Products Foodservice Management Hotels & Motels Hospitals Hospitals Health Care Facilities Business Services Computer Software Airports Government- County Hospitals Scientific apparatus & Instruments Research Service Government Office- United States Credit Card & Other Credit Plans Associations Credit Card & Other Credit Plans Source: America's Labor Market Information System (ALMIS) Employer Database, nd Edition. C-3

148 Commercial Activity A summary of historic taxable sales in the County and the City through 2014 (the most recent annual data available) are shown in the following tables. COUNTY OF SAN MATEO Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands) Retail Stores Total All Outlets Number of Permits Taxable Transactions Number of Permits Taxable Transactions ,340 $7,846,274 18,979 $11,966, ,470 8,536,043 18,995 13,020, ,748 9,277,144 19,189 13,906, ,438 9,935,641 19,808 14,611, ,732 10,278,717 19,999 15,298,434 Source: State Board of Equalization. REDWOOD CITY Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands) Retail Stores Total All Outlets Number of Permits Taxable Transactions Number of Permits Taxable Transactions ,230 $1,053,741 2,023 $1,451, ,236 1,170,101 2,023 1,551, ,287 1,278,605 2,084 1,696, ,315 1,363,758 2,098 1,828, ,291 1,447,923 2,039 1,958,291 Source: State Board of Equalization. C-4

149 Construction Activity Building activity for the calendar years 2011 through 2015 in the County is shown in the following table. COUNTY OF SAN MATEO Building Permit Valuation (Valuation in Thousands of Dollars) Permit Valuation New Single-family $194,950.1 $245,163.9 $292,893.4 $292,893.4 $374,275.5 New Multi-family 107, , , , ,181.0 Res. Alterations/Additions 289, , , , ,011.2 Total Residential 591, , , , ,041,467.7 New Commercial 28, , , , ,063.7 New Industrial 3, , , , New Other 26, , , , ,031.8 Com. Alterations/Additions 244, , , , ,389.7 Total Nonresidential $301,725.4 $254,810.0 $503,490.2 $503,490.2 $1,010,485.2 New Dwelling Units Single Family Multiple Family ,386 TOTAL ,190 1,190 1,907 Source: Construction Industry Research Board, Building Permit Summary. Transportation All modes of commercial transportation are available in the County. The Petaluma River is capable of handling water barge freight from the San Francisco Bay to Petaluma. Northwestern Pacific Railroad provides rail transportation with the County with connections to major rail interchanges. The San Mateo County Airport, located just outside the City of Santa Rosa, handles commercial and private air traffic, with Horizon-Alaska Airlines providing regional air transportation. Seven private airfields serve the County as well. In addition, highways bisect the County; the major freeway is U.S. Highway 101, which runs from Marin and San Francisco Counties in the south to Mendocino County in the north. State Highway 12 is the major east-west thoroughfare, running from Bodega Bay on the western coastline to San Mateo on the east. C-5

150 [THIS PAGE INTENTIONALLY LEFT BLANK]

151 APPENDIX D PROPOSED FORM OF OPINION OF BOND COUNSEL Board of Trustees Cabrillo Unified School District 498 Kelly Avenue Half Moon Bay, California [Date of Closing] OPINION: $20,000,000 Cabrillo Unified School District (County of San Mateo, California) General Obligation Bonds, Election of 2012, Series C Members of the Board of Trustees: We have acted as bond counsel to the Cabrillo Unified School District (the District ) in connection with the issuance by the District of $20,000,000 principal amount of Cabrillo Unified School District (County of San Mateo, California) General Obligation Bonds, Election of 2012, Series C, dated February 1, 2017 (the Bonds ), and issued pursuant to Title 5, Division 2, Chapter 3, Article 9 of the California Government Code, commencing with section 53550, and a resolution adopted by the Board of Trustees of the District (the District Board ) on December 8, 2016 (the District Resolution ). We have examined the law and such certified proceedings and other papers as we deemed necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the District Board contained in the District Resolution and in the certified proceedings and other certifications furnished to us, without undertaking to verify such facts by independent investigation. Attention is called to the fact that we have not been requested to examine, and have not examined, any documents or information relating to the District other than the record of proceedings hereinabove referred to, and no opinion is expressed as to any financial or other information, or the adequacy thereof, which has been, or may be supplied to any purchaser of the Bonds. We have not been engaged or undertaken to review the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds (except to the extent, if any, stated in the Official Statement) and we express no opinion relating thereto (excepting only matters set forth as our opinion in the Official Statement). Based upon our examination, we are of the opinion, as of the date hereof, that: 1. The District is duly created and validly existing as a school district with the power to issue the Bonds and to perform its obligations under the District Resolution and the Bonds. 2. The District Resolution has been duly adopted by the District Board and creates a valid first lien on the funds pledged under the District Resolution for the security of the Bonds. 3. The Bonds have been duly authorized, executed and delivered by, are valid and binding general obligations of, the District. The Board of Supervisors of San Diego County is required to levy a D-1

152 tax upon all taxable property in the District for the interest and redemption of all outstanding bonds of the District, including the Bonds. The Bonds are payable from an ad valorem tax levied without limitation as to rate or amount. 4. Subject to the District s compliance with certain covenants, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Internal Revenue Code of 1986, as amended, but is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. Failure to comply with certain of such covenants could cause interest on the Bonds to be includable in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. The District has covenanted to comply with each such requirement. 5. The interest on the Bonds is exempt from personal income taxation imposed by the State of California. Ownership of the Bonds may result in other tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Bonds. The rights of the owners of the Bonds and the enforceability of the Bonds and the District Resolution may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights heretofore or hereafter enacted and also may be subject to the exercise of judicial discretion in accordance with general principles of equity. In rendering this opinion, we have relied upon certifications of the District and others with respect to certain material facts. Our opinion represents our legal judgment based upon such review of the law and the facts that we deem relevant to render our opinion and is not a guarantee of a result. This opinion is given as of the date hereof and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. Respectfully submitted, DANNIS WOLIVER KELLEY D-2

153 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE $20,000,000 CABRILLO UNIFIED SCHOOL DISTRICT (COUNTY OF SAN MATEO, CALIFORNIA) GENERAL OBLIGATION BONDS ELECTION OF 2012, SERIES C CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the Cabrillo Unified School District (the District ) in connection with the issuance of $20,000,000 aggregate principal amount of Cabrillo Unified School District (County of San Mateo, California) General Obligation Bonds Election of 2012, Series C (the Bonds ). The Bonds are being issued pursuant to a Resolution adopted by the District on December 8, 2016 (the Resolution ). The District covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriters in complying with S.E.C. 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 means any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Dissemination Agent means Isom Advisors or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation. Listed Events means any of the events listed in Section 5(a) of this Disclosure Certificate. MSRB means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information which may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Participating Underwriter means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. Rule means 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 provide, not later than nine months after the end of the District s fiscal year (which currently would be March 31), commencing no E-1

154 later than March 31, 2017 with the report for the Fiscal Year, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the District) has not received a copy of the Annual Report, the Dissemination Agent shall contact the District to determine if the District is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if 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(c). The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the District hereunder. (b) If the District does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the District shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A. (c) With respect to the Annual Report, the Dissemination Agent shall: (i) determine each year prior to the Annual Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; 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 pursuant to this Disclosure Certificate, and stating the date it was provided. Section 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following: (a) Audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District s audited financial statements are not available by the Annual Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) Unless otherwise provided in the audited financial statements filed on or before the Annual Report Date, financial information and operating data with respect to the District for the preceding fiscal year, substantially similar to that provided in the corresponding tables in the Official Statement: (i) the average daily attendance in District schools on an aggregate basis for the preceding fiscal year; (ii) pension plan contributions made by the District for the preceding fiscal year; E-2

