$15,000,000 LAKE TAHOE COMMUNITY COLLEGE DISTRICT (El Dorado County, California) 2018 GENERAL OBLIGATION BONDS, ELECTION OF 2014, SERIES B

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1 NEW ISSUE BOOK-ENTRY ONLY RATINGS: Moody s: A1 S&P: AA (See MISCELLANEOUS Ratings herein.) In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds. See TAX MATTERS. $15,000,000 LAKE TAHOE COMMUNITY COLLEGE DISTRICT (El Dorado County, California) 2018 GENERAL OBLIGATION BONDS, ELECTION OF 2014, SERIES B Dated: Date of Delivery Due: August 1, as shown on inside cover This cover page is not a summary of this issue; it is only a reference to the information contained in this Official Statement. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The above captioned bonds (the Bonds ) are issued by the Lake Tahoe Community College District (the District ) (i) to finance specific construction, equipment, improvement and modernization projects approved by the voters (as described herein); and (ii) to pay costs of issuance of the Bonds. The Board of Supervisors of El Dorado County (the County ) is empowered and is obligated to levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Bonds, all as more fully described herein. See SECURITY AND SOURCE OF PAYMENT FOR THE BONDS. The Bonds will be issued as current interest bonds. Interest on the Bonds is payable on August 1, 2018, and thereafter on each August 1 and February 1. Principal of the Bonds is payable on August 1 in each of the years and in the amounts set forth in the table on the inside cover page hereof. Payments of principal of and interest on the Bonds will be made by the Paying Agent, initially ZB, National Association dba Zions Bank, to The Depository Trust Company, New York, New York ( DTC ), for subsequent disbursement to DTC Participants, who will remit such payments to the beneficial owners of the Bonds. See THE BONDS Payment of Principal and Interest. The Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of a nominee of DTC. Purchasers will not receive physical certificates representing their interests in the Bonds. See THE BONDS Form and Registration. The Bonds are subject to redemption, as more fully described herein. See THE BONDS Redemption. MATURITY SCHEDULE See Inside Cover The Bonds will be offered when, as and if issued by the District and received by the Underwriter, subject to the approval of legality by Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District. Orrick, Herrington & Sutcliffe LLP is also acting as Disclosure Counsel with respect to the Bonds. Certain legal matters will be passed upon for the Underwriter by Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California. It is anticipated that the Bonds, in definitive form, will be available for delivery through the facilities of DTC on or about February 27, The date of this Official Statement is February 13, 2018.

2 MATURITY SCHEDULE $15,000,000 LAKE TAHOE COMMUNITY COLLEGE DISTRICT (El Dorado County, California) 2018 GENERAL OBLIGATION BONDS, ELECTION OF 2014, SERIES B Maturity (August 1) Principal Amount Interest Rate Yield * CUSIP (511005) 2019 $520, % 1.340% AZ , BA , BB , BC , BD , BE , BF , BG4 $750, % Term Bonds due August 1, 2036 Yield * 3.010% CUSIP BH2 $1,115, % Term Bonds due August 1, 2039 Yield * 3.560% CUSIP BJ8 $1,520, % Term Bonds due August 1, 2042 Yield * 3.610% CUSIP BK5 $2,000, % Term Bonds due August 1, 2045 Yield * 3.660% CUSIP BL3 $7,950, % Term Bonds due August 1, 2048 Yield * 3.670% CUSIP BM1 * Yields certified by the Underwriter. The District takes no responsibility for the accuracy thereof. CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright 2018 CUSIP Global Services. All rights reserved. CUSIP data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP numbers are provided for convenience of reference only. None of the District, the County, the Underwriter or their agents or counsel assume responsibility for the accuracy of such numbers. Yield to call date of August 1, 2028.

3 This Official Statement does not constitute an offering of any security other than the original offering of the Bonds by the District. No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representations other than as contained in this Official Statement, and if given or made, such other information or representation not so authorized should not be relied upon as having been given or authorized by the District. The issuance and sale of the Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon an exemption under Section 3(a)2 thereof. This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. The information set forth herein other than that furnished by the District, although obtained from sources which are believed to be reliable, is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the District. The information and expressions of opinion herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Certain statements included or incorporated by reference in this Official Statement constitute forwardlooking statements. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, budget or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The District does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur. The District maintains a website. However, the information presented on that website is not part of this Official Statement and should not be relied upon in making investment decisions with respect to the Bonds. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN SECURITIES DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.

4 LAKE TAHOE COMMUNITY COLLEGE DISTRICT BOARD OF TRUSTEES Kerry David President Jeff Cowen Clerk Nancy Dalton Member Dr. Karen Borges Member Michelle Sweeney Member ADMINISTRATION Jeff DeFranco Superintendent/President Russi Egan Vice President of Administrative Services Andrea Salazar Director of Fiscal Services Ami Chilton Capital Projects Finance Manager BOND COUNSEL AND DISCLOSURE COUNSEL Orrick, Herrington & Sutcliffe LLP San Francisco, California MUNICIPAL ADVISOR KNN Public Finance, LLC Oakland, California PAYING AGENT ZB, National Association dba Zions Bank Los Angeles, California

5 TABLE OF CONTENTS INTRODUCTION... 1 The District... 1 THE BONDS... 2 Authority for Issuance; Purpose... 2 Form and Registration... 2 Payment of Principal and Interest... 2 Redemption... 3 Page Defeasance of Bonds... 6 Unclaimed Moneys... 6 Application and Investment of Bond Proceeds... 6 ESTIMATED SOURCES AND USES OF FUNDS... 7 SCHEDULED DEBT SERVICE... 8 Semi-Annual Debt Service... 8 Aggregate Debt Service SECURITY AND SOURCE OF PAYMENT FOR THE BONDS General Statutory Lien on Taxes (Senate Bill 222) Pledge of Tax Revenues Property Taxation System Assessed Valuation of Property Within the District Tax Collections and Delinquencies Risks of Bankruptcy of District Possession of Tax Revenues; Remedies TAX MATTERS OTHER LEGAL MATTERS Legal Opinion Legality for Investment in California No Litigation Continuing Disclosure MISCELLANEOUS Ratings Professionals Involved in the Offering Underwriting Additional Information APPENDIX A INFORMATION RELATING TO THE DISTRICT S OPERATIONS AND BUDGET... A-1 APPENDIX B ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, B-1 APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL... C-1 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE... D-1 APPENDIX E EL DORADO COUNTY INVESTMENT POLICY AND DESCRIPTION OF INVESTMENT POOL... E-1 APPENDIX F BOOK-ENTRY ONLY SYSTEM... F-1

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7 $15,000,000 LAKE TAHOE COMMUNITY COLLEGE DISTRICT (El Dorado County, California) 2018 GENERAL OBLIGATION BONDS, ELECTION OF 2014, SERIES B INTRODUCTION This Official Statement, which includes the cover page, inside cover page, and appendices hereto, is provided to furnish information in connection with the sale of the Lake Tahoe Community College District 2018 General Obligation Bonds, Election of 2014, Series B (the Bonds ). This Official Statement speaks only as of its date, and the information contained herein is subject to change. Except as required by the Continuing Disclosure Certificate to be executed by the Lake Tahoe Community College District (the District ), the District has no obligation to update the information in this Official Statement. See OTHER LEGAL MATTERS Continuing Disclosure. The purpose of this Official Statement is to supply information to prospective buyers of the Bonds. Quotations from and summaries and explanations of the Bonds, the Paying Agent Agreement (as hereinafter defined) providing for the issuance of the Bonds, and the constitutional provisions, statutes and other documents described herein, do not purport to be complete, and reference is hereby made to said documents, constitutional provisions and statutes for the complete provisions thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or owners of any of the Bonds. Copies of documents referred to herein and information concerning the Bonds are available from the District from the Office of Administrative Services, One College Drive, Room A110, South Lake Tahoe, CA The District may impose a charge for copying, handling and mailing such requested documents. The District The District was established in 1974 and serves an area of approximately 196 square miles located in the eastern portion of El Dorado County, California. The District currently operates one campus, Lake Tahoe Community College, located in South Lake Tahoe, California, and projects that it will serve approximately 1,739 resident and non-resident full-time-equivalent students ( FTES ) in fiscal year South Lake Tahoe is located approximately 188 miles northeast of San Francisco near the California/Nevada border. Lake Tahoe Community College is fully accredited by the Western Association of Schools and Colleges, the recognized local accrediting agency for the western United States, affiliated with the Federation of Regional Accrediting Commissions of Higher Education. Lake Tahoe Community College is a two-year, public institution offering 35 different associate degrees and 32 certificates. As of June 30, 2017, the District employed approximately 37 fulltime certificated professionals and 64 full-time classified employees. In addition, the District employs approximately 146 part-time faculty and 151 part-time staff. The District has tentatively budgeted total general fund expenditures of approximately $20.9 million for fiscal year Total assessed valuation of taxable property in the District in fiscal year is approximately $7.1 billion. The District is governed by an elected Board of Trustees consisting of five members (the Board ). The voting members are elected to four-year terms. The day-to-day operations are managed by a board-appointed Superintendent/President. For additional information about the District, see APPENDIX A INFORMATION RELATING TO THE DISTRICT S OPERATIONS AND BUDGET. 1

8 THE BONDS Authority for Issuance; Purpose The Bonds are issued pursuant to the Constitution and laws of the State of California (the State ), including the provisions of Chapter 1 and 1.5 of Part 10 of Division 1 of Title 1 of the Education Code of the State, Article 4.5 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State, and other applicable provisions of law. The Bonds are authorized by a resolution adopted by the Board of the District on January 23, 2018 (the Resolution ), and issued pursuant to a Paying Agent Agreement dated as of February 1, 2018 (the Paying Agent Agreement ) between the District and ZB, National Association dba Zions Bank, as paying agent (the Paying Agent ). The District received authorization at an election held on November 4, 2014, by more than 55% of the votes cast by eligible voters within the District, to issue bonds in an aggregate principal amount not to exceed $55 million to upgrade college facilities, modernize academic and job-training classrooms, science labs, and facilities, build a Public Safety Training Center, modernize technology, improve safety and energy efficiency, and improve facilities, sites and equipment. The Bonds will be the second issuance of bonds under the 2014 Authorization (defined herein). The District issued $19,000,000 par amount of 2015 General Obligation Bonds, Election of 2014, Series A on August 20, The Bonds are being issued (i) to finance specific construction, equipment, improvement and modernization projects approved by the voters (as described herein); and (ii) to pay costs of issuance of the Bonds. See THE BONDS Application and Investment of Bond Proceeds. Form and Registration The Bonds will be issued in fully registered book-entry form only, in denominations of $5,000 principal amount each or any integral multiple thereof. The Bonds will initially be registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ), New York, New York. DTC will act as securities depository for the Bonds. Purchases of Bonds under the DTC system must be made by or through a DTC participant, and ownership interests in Bonds or any transfer thereof will be recorded as entries on the books of said participants. Except in the event that use of this book-entry system is discontinued for the Bonds, beneficial owners will not receive physical certificates representing their ownership interests. See APPENDIX F BOOK-ENTRY ONLY SYSTEM. Payment of Principal and Interest The Bonds will be dated the date of their delivery and bear interest at the rates set forth on the inside cover page hereof, payable on February 1 and August 1 of each year commencing August 1, 2018 (each, an Interest Payment Date ), until payment of the principal amount thereof. Interest is computed on the basis of a year of 360- days comprising twelve 30-day months. Bonds authenticated and registered on any date prior to the close of business on July 15, 2018, will bear interest from the date of their delivery. Bonds authenticated during the period between the 15th day of the calendar month immediately preceding an Interest Payment Date (the Record Date ) and the close of business on that Interest Payment Date will bear interest from that Interest Payment Date. Any other Bond will bear interest from the Interest Payment Date immediately preceding the date of its authentication. If, at the time of authentication of any Bond, interest is then in default on outstanding Bonds, such Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Payment of interest on any Bond on each Interest Payment Date (or on the following Business Day, as defined below, if the Interest Payment Date does not fall on a Business Day) will be made to the person appearing on the registration books of the Paying Agent with respect to the Bonds as of the preceding Record Date, such interest to be paid by check or draft mailed to such Owner at such Owner s address as it appears on such registration books or at such other address as the Owner may have filed with the Paying Agent for that purpose on or before the Record Date, or to be paid by wire transfer so long as Cede & Co. is the registered Owner. The Owner of an 2

9 aggregate principal amount of $1,000,000 or more of Bonds may request in writing to the Paying Agent to be paid interest by wire transfer to the bank and account number on file with the Paying Agent as of the applicable Record Date. A Business Day is any day other than a Saturday, Sunday, or a day on which banks located in the city where the corporate trust office of the Paying Agent is located are required or authorized to remain closed. Principal will be payable at maturity, or upon redemption prior to maturity, upon surrender of Bonds at the principal office of the Paying Agent. The interest, principal and redemption premiums, if any, on the Bonds will be payable in lawful money of the United States of America from moneys on deposit in the interest and sinking fund of the District (the Interest and Sinking Fund ) within the County treasury, consisting of ad valorem taxes collected and held by the County Treasurer-Tax Collector (the County Treasurer ), together with any net premium and accrued interest received upon issuance of the Bonds. So long as all outstanding Bonds are held in book-entry form and registered in the name of a securities depository or its nominee, all payments of principal of, redemption premium, if any, and interest on the Bonds and all notices with respect to such Bonds will be made and given, respectively, to such securities depository or its nominee and not to beneficial owners. So long as the Bonds are held by Cede & Co., as nominee of DTC, payment will be made by wire transfer. Redemption Optional Redemption of Bonds. The Bonds maturing on or prior to August 1, 2028 are not subject to redemption prior to their respective stated maturity dates. The Bonds maturing on and after August 1, 2029, are subject to redemption prior to their respective stated maturity dates, at the option of the District, from any source of available funds, as a whole or in part on any date on or after August 1, 2028, at a redemption price equal to 100% of the principal amount of Bonds to be redeemed, without premium, together with interest accrued thereon to the redemption date. Mandatory Sinking Fund Redemption. The $750,000 Term Bonds maturing on August 1, 2036, are also subject to mandatory sinking fund redemption on each Mandatory Sinking Fund Redemption Date and in the respective principal amounts as set forth in the following schedule, at a redemption price equal to the principal amount of the Bonds called for redemption, together with interest accrued thereon to the date fixed for redemption, without premium: Maturity. Mandatory Sinking Fund Redemption Date (August 1) Principal Amount to be Redeemed 2034 $210, , ,000 The $1,115,000 Term Bonds maturing on August 1, 2039, are also subject to mandatory sinking fund redemption on each Mandatory Sinking Fund Redemption Date and in the respective principal amounts as set forth in the following schedule, at a redemption price equal to the principal amount of the Bonds called for redemption, together with interest accrued thereon to the date fixed for redemption, without premium: Maturity. Mandatory Sinking Fund Redemption Date (August 1) Principal Amount to be Redeemed 2037 $335, , ,000 3

10 The $1,520,000 Term Bonds maturing on August 1, 2042, are also subject to mandatory sinking fund redemption on each Mandatory Sinking Fund Redemption Date and in the respective principal amounts as set forth in the following schedule, at a redemption price equal to the principal amount of the Bonds called for redemption, together with interest accrued thereon to the date fixed for redemption, without premium: Maturity. Mandatory Sinking Fund Redemption Date (August 1) Principal Amount to be Redeemed 2040 $460, , ,000 The $2,000,000 Term Bonds maturing on August 1, 2045, are also subject to mandatory sinking fund redemption on each Mandatory Sinking Fund Redemption Date and in the respective principal amounts as set forth in the following schedule, at a redemption price equal to the principal amount of the Bonds called for redemption, together with interest accrued thereon to the date fixed for redemption, without premium: Maturity. Mandatory Sinking Fund Redemption Date (August 1) Principal Amount to be Redeemed 2043 $610, , ,000 The $7,950,000 Term Bonds maturing on August 1, 2048, are also subject to mandatory sinking fund redemption on each Mandatory Sinking Fund Redemption Date and in the respective principal amounts as set forth in the following schedule, at a redemption price equal to the principal amount of the Bonds called for redemption, together with interest accrued thereon to the date fixed for redemption, without premium: Maturity. Mandatory Sinking Fund Redemption Date (August 1) Principal Amount to be Redeemed 2046 $2,450, ,645, ,855,000 The principal amount to be redeemed in each year shown in the tables above will be reduced proportionately, or as otherwise directed by the District, in integral multiples of $5,000, by any portion of the respective Term Bonds optionally redeemed prior to the mandatory sinking fund redemption date. Selection of Bonds for Redemption. If less than all of the Bonds are called for redemption, such Bonds shall be redeemed in inverse order of maturities or as otherwise directed by the District. Whenever less than all of the Bonds of any one maturity are designated for redemption, the Paying Agent shall select the Bonds to be redeemed by lot in any manner deemed fair by the Paying Agent. For purposes of such selection, each Bond shall be deemed to consist of individual Bonds of $5,000 denominations each, which may be separately redeemed. Notice of Redemption. Notice of redemption of any Bond will be given by the Paying Agent not less than 20 nor more than 60 days prior to the date fixed for redemption (i) by first class mail to the respective owners of any Bond designated for redemption at their addresses appearing on the bond registration books; (ii) by secured 4

11 mail to all organizations registered with the Securities and Exchange Commission as securities depositories; and (iii) as may be further required in accordance with the Continuing Disclosure Certificate of the District. See APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE. Each notice of redemption will contain the following information: (i) the date of such notice; (ii) the name of the Bonds and the date of issuance of the Bonds; (iii) the date fixed for redemption; (iv) the redemption price; (v) the dates of maturity of the Bonds to be redeemed; (vi) if less than all of the then outstanding Bonds are to be called for redemption, the distinctive serial numbers of the Bonds of each maturity to be redeemed; (vii) in the case of Bonds redeemed in part only, the respective portions of the principal amount of the Bonds of each maturity to be redeemed; (viii) the CUSIP number, if any, of each maturity of Bonds 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; (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 notice. The actual receipt by the Owner of any Bond or by any securities depository or information service of notice of redemption shall not be a condition precedent to redemption, and failure to receive such notice, or any defect in the notice given, shall not affect the validity of the proceedings for the redemption of such Bonds or the cessation of interest on the date fixed for redemption. Effect of Notice of Redemption. When notice of redemption has been given substantially as provided for in the Paying Agent Agreement, and when the redemption price of the Bonds called for redemption is set aside for the purpose as described in the Paying Agent Agreement, 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 Bonds so called for redemption after such redemption date shall look for the payment of such Bonds and the redemption premium thereon, if any, only to moneys on deposit for the purpose in the Interest and Sinking Fund of the District or the escrow fund established for such purpose. All Bonds redeemed shall be cancelled forthwith by the Paying Agent and shall not be reissued. Conditional Notice of Redemption. Any notice of optional redemption delivered hereunder may be conditioned on any fact or circumstance stated therein, and if such condition shall not have been satisfied on or prior to the redemption date stated in such notice, said notice shall be of no force and effect on and as of the stated redemption date, and the redemption shall be cancelled and the District shall not be required to redeem the Bonds that were the subject of the notice. The Paying Agent shall give notice of such cancellation and the reason therefor 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 cancellation shall not be a condition precedent to cancellation, and failure to receive such notice or any defect in such notice shall not affect the validity of the cancellation. Rescission of 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. 5

12 Defeasance of Bonds The District may pay and discharge any or all of the Bonds by depositing in trust with the Paying Agent or an escrow agent at or before maturity, money or non-callable direct obligations of the United States of America 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, together with the interest to accrue thereon and available moneys then on deposit in the Interest and Sinking Fund of the District, will be fully sufficient, in the opinion of a certified public accountant, to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates. Unclaimed Moneys Any money held in any fund created pursuant to this Resolution, or by the Paying Agent in trust, for the payment of the principal of, redemption premium, if any, or interest on the Bonds and remaining unclaimed for two years after the principal of all of the Bonds has become due and payable (whether by maturity or upon prior redemption) shall be transferred to the Interest and Sinking Fund of the District for payment of any outstanding bonds of the District payable from said fund; or, if no such bonds of the District are at such time outstanding, said moneys shall be transferred to the general fund of the District as provided and permitted by law. Application and Investment of Bond Proceeds The proceeds from the sale of the Bonds, exclusive of any premium and accrued interest received by the District, shall be deposited in the County Treasury to the credit of the Building Fund of the District. Any premium and accrued interest received by the District shall be deposited upon receipt in the Interest and Sinking Fund of the District in the County Treasury. Taxes collected to pay principal and interest on the Bonds will also be invested in the Interest and Sinking Fund. Earnings on the investment of moneys in either fund will be retained in that fund and used only for the purpose to which that fund may lawfully be applied. Moneys in the Building Fund may only be applied for the purposes for which the Bonds were approved. Moneys in the Interest and Sinking Fund may only be applied to make payments of interest, principal, and redemption premium, if any, on the Bonds and any other outstanding voter approved bonds of the District. Any proceeds from the sale of the Bonds not needed to pay for projects or to pay costs of issuance of the Bonds will be deposited in the District s Interest and Sinking Fund in the County treasury, and applied only for payment of principal of and interest on outstanding bonds of the District. All amounts deposited into the Interest and Sinking Fund, as well as proceeds of taxes held therein for payment of the Bonds, shall be invested at the discretion of the County Treasurer pursuant to law and the investment policy of the County. All amounts deposited in the Building Fund of the District shall be invested at the discretion of the County Treasurer, unless otherwise directed in writing by the District, pursuant to law and the investment policy of the County. In addition, at the writing by the District, all or any portion of the Building Fund of the District may be invested in the Local Agency Investment Fund in the treasury of the State of California. APPENDIX E EL DORADO COUNTY INVESTMENT POLICY AND DESCRIPTION OF INVESTMENT POOL. 6

13 ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the Bonds are expected to be applied as follows: Sources of Funds Principal Amount of Bonds $15,000, Net Original Issue Premium 433, Total Sources $15,433, Uses of Funds Deposit to Building Fund $14,830, Deposit to Interest and Sinking Fund 375, Underwriter s Discount 58, Costs of Issuance (1) 170, Total Uses $15,433, (1) Includes municipal advisor fee, Bond Counsel fee, Disclosure Counsel fee, rating agency fees, printing fee, Paying Agent fee and other miscellaneous expenses. (Remainder of This Page Intentionally Left Blank) 7

14 SCHEDULED DEBT SERVICE Semi-Annual Debt Service Scheduled debt service obligations for the Bonds, assuming no redemptions prior to maturity, are as shown in the table below: LAKE TAHOE COMMUNITY COLLEGE DISTRICT (El Dorado County, California) 2018 GENERAL OBLIGATION BONDS, ELECTION OF 2014, SERIES B Semi-Annual Debt Service Period Ending Principal Interest Semi-Annual Debt Service Annual Debt Service 8/1/ $254, $254, $ 254, /1/ , , /1/2019 $520, , , ,114, /1/ , , /1/ , , , ,058, /1/ , , /1/ , , , /1/ , , /1/ , , , /1/ , , /1/ , , , /1/ , , /1/ , , , /1/ , , /1/ , , , /1/ , , /1/ , , , /1/ , , /1/ , , , /1/ , , /1/ , , , , /1/ , , /1/ , , , , /1/ , , /1/ , , , , /1/ , , /1/ , , , , /1/ , , /1/ , , , , /1/ , , /1/ , , , , /1/ , , /1/ , , , , /1/ , , /1/ , , , , /1/ , , /1/ , , , , /1/ , , /1/ , , , , /1/ , , /1/ , , , , /1/ , , /1/ , , , , /1/ , , /1/ , , , ,

15 Period Ending Principal Interest Semi-Annual Debt Service Annual Debt Service 2/1/ , , /1/ , , , , /1/ , , /1/ , , , , /1/ , , /1/ , , , , /1/ , , /1/ , , , ,031, /1/ , , /1/ , , , ,068, /1/ , , /1/2046 2,450, , ,609, ,768, /1/ , , /1/2047 2,645, , ,755, ,865, /1/ , , /1/2048 2,855, , ,912, ,969, Total $15,000, $14,445, $29,445, $29,445, (Remainder of This Page Intentionally Left Blank) 9