155 (iii) aggregate principal amount of short-term borrowings, lease obligations and other long-term borrowings of the District as of the end of the preceding fiscal year; (iv) description of amount of general fund revenues and expenditures which have been budgeted for the current fiscal year, together with audited actual budget figures for the preceding fiscal year; (v) property tax collection delinquencies for the District, for the most recently completed Fiscal Year, if the District is no longer a participant in the County s Teeter Plan; and (vi) current fiscal year assessed valuation of taxable properties in the District, including assessed valuation of the top ten properties. (c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the District shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. (d) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which are available to the public on the MSRB s Internet web site or filed with the Securities and Exchange Commission. 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: (1) Principal and interest payment delinquencies. (2) Non-payment related defaults, if material. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security. (7) Modifications to rights of security holders, if material. (8) Bond calls, if material, and tender offers. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the securities, if material. (11) Rating changes. (12) Bankruptcy, insolvency, receivership or similar event of the District. E-3

156 (13) The consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material. (14) Appointment of a successor or additional trustee or the change of name of a trustee, if material. (b) Whenever the District obtains knowledge of the occurrence of a Listed Event, the District shall, or shall cause the Dissemination Agent (if not the District) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) above 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 under the Indenture. (c) The District acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), and (a)(14) of this Section 5 contain the qualifier if material and that subparagraph (a)(6) also contains the qualifier "material" with respect to certain notices, determinations or other events affecting the tax status of the Bonds. The District shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that District determines the event s occurrence is material for purposes of U.S. federal securities law. Whenever the District obtains knowledge of the occurrence of any of these Listed Events, the District will as soon as possible determine if such event would be material under applicable federal securities law. If such event is determined to be material, the District will cause a notice to be filed as set forth in paragraph (b) above. (d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the District in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District. Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. Section 7. 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(c). Section 8. 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 Agent, with or without appointing a successor Dissemination Agent. E-4

157 Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), 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 type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering 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 holders of the Bonds in the manner 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. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the District to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be filed in the same manner as for a Listed Event under Section 5(b). Section 10. 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 Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 11. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate, any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Resolution, and the sole remedy under this E-5

158 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 12. 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 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 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: February 1, 2017 CABRILLO UNIFIED SCHOOL DISTRICT By: Superintendent E-6

159 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Obligor: Cabrillo Unified School District Name of Bond Issue: Date of Issuance: February 1, 2017 $20,000,000 aggregate principal amount of Cabrillo Unified School District (County of San Mateo, California) General Obligation Bonds, Election of 2012, Series C NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by of the Resolution authorizing the issuance of the Bonds. The District anticipates that the Annual Report will be filed by. Dated: CABRILLO UNIFIED SCHOOL DISTRICT By Superintendent E-7

160 [THIS PAGE INTENTIONALLY LEFT BLANK]

161 APPENDIX F BOOK-ENTRY ONLY SYSTEM The following description of the Depository Trust Company ( DTC ), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Neither the District nor the Paying Agent take any responsibility for the information contained in this Section. No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) Bonds representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current "Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC. 1. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the securities (in this Appendix, the Bonds ). The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond will be issued for each maturity of the Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC. If, however, the aggregate principal amount of any maturity exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount of such issue. 2. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a F-1

162 Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at The information contained on this Internet site is not incorporated herein by reference. 3. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive Bonds representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. 4. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. 6. Redemption notices will be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. 7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds, distributions, and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts, upon DTC s receipt of funds and corresponding detail information from District or Paying Agent on payable date in accordance with their respective holdings F-2

163 shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC nor its nominee, Paying Agent, or District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of District or Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 9. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to District or Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered. 10. The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC. 11. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that District believes to be reliable, but District takes no responsibility for the accuracy thereof. F-3

164 [THIS PAGE INTENTIONALLY LEFT BLANK]

165 APPENDIX G SAN MATEO COUNTY POOL INVESTMENT POLICY AND MONTHLY INVESTMENT REPORT OF DECEMBER, 2016 G-1

166 [THIS PAGE INTENTIONALLY LEFT BLANK]

167 DATE: January 11, 2017 TO: FROM: SUBJECT: San Mateo County Pool Participants Sandie Arnott, Treasurer-Tax Collector December, 2016 Monthly/Quarterly Investment Report Gross earnings for the month ending December 31, 2016 were 1.042%. Gross earnings for the quarter ending December 31, 2016 were 1.026%. The Current Average Maturity of the portfolio is 1.06 years with an average duration of 1.02 years. The Current Par Value of the pool is $5.030 Billion. The largest non-government aggregate position is currently Wells Fargo & Co at 3.28%. The portfolio continues to hold no derivative products. The San Mateo County Pool complies with Government Code Section 53646, which requires the ability to meet its expenditure requirements for the next six months. I certify, and our investment advisor, PFM Asset Management, confirms these reports are in compliance with the investment policy dated Calendar Year Please visit our website if you wish to review PFM s monthly compliance report: If you have any questions regarding any of these reports, please call Charles Tovstein at (650) or me at (650) Best regards, 1

168 SAN MATEO COUNTY PORTFOLIO December 31, 2016 Table of Contents Month End Pool Earnings Report 3 Quarter End Pool Earnings Report 4 Realized Gains and Losses 5 Total Return 6 SMC Pool vs. LAIF 7 Fixed Income Distribution 8-9 Portfolio Appraisal Asset Allocation Graph 32 Pooled Funds Participants Graph 33 Credit Quality Graph - Moody s Rating 34 Credit Quality Graph - S&P Rating 35 Diversification Report Months Cash Flow Projection 37 Historical Yield Curves

169 COUNTY OF SAN MATEO ESTIMATED SUMMARY OF POOL EARNINGS DECEMBER 2016 Par Value Gross Earnings Fixed Income Securities Maturing > 1 year U S Treasury Notes 500,000,000 $508, Federal Agencies 748,805, , Corporate Notes 345,000, , Floating Rate Securities 146,200, , ,740,005,000 $1,633, Short Term Securities Maturing < 1 year U S Treasury Notes 50,000,000 21, Federal Agencies 1,208,444, , Corporate Notes 214,595, , Floating Rate Securities 239,200, , LAIF 65,000,000 35, Certificate of Deposit 45,000,000 40, Commercial Paper 916,750, , U S Treasury Bills 218,500,000 89, Repurchase Agreements 333,250,000 12, ,290,739,000 $1,808, Total Accrued Interest 5,030,744,000 $3,441, Realized Gain/Loss & Interest Received U S Treasury Notes $630, Federal Agencies 208, Corporate Notes Floating Rate Securities 69, Commercial Paper 14, U S Treasury Bills 10, Repurchase Agreements 91, Total Realized Income $1,024, TOTAL DOLLAR EARNINGS $4,465, AVERAGE BALANCE $5,045,828, GROSS EARNINGS RATE / GROSS DOLLAR EARNINGS 1.042% $4,465, ADMINISTRATION FEES ($449,977.34) NET EARNINGS RATE / NET DOLLAR EARNINGS 0.937% $4,015,