16 Aggregate Debt Service The District has previously issued one series of bonds which are secured by ad valorem property taxes levied upon all property subject to taxation by the District. On November 4, 2014, voters in the District approved a bond measure authorizing the District to issue bonds in an aggregate principal amount not to exceed $55 million (the 2014 Authorization ) to upgrade college facilities, modernize academic and job-training classrooms, science labs, and facilities, build a Public Safety Training Center, modernize technology, improve safety and energy efficiency, and improve facilities, sites and equipment. Pursuant to the 2014 Authorization, the District has issued its 2015 General Obligation Bonds, Election of 2014, Series A (the Series A Bonds ) in the principal amount of $19,000,000 on August 20, The Bonds are the second issuance under the 2014 Authorization. The annual debt service requirements, assuming no early redemptions, for all outstanding bonds of the District is set forth in the following table. Period Ending LAKE TAHOE COMMUNITY COLLEGE DISTRICT (El Dorado County, California) Aggregate Debt Service August 1, Series A Bonds The Bonds Total Annual Debt Service 2018 $1,616, $ 254, $1,871, , ,114, ,888, , ,058, ,829, , , ,322, , , ,323, , , ,324, , , ,329, , , ,359, , , ,388, , , ,415, , , ,493, , , ,543, , , ,599, , , ,652, ,028, , ,711, ,065, , ,771, ,105, , ,831, ,141, , ,896, ,178, , ,962, ,221, , ,035, ,266, , ,103, ,311, , ,176, ,353, , ,255, ,402, , ,332, ,451, , ,414, ,502, , ,500, ,554, ,031, ,585, ,606, ,068, ,675, ,768, ,768, ,865, ,865, ,969, ,969, TOTAL $30,749, $29,445, $60,195,

17 SECURITY AND SOURCE OF PAYMENT FOR THE BONDS General In order to provide sufficient funds for repayment of principal and interest when due on the Bonds, the Board of Supervisors of the County is empowered and is obligated by law to levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates). Such taxes are in addition to other taxes levied upon property within the District. When collected, the tax revenues will be deposited by the County Treasurer in the District s Interest and Sinking Fund, which is required by law to be maintained by the County and to be used solely for the payment of bonds of the District. Statutory Lien on Taxes (Senate Bill 222) Pursuant to Section of the Government Code of the State (which became effective on January 1, 2016), all general obligation bonds issued by local agencies, including refunding bonds, will be secured by a statutory lien on all revenues received pursuant to the levy and collection of the tax. Section provides that the lien will automatically arise, without the need for any action or authorization by the local agency or its governing board, and will be valid and binding from the time the Bonds are executed and delivered. Section further provides that the revenues received pursuant to the levy and collection of the tax will be immediately subject to the lien, and the lien will immediately attach to the revenues and be effective, binding and enforceable against the local agency, its successor, transferees and creditors, and all others asserting rights therein, irrespective of whether those parties have notice of the lien and without the need for physical delivery, recordation, filing or further act. Pledge of Tax Revenues The District has pledged all revenues from the property taxes collected from the levy by the Board of Supervisors of the County for the payment of the Bonds and the outstanding bonds of the District heretofore or hereafter issued pursuant to voter approved measures of the District, including any refunding bonds thereof and amounts on deposit in the Interest and Sinking Fund of the District to the payment of the principal or redemption price of and interest on the related series of Bonds. The Resolution provides that the property taxes and amounts held in the interest and sinking fund of the District shall be immediately subject to this pledge, and the pledge shall constitute a lien and security interest which shall immediately attach to the property taxes and amounts held in the interest and sinking fund of the District to secure the payment of the Bonds and shall be effective, binding, and enforceable against the District, its successors, creditors and all others irrespective of whether those parties have notice of the pledge and without the need of any physical delivery, recordation, filing, or further act. The pledge is an agreement between the District and the bondholders to provide security for the Bonds in addition to any statutory lien that may exist, and the Bonds and each of the other District Bonds secured by the pledge are or were issued to finance one or more of the projects specified in the applicable voter-approved measure. Property Taxation System Property tax revenues result from the application of the appropriate tax rate to the net assessed value of taxable property in the District. Community college districts use property taxes for payment of voter-approved bonds and receive property taxes for general operating purposes as well. Local property taxation is the responsibility of various county officers. For each taxing jurisdiction located in a county, the county assessor computes the assessed value of locally assessed taxable property. Based on the assessed value of property and the scheduled debt service on outstanding bonds in each year, the county auditorcontroller computes the rate of tax necessary to pay such debt service, and presents the tax rolls (including rates of tax for applicable taxing jurisdictions in the county) to the county board of supervisors for approval. The County Treasurer prepares and mails tax bills to taxpayers and collects the taxes. In addition, the treasurer-tax collector, as ex officio treasurer of each school and community college district located in the county, holds and invests community college district funds, including taxes collected for payment of community college district bonds, and is charged with payment of principal and interest on such bonds when due. Taxes on property in a community college 11

18 district whose boundaries extend into more than one county are administered separately by each county in which the property is located. The State Board of Equalization also assesses certain special classes of property, as described later in this section. Assessed Valuation of Property Within the District Under Proposition 13, an amendment to the State Constitution adopted in 1978, the county assessor s valuation of real property is established as shown on the fiscal year tax bill, or, thereafter, as the market value of real property when purchased, newly constructed, or a change in ownership has occurred. Assessed value of property may be increased annually to reflect inflation at a rate not to exceed 2% per year, or reduced to reflect a reduction in the consumer price index or comparable data for the area under taxing jurisdiction or in the event of declining property value caused by substantial damage, destruction, market forces or other factors. As a result of these rules, real property that has been owned by the same taxpayer for many years can have an assessed value that is much lower than the market value of the property and of similar properties more recently sold. Likewise, changes in ownership of property and reassessment of such property to market value commonly lead to increases in aggregate assessed value beyond 2% even when the rate of inflation or consumer price index would not permit the full 2% increase on any property that has not changed ownership. See generally, APPENDIX A INFORMATION RELATING TO THE DISTRICT S OPERATIONS AND BUDGET CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS. All property (real, personal and intangible) is taxable unless an exemption is granted by the State Constitution or United States law. For assessment and tax 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 property and other property (real or personal) for which there is a lien on real property sufficient, in the opinion of the County Assessor, to secure payment of the taxes. All other property is unsecured, and is assessed on the unsecured roll. The greater the assessed value of taxable property in the District, the lower the tax rate necessary to generate taxes sufficient to pay scheduled debt service on the Bonds. The following table shows recent history of taxable property assessed valuation in the District. LAKE TAHOE COMMUNITY COLLEGE DISTRICT Summary of Assessed Valuation Local Secured Utility Unsecured Total $5,856,521,597 $641,753 $112,622,212 $5,969,785, ,762,556, ,761,791 5,866,318, ,654,508, ,522,008 5,758,030, ,729,040, ,761,973 5,838,802, ,960,654, ,489,818 6,070,144, ,283,268, ,194,501 6,389,463, ,579,531, ,293,264 6,687,824, ,018,123, ,211,049 7,128,334,498 Source: California Municipal Statistics, Inc. Appeals of Assessed Valuation. State law affords an appeal procedure to taxpayers who disagree with the assessed value of their taxable property. Taxpayers may request a reduction in assessment directly from the County Assessor (the Assessor ), who may grant or refuse the request, and may appeal an assessment directly to the El Dorado County Assessment Appeals Board, which rules on appealed assessments whether or not settled by the Assessor. The Assessor is also authorized to reduce the assessed value of any taxable property upon a determination that the market value has declined below the then-current assessment, whether or not appealed by the taxpayer. The District can make no predictions as to the changes in assessed values that might result from pending or future appeals by taxpayers or actions by the Assessor. Any reduction in aggregate District assessed valuation due to appeals, as with any reduction in assessed valuation due to other causes, will cause the tax rate levied to repay the 12

19 Bonds to increase accordingly, so that the fixed debt service on the Bonds (and other outstanding bonds) may be paid. Any refund of paid taxes triggered by a successful assessment appeal will be debited by the County against all taxing agencies who received tax revenues, including the District. Assembly Bill 102. On June 27, 2017, the Governor signed into law Assembly Bill 102 ( AB 102 ). AB 102 restructures the functions of the State Board of Equalization and creates two new agencies: (a) the California Department of Tax and Fee Administration (the Tax Administration Department ) and (b) the Office of Tax Appeals. Under AB 102, the Tax Administration Department will take over programs previously in the State Board of Equalization s Property Tax Department, such as the Tax Area Services Section, which is responsible for maintaining all property tax-rate area maps and for maintaining special revenue district boundaries. Under AB 102, the State Board of Equalization will continue to perform the duties assigned by the State Constitution related to property taxes, however, beginning January 1, 2018, the State Board of Equalization only hears appeals related to the programs that it constitutionally administers and the Office of Tax Appeals hears appeals on all other taxes and fee matters, such as sales and use tax and other special taxes and fees. AB 102 obligates the Offices of Tax Appeals to adopt regulations as necessary to carry out its duties, powers and responsibilities. No assurances can be given as to the effect of such regulations on the appeals process or on the assessed valuation of property within the District. Bonding Capacity. The District may issue bonds in an amount up to 2.5% of the assessed valuation of taxable property within its boundaries. The District s gross bonding capacity is approximately $178.2 million and its net bonding capacity is approximately $161.5 million. In accordance with the law which permitted the Bonds to be approved by a 55% popular vote, bonds approved by the District s voters at the November 4, 2014 election may not be issued unless the District projects repayment of all outstanding bonds approved at the election will require a tax rate no greater than $25 per $100,000 of assessed valuation. Based on the assessed valuation of taxable property in the District at the time of issuance of the Bonds, the maximum tax rate required to repay the Bonds will not exceed the aforementioned legal limit. Assessed Valuation by Jurisdiction. The following table provides a distribution of taxable property located in the District by jurisdiction. LAKE TAHOE COMMUNITY COLLEGE DISTRICT Assessed Valuation by Jurisdiction Assessed Valuation % of Assessed Valuation % of Jurisdiction Jurisdiction: in District District of Jurisdiction in District City of South Lake Tahoe $4,560,729, % $ 4,560,729, % Unincorporated El Dorado County 2,567,605, ,803,294, Total District $7,128,334, % El Dorado County $7,128,334, % $31,432,433, % Source: California Municipal Statistics, Inc. (Remainder of This Page Intentionally Left Blank) 13

20 Assessed Valuation by Land Use. The following table gives a distribution of taxable real property located in the District by principal purpose for which the land is used, and the assessed valuation and number of parcels for each use. LAKE TAHOE COMMUNITY COLLEGE DISTRICT Assessed Valuation and Parcels by Land Use % of No. of % of Non-Residential: Assessed Valuation (1) Total Parcels Total Rural/Timber $ 32,068, % % Commercial 566,322, Vacant Commercial 12,455, Resort-Timeshare 236,391, , Industrial 138,003, Vacant Industrial 3,483, Recreational 152,996, Government/Social/Institutional 2,385, Miscellaneous 1,175, Subtotal Non-Residential $1,145,282, % 40, % Residential: Single Family Residence $5,337,535, % 16, % Residential Possessory Interest 64,254, Mobile Home 5,895, Mobile Home Park 29,588, Residential Units 196,722, Residential Units/Apartments 136,569, Miscellaneous Residential Improvements 9,464, Vacant Residential 92,809, , Subtotal Residential $5,872,841, % 20, % Total $7,018,123, % 60, % (1) Local Secured Assessed Valuation, excluding tax-exempt property. Source: California Municipal Statistics, Inc. (Remainder of This Page Intentionally Left Blank) 14

21 Assessed Valuation of Single-Family Residential Properties. The following table focuses on single-family residential properties only, which comprise approximately 76.05% of the assessed value of taxable property in the District. The average assessed value per parcel is $329,539, and the median assessed value per parcel is $265,000. LAKE TAHOE COMMUNITY COLLEGE DISTRICT Per Parcel Assessed Valuation of Single Family Homes No. of Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single Family Residential 16,197 $5,337,535,936 $329,539 $265, No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $49, % 2.494% $ 14,827, % 0.278% 50,000 - $99,999 1, ,217, ,000 - $149,999 1, ,214, ,000 - $199,999 2, ,955, ,000 - $249,999 1, ,544, ,000 - $299,999 1, ,410, ,000 - $349,999 1, ,822, ,000 - $399,999 1, ,746, ,000 - $449, ,657, ,000 - $499, ,064, ,000 - $549, ,813, ,000 - $599, ,418, ,000 - $649, ,083, ,000 - $699, ,043, ,000 - $749, ,696, ,000 - $799, ,751, ,000 - $849, ,233, ,000 - $899, ,565, ,000 - $949, ,358, ,000 - $999, ,871, ,000,000 and greater ,241, Total 16, % $5,337,535, % (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc. (Remainder of This Page Intentionally Left Blank) 15