170 COUNTY OF SAN MATEO SUMMARY OF POOL EARNINGS Q Par Value Gross Earnings Fixed Income Securities Maturing > 1 year U S Treasury Notes 500,000,000 $1,064, Federal Agencies 748,805,000 1,317, Corporate Notes 345,000,000 1,021, Floating Rate Securities 146,200, , ,740,005,000 $3,655, Short Term Securities Maturing < 1 year U S Treasury Notes 50,000,000 64, Federal Agencies 1,208,444,000 1,311, Corporate Notes 214,595, , Floating Rate Securities 239,200, , LAIF 65,000, , Certificate of Deposit 45,000,000 72, Commercial Paper 916,750,000 1,435, U S Treasury Bills 218,500, , Repurchase Agreements 333,250,000 12, ,290,739,000 $3,884, Total Accrued Interest 5,030,744,000 $7,539, Realized Gain/Loss & Interest Received U S Treasury Notes $1,690, Federal Agencies 1,246, Corporate Notes 414, Floating Rate Securities 433, Commercial Paper 170, LAIF 16, U S Treasury Bills 10, Repurchase Agreements 254, Total Realized Income $4,236, TOTAL DOLLAR EARNINGS $11,776, AVERAGE BALANCE $4,554,967, GROSS EARNINGS RATE / GROSS DOLLAR EARNINGS 1.026% $11,776, ADMINISTRATION FEES ($1,205,506.54) NET EARNINGS RATE / NET DOLLAR EARNINGS 0.921% $10,571,

171 SAN MATEO COUNTY TREASURER'S OFFICE REALIZED GAINS AND LOSSES - SETTLED TRADES SAN MATEO COUNTY POOL From Through Gain Or Loss Open Close Cost Date Date Quantity Security Basis Proceeds Short Term Long Term TOTAL GAINS 1,350, TOTAL LOSSES ,350, TOTAL REALIZED GAIN/LOSS 1,350, **THESE ARE GROSS PRINCIPAL FIGURES ONLY. THEY DO NOT REFLECT ANY AMORTIZATIONS OR ACCRETIONS. THE COST BASIS DOES NOT REFLECT ANY PURCHASED ACCRUED INTEREST. 5

172 MERRILL LYNCH TAXABLE BOND INDEX vs. SAN MATEO COUNTY POOL CHARACTERISTICS INDEX 12/31/16 POOL 2.30 AVERAGE MATURITY (YRS) DURATION (YRS) YIELD TO MATURITY (%) 0.97 TIME WEIGHTED/TOTAL RETURN MONTH (%) MONTHS (%) MONTHS (%) YEAR (%) SYNTHETIC BENCHMARK ALLOCATION OF INDEX 30% 0-1 year U.S. Government 20% year U.S. Government 20% 3-5 year U.S. Government 10% 1-10 year U.S. Government 20% 1-5 year Corporate Bonds *** THE MEASURE THAT CAN BE USED TO ASSESS THE PERFORMANCE OF A PORTFOLIO OVER SOME INVESTMENT HORIZON IS THE TOTAL RETURN. TOTAL RETURN IS THE SUM OF PRINCIPAL AND INTEREST PAYMENTS AS WELL AS ANY REINVESTMENT INCOME RECEIVED OVER A HOLDING PERIOD PLUS ANY CAPITAL GAIN OR LOSS. 6

173 SAN MATEO COUNTY INVESTMENT POOL vs LOCAL AGENCY INVESTMENT FUND POOL EARNINGS RATES ending 12/31/16 LAIF (preliminary estimate) 1.042% 1 MONTH 0.720% 1.023% 3 MONTHS 0.684% 0.972% 6 MONTHS 0.647% 0.967% 1 YEAR 0.580% 7

174 SAN MATEO COUNTY TREASURER'S OFFICE FIXED INCOME DISTRIBUTION - SETTLED TRADES SAN MATEO COUNTY POOL December 31, 2016 Summary Information Totals Weighted Averages Par Value 5,030,744,000 Average YTM 0.97 Market Value 5,018,436, Average Maturity (yrs) 1.06 Total Cost 5,022,823, Average Coupon (%) 0.66 Net Gain/Loss -4,386, Average Duration 1.02 Annual Income 33,083, Average Moody Rating Aa1/P-1 Accrued Interest 6,335, Average S&P Rating AA/A-1 Number of Issues 237 Distribution by Maturity % Bond Average Average Average Maturity Number Mkt Value Holdings Y T M Coupon Duration Under 1 Yr 143 3,290,407, % Yr - 3 Yrs 77 1,244,284, % Yrs - 5 Yrs ,502, % Yrs - 7 Yrs 1 48,241, % 6.3 Distribution by Coupon % Bond Average Average Average Coupon % Number Mkt Value Holdings Y T M Coupon Duration Under 1% 127 3,028,558, % 0.4 1% - 3% 110 1,989,877, % 2.0 Distribution by Duration % Bond Average Average Average Duration Number Mkt Value Holdings Y T M Coupon Duration Under 1 Yr 143 3,290,407, % Yr - 3 Yrs 79 1,269,449, % Yrs - 5 Yrs ,337, % Yrs - 7 Yrs 1 48,241, % 6.3 8

175 SAN MATEO COUNTY TREASURER'S OFFICE FIXED INCOME DISTRIBUTION - SETTLED TRADES SAN MATEO COUNTY POOL December 31, 2016 Distribution by Moody Rating % Bond Average Average Average Rating Number Mkt Value Holdings Y T M Coupon Duration Aaa 143 3,413,060, % 1.2 Aa ,256, % 1.3 Aa ,204, % 1.2 Aa ,188, % 1.5 A1 8 72,509, % 1.1 A2 8 85,101, % 1.2 A3 1 25,061, % 0.1 P ,953, % 0.2 Not Rated 1 65,101, % 0.0 Distribution by S&P Rating % Bond Average Average Average Rating Number Mkt Value Holdings Y T M Coupon Duration AAA ,706, % 0.9 AA ,189,516, % 1.2 AA 5 53,065, % 1.0 AA ,345, % 1.3 A ,575, % 1.3 A 7 75,110, % 1.3 A- 1 25,061, % 0.1 A ,774, % 0.2 A ,159, % 0.2 Not Rated 3 115,122, % 0.1 ** MARKET VALUE ON THE FIXED INCOME DISTRIBUTION REPORT INCLUDES ANY ACCRUED INTEREST THAT A SECURITY HAS EARNED. TOTAL COST DOES NOT REFLECT AMORTIZATIONS OR ACCRETIONS BUT INCLUDES PURCHASED ACCRUED INTEREST. MONTHLY TRANSACTION SUMMARY REPORT IS AVAILABLE UPON REQUEST. 9

176 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets CERTIFICATE OF DEPOSIT WELLS FARGO BANK NA FRN 25,000, ,000, ,000, , ,006, A % Due WELLS FARGO BANK NA 20,000, ,000, ,000, , ,040, A % Due TORONTO DOMINION BANK NY 25,000, ,000, ,000, , ,031, NR % Due BANK OF NOVA SCOTIA 25,000, ,000, ,000, , ,018, A % Due WELLS FARGO BANK NA 25,000, ,000, ,000, , ,138, A % Due ,000, ,000, ,000, , ,234, COMMERCIAL PAPER NATIXIS NY BRANCH 17,000, ,939, ,997, ,997, A % Due NATIXIS NY BRANCH 25,000, ,934, ,991, ,991, A % Due NATIXIS NY BRANCH 25,000, ,947, ,989, ,989, A % Due NATIXIS NY BRANCH 15,000, ,940, ,991, ,991, A % Due SWEDBANK 20,000, ,916, ,989, ,989, A % Due BANK TOKYO-MIT UFJ NY 20,000, ,974, ,991, ,991, A % Due EXXON MOBIL CORP 25,000, ,965, ,991, ,991, A % Due LANDESBK BADEN-WURIT NY 25,000, ,968, ,989, ,989, NR % Due BANK TOKYO-MIT UFJ NY 25,000, ,884, ,979, ,979, A % Due EXXON MOBIL CORP 25,000, ,971, ,989, ,989, A % Due TOYOTA MOTOR CREDIT CORP 25,000, ,881, ,984, ,984, A % Due TOYOTA MOTOR CREDIT CORP 20,000, ,905, ,979, ,979, A % Due BNP PARIBAS NY BRANCH 25,000, ,949, ,975, ,975, A % Due SWEDBANK 25,000, ,930, ,974, ,974, A % Due