22 Largest Taxpayers in District. The 20 taxpayers in the District with the greatest combined assessed valuation of taxable property on the tax roll, and the assessed valuations thereof, are shown in the following table. LAKE TAHOE COMMUNITY COLLEGE DISTRICT Largest Total Secured Taxpayers % of Property Owner Primary Land Use Assessed Valuation Total (1) 1. Heavenly Valley LP Ski Resort $72,000, % 2. First American Trust FSB Resort/Timeshare 65,059, Roppongi-Tahoe LP Hotel 54,270, TSI Investments Shopping Center 34,220, Tahoe Stateline Venture CA Commercial 25,809, Tahoe Crescent LLC Commercial 26,635, CNL Income Sierra LLC Ski Resort 23,645, Zalanta Resort at the Village Condominiums 21,436, Marriott Ownership Resorts Resort/Timeshare 20,114, South Tahoe Refuse Co. Industrial 19,934, Tahoe Verde Partnership Mobile Home Park 17,875, Urbana Tahoe TC DE LLC Hotel 15,960, Seven Springs LP Commercial 15,000, NBT ERI Tahoe LLC Hotel 14,600, Tahoe Keys Marina & Yacht Club Marina 12,753, Multiversal Enterprises Hotel 10,751, International Land Group Hotel 10,412, Norbert J. Dickman Trust Residential 10,166, Ski Run Marina LLC Commercial 10,000, Second Manassas LLC Residential 9,369, $489,018, % (1) Local Secured Assessed Valuation: $7,018,123,449 Source: California Municipal Statistics, Inc. State-Assessed Property. Under the Constitution, the State Board of Equalization assesses property of State-regulated transportation and communications utilities, including railways, telephone and telegraph companies, and companies transmitting or selling gas or electricity. The State Board of Equalization also is required to assess pipelines, flumes, canals and aqueducts lying within two or more counties. The value of property assessed by the State Board of Equalization is allocated by a formula to local jurisdictions in the county and taxed by the local county tax officials in the same manner as for locally assessed property. Taxes on privately owned railway cars, however, are levied and collected directly by the State Board of Equalization. Property used in the generation of electricity by a company that does not also transmit or sell that electricity is taxed locally instead of by the State Board of Equalization. Thus, the reorganization of regulated utilities and the transfer of electricity-generating property to non-utility companies, as often occurred under electric power deregulation in California, affects how those assets are assessed, and which local agencies benefit from the property taxes derived. In general, the transfer of State-assessed property located in the District to non-utility companies will increase the assessed value of property in the District, since the property s value will no longer be divided among all taxing jurisdictions in the County. The transfer of property located and taxed in the District to a State-assessed utility will have the opposite effect, generally reducing the assessed value in the District as the value is shared among the other jurisdictions in the County. The District is unable to predict future transfers of State-assessed property in the District and the County, the impact of such transfers on its utility property tax revenues, or whether future legislation or litigation may affect ownership of utility assets, the State s methods of assessing utility property, or the method by which tax revenues of utility property is allocated to local taxing agencies, including the District. The State Constitution permits the levy of an ad valorem tax on taxable property not to exceed 1% of the full cash value of the property, and State law generally requires the full 1% tax to be levied. The levy of additional 16

23 ad valorem property taxes in excess of the 1% levy is permitted as necessary to provide for debt service payments on school bonds and other voter-approved indebtedness. Risk of Decline in Property Values; Earthquake Risk; Climate Change. Property values could be reduced by factors beyond the District s control, including earthquake and a depressed real estate market due to general economic conditions in the County, the region and the State. The District is located in a seismically active region. Active earthquake faults underlie the District and the surrounding area, and damage from an earthquake in or near the District could cause moderate to extensive or total damage to taxable property. Results of a 2012 U.S. Geological Survey found that the Tahoe-Sierra Frontal Fault Zone, which stretches from west of Truckee, California to South Lake Tahoe, poses substantial seismic and landslide hazards, and could potentially generate earthquakes with magnitudes ranging from 6.3 to 6.9. Separately, recent studies suggest that the West Tahoe Fault, which runs along the west shore of the Lake Tahoe, is capable of a magnitude-7 earthquake, causing a potential tsunami in the Tahoe basin. The occurrence of severe seismic activity in the area could result in substantial damage to property in the District which could contribute to a substantial reduction in the assessed value of taxable property within the District. Additionally, widespread damage to the homes and infrastructure in the District as well as to classrooms and other facilities of the District could decrease enrollment, and have a material adverse effect on the District s finances and operations. Global climate change is projected to have unprecedented impacts on the environment and economy of the Lake Tahoe Basin. The economy of the region is highly dependent upon its tourism industry, sustained largely by its winter recreation businesses, and the related transient occupancy tax and sales tax revenues associated with visitors to the area. Additionally, effects of global climate change such as increases in temperature and decreases in precipitation may make the region more susceptible to forest fires. With climatologists predicting continued longterm declines in snowfall and increasing air temperatures, such climate change could have a material adverse effect on the local economy and property values. Other possible causes for a reduction in assessed values include the complete or partial destruction of taxable property caused by other natural or manmade disasters, such as flood, fire, toxic dumping, acts of terrorism, or reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes). Lower assessed values could necessitate a corresponding increase in the annual tax rate to be levied to pay the principal of and interest on the Bonds. Issuance of additional bonds in the future might also cause the tax rate to increase. The following table shows ad valorem property tax rates for the last five years in a typical Tax Rate Area of the District ( TRA ). TRA comprises approximately 56.97% of the total assessed value of taxable property in the District. LAKE TAHOE COMMUNITY COLLEGE DISTRICT Summary of Ad Valorem Tax Rates Typical Tax Rate per $100 Assessed Valuation (TRA ) % General Fund Levy $ $ $ $ $ Lake Tahoe Unified School District Lake Tahoe Community College District Total $ $ $ $ $ Source: California Municipal Statistics, Inc. 17

24 Tax Collections and Delinquencies As required by State Law, the District utilizes the services of the County for the assessment and collection of taxes for District purposes. District taxes are collected at the same time and on the same tax rolls as are County, city and other special district taxes. Taxes are levied for each fiscal year on taxable real and personal property assessed as of the preceding January 1. When necessitated by changes in assessed value due to changes in ownership or completion of new construction in the course of a year, a supplemental assessment is prepared, and taxes are pro-rated for the number of full months remaining in the tax year. Property taxes on the secured roll are due in two equal installments, on November 1 and February 1 of each fiscal year, and become delinquent on December 10 and April 10, respectively. A penalty of 10% attaches immediately to all delinquent payments and any additional amount determined by the County Treasurer-Tax Collector. If the taxes have not been paid by June 30, the tax is deemed to be in default. Secured roll 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 the taxes are unpaid for a period of five years or more, the tax-defaulted property is subject to sale at a public auction by the County Treasurer-Tax Collector. Property taxes on the unsecured roll as of July 31 become delinquent if they are not paid by August 31 and are thereafter subject to a delinquent penalty of 10%. Taxes added to the unsecured roll after July 31, if unpaid, are delinquent and subject to a penalty of 10% on the last day of the month succeeding the month of enrollment. In the case of unsecured property taxes, an additional penalty of 1.5% per month begins to accrue when such taxes remain unpaid on the last day of the second month after the 10% penalty attaches. To collect unpaid taxes, the County Treasurer-Tax Collector may obtain a judgment lien upon and cause the sale of all property owned by the taxpayer in the County, and may seize and sell personal property, improvements and possessory interests of the taxpayer. The County Treasurer-Tax Collector may also bring a civil suit against the taxpayer for payment. years. The following table shows real property tax collections and delinquencies in the District for the last several LAKE TAHOE COMMUNITY COLLEGE DISTRICT Secured Tax Charges and Delinquencies Secured Amt. Del. % Del. Fiscal Year Tax Charge (1) June 30 June $65,212, $3,582, % ,816, ,639, ,989, ,808, ,789, ,367, ,898, ,194, ,898, , ,092, , ,159, , (1) All secured ad valorem taxes collected by the County for the property located within the District except for El Dorado Irrigation District ad valorem tax for land only property. Source: California Municipal Statistics, Inc. Teeter Plan. 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 and following of the California Revenue and Taxation Code. Under the Teeter Plan, each participating local agency levying property taxes in the County, including the District, receives the full amount of uncollected ad valorem secured roll taxes credited to its fund (including delinquent taxes, if any), in the same manner as if the full amount due from taxpayers had been collected. In return, the County receives and retains delinquent payments, penalties and interest as 18

25 collected that would have been due the local agency. The County applies the Teeter Plan to secured roll taxes levied for repayment of general obligation bonds, inclusive of school and community college district bonds. The Teeter Plan is to remain in effect unless the Board of Supervisors of the County orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the Board of Supervisors of the County receives a petition for its discontinuance from two-thirds of the participating revenue districts in the County. The Board of Supervisors of the County may also, after holding a public hearing on the matter, discontinue the Teeter Plan with respect to any tax levying agency or assessment levying agency in the County if the rate of secured tax delinquency in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured roll in that agency. Direct and Overlapping Debt. The following table was prepared by California Municipal Statistics Inc., and is included for general information purposes only. The District has not reviewed this table for completeness or accuracy and makes no representations in connection therewith. The first column in the table names each public agency which has outstanding debt as of January 1, 2018, and whose territory overlaps the District in whole or in part. Column 2 shows the percentage of each overlapping agency s assessed value located within the boundaries of the District. This percentage, multiplied by the total outstanding debt of each overlapping agency (which is not shown in the table) produces the amount shown in column 3, which is the apportionment of each overlapping agency s outstanding debt to taxable property in the District. The table generally includes long-term obligations sold in the public credit markets by the public agencies listed. Such long-term obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. 19

26 Assessed Valuation: $7,128,334,498 LAKE TAHOE COMMUNITY COLLEGE DISTRICT Direct and Overlapping and Bonded Debt DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 1/1/18 Lake Tahoe Community College District % $16,720,000 (1) Lake Tahoe Unified School District ,466,315 South Lake Tahoe Community Facilities District No ,520,000 South Lake Tahoe Recreational Facility Community Facilities District No ,452,488 Kirkwood Meadows Public Utility District Community Facilities District No ,612 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $99,615,415 OVERLAPPING GENERAL FUND DEBT: City of South Lake Tahoe General Fund Obligations % 16,206,000 City of South Lake Tahoe Pension Obligation Bonds ,905,000 TOTAL OVERLAPPING GENERAL FUND DEBT $28,111,000 OVERLAPPING TAX INCREMENT DEBT (Successor Agency): $70,035,000 COMBINED TOTAL DEBT $197,761,415 (2) Ratios to Assessed Valuation: Direct Debt ($16,720,000) % Total Direct and Overlapping Tax and Assessment Debt % Combined Total Debt % Ratios to Redevelopment Incremental Valuation ($416,351,843): Total Overlapping Tax Increment Debt % (1) Excludes issue to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Source: California Municipal Statistics, Inc. (Remainder of This Page Intentionally Left Blank) 20

27 Risks of Bankruptcy of District State law limits the filing of bankruptcy proceedings by school districts, such as the District, to specified circumstances. Applicable law appears to provide that the State Superintendent of Schools would have to appoint an administrator for the District and the administrator would determine whether or not the District should file for bankruptcy. If the District were to become a debtor in a bankruptcy case, it would be a debtor under Chapter 9 of the Bankruptcy Code. Chapter 9 provides that it does not limit or impair the power of the applicable state to control its municipalities in the exercise of the political or governmental powers of such municipality, including expenditures for such exercise. State law provides that the ad valorem taxes must be used to pay principal and interest on general obligation bonds and for no other purpose. The District believes that this restriction on the expenditure of the ad valorem taxes would be respected in any bankruptcy proceeding so that the ad valorem tax revenues could not be used by the District for any purpose other than to make payments on the Bonds, although a bankruptcy court could conclude otherwise. If the District is in bankruptcy, the parties may be prohibited from taking any action to collect any amount from the District (including ad valorem tax revenues) or to enforce any obligation of the District, without the bankruptcy court s permission. This prohibition may also prevent the Paying Agent from making payments to the holders of the Bonds from funds in the Paying Agent s possession. While the County Treasurer has agreed that it will pay the ad valorem tax revenues directly to the Paying Agent, so that the District never receives them, it is not clear whether this arrangement is enforceable in bankruptcy or whether the District would instead be able to require that ad valorem tax revenues be paid directly to it by the County Treasurer. As part of its plan of adjustment in bankruptcy, the District may be able to alter the priority, interest rate, principal amount, payment terms, collateral, maturity dates, payment sources, covenants (including tax-related covenants), and other terms or provisions of the Bonds and other transaction documents related to the Bonds, as long as the bankruptcy court determines that the alterations are fair and equitable. In addition, as part of such a plan, the District may be able to eliminate the obligation of the County, on behalf of the District, to raise taxes if necessary to pay the Bonds. There also may be other possible effects of a bankruptcy of the District that could result in delays or reductions in payments on the Bonds. Moreover, regardless of any specific adverse determinations in any District bankruptcy proceeding, the fact of a District bankruptcy proceeding could have an adverse effect on the liquidity and market price of the Bonds. General obligation bonds (including refunding bonds) issued by school districts are secured by a statutory lien on all revenues received pursuant to the levy and collection of the tax. Although a statutory lien would not be automatically terminated by the filing of a Chapter 9 bankruptcy petition by the District, the automatic stay provisions of the Bankruptcy Code would apply and payments that become due and owing on the Bonds during the pendency of the Chapter 9 proceeding could be delayed, unless the Bonds are determined to be secured by a pledge of special revenues within the meaning of the Bankruptcy Code and the pledged ad valorem taxes are applied to pay the Bonds in a manner consistent with the Bankruptcy Code. If the ad valorem tax revenues that are pledged to the payment of the Bonds are determined to be special revenues within the meaning of the Bankruptcy Code, then the application in a manner consistent with the Bankruptcy Code of the pledged ad valorem revenues should not be subject to the automatic stay. Special revenues are defined to include taxes specifically levied to finance one or more projects or systems of the debtor, but excluding receipts from general property, sales, or income taxes levied to finance the general purposes of the debtor. State law prohibits the use of the tax proceeds for any purpose other than payment of the Bonds and the bond proceeds can only be used to fund the acquisition or improvement of real property and other capital expenditures included in the proposition, so such tax revenues appear to fit the definition of special revenues. However, there is no binding judicial precedent dealing with the treatment in bankruptcy proceedings of ad valorem tax revenues collected for the payments of bonds in California, so no assurance can be given that a bankruptcy court would not hold otherwise. In addition, even if the ad valorem tax revenues are determined to be special revenues, the Bankruptcy Code provides that special revenues can be applied to necessary operating expenses of the project or system, before they are applied to other obligations. This rule applies regardless of the provisions of the transaction documents. Thus, a bankruptcy court could determine that the District is entitled to use the ad valorem tax revenues to pay 21