177 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets SWEDBANK 20,000, ,915, ,973, ,973, A % Due EXXON MOBIL CORP 25,000, ,961, ,977, ,977, A % Due BANK TOKYO-MIT UFJ NY 25,000, ,847, ,954, ,954, A % Due NATIXIS NY BRANCH 25,000, ,914, ,962, ,962, A % Due BANK TOKYO-MIT UFJ NY 25,000, ,846, ,952, ,952, A % Due COOPERATIEVE RABOBANK UA 25,000, ,888, ,958, ,958, A % Due SWEDBANK 25,000, ,925, ,966, ,966, A % Due SWEDBANK 20,000, ,958, ,974, ,974, A % Due SWEDBANK 25,000, ,936, ,966, ,966, A % Due BANK TOKYO-MIT UFJ NY 25,000, ,845, ,936, ,936, A % Due EXXON MOBIL CORP 10,000, ,981, ,986, ,986, A % Due NATIXIS NY BRANCH 15,000, ,961, ,967, ,967, A % Due COOPERATIEVE RABOBANK UA 25,000, ,855, ,930, ,930, A % Due TOYOTA MOTOR CREDIT CORP 25,000, ,784, ,899, ,899, A % Due CANADIAN IMPERIAL HLDING 25,000, ,869, ,902, ,902, A % Due NATIXIS NY BRANCH 25,000, ,855, ,896, ,896, A % Due CANADIAN IMPERIAL HLDING 25,000, ,867, ,899, ,899, A % Due BANK TOKYO-MIT UFJ NY 25,000, ,818, ,864, ,864, A % Due TOYOTA MOTOR CREDIT CORP 10,000, ,909, ,935, ,935, A % Due ,000, ,051, ,719, ,719,

178 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets LOCAL AGENCY INVESTMENT FUND LAIF 65,000, ,000, ,000, , ,101, % Due REPURCHASE AGREEMENTS REPURCHASE AGREEMENT(U.S. TREAS NTS COLLAT) 0.450% Due ,250, ,250, ,250, , ,258, AA UNITED STATES TREASURY-BILLS UNITED STATES TREAS BILL 25,000, ,983, ,995, ,995, AA % Due UNITED STATES TREAS BILL 22,000, ,981, ,996, ,996, AA % Due UNITED STATES TREAS BILL 21,500, ,457, ,480, ,480, AA % Due UNITED STATES TREAS BILL 50,000, ,874, ,914, ,914, AA % Due UNITED STATES TREAS BILL 25,000, ,937, ,956, ,956, AA % Due UNITED STATES TREAS BILL 25,000, ,929, ,944, ,944, AA % Due UNITED STATES TREAS BILL 50,000, ,849, ,877, ,877, AA % Due ,500, ,013, ,165, ,165, UNITED STATES TREASURY-NOTES UNITED STATES TREAS NTS 25,000, ,005, ,996, ,996, AA % Due UNITED STATES TREAS NTS 25,000, ,673, ,964, , ,004, AA % Due UNITED STATES TREAS NTS 50,000, ,707, ,755, , ,808, AA % Due UNITED STATES TREAS NTS 50,000, ,593, ,755, , ,808, AA % Due UNITED STATES TREAS NTS 50,000, ,812, ,980, , ,023, AA % Due UNITED STATES TREAS NTS 50,000, ,012, ,332, , ,565, AA % Due UNITED STATES TREAS NTS 50,000, ,812, ,310, , ,497, AA % Due

179 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets UNITED STATES TREAS NTS 50,000, ,888, ,310, , ,497, AA % Due UNITED STATES TREAS NTS 50,000, ,896, ,228, , ,371, AA % Due UNITED STATES TREAS NTS 50,000, ,017, ,484, , ,590, AA % Due UNITED STATES TREAS NTS 50,000, ,752, ,626, , ,701, AA % Due UNITED STATES TREAS NTS 50,000, ,096, ,103, , ,241, AA % Due ,000, ,269, ,849, ,256, ,106, FEDERAL AGENCY - FLOATING RATE SECURITIES FEDERAL FARM CREDIT BANK 20,000, ,000, ,008, , ,010, AA % Due FEDERAL HOME LOAN BANK FLT 10,000, ,000, ,998, , ,006, AA % Due FEDERAL NATIONAL MORTGAGE 15,000, ,000, ,033, , ,062, AA ASSOCIATION-FLOAT 0.846% Due FEDERAL FARM CREDIT BANK 5,000, ,000, ,008, , ,010, AA % Due FEDERAL FARM CREDIT BANK 5,000, ,000, ,005, , ,006, AA % Due ,000,000 55,000, ,054, , ,096, FEDERAL AGENCY SECURITIES FARMER MAC DISCOUNT 15,000, ,965, ,999, ,999, AA % Due FARMER MAC DISCOUNT 25,000, ,943, ,998, ,998, AA % Due FEDERAL HOME LOAN BANK-DISCOUNT 50,000, ,984, ,996, ,996, AA NOTE 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT 11,400, ,376, ,398, ,398, AA NOTE 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT 25,000, ,992, ,996, ,996, AA NOTE 0.000% Due

180 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets FARMER MAC DISCOUNT 15,000, ,961, ,996, ,996, AA % Due FARMER MAC DISCOUNT 10,000, ,975, ,997, ,997, AA % Due FEDERAL HOME LOAN BANK-DISCOUNT 15,000, ,955, ,995, ,995, AA NOTE 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT NOTE 25,000, ,982, ,992, ,992, AA % Due FARMER MAC DISCOUNT 20,000, ,947, ,992, ,992, AA % Due FARMER MAC DISCOUNT 5,000, ,986, ,998, ,998, AA % Due FEDERAL HOME LOAN MORTGAGE CORPORATION 0.500% Due FEDERAL HOME LOAN MORTGAGE CORPORATION 0.500% Due FEDERAL HOME LOAN BANK-DISCOUNT NOTE 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT NOTE 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT NOTE 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT NOTE 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT NOTE 5,000, ,991, ,999, , ,010, AA ,000, ,982, ,999, , ,021, AA ,510, ,461, ,501, ,501, AA ,000, ,971, ,992, ,992, AA ,500, ,496, ,497, ,497, AA ,000, ,987, ,993, ,993, AA ,000, ,967, ,987, ,987, AA % Due FARM CREDIT DISCOUNT NOTE 4,337, ,314, ,334, ,334, AA % Due FARMER MAC DISCOUNT 15,000, ,956, ,989, ,989, AA % Due FARMER MAC DISCOUNT 15,000, ,956, ,989, ,989, AA % Due

181 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets FARMER MAC DISCOUNT 10,000, ,971, ,993, ,993, AA % Due FARMER MAC DISCOUNT 10,000, ,971, ,993, ,993, AA % Due FEDERAL HOME LOAN BANK-DISCOUNT 17,000, ,959, ,989, ,989, AA NOTE 0.000% Due FEDERAL HOME LOAN MORTGAGE 25,000, ,959, ,011, , ,089, AA CORPORATION 0.875% Due FEDERAL HOME LOAN BANK-DISCOUNT 2,224, ,221, ,222, ,222, AA NOTE 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT 10,000, ,987, ,991, ,991, AA NOTE 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT 10,000, ,986, ,990, ,990, AA NOTE 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT 20,000, ,972, ,981, ,981, AA NOTE 0.000% Due FEDERAL HOME LOAN MORTGAGE 15,000, ,000, ,012, , ,021, AA CORPORATION 1.000% Due FEDERAL HOME LOAN BANK-DISCOUNT 12,014, ,993, ,002, ,002, AA NOTE 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT 20,000, ,962, ,974, ,974, AA NOTE 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT 4,000, ,994, ,994, ,994, AA NOTE 0.000% Due FEDERAL MORTGAGE CORPORATION 20,000, ,957, ,979, ,979, AA DN 0.000% Due FARM CREDIT DISCOUNT NOTE 10,000, ,977, ,989, ,989, AA % Due FEDERAL HOME LOAN BANK-DISCOUNT NOTE 0.000% Due ,000, ,976, ,988, ,988, AA