28 necessary operating expenses of the District and its schools, before the remaining revenues are paid to the Owners of the Bonds. Bondholders may experience delays or reductions in payments on the Bonds, the Bonds may decline in value or Bondholders may experience other adverse effects should the District file for bankruptcy. Possession of Tax Revenues; Remedies If the County or the District goes into bankruptcy and has possession of tax revenues (whether collected before or after commencement of the bankruptcy), and if such County or the District, as applicable, does not voluntarily pay such tax revenues to the Owners of the Bonds, it is not entirely clear what procedures the Owners of the Bonds would have to follow to attempt to obtain possession of such tax revenues, how much time it would take for such procedures to be completed, or whether such procedures would ultimately be successful. TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District ( Bond Counsel ), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the Code ) and is exempt from State personal income taxes. Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax. A complete copy of the proposed form of opinion of Bond Counsel is set forth in APPENDIX C hereto. To the extent the issue price of any maturity of the 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 personal income taxes. For this purpose, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such 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. Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) ( Premium Bonds ) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The District has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters 22

29 coming to Bond Counsel s attention after the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Bonds may otherwise affect a Beneficial Owner s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel s judgment as to the proper treatment of the Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service ( IRS ) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the District, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The District has covenanted, however, to comply with the requirements of the Code. Bond Counsel s engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the District or the Beneficial Owners regarding the taxexempt status of the Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the District and its appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the District legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Bonds, and may cause the District or the Beneficial Owners to incur significant expense. Legal Opinion OTHER LEGAL MATTERS The validity of the Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, San Francisco, California, Bond Counsel to the District. A complete copy of the proposed form of Bond Counsel opinion is contained in APPENDIX C hereto. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for Morgan Stanley & Co. LLC (the Underwriter ) by its counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California. Legality for Investment in California Under provisions of the California Financial Code, the Bonds are legal investments for commercial banks in the State to the extent that the Bonds, in the informed opinion of the bank, are prudent for the investment of funds of depositors, and, under provisions of the Government Code of the State, are eligible securities for the deposit of public moneys in the State. 23

30 No Litigation No litigation is pending or threatened concerning the validity of the Bonds, or the District s ability to receive ad valorem taxes and to collect other revenues, or contesting the District s ability to issue and retire the Bonds. The District is not aware of any litigation pending or threatened questioning the political existence of the District or contesting the title to their offices of District or County officials who will sign the Bonds and other certifications relating to the Bonds, or the powers of those offices. A certificate (or certificates) to that effect will be furnished to purchasers at the time of the original delivery of the Bonds. The District is routinely subject to lawsuits and claims. In the opinion of the District, the aggregate amount of the uninsured liabilities of the District under these lawsuits and claims will not materially affect the financial position or operations of the District. Continuing Disclosure The District has covenanted for the benefit of the holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to the District (the Annual Report ) by not later than nine months following the end of the District s fiscal year (currently ending June 30), commencing with the report for the Fiscal Year (which is due no later than April 1, 2019) and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report and the notices of material events will be filed by the District with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in the Annual Report or the notices of material events is summarized in APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE. These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). Within the past five years, the District failed to timely file portions of the financial information in the annual reports. Within the past five years, the District failed to timely file notices of its failure to file such information. The District has since cured and remediated such filings. The District has retained KNN Public Finance, LLC, Oakland, California, to prepare and file future annual reports and material event notices required under its existing continuing disclosure obligations with respect to the District s outstanding general obligation bonds, including the Bonds. Ratings MISCELLANEOUS The Bonds have received underlying ratings of A1 by Moody s Investors Service ( Moody s ) and AA by S&P Global Ratings, a division of Standard & Poor s Financial Services LLC ( S&P ). Rating agencies generally base their ratings on their own investigations, studies and assumptions. The District has provided certain additional information and materials to the rating agencies (some of which does not appear in this Official Statement). The ratings reflect only the current views of the rating agencies, and any explanation of the significance of such ratings may be obtained only from Moody s at and from S&P at There is no assurance that any rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by a rating agency, if, in the judgment of the rating agency, circumstances so warrant. Any such downward revision or withdrawal of a rating may have an adverse effect on the market price of the Bonds. The District undertakes no responsibility to oppose any such downward revision, suspension or withdrawal. Professionals Involved in the Offering Orrick, Herrington & Sutcliffe LLP is acting as Bond Counsel to the District and as Disclosure Counsel with respect to the Bonds, and will receive compensation from the District contingent upon the sale and delivery of the Bonds. KNN Pubic Finance, LLC, is acting as municipal advisor to the District with respect to the Bonds, and will receive compensation from the District contingent upon the sale and delivery of the Bonds. 24

31 Underwriting The Bonds are being purchased by Morgan Stanley & Co. LLC as Underwriter pursuant to the terms of a bond purchase contract between the District and the Underwriter dated February 13, 2018 (the Purchase Agreement ). The Purchase Agreement provides that the Underwriter will purchase all of the Bonds if any are purchased, the obligation of the Underwriter to purchase the Bonds being subject to certain terms and conditions to be satisfied by the District. The Underwriter has agreed to purchase all of the Bonds for an aggregate purchase price of $15,375,407.48, subject to certain conditions set forth in the Purchase Agreement. The purchase price for the Bonds reflects an Underwriters discount of $58, The initial offering prices and initial reoffering yields shown on the inside cover page hereof have been provided by the Underwriter for inclusion herein. The District makes no representation as to the accuracy thereof. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the offering prices stated on the inside cover page. The offering prices may be changed from time to time by the Underwriter. Morgan Stanley & Co. LLC, the underwriter of the Bonds, has entered into a retail distribution arrangement with its affiliate Morgan Stanley Smith Barney LLC. As part of the distribution arrangement, Morgan Stanley & Co. LLC may distribute municipal securities to retail investors through the financial advisor network of Morgan Stanley Smith Barney LLC. As part of this arrangement, Morgan Stanley & Co. LLC may compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the Bonds. (Remainder of This Page Intentionally Left Blank) 25

32 Additional Information Quotations from and summaries and explanations of the Bonds and the Paying Agent Agreement providing for issuance and payment of the Bonds, and the constitutional provisions, statutes and other documents described herein, do not purport to be complete, and reference is hereby made to said documents, constitutional provisions and statutes for the complete provisions thereof. * * * All data contained herein have been taken or constructed from the District s records and other sources, as indicated. This Official Statement and its distribution have been duly authorized and approved by the District. LAKE TAHOE COMMUNITY COLLEGE DISTRICT By: /s/ Russi Egan Russi Egan Vice President of Administrative Services 26

33 APPENDIX A INFORMATION RELATING TO THE DISTRICT S OPERATIONS AND BUDGET The information in this appendix concerning the operations of the District, the District s finances, and State funding of education is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Bonds is payable from the general fund of the District or from State revenues. The Bonds are payable from the proceeds of an ad valorem tax approved by the voters of the District pursuant to all applicable laws and Constitutional requirements, and required to be levied by the County on property within the District in an amount sufficient for the timely payment of principal and interest on the Bonds. See SECURITY AND SOURCE OF PAYMENT FOR THE BONDS in the front portion of this Official Statement. Introduction The District is governed by the Board, an elected governing board consisting of five members. The day-today operations are managed by a board-appointed Superintendent/President. Administration and Management Jeff DeFranco, Superintendent/President. Jeff DeFranco has served as the District s Superintendent/President since January Mr. DeFranco previously served as the District s Vice President of Administrative Services since July Mr. DeFranco previously worked at the University of Oregon and Springfield School District including the role of Director of Facilities overseeing the Springfield s school bond program. Mr. DeFranco earned his undergraduate degree from California State University, Chico and master s degree in Educational Leadership, with an emphasis in higher education administration from the University of Oregon. Mr. DeFranco is currently a member of various statewide boards including the Association of Chief Business Officials and the Chancellor s Advisory Workgroup on Fiscal Affairs. Mr. DeFranco also serves as the Treasurer of the Lake Tahoe Community College Foundation Board of Directors and on the South Shore Chamber of Commerce Board of Directors. Russi Egan, Vice President of Administrative Services. Russi Egan has served as Vice President of Administrative Services at Lake Tahoe Community College since July She has worked in the California Community College system for over fourteen years where she has demonstrated her dedication to higher education and her commitment to students. She holds a master s degree in accounting from National University and a bachelor s degree in accounting from Ashford University. Ms. Egan is currently in her seventh year serving as a Chief Business Officer. Russi has served as the co-chair of the Association of California Community College Administrators Administration 101 program, which provides leadership training to new system administrators. General DISTRICT FINANCIAL INFORMATION The District s annual revenues are determined by a State funding formula, and consist of local property taxes, student fees, and State appropriations that are based upon student attendance. Because the District receives approximately 66% of its general fund revenues from State funds, the District s fiscal position is closely tied to the fiscal health of the State. And because the State Constitution commands that approximately 40% of the State s general fund budget be used to fund local school districts and community college districts, funding for education is at the heart of an often-contentious annual State budget approval process. This Appendix discusses overall State funding of education through the State s constitutional funding formula known as Proposition 98, funding of the community college system, and the District s budget process. Specific information is presented regarding the District s current budgeted revenues and expenditures, as well as long-term obligations and capital financing. A-1

34 The State s community college funding model adopted in 2006 equalized funding among the 72 community college districts and their 112 community colleges. The model provides for a base allocation by size of college, and an allocation for State-approved and grandfathered college centers. The primary basis of the State apportionment is the calculation of FTES. For fiscal year , the District is budgeted to receive a base allocation of approximately $7.25 million. Student attendance in approved credit courses (generally, those courses leading to a degree) is funded at a rate of $5,151 per FTES; attendance in non-credit courses is funded at $3,097 per FTES and attendance in non-credit Career Development and College Preparation courses, $5,151 per FTES. A recent history of actual audited attendance and the current budgeted attendance measured in terms of Resident FTES is shown in the table below. LAKE TAHOE COMMUNITY COLLEGE DISTRICT Resident Full-Time Equivalent Students Fiscal Year Resident FTES , , , , , , ,739 (2) (1) 1,734 (3) (1) Budgeted. (2) In fiscal year , the District received an FTES allowance from the State due to severe weather in winter quarter The District received an allowance of credit and 3.83 noncredit FTES. (3) The District conservatively estimates its Resident FTES to be 1,734 in fiscal year , but this number is subject to stabilization. The table below represents total funded and unfunded FTES. LAKE TAHOE COMMUNITY COLLEGE DISTRICT Resident Funded and Unfunded Full-Time Equivalent Students Fiscal Year Funded FTES Unfunded FTES , , ,761 (2) , (1) 1,739 0 (1) Projected. (2) The number of Funded FTES for fiscal year reflects District stabilization due to a decrease in FTES from the prior fiscal year. A-2

35 The table below represents non-resident, out-of-state and international students who pay full tuition to the District. These students are excluded from the State funding formula calculation. For fiscal year , these non-resident, out-of-state and international students are expected to contribute $577,200 in revenue to the District s unrestricted general fund. Fiscal Year Non-Resident and International Students (1) (1) Budgeted. The table below represents the tuition paid by international students, domestic non-resident students, and resident students. Fiscal Year International Students Domestic Non-Resident Students Resident Students $ 27,148 $256,366 $589, , , , , , , , , , , , , , , , , , , (1) 249, , ,411 (1) Projected. State Funding of the Community College System; State Budget Process General. As is true for all community college districts in the State, the District s operating income consists primarily of these components: (i) a State portion funded from the State s general fund, (ii) a local portion derived from the District s share of the county-wide property tax; (iii) revenues generated from the District s operations, consisting primarily of student fees and sales; and (iv) federal government grants and transfers. The District receives over 66% of its general fund revenues from State funds, budgeted at approximately $7.25 million in fiscal year As a result, decreases in State revenues, or in State legislative appropriations made to fund higher education, may significantly affect District operations. State funding is guaranteed to a minimum level for community college districts, school districts, and other State agencies that provide direct elementary and secondary instructional programs. The funding guarantee is known as Proposition 98, a constitutional and statutory initiative amendment adopted by the State s voters in 1988, and amended by Proposition 111 in 1990 (now found at Article XVI, Sections 8 and 8.5 of the State Constitution). A-3

36 The Proposition 98 funding mandate normally commands about 45% of all State general fund revenues, and community colleges normally receive about 11% of the Proposition 98 figure. However, recent years have seen frequent disruptions in the three components of State general fund revenues, State personal income taxes, sales and use taxes, and corporate taxes. This has made it increasingly difficult for the State to meet its obligations under Proposition 98 while providing for other fixed State costs and priority programs and services. Adoption of Annual State Budget. According to the State Constitution, the Governor must propose a budget to the State Legislature no later than January 10 of each year, and a final budget must be adopted no later than June 15. Historically, the budget required a two-thirds vote of each house of the State Legislature for passage. However, on November 2, 2010, the State s voters approved Proposition 25, which amended the State Constitution to lower the vote requirement necessary for each house of the State Legislature to pass a budget bill and send it to the Governor. Specifically, the vote requirement was lowered from two thirds to a simple majority (50% plus one) of each house of the State Legislature. The lower vote requirement also would apply to trailer bills that appropriate funds and are identified by the State Legislature as related to the budget in the budget bill. The budget becomes law upon the signature of the Governor, who may veto specific items of expenditure. Under Proposition 25, a two thirds vote of the State Legislature is still required to override any veto by the Governor. School district budgets must generally be adopted by July 1, and revised by the school board within 45 days after the Governor signs the budget act to reflect any changes in budgeted revenues and expenditures made necessary by the adopted State budget. Community college district budgets must generally be adopted by July 1, and revised by the community college board within 45 days after the Governor signs the budget act to reflect any changes in budgeted revenues and expenditures made necessary by the adopted State budget. When the State budget is not adopted on time, basic appropriations and the categorical funding portion of each district s State funding are affected differently. Under the rule of White v. Davis (also referred to as Jarvis v. Connell), a State Court of Appeal decision reached in 2002, there is no constitutional mandate for appropriations to community college districts without an adopted budget or emergency appropriation, and funds for State programs cannot be disbursed by the State Controller until that time unless the expenditure is (i) authorized by a continuing appropriation found in statute, (ii) mandated by the Constitution (such as appropriations for salaries of elected state officers), or (iii) mandated by federal law (such as payments to State workers at no more than minimum wage). The State Controller has consistently stated that basic State funding for community colleges is continuously appropriated by statute, but that special and categorical funds may not be appropriated without an adopted budget. The Controller has posted guidance as to what can and cannot be paid during a budget impasse at its website: Should the Legislature fail to pass the budget or emergency appropriation before the start of any fiscal year, the District might experience delays in receiving certain expected revenues. Aggregate State Education Funding. The Proposition 98 guaranteed amount for education is based on prior-year funding, as adjusted through various formulas and tests that take into account State proceeds of taxes, local property tax proceeds, community college enrollment, per-capita personal income, and other factors. The State s share of the guaranteed amount is based on State general fund tax proceeds and is not based on the general fund in total or on the State budget. The local share of the guaranteed amount is funded from local property taxes. The total guaranteed amount varies from year to year and throughout the stages of any given fiscal year s budget, from the Governor s initial budget proposal to actual expenditures to post-year-end revisions, as better information regarding the various factors becomes available. Over the long run, the guaranteed amount will increase as enrollment and per capita personal income grow. If, at year-end, the guaranteed amount is calculated to be higher than the amount actually appropriated in that year, the difference becomes an additional education funding obligation, referred to as settle-up. If the amount appropriated is higher than the guaranteed amount in any year, that higher funding level permanently increases the base guaranteed amount in future years. The Proposition 98 guaranteed amount is reduced in years when general fund revenue growth lags personal income growth, and may be suspended for one year at a time by enactment of an urgency statute. In either case, in subsequent years when State general fund revenues grow faster than personal income (or sooner, as the Legislature may determine), the funding level must be restored to the guaranteed amount, the obligation to do so being referred to as maintenance factor. In recent years, the State s response to fiscal difficulties has had a significant impact on Proposition 98 funding and settle-up treatment. The State has sought to avoid or delay paying settle-up amounts when funding has A-4

37 lagged the guaranteed amount. In response, teachers unions, the State Superintendent, and others, sued the State or Governor in 1995, 2005, and 2009, to force them to fund schools in the full amount required. The settlement of the 1995 and 2004 lawsuits has so far resulted in over $4 billion in accrued State settle-up obligations. However, legislation enacted to pay down the obligations through additional education funding over time, including the Quality Education Investment Act of 2006, have also become part of annual budget negotiations, resulting in repeated adjustments and deferrals of the settle-up amounts. The State has also sought to preserve general fund cash while avoiding increases in the base guaranteed amount through various mechanisms: by treating any excess appropriations as advances against subsequent years Proposition 98 minimum funding levels rather than current year increases; by temporarily deferring apportionments of Proposition 98 funds one fiscal year to the next; by permanently deferring the year-end apportionment from June 30 to July 2; by suspending Proposition 98, and by proposing to amend the State Constitution s definition of the guaranteed amount and settle-up requirement under certain circumstances. The Budget Process. Community college district budgeting begins each year with the State Budget process discussed above. The District prepares a preliminary budget by June 30 of each year for the upcoming fiscal year commencing July 1. By September 15 of the budget year, the Board of Trustees of the District is required to formally adopt a revised budget, and deliver it to the State Chancellor not later than October 10, pursuant to Section of the California Code of Regulations, Title V. Once adopted, the budget may be amended throughout the fiscal year as the District s financial circumstances change. The statewide governing Board of the California Community Colleges and the State Chancellor have established expectations for sound district fiscal management and a process for monitoring and evaluating the financial condition to ensure the financial health of California s community college districts. In accordance with statutory and regulatory provisions, the State Chancellor has been given the responsibility to identify districts at risk and, when necessary, the authority to intervene to bring about improvement in their financial condition. To stabilize a district s financial condition, the State Chancellor may, as a last resort, seek an appropriation for an emergency apportionment. The monitoring and evaluation process is designed to provide early detection and amelioration that will stabilize the financial condition of a district before an emergency apportionment is necessary. This is accomplished by (1) assessing the financial condition of districts through the use of various information sources, and (2) taking appropriate and timely follow-up action to bring about improvement in a district s financial condition, as needed. A variety of instruments and sources of information are used to provide a composite of each district s financial condition, including quarterly financial status reports, annual financial and budget reports, attendance reports, annual district audit reports, district input and other financial records. In assessing each district s financial condition, the State Chancellor will pay special attention to each district s general fund balance, spending pattern, and full-time equivalent student patterns. Those districts with greater financial difficulty will receive follow-up visits from the State Chancellor s Office where financial solutions to the district s problems will be addressed and implemented. Rainy Day Fund. The State Budget proposed certain constitutional amendments to the Rainy Day Fund on the November 2014 ballot, which proposition was approved by the voters. Such constitutional amendments (i) require deposits into the Rainy Day Fund whenever capital gains revenues rise to more than 8% of general fund tax revenues (and the State Budget notes that capital gains revenues are expected to account for approximately 9.8% of general fund revenues in fiscal year ); (ii) set the maximum size of the Rainy Day Fund at 10% of general fund revenues; (iii) for the next 15 years, require half of each year s deposit to be used for supplemental payments to pay down the budgetary debts or other long-term liabilities and, thereafter, require at least half of each year s deposit to be saved and the remainder used for supplemental debt payments or savings; (iv) allow the withdrawal of funds only for a disaster or if spending remains at or below the highest level of spending from the past three years; (v) require the State to provide a multiyear budget forecast; and (vi) create a Proposition 98 reserve (the Public School System Stabilization Account) to set aside funds in good years to minimize future cuts and smooth school spending. The State may deposit amounts into such account only after it has paid all amounts owing to school districts and community college districts relating to the Proposition 98 maintenance factor for fiscal years prior to fiscal year The State, in addition, may not transfer funds to the Public School System Stabilization Account unless the State is in a Test 1 year under Proposition 98 or in any year in which a maintenance factor is created. A-5

38 AB As part of the State Budget, the Governor signed Assembly Bill 1469 ( AB 1469 ) which implemented a new funding strategy for the California State Teachers Retirement System ( CalSTRS ), increased the employer contribution rate in fiscal year from 8.25% to 8.88% of covered payroll and authorized additional increases to the employer contribution rate in subsequent fiscal years. See Retirement Benefits herein for more information about CalSTRS and AB Prohibitions on Diverting Local Revenues for State Purposes. Beginning in , the State satisfied a portion of its Proposition 98 obligations by shifting part of the property tax revenues otherwise belonging to cities, counties, special districts, and redevelopment agencies, to school and community college districts through a local Educational Revenue Augmentation Fund ( ERAF ) in each county. Local agencies, objecting to invasions of their local revenues by the State, sponsored a statewide ballot initiative intended to eliminate the practice. In response, the State Legislature proposed an amendment to the State Constitution, which the State s voters approved as Proposition 1A at the November 2004 election. That measure was generally superseded by the passage of a new initiative constitutional amendment at the November 2010 election, known as Proposition 22. The effect of Proposition 22 is to prohibit the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation, redevelopment, or local government projects and services. It prevents the State from redirecting redevelopment agency property tax increment to any other local government, including community college districts, or from temporarily shifting property taxes from cities, counties and special districts to schools, as in the ERAF program. This is intended to, among other things, stabilize local government revenue sources by restricting the State s control over local property taxes. One effect of this amendment will be to deprive the State of fuel tax revenues to pay debt service on most State bonds for transportation projects, reducing the amount of State general fund resources available for other purposes, including education. Prior to the passage of Proposition 22, the State invoked Proposition 1A to divert $1.935 billion in local property tax revenues in from cities, counties, and special districts to the State to offset State general fund spending for education and other programs, and included another diversion in the adopted State budget of $1.7 billion in local property tax revenues from local redevelopment agencies, which local redevelopment agencies have now been dissolved (see Dissolution of Redevelopment Agencies below). Redevelopment agencies had sued the State over this latter diversion. However, the lawsuit was decided against the California Redevelopment Association on May 1, Because Proposition 22 reduces the State s authority to use or shift certain revenue sources, fees and taxes for State general fund purposes, the State will have to take other actions to balance its budget in some years such as reducing State spending or increasing State taxes, and school and community college districts that receive Proposition 98 or other funding from the State will be more directly dependent upon the State s general fund. Dissolution of Redevelopment Agencies. The adopted State budget for fiscal year , as signed by the Governor on June 30, 2011, included as trailer bills Assembly Bill No. 26 (First Extraordinary Session) ( AB1X 26 ) and Assembly Bill No. 27 (First Extraordinary Session) ( AB1X 27 ), which the Governor signed on June 29, AB1X 26 suspended most redevelopment agency activities and prohibited redevelopment agencies from incurring indebtedness, making loans or grants, or entering into contracts after June 29, AB1X 26 dissolved all redevelopment agencies in existence and designated successor agencies and oversight boards to satisfy enforceable obligations of the former redevelopment agencies and administer dissolution and wind down of the former redevelopment agencies. Certain provisions of AB1X 26 are described further below. In July of 2011, various parties filed an action before the Supreme Court of the State (the Court ) challenging the validity of AB1X 26 and AB1X 27 on various grounds (California Redevelopment Association v. Matosantos). On December 29, 2011, the Court rendered its decision in Matosantos upholding virtually all of AB1X 26 and invalidating AB1X 27. In its decision, the Court also modified various deadlines for the implementation of AB1X 26. The deadlines for implementation of AB1X 26 described below take into account the modifications made by the Court in Matosantos. On February 1, 2012, and pursuant to Matosantos, AB1X 26 dissolved all redevelopment agencies in existence and designated successor agencies and oversight boards to satisfy enforceable obligations of the A-6