182 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets FEDERAL HOME LOAN BANK-DISCOUNT 20,000, ,958, ,970, ,970, AA NOTE 0.000% Due FARMER MAC DISCOUNT 15,000, ,958, ,976, ,976, AA % Due FEDERAL NATIONAL MORTGAGE 10,000, ,965, ,003, , ,056, AA ASSOCIATION 0.750% Due FARM CREDIT DISCOUNT NOTE 10,000, ,973, ,979, ,979, AA % Due FARM CREDIT DISCOUNT NOTE 10,000, ,973, ,979, ,979, AA % Due FEDERAL HOME LOAN BANK-DISCOUNT NOTE 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT NOTE 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT NOTE 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT NOTE 0.000% Due FEDERAL MORTGAGE CORPORATION DN 10,000, ,972, ,979, ,979, AA ,000, ,972, ,979, ,979, AA ,000, ,972, ,979, ,979, AA ,000, ,964, ,986, ,986, AA ,000, ,970, ,980, ,980, AA % Due FEDERAL HOME LOAN BANK 10,000, ,980, ,005, , ,014, AA % Due FEDERAL HOME LOAN BANK 15,000, ,971, ,007, , ,021, AA % Due FEDERAL HOME LOAN BANK-1 20,000, ,000, ,006, , ,021, AA % Due FEDERAL HOME LOAN BANK 13,000, ,989, ,994, , ,001, AA % Due FEDERAL HOME LOAN BANK 10,000, ,991, ,995, , ,000, AA % Due FEDERAL HOME LOAN BANK 10,000, ,991, ,995, , ,000, AA % Due FEDERAL HOME LOAN BANK-DISCOUNT NOTE 0.000% Due ,000, ,968, ,973, ,973, AA

183 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets FEDERAL HOME LOAN BANK-DISCOUNT 10,959, ,925, ,930, ,930, AA NOTE 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT 10,000, ,969, ,973, ,973, AA NOTE 0.000% Due FARM CREDIT DISCOUNT NOTE 20,000, ,926, ,940, ,940, AA % Due FEDERAL HOME LOAN BANK-DISCOUNT 10,000, ,968, ,972, ,972, AA NOTE 0.000% Due FEDERAL MORTGAGE CORPORATION 10,000, ,965, ,975, ,975, AA DN 0.000% Due FEDERAL HOME LOAN BANK-DISCOUNT 2,000, ,993, ,994, ,994, AA NOTE 0.000% Due FARMER MAC DISCOUNT 10,000, ,962, ,968, ,968, AA % Due FARMER MAC DISCOUNT 5,000, ,981, ,984, ,984, AA % Due FEDERAL HOME LOAN MORTGAGE CORPORATION 15,000, ,922, ,023, ,023, AA % Due FEDERAL HOME LOAN BANK ,000, ,000, ,994, , ,078, AA % Due FEDERAL HOME LOAN BANK 10,000, ,977, ,998, , ,023, AA % Due FEDERAL HOME LOAN BANK 10,000, ,977, ,998, , ,023, AA % Due FEDERAL NATIONAL MORTGAGE ASSOCIATION 1.000% Due FEDERAL NATIONAL MORTGAGE ASSOCIATION 1.000% Due FEDERAL NATIONAL MORTGAGE ASSOCIATION 1.000% Due FEDERAL HOME LOAN MORTGAGE CORPORATION 1.000% Due ,000, ,038, ,008, , ,036, AA ,000, ,025, ,008, , ,036, AA ,000, ,024, ,008, , ,036, AA ,000, ,000, ,007, , ,020, AA

184 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets FEDERAL HOME LOAN MORTGAGE 10,500, ,527, ,515, , ,542, AA CORPORATION 1.000% Due FEDERAL HOME LOAN MORTGAGE 25,000, ,065, ,036, , ,101, AA CORPORATION 1.000% Due FEDERAL HOME LOAN MORTGAGE 10,000, ,026, ,014, , ,040, AA CORPORATION 1.000% Due FEDERAL NATIONAL MORTGAGE 20,000, ,928, ,018, , ,070, AA ASSOCIATION 1.000% Due FEDERAL NATIONAL MORTGAGE 10,000, ,964, ,009, , ,035, AA ASSOCIATION 1.000% Due FEDERAL HOME LOAN BANK 5,000, ,989, ,992, , ,997, AA % Due FEDERAL HOME LOAN BANK 20,000, ,956, ,969, , ,991, AA % Due FEDERAL HOME LOAN BANK 25,000, ,945, ,961, , ,989, AA % Due FEDERAL NATIONAL MORTGAGE 7,000, ,999, ,000, , ,012, AA ASSOCIATION 0.875% Due FEDERAL NATIONAL MORTGAGE 5,000, ,999, ,000, , ,008, AA ASSOCIATION 0.875% Due FEDERAL HOME LOAN MORTGAGE 5,000, ,000, ,992, , ,999, AA CORPORATION 0.750% Due FEDERAL HOME LOAN MORTGAGE 5,000, ,000, ,992, , ,999, AA CORPORATION 0.750% Due FEDERAL HOME LOAN MORTGAGE 10,000, ,000, ,984, , ,998, AA CORPORATION 0.750% Due FEDERAL HOME LOAN MORTGAGE ,000, ,000, ,000, , ,005, AA CORPORATION-B 1.000% Due FEDERAL HOME LOAN MORTGAGE 5,000, ,994, ,003, , ,006, AA CORPORATION 1.000% Due

185 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets FEDERAL HOME LOAN MORTGAGE 10,000, ,989, ,007, , ,012, AA CORPORATION 1.000% Due FEDERAL HOME LOAN MORTGAGE 25,000, ,974, ,019, , ,030, AA CORPORATION 1.000% Due FEDERAL HOME LOAN BANK 5,000, ,000, ,003, , ,004, AA % Due FEDERAL HOME LOAN BANK 5,000, ,000, ,003, , ,004, AA % Due FEDERAL HOME LOAN BANK 5,000, ,000, ,003, , ,004, AA % Due FEDERAL HOME LOAN BANK 10,000, ,000, ,006, , ,009, AA % Due FEDERAL HOME LOAN BANK 10,000, ,000, ,006, , ,009, AA % Due FEDERAL NATIONAL MORTGAGE 10,000, ,955, ,994, , ,997, AA ASSOCIATION 0.875% Due FEDERAL NATIONAL MORTGAGE 5,000, ,986, ,996, , ,013, AA ASSOCIATION 0.875% Due FEDERAL HOME LOAN MORTGAGE ,000, ,000, ,998, , ,017, AA CORPORATION-B 1.050% Due FEDERAL HOME LOAN MORTGAGE CORPORATION-B ,000, ,000, ,998, , ,017, AA % Due FEDERAL HOME LOAN BANK 10,000, ,996, ,983, , ,008, AA % Due FEDERAL HOME LOAN BANK 10,000, ,996, ,983, , ,008, AA % Due FEDERAL NATIONAL MORTGAGE ASSOCIATION 0.875% Due FEDERAL HOME LOAN MORTGAGE CORPORATION 10,000, ,980, ,979, , ,002, AA ,000, ,976, ,944, , ,970, AA % Due FEDERAL HOME LOAN BANK 10,000, ,995, ,007, , ,028, AA % Due FEDERAL HOME LOAN BANK 5,000, ,997, ,003, , ,014, AA % Due

186 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets FEDERAL HOME LOAN BANK 5,000, ,997, ,003, , ,014, AA % Due FEDERAL HOME LOAN BANK 10,000, ,995, ,007, , ,028, AA % Due FEDERAL HOME LOAN BANK 10,000, ,995, ,007, , ,028, AA % Due FEDERAL HOME LOAN BANK 10,000, ,995, ,007, , ,028, AA % Due FEDERAL NATIONAL MORTGAGE ,500, ,500, ,489, , ,494, AA ASSOCIATION-B 1.000% Due FEDERAL NATIONAL MORTGAGE ,500, ,500, ,489, , ,494, AA ASSOCIATION-B 1.000% Due FEDERAL NATIONAL MORTGAGE ,500, ,500, ,489, , ,494, AA ASSOCIATION-B 1.000% Due FEDERAL NATIONAL MORTGAGE 10,000, ,978, ,972, , ,981, AA ASSOCIATION 0.875% Due FEDERAL NATIONAL MORTGAGE 5,000, ,989, ,986, , ,990, AA ASSOCIATION 0.875% Due FEDERAL NATIONAL MORTGAGE 5,000, ,989, ,986, , ,990, AA ASSOCIATION 0.875% Due FEDERAL NATIONAL MORTGAGE 8,000, ,982, ,977, , ,985, AA ASSOCIATION 0.875% Due FEDERAL HOME LOAN BANK ,000, ,021, ,003, , ,042, AA % Due FEDERAL HOME LOAN BANK-B ,000, ,000, ,943, , ,946, AA % Due FEDERAL HOME LOAN MORTGAGE CORPORATION % Due FEDERAL HOME LOAN MORTGAGE CORPORATION-1 10,000, ,000, ,997, , ,000, AA ,000, ,000, ,998, , ,000, AA % Due FEDERAL HOME LOAN BANK 17,000, ,959, ,940, ,941, AA % Due

187 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets FEDERAL HOME LOAN BANK 10,000, ,975, ,965, ,965, AA % Due FEDERAL HOME LOAN BANK 10,000, ,975, ,965, ,965, AA % Due FEDERAL HOME LOAN BANK 10,000, ,975, ,965, ,965, AA % Due FEDERAL HOME LOAN BANK 10,000, ,975, ,965, ,965, AA % Due FEDERAL HOME LOAN MORTGAGE 5,000, ,000, ,992, ,992, AA CORPORATION % Due FEDERAL HOME LOAN MORTGAGE 5,000, ,000, ,992, ,992, AA CORPORATION % Due FEDERAL HOME LOAN MORTGAGE 5,000, ,000, ,992, ,992, AA CORPORATION % Due FEDERAL HOME LOAN MORTGAGE 5,000, ,000, ,992, ,992, AA CORPORATION % Due FEDERAL HOME LOAN MORTGAGE 10,000, ,000, ,984, ,984, AA CORPORATION % Due FEDERAL HOME LOAN MORTGAGE 5,000, ,000, ,992, ,992, AA CORPORATION % Due FEDERAL NATIONAL MORTGAGE 10,000, ,981, ,000, , ,050, AA ASSOCIATION 1.125% Due FEDERAL HOME LOAN MORTGAGE ,000, ,000, ,981, , ,003, AA CORPORATION-B 1.050% Due FEDERAL NATIONAL MORTGAGE ,500, ,500, ,484, , ,494, AA ASSOCIATION-B 0.875% Due FEDERAL NATIONAL MORTGAGE ,500, ,500, ,484, , ,494, AA ASSOCIATION-B 0.875% Due FEDERAL NATIONAL MORTGAGE ,500, ,500, ,484, , ,494, AA ASSOCIATION-B 0.875% Due

188 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets FEDERAL NATIONAL MORTGAGE ,500, ,500, ,484, , ,494, AA ASSOCIATION-B 0.875% Due FEDERAL HOME LOAN MORTGAGE ,000, ,998, ,990, , ,007, AA CORPORATION-B 1.100% Due FEDERAL HOME LOAN MORTGAGE ,000, ,000, ,990, , ,007, AA CORPORATION-B 1.100% Due FEDERAL HOME LOAN MORTGAGE ,000, ,000, ,981, , ,014, AA CORPORATION-B 1.100% Due FEDERAL HOME LOAN MORTGAGE ,000, ,000, ,981, , ,014, AA CORPORATION-B 1.100% Due FEDERAL HOME LOAN MORTGAGE ,000, ,000, ,967, , ,981, AA CORPORATION % Due FEDERAL HOME LOAN MORTGAGE ,500, ,500, ,483, , ,490, AA CORPORATION % Due FEDERAL HOME LOAN MORTGAGE ,500, ,500, ,483, , ,490, AA CORPORATION % Due FEDERAL HOME LOAN MORTGAGE ,000, ,000, ,967, , ,981, AA CORPORATION % Due FEDERAL HOME LOAN MORTGAGE ,000, ,000, ,967, , ,981, AA CORPORATION % Due FEDERAL HOME LOAN MORTGAGE ,000, ,000, ,967, , ,981, AA CORPORATION % Due FEDERAL HOME LOAN BANK 20,000, ,986, ,889, , ,933, AA % Due FEDERAL HOME LOAN BANK 5,000, ,996, ,972, , ,983, AA % Due FEDERAL HOME LOAN BANK 5,000, ,996, ,972, , ,983, AA % Due FEDERAL HOME LOAN BANK 5,000, ,996, ,972, , ,983, AA % Due

189 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets FEDERAL HOME LOAN MORTGAGE ,500, ,500, ,497, , ,500, AA CORP.-1 STEP-UP CO.4/27/ % Due FEDERAL HOME LOAN MORTGAGE ,500, ,500, ,497, , ,500, AA CORP.-1 STEP-UP CO.4/27/ % Due FEDERAL HOME LOAN MORTGAGE ,500, ,500, ,497, , ,500, AA CORP.-1 STEP-UP CO.4/27/ % Due FEDERAL HOME LOAN MORTGAGE ,500, ,500, ,497, , ,500, AA CORP.-1 STEP-UP CO.4/27/ % Due FEDERAL HOME LOAN MORTGAGE ,000, ,000, ,994, , ,000, AA CORP.-1 STEP-UP CO.4/27/ % Due FEDERAL NATIONAL MORTGAGE ,000, ,000, ,970, , ,980, AA ASSOCIATION-B 1.125% Due FEDERAL NATIONAL MORTGAGE ,000, ,000, ,970, , ,980, AA ASSOCIATION-B 1.125% Due FEDERAL NATIONAL MORTGAGE ,000, ,000, ,970, , ,980, AA ASSOCIATION-B 1.125% Due FEDERAL NATIONAL MORTGAGE ,000, ,000, ,970, , ,980, AA ASSOCIATION-B 1.125% Due FEDERAL NATIONAL MORTGAGE ,000, ,000, ,941, , ,960, AA ASSOCIATION-B 1.125% Due FEDERAL HOME LOAN BANK-1 STEP-UP ,000, ,000, ,996, , ,999, AA CO.5/24/ % Due FEDERAL HOME LOAN BANK-1 STEP-UP ,000, ,000, ,996, , ,999, AA CO.5/24/ % Due FEDERAL HOME LOAN BANK-1 STEP-UP ,000, ,000, ,996, , ,999, AA CO.5/24/ % Due FEDERAL NATIONAL MORTGAGE 10,000, ,985, ,979, , ,984, AA ASSOCIATION 1.125% Due