39 former redevelopment agencies and administer dissolution and wind down of the former redevelopment agencies. With limited exceptions, all assets, properties, contracts, leases, records, buildings and equipment, including cash and cash equivalents of a former redevelopment agency, will be transferred to the control of its successor agency and, unless otherwise required pursuant to the terms of an enforceable obligation, distributed to various related taxing agencies pursuant to AB1X 26. AB1X 26 requires redevelopment agencies to continue to make scheduled payments on and perform obligations required under its enforceable obligations. For this purpose, AB1X 26 defines enforceable obligations to include bonds, including the required debt service, reserve set-asides, and any other payments required under the indenture or similar documents governing the issuance of outstanding bonds of the former redevelopment agency and any legally binding and enforceable agreement or contract that is not otherwise void as violating the debt limit or public policy. AB1X 26 specifies that only payments included on an enforceable obligation payment schedule adopted by a redevelopment agency shall be made by a redevelopment agency until its dissolution. However, until a successor agency adopts a recognized obligation payment schedule the only payments permitted to be made are payments on enforceable obligations included on an enforceable obligation payment schedule. A successor agency may amend the enforceable obligation payment schedule at any public meeting, subject to the approval of its oversight board. Under ABIX 26, commencing February 1, 2012, property taxes that would have been allocated to each redevelopment agency if the agencies had not been dissolved will instead be deposited in a redevelopment property tax trust fund created for each former redevelopment agency by the related county auditor-controller and held and administered by the related county auditor-controller as provided in ABIX 26. ABIX 26 generally requires each county auditor-controller, on May 16, 2012 and June 1, 2012 and each January 16 and June 1 (now each January 2 and June 1 pursuant to AB 1484, as described below) thereafter, to apply amounts in a related redevelopment property tax trust fund, after deduction of the county auditor-controller s administrative costs, in the following order of priority: To pay pass-through payments to affected taxing entities in the amounts that would have been owed had the former redevelopment agency not been dissolved; provided, however, that if a successor agency determines that insufficient funds will be available to make payments on the recognized obligation payment schedule and the county auditor-controller and Controller verify such determination, pass-through payments that had previously been subordinated to debt service may be reduced; To the former redevelopment agency s successor agency for payments listed on the successor agency s recognized obligation payment schedule for the ensuing six-month period; To the former redevelopment agency s successor agency for payment of administrative costs; and Any remaining balance to school and community college entities and local taxing agencies. The District projects it will receive $74,000 in pass through payments in fiscal year , compared to $76,000 it received in fiscal year It is possible that there will be additional legislation proposed and/or enacted to clean up various inconsistencies contained in AB1X 26 and there may be additional legislation proposed and/or enacted in the future affecting the current scheme of dissolution and winding up of redevelopment agencies currently contemplated by AB1X 26. For example, AB 1484 was signed by the Governor on June 27, 2012, to clarify and amend certain aspects of AB1X 26. AB 1484, among other things, attempts to clarify the role and requirements of successor agencies, provides successor agencies with more control over agency bond proceeds and properties previously owned by redevelopment agencies and adds other new and modified requirements and deadlines. AB 1484 also provides for a tax claw back provision, wherein the State is authorized to withhold sales and use tax revenue allocations to local successor agencies to offset payment of property taxes owed and not paid by such local successor agencies to other local taxing agencies. This tax claw back provision has been challenged in court by certain cities and successor agencies. The District cannot predict the outcome of such litigation and what effect, if A-7

40 any, it will have on the District. Additionally, no assurances can be given as to the effect of any such future proposed and/or enacted legislation on the District State Budget. The Governor signed the fiscal year State Budget (the State Budget ) on June 27, The State Budget sets forth a balanced budget for fiscal year that projects approximately $ billion in revenues, and $72.47 billion in non-proposition 98 expenditures and $52.63 billion in Proposition 98 expenditures. The State Budget includes a $1.4 billion reserve in the Special Fund for Economic Uncertainties and adds $1.8 billion to the Proposition 2 Budget Stabilization Account, bringing the balance to $8.5 billion in , which is 66% of the constitutional target. The State Budget uses dedicated proceeds from Proposition 2 to pay down nearly $1.8 billion in past budgetary borrowing and State employee pension liabilities. The State Budget also includes a $6 billion supplemental payment to CalPERS (as defined herein) through a loan from the Surplus Money Investment Fund that the Governor expects will reduce unfunded liabilities and stabilize State contribution rates. The State s general fund share of the repayment will come from Proposition 2 s revenues dedicated to reducing debts and long-term liabilities. Other significant features with respect to community college education funding include the following: Enrollment; Apportionments. An increase of $58 million in Proposition 98 funding to base allocations to support a 1% growth in enrollment system wide. The State Budget also provides $98 million to fund a 1.56% cost-of-living adjustment to apportionments, $5 million to fund a 1.56% cost-of-living adjustment to selected categorical programs, and $1 million to fund a cost-of-living adjustment for financial aid administration. In addition to these base increases, the State Budget provides $184 million that community college districts may use to fund any educational or operational purpose, including hiring additional faculty, paying retirement costs, professional development and facility maintenance. Student Success. An increase of $150 million in one-time funding for an initiative focused on assisting community college districts (i) integrate existing student success programs and services, (ii) build internal capacity for data analysis, leadership, planning and program implementation, and (iii) develop structured academic courses for incoming students. Financial Aid. An increase of $25 million in Proposition 98 funding to increase the maximum annual Full Time Student Success Grant. This grant was created in fiscal year and provides additional aid to community college students who carry 12 or more credits per term and qualify for Cal Grant B and Cal Grant C awards. The State Budget also provides $25 million for a Community College Completion Grant, which would provide an additional $2,000 annually for grant recipients that develop a comprehensive education plan and carry 15 or more units per term. Lastly, the State Budget includes $1.7 million to double the Cal Grant C book and supply award. Innovation Awards. $20 million in one-time Proposition 98 funding for awards to community college districts that develop innovations that both address specified groups of underrepresented students and use technology to improve instruction and support services. Online Education. An increase of $10 million in Proposition 98 funding, for total ongoing funding of $20 million, to provide system-wide access to the California Online Education Initiative, a grant-funded collaborative effort among community colleges to increase access to and success in high-quality online courses. Library Systems. An increase of $6 million in one-time Proposition 98 funding to the California Community College Technology Center, a grant funded project that coordinates statewide technology projects. The funding is intended to assist in the procurement and operational of an integrated library system for California community college students. Deferred Maintenance and Instructional Equipment. An increase of $77 million in one-time Proposition 98 funding for deferred facility maintenance, special repairs, hazardous substance abatement, architectural barrier removal, or specified water conservation projects. Funds will be allocated based on full time A-8

41 equivalent student enrollment. Proposition 51. A total allocation of $16.9 million in Proposition 51 bond funds for initial design activities at 15 community college districts. The complete State Budget is available from the California Department of Finance website at The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by such reference. Proposed State Budget. The Governor released his proposed State budget for fiscal year (the Proposed State Budget ) on January 10, The Proposed State Budget sets forth a balanced budget for fiscal year However, the Governor cautions that there are uncertainties that must be considered as the budget is revised, including the impact of federal tax reform and federal healthcare legislation. The Proposed State Budget estimates that total resources available in fiscal year totaled approximately $ billion (including a prior year balance of $4.61 billion) and total expenditures in fiscal year totaled approximately $ billion. The Proposed State Budget projects total resources available for fiscal year of $ billion, inclusive of revenues and transfers of $ billion and a prior year balance of $5.35 billion. The Proposed State Budget projects total expenditures for fiscal year of $ billion, inclusive of non-proposition 98 expenditures of $77.13 billion and Proposition 98 expenditures of $54.56 billion. The Proposed State Budget proposes to allocate $1.17 billion of the General Fund s projected fund balance to the Reserve for Liquidation of Encumbrances and $2.29 billion of such fund balance to the State s Special Fund for Economic Uncertainties. In addition, the Proposed State Budget projects the Rainy Day Fund will have a fund balance of $13.46 billion. Certain budgeted adjustments for community college districts proposed in the Proposed State Budget include the following: Apportionments. The Proposed State Budget proposes an increase of $322.5 million in Proposition 98 General Fund apportionments. The increase reflects increases to the Proposition 98 General Fund of $175 million to support community college districts transition to a student-focused funding formula, $161.2 million for a 2.51% cost-of-living adjustment, and $60 million for enrollment growth, and a decrease to the Proposition 98 General Fund of $73.7 million to reflect unused growth provided in Deferred Maintenance and Instructional Equipment. The Proposed State Budget proposes a onetime increase of $264.3 million in Proposition 98 General Fund resources and $10.9 million Proposition 98 settle-up for deferred maintenance, instructional equipment, and specified water conservation projects. Online College. The Proposed State Budget proposes an increase of $120 million Proposition 98 General Fund resources, consisting of $100 million in one-time funds and $20 million in ongoing funds, to establish a fully online community college. Financial Aid. The Proposed State Budget proposes an increase of $46 Proposition 98 General Fund resources to support the implementation of the California College Promise to change financial aid programs at the community colleges. Student Success Completion Grant. The Proposed State Budget proposes an increase of $32.9 million Proposition 98 General Fund resources to support a streamlined and student-focused community college financial aid program that consolidates the Full-Time Student Success Grant and the Completion Grant programs, shifts to a per-unit per-semester/per-year grant and augments underlying grant amounts. Innovation Awards. The Proposed State Budget proposes $20 million one-time Proposition 98 General Fund resources for awards to community college districts that develop innovations that both address specified groups of underrepresented students and use technology to improve instruction and support services. A-9

42 Adjustments. The Proposed State Budget proposes an increase of $5.4 million Proposition 98 General Fund resources as a result of decreased offsetting student enrollment fee revenues. The Proposed State Budget also proposes a decrease of $230.2 million Proposition 98 General Fund resources as a result of increased offsetting local property tax revenues. Proposition 51. The Proposed State Budget proposes $44.9 million in general obligation bond funding for five new and 15 continuing projects. This allocation represents the second installment of the $2 billion available to community colleges under Proposition 51. Investment in Workforce Reforms. The Proposed State Budget proposes $17.8 million in ongoing funds for increased reimbursements to K-12 and community college-sponsored apprenticeship programs for instructional hours provided in , with an additional one-time increase of $30.6 million to backfill shortfalls in reimbursements provided from to The complete Proposed State Budget is available from the California Department of Finance website at The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference. LAO Overview of Proposed State Budget. The Legislative Analyst s Office ( LAO ), a nonpartisan State office which provides fiscal and policy information and advice to the State Legislature, released its report on the Proposed State Budget entitled The Budget: Overview of the Governor s Budget on January 12, 2018 (the Proposed Budget Overview ). In the Proposed Budget Overview, the LAO summarizes the key features of the Proposed State Budget, which include prioritizing reserves, allocating additional funding to school districts and community college districts, and supporting a variety of new infrastructure projects. The LAO also notes that the May Revision of the Proposed State Budget may reflect additional resources as the administration s revenue estimates may be higher, and Congress may reauthorize a higher federal cost share for the Children s Health Insurance Program than what is assumed in the Proposed State Budget. The LAO explains that the Proposed State Budget projects to end with $15.7 billion in total reserves, which would consist of $13.5 billion in the State s constitutional Rainy Day Fund (reserves available for future budget emergencies) and $2.3 billion in discretionary reserves (available for any purpose). The LAO urges the legislature to consider its optimal level of reserves. The Proposed State Budget deposits enough reserves into the State s Rainy Day Fund that it reaches its constitutional maximum. The LAO advises that this approach may be prudent in light of economic and federal budget uncertainty, but comes with trade-offs for the State, including requiring rainy day reserves in excess of 10 percent to be spent on infrastructure projects. The LAO notes that the Proposed State Budget contains a total of $6.3 billion in Proposition 98 spending proposals for K-12 education, community colleges and preschools. The LAO points out that of that total $3.9 billion is ongoing and $2.4 billion is for one-time activities. The LAO summarizes that the ongoing augmentations for community colleges include an increase of community college apportionments and implementation of a new allocation formula and also cover the operating costs of a new fully online community college. The LAO notes a split between ongoing spending and one-time initiatives and determines that this split is reasonable and consistent with the approach that the State has taken in previous budgets. The LAO notes that the new community college funding formula represents the most significant change to community college funding in many years. Additionally, the proposed online college is significant and raises several key issues. The LAO recommends the Legislature carefully consider both proposals. The LAO explains that the Proposed State Budget includes infrastructure spending. In , the budget allocates $4.6 billion in transportation spending, consistent with the measure s statutory formula for allocating revenues. Other infrastructure projects include trial court construction, voting system equipment, State correctional facilities improvement and equipment, among other projects to improve State resources. The LAO questions whether the infrastructure spending is all top priority and whether there may be better ways for certain agencies to get the equipment they need through leases or other pay-as-you-go financing. A-10