190 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets FEDERAL HOME LOAN BANK 5,000, ,999, ,998, , ,026, AA % Due FEDERAL HOME LOAN BANK 10,000, ,999, ,996, , ,053, AA % Due FEDERAL HOME LOAN BANK 10,000, ,999, ,996, , ,053, AA % Due FEDERAL NATIONAL MORTGAGE ,000, ,000, ,966, , ,987, AA ASSOCIATION % Due FEDERAL HOME LOAN MORTGAGE ,500, ,500, ,481, , ,491, AA CORPORATION % Due FEDERAL HOME LOAN MORTGAGE ,500, ,500, ,481, , ,491, AA CORPORATION % Due FEDERAL NATIONAL MORTGAGE ,000, ,073, ,985, , ,043, AA ASSOCIATION % Due FEDERAL NATIONAL MORTGAGE ,000, ,039, ,992, , ,021, AA ASSOCIATION % Due FEDERAL NATIONAL MORTGAGE ASSOCIATION 5,000, ,997, ,052, , ,055, AA % Due FEDERAL HOME LOAN BANK 10,000, ,995, ,943, , ,946, AA % Due FEDERAL HOME LOAN BANK 10,000, ,995, ,943, , ,946, AA % Due FEDERAL HOME LOAN BANK 10,000, ,995, ,943, , ,946, AA % Due FEDERAL NATIONAL MORTGAGE ASSOCIATION % Due FEDERAL NATIONAL MORTGAGE ASSOCIATION % Due FEDERAL NATIONAL MORTGAGE ASSOCIATION % Due FEDERAL NATIONAL MORTGAGE ASSOCIATION % Due ,000, ,000, ,916, , ,938, AA ,500, ,500, ,458, , ,469, AA ,500, ,500, ,458, , ,469, AA ,500, ,500, ,458, , ,469, AA

191 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets FEDERAL NATIONAL MORTGAGE ,500, ,500, ,458, , ,469, AA ASSOCIATION % Due FEDERAL NATIONAL MORTGAGE ,000, ,000, ,882, , ,930, AA ASSOCIATION % Due FEDERAL NATIONAL MORTGAGE ,805, ,807, ,760, , ,778, AA ASSOCIATION % Due FEDERAL HOME LOAN BANK 5,000, ,990, ,929, , ,947, AA % Due FEDERAL HOME LOAN BANK 5,000, ,990, ,929, , ,947, AA % Due FEDERAL HOME LOAN BANK 5,000, ,990, ,929, , ,947, AA % Due FEDERAL NATIONAL MORTGAGE 5,000, ,971, ,047, , ,073, AA ASSOCIATION 1.750% Due FEDERAL NATIONAL MORTGAGE ASSOCIATION 5,000, ,971, ,047, , ,073, AA % Due FEDERAL HOME LOAN BANK 5,000, ,995, ,940, , ,953, AA % Due FEDERAL HOME LOAN BANK 10,000, ,991, ,880, , ,907, AA % Due FEDERAL HOME LOAN BANK 10,000, ,991, ,880, , ,907, AA % Due FEDERAL NATIONAL MORTGAGE ASSOCIATION % Due FEDERAL NATIONAL MORTGAGE ASSOCIATION % Due FEDERAL NATIONAL MORTGAGE ASSOCIATION % Due FEDERAL NATIONAL MORTGAGE ASSOCIATION ,500, ,498, ,467, , ,473, AA ,500, ,498, ,467, , ,473, AA ,500, ,498, ,467, , ,473, AA ,500, ,498, ,467, , ,473, AA % Due FEDERAL HOME LOAN BANK 5,000, ,998, ,980, , ,988, AA % Due

192 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets FEDERAL HOME LOAN BANK 5,000, ,998, ,980, , ,988, AA % Due FEDERAL HOME LOAN BANK 5,000, ,998, ,980, , ,988, AA % Due FEDERAL HOME LOAN BANK 10,000, ,997, ,960, , ,977, AA % Due FEDERAL NATIONAL MORTGAGE 7,500, ,466, ,557, , ,570, AA ASSOCIATION 1.750% Due FEDERAL NATIONAL MORTGAGE 10,000, ,989, ,029, , ,101, AA ASSOCIATION 1.625% Due FEDERAL NATIONAL MORTGAGE 10,000, ,965, ,953, , ,957, AA ASSOCIATION 1.500% Due FEDERAL NATIONAL MORTGAGE ASSOCIATION 5,000, ,995, ,937, , ,943, AA % Due FEDERAL HOME LOAN BANK 5,000, ,975, ,826, , ,852, AA % Due FEDERAL HOME LOAN BANK 5,000, ,975, ,826, , ,852, AA % Due FEDERAL HOME LOAN BANK 5,000, ,975, ,826, , ,852, AA % Due FEDERAL HOME LOAN BANK 5,000, ,975, ,826, , ,852, AA % Due FEDERAL HOME LOAN BANK 5,000, ,975, ,826, , ,852, AA % Due FEDERAL NATIONAL MORTGAGE ASSOCIATION 1.250% Due ,000, ,959, ,664, , ,711, AA ,902,249,000 1,899,818, ,897,976, ,513, ,900,490, US INSTRUMENTALITIES IFC DISCOUNT NOTE 50,000, ,960, ,969, ,969, AAA % Due IFC DISCOUNT NT 20,000, ,983, ,987, ,987, AAA % Due IFC DISCOUNT NOTE 20,000, ,984, ,986, ,986, AAA % Due IFC DISCOUNT NOTE 25,000, ,973, ,984, ,984, AAA % Due

193 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets IBRD DISCOUNT NT 20,000, ,981, ,985, ,985, AAA % Due IFC DISCOUNT NOTE 19,750, ,729, ,736, ,736, AAA % Due IFC DISCOUNT NOTE 20,000, ,984, ,984, ,984, AAA % Due INTL BK RECON & DEVELOP 20,000, ,027, ,005, , ,041, AAA % Due INTL BK RECON & DEVELOP 10,000, ,991, ,987, , ,997, AAA % Due INTL BK RECON & DEVELOP 15,000, ,973, ,906, , ,932, AAA % Due INTL BK RECON & DEVELOP 15,000, ,973, ,906, , ,932, AAA % Due INTL BK RECON & DEVELOP ,500, ,500, ,478, , ,483, AAA % Due INTL BK RECON & DEVELOP ,500, ,500, ,478, , ,483, AAA % Due INTL BK RECON & DEVELOP ,500, ,500, ,478, , ,483, AAA % Due INTL BK RECON & DEVELOP ,500, ,500, ,478, , ,483, AAA % Due INTL BK RECON & DEVELOP 20,000, ,969, ,670, , ,771, AAA % Due INTL BK RECON & DEVELOP 20,000, ,948, ,436, , ,464, AAA % Due ,750, ,480, ,460, , ,711, FLOATING RATE SECURITIES TORONTO-DOMINION BANK 20,000, ,000, ,000, , ,053, AA % Due GENERAL ELECTRIC CAPITAL CORP. 7,000, ,000, ,000, , ,018, AA % Due BERKSHIRE HATHAWAY FIN 15,000, ,000, ,001, , ,035, AA % Due JPMORGAN CHASE & CO FRN 20,000, ,030, ,012, , ,049, A % Due JPMORGAN CHASE & CO FRN 5,000, ,007, ,003, , ,012, A % Due EXXON MOBIL CORPORATION 25,000, ,000, ,999, , ,010, AA % Due

194 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets BANK OF NOVA SCOTIA 25,000, ,000, ,015, , ,082, A % Due GENERAL ELECTRIC CAPITAL CORP. 3,000, ,000, ,002, , ,006, AA % Due TOYOTA MOTOR CREDIT CORP - 10,000, ,014, ,001, , ,015, AA FLOATER 1.111% Due ORACLE CORP FLOATER 25,000, ,000, ,018, , ,081, AA % Due BANK OF MONTREAL 19,200, ,192, ,207, , ,254, A % Due PNC BANK NA-1 5,000, ,000, ,001, , ,011, A % Due WELLS FARGO BANK NA 15,000, ,000, ,030, , ,045, AA % Due HOME DEPOT INC FLOATER 5,000, ,000, ,008, , ,011, A % Due CHEVRON CORP 15,000, ,000, ,002, , ,021, AA % Due TOYOTA MOTOR CREDIT CORP.-FLOATER 5,000, ,000, ,006, , ,020, AA % Due US BANK NA CINCINNATI 12,000, ,000, ,003, , ,029, AA % Due IBM CORP.- FLOAT 10,000, ,000, ,011, , ,028, AA % Due APPLE INC. 15,000, ,000, ,033, , ,061, AA % Due APPLE INC. 10,000, ,008, ,022, , ,040, AA % Due APPLE INC. 5,000, ,004, ,011, , ,020, AA % Due MERCK & CO INC. 10,000, ,000, ,038, , ,053, AA % Due CISCO SYSTEMS INC 10,000, ,000, ,021, , ,027, AA % Due ROYAL BANK OF CANADA 10,000, ,000, ,019, , ,044, AA % Due WELLS FARGO BANK NA 20,000, ,000, ,003, , ,030, AA % Due

195 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets US BANKCORP 12,200, ,198, ,214, , ,243, A % Due BANK OF MONTREAL 7,000, ,000, ,018, , ,040, A % Due SVENSKA HANDELSBANKEN AB 10,000, ,000, ,000, , ,009, AA FLOATER 1.436% Due BANK OF MONTREAL 5,000, ,000, ,005, , ,009, A % Due BANK OF NY MELLON CORP 5,000, ,000, ,073, , ,084, A % Due ,400, ,455, ,792, , ,455, CORPORATE BONDS EXXON MOBIL CORPORATION 20,000, ,000, ,005, , ,059, AA % Due EXXON MOBIL CORPORATION 5,000, ,010, ,001, , ,014, AA % Due GENERAL ELECTRIC CAPITAL 5,000, ,186, ,019, , ,039, AA CORPORATION 2.300% Due GENERAL ELECTRIC CAPITAL 5,000, ,999, ,998, , ,006, AA CORPORATION 1.250% Due WALT DISNEY COMPANY/THE 15,000, ,973, ,991, , ,002, A % Due WELLS FARGO & COMPANY 25,000, ,968, ,993, , ,016, A % Due M COMPANY 9,595, ,640, ,586, , ,587, AA % Due TOYOTA MOTOR CREDIT CORPORATION 10,000, ,994, ,998, , ,028, AA % Due TOYOTA MOTOR CREDIT CORPORATION 15,000, ,045, ,998, , ,042, AA % Due CHEVRON CORP 15,000, ,000, ,991, , ,020, AA % Due CHEVRON CORP 10,000, ,000, ,011, , ,029, AA % Due TOYOTA MOTOR CREDIT CORPORATION 5,000, ,993, ,001, , ,035, AA % Due IBM CORP. 5,000, ,984, ,988, , ,011, AA % Due

196 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets ELI LILLY & CO 5,000, ,995, ,001, , ,022, AA % Due CHEVRON CORP 15,000, ,000, ,985, , ,052, AA % Due EXXON MOBIL CORPORATION 12,000, ,000, ,997, , ,047, AA % Due BANK OF MONTREAL 15,000, ,990, ,961, , ,008, A % Due MICROSOFT CORP. 5,000, ,996, ,986, , ,995, AAA % Due APPLE INC. 15,000, ,944, ,943, , ,967, AA % Due BERKSHIRE HATHAWAY FIN. 8,000, ,995, ,979, , ,992, AA % Due BERKSHIRE HATHAWAY FIN. 15,000, ,958, ,961, , ,986, AA % Due CHEVRON CORP 10,000, ,000, ,030, , ,033, AA % Due BERKSHIRE HATHAWAY INC 5,000, ,999, ,974, , ,996, AA % Due BANK OF MONTREAL 10,000, ,999, ,952, , ,998, A % Due TORONTO-DOMINION BANK 15,000, ,997, ,927, , ,996, AA % Due CHEVRON CORP 10,000, ,000, ,038, , ,060, AA % Due WELLS FARGO BANK NA 20,000, ,983, ,991, , ,024, AA % Due EXXON MOBIL CORPORATION 15,000, ,000, ,024, , ,104, AA % Due M COMPANY 15,000, ,915, ,988, , ,999, AA % Due WALT DISNEY COMPANY/THE 5,000, ,983, ,899, , ,920, A % Due BANK OF MONTREAL 10,000, ,990, ,869, , ,936, A % Due US BANK NA 10,000, ,991, ,036, , ,073, AA % Due WELLS FARGO & COMPANY 15,000, ,979, ,929, , ,063, A % Due

197 SAN MATEO COUNTY TREASURER'S OFFICE PORTFOLIO APPRAISAL SAN MATEO COUNTY POOL December 31, 2016 Call Call Market Value Date Price Unit Total Market Market Accrued + Pct Security One One Quantity Cost Cost Price Value Interest Accrued Interest S&P Assets ROYAL BANK OF CANADA 15,000, ,985, ,919, , ,022, AA % Due TORONTO-DOMINION BANK 10,000, ,983, ,847, , ,896, AA % Due ,595, ,483, ,831, ,265, ,096, TOTAL PORTFOLIO 5,030,744,000 5,022,823, ,012,100, ,335, ,018,436, ** TOTAL COST DOES NOT REFLECT AMORTIZATIONS OR ACCRETIONS BUT INCLUDES PURCHASED ACCRUED INTEREST. MARKET PRICES ARE DOWNLOADED THROUGH (IDC) INTERACTIVE DATA CORP. 31

198 San Mateo County Treasurer - Asset Allocation as of December 31, 2016 Repurchase Agreements 6.6% U.S. Instrumentalities 5.7% Asset Allocation LAIF 1.3% Certificate of Deposit 2.4% Commercial Paper 14.8% Government Agency 39.0% U.S. Treasuries 15.1% Corporate Securities 15.2% Sector: Market Value:* Government Agency 1,955,586, % Corporate Securities 761,552, % U.S. Treasuries 758,271, % Commercial Paper 740,719, % Repurchase Agreements 333,258, % U.S. Instrumentalities 283,711, % LAIF 65,101, % Certificate of Deposit 120,234, % Totals 5,018,436, % *Market Values listed include accrued interest for the reported period. 32

199 San Mateo County Treasurer - Pool Participants Summary of Assets Held as of December 31, 2016 Pool Participants All other SMCO Funds 40.8% School Districts 30.3% SMCO Trans. Authority/JPB 6.4% Cities 9.2% Bay Area Air Quality Mgmt. 3.8% Special Districts 2.9% SMC Community College 6.6% Participants: $ % School Districts 1,543,071, % SMC Community College 338,210, % Cities 466,820, % Special Districts 148,159, % Bay Area Air Quality Mgmt. 193,400, % SMCO Trans. Authority/JPB 323,261, % All other SMCO Funds 2,076,766, % Totals 5,089,691, % Voluntary Participants 22.2% Involuntary Participants 77.8% 33