43 The Proposed Budget Overview is available on the LAO website at The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference. Changes in State Budget. The final fiscal year State budget, which requires approval by a majority vote of each house of the State Legislature, may differ substantially from the Governor s budget proposal. Accordingly, the District cannot provide any assurances that there will not be any changes in the final fiscal year State budget from the Proposed State Budget. Additionally, the District cannot predict the impact that the final fiscal year State Budget, or subsequent budgets, will have on its finances and operations. The final fiscal year State budget may be affected by national and State economic conditions and other factors which the District cannot predict. Future Budgets and Budgetary Actions. The District cannot predict what future actions will be taken by the State Legislature and the Governor to address changing State revenues and expenditures or the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and State economic conditions and other factors beyond the District s ability to predict or control. Certain actions could result in a significant shortfall of revenue and cash, and could impair the State s ability to fund schools during fiscal year and in future fiscal years. Certain factors, like an economic recession, could result in State budget shortfalls in any fiscal year and could have a material adverse financial impact on the District. As the Bonds are payable from ad valorem property taxes, the State budget is not expected to have an impact on the payment of the Bonds. District Operating Revenues In fiscal year , local property tax revenues made up 26.02% of the District s total general fund revenues, State apportionments accounted for approximately 42.57%, other State and local revenues accounted for another 22.20%, federal revenues accounted for approximately 0.19%, and student enrollment fees accounted for approximately 8.32% of total District general fund revenues. In its budget, the District budgets local property tax revenues of $5.7 million, State general apportionment funds of $9.6 million, State subventions and nontax revenues of $3.9 million, federal funds of $61.7 thousand and student enrollment and tuition fees of $1.8 million. The balance of the District s general fund revenues in each fiscal year is derived from auxiliary enterprise revenues (such as bookstore, cafeteria and information technology operations), lottery income, special purpose apportionments, interest, and miscellaneous other sources. Lottery funds, which are distributed to community college districts proportional to their total enrollment, are budgeted at $146 per FTES unrestricted and $48 per FTES restricted in fiscal year , or about $334,456 total. The District s restricted general fund revenues for fiscal year were $4.3 million. Fiscal year restricted general fund revenues are budgeted at $5.6 million, reflecting in large part the District s practice of taking such revenues into account when funding becomes more certain over the course of the year. The District s restricted general fund revenues come from State funding earmarked for specific categorical programs and from local, state and federal grants. The volume and allocation of categorical funding is subject to the discretion of the State legislature and the District s continued qualification for each such program. The District cannot predict how State funding of categorical programs will vary in the future but is anticipating approximately $4.18 million in categorical funds to be allocated in fiscal year The District is also anticipating $1.10 million in competitive grant funding in fiscal year Tax and Revenue Anticipation Notes. Because District revenues from local property taxes and State apportionments are received at irregular intervals throughout the year, while expenditures tend to be incurred on a regular monthly basis, the District has at times found it necessary to borrow for short-term cash flow needs by issuance of tax and revenue anticipation notes. The District s notes are a general obligation of the District, payable from the District s general fund and any other lawfully available moneys. The District has not issued Tax and Revenue Anticipation Notes since Lake Tahoe College Foundation. The District is supported by an independent not-for-profit foundation. The foundation acts primarily as a fundraising organization to provide grants and scholarships to students A-11

44 and other financial support to the programs of the District, according to the foundation s means, its own funding priorities, and restrictive terms of donor grants. The foundation is considered a component unit of the District for financial reporting purposes, and the District provides facilities, staff, and operational support to the foundation. In fiscal year , the foundation provided a total of $118 thousand in direct support to District programs. Major District Expenditures The largest part of each community college district s general fund budget is used to pay salaries and benefits of certificated (credentialed teaching) and classified (non-instructional) employees. Changes in salary and benefit expenditures from year to year are generally based on changes in staffing levels, negotiated salary increases, and the overall cost of employee benefits. In its fiscal year budget, the District projects that it will expend $14.7 million in salaries and benefits, or approximately 70.3% of its unrestricted and restricted general fund expenditures. This amount represents an increase of approximately 8.0% from the $13.6 million the District expended in salaries and benefits in fiscal year Labor Relations. As of June 30, 2017, the District employed approximately 37 full-time certificated professionals and 64 full-time classified employees. In addition, the District employs approximately 146 part-time faculty and 151 part-time staff. As of June 30, 2017, 89 employees were represented by labor organizations, as shown in the table below. The remainder are not represented by any formal bargaining unit. Lake Tahoe Community College District Labor Organizations Labor Organization Represented Employees Contract Expiration LTCC Faculty Association 32 6/30/2019 LTCC Classified Bargaining Unit 57 6/30/2018 Retirement Programs. The District participates in the State Teachers Retirement System ( CalSTRS ) for all full-time and some part-time certificated employees. Contributions to CalSTRS are fixed in statute. In fiscal year , teachers contributed 8% of salary to CalSTRS, while K-14 school districts contributed 8.25%. In addition to the teacher and school contributions, the State contributed 4.517% of teacher payroll to CalSTRS (calculated on payroll data from two fiscal years ago). Unlike typical defined benefit programs, however, neither the CalSTRS employer nor the State contribution rate varies annually to make up funding shortfalls or assess credits for actuarial surpluses. The State does pay a surcharge when the teacher and K-14 school district contributions are not sufficient to fully fund the basic defined benefit pension (generally consisting of 2% of salary for each year of service at age 60 referred to herein as pre-enhancement benefits ) within a 30-year period. However, this surcharge does not apply to systemwide unfunded liability resulting from recent benefit enhancements. As of June 30, 2016, an actuarial valuation (the 2016 CalSTRS Actuarial Valuation ) for the entire CalSTRS defined benefit program showed an estimated unfunded actuarial liability of $96.7 billion, an increase of approximately $20.5 million from the June 30, 2015 valuation. The funded ratios of the actuarial value of valuation assets over the actuarial accrued liabilities as of June 30, 2016, June 30, 2015 and June 30, 2014, based on the actuarial assumptions, were approximately 63.7%, 68.5% and 68.5%, respectively. Future estimates of the actuarial unfunded liability may change due to market performance, legislative actions and other experience that may differ from the actuarial assumptions. The following are certain of the actuarial assumptions set forth in the 2016 CalSTRS Actuarial Valuation: measurement of accruing costs by the Entry Age Normal Actuarial Cost Method, a 7.25% investment rate of return for measurements as of June 30, 2016 and an assumed 7.00% investment rate of return for measurements subsequent to June 30, 2016, 3.00% interest on member accounts, projected 3.50% wage growth, projected 2.75% inflation and demographic assumptions relating to mortality rates, length of service, rates of disability, rates of withdrawal, probability of refund, and merit salary increases. The 2016 CalSTRS Actuarial Valuation also assumes that all members hired on or after January 1, 2013 are subject to the provisions of PEPRA (as defined herein). See Governor s Pension Reform below for a discussion of the pension reform measure A-12

45 signed by the Governor in August 2012 expected to help reduce future pension obligations of public employers with respect to employees hired on or after January 1, Future estimates of the actuarial unfunded liability may change due to market performance, legislative actions, changes in actuarial assumptions and other experiences that may differ from the actuarial assumptions. As indicated above, there was no required contribution from teachers, K-14 school districts or the State to fund the unfunded actuarial liability for the CalSTRS defined benefit program and only the State legislature can change contribution rates. The 2016 CalSTRS Actuarial Valuation stated that the aggregate contribution rate as of June 30, 2017, inclusive of an equivalent rate contribution of % from members, 8.000% from employers relating to the base rate, 0.250% from employers based on the sick leave rate, % from employers based on the supplemental rate, 1.881% from the State based on the base rate and 4.021% from the State based on the supplemental rate is equivalent to %. As part of the State Budget, the Governor signed Assembly Bill 1469 which implemented a new funding strategy for CalSTRS and increased the employer contribution rate in fiscal year from 8.25% to 8.88% of covered payroll. Such rate would increase by 1.85% beginning in fiscal year until the employer contribution rate is 19.10% of covered payroll as further described below. AB 1469 increased member contributions, which were previously set at 8.00% of pay, to 10.25% of pay for members hired on or before December 31, 2012 and 9.205% of pay for members hired on or after January 1, 2013 effective July 1, The State s total contribution also increased from approximately 3% in fiscal year to 6.30% of payroll in fiscal year , plus the continued payment of 2.5% of payroll annual for a supplemental inflation protection program for a total of 8.80%. In addition, AB 1469 provides the State Teachers Retirement Board with authority to modify the percentages paid by employers and employees for fiscal year and each fiscal year thereafter to eliminate the CalSTRS unfunded liability by June 30, The State Teachers Retirement Board would also have authority to reduce employer and State contributions if they are no longer necessary. Pursuant to AB 1469, K-14 school districts contribution rates will increase in accordance with the following schedule: Effective Date (July 1) K-14 School District Contribution Rate % Source: AB The District s employer contribution to CalSTRS from the general fund for fiscal years , , and were $235,590, $388,440, $770,348 and $883,727, respectively. The District projects employer contributions to CalSTRS of approximately $928,160 for fiscal year With the implementation of AB 1469, the District anticipates that its contributions to CalSTRS will increase in future fiscal years as compared to prior fiscal years. CalSTRS produces a comprehensive annual financial report and actuarial valuations which include financial statements and required supplementary information. Copies of the CalSTRS comprehensive annual financial report and actuarial valuations may be obtained from CalSTRS. The information presented in these reports is not incorporated by reference in this Official Statement. The District also participates in the California Public Employees Retirement System ( CalPERS ) for all full-time and some part-time classified employees. The CalPERS Finance and Administration Committee has reported that the CalPERS Schools Actuarial Valuation as of June 30, 2016, which is expected to be released in late A-13

46 2017, will indicate that the funded ratio as of June 30, 2016 is approximately 71.9% on a market value of assets basis. According to the CalPERS Schools Pool Actuarial Valuation as of June 30, 2015, the CalPERS Schools plan had a funded ratio of 77.5% on a market value of assets basis. The funded ratio, on a market value basis, as of June 30, 2014, June 30, 2013, June 30, 2012, June 30, 2011 and June 30, 2010 was 86.6%, 80.5%, 75.5%, 78.7% and 69.5%, respectively. According to the actuarial valuation as of June 30, 2014, the latest increase in the funded ratio was mainly due to the investment return for being greater than expected. On April , the CalPERS Board of Administration approved a recommendation changing the CalPERS amortization and smoothing policies intended to reduce volatility in employer contribution rates. Beginning with the June 30, 2015 valuation, CalPERS employs an amortization and smoothing policy that will apportion all gains and losses over a fixed 30-year period with the increases or decreases in the rate spread directly over a five-year period (as compared to the previous policy of spreading investment returns over a 15-year period with experience gains and losses paid for over a rolling 30- year period). In November 2015, the CalPERS Board of Administration approved a proposal pursuant to which the discount rate would be reduced by a minimum of 0.05 percentage points to a maximum of 0.25 percentage points in years when investment returns outperform the then-current discount rate of 7.5% by at least four percentage points. In December 2016, the CalPERS Board of Administration voted to lower the discount rate from 7.5% to 7.375% for fiscal year , 7.25% for fiscal year , and 7.0% beginning fiscal year The new discount rates will take effect beginning July 1, 2017 for the State and July 1, 2018 for K-14 school districts. The change in the assumed rate of return is expected to result in increases in the District s normal costs and unfunded actuarial liabilities. In April 2016, CalPERS approved an increase to the contribution rate for K-14 school districts from % during fiscal year to % during fiscal year In February of 2014, the CalPERS Board of Administration adopted actuarial demographic assumptions that take into account greater life expectancies of public employees. Such assumptions are expected to increase costs for the State and public agency employers (including K-14 school districts), which costs will be amortized over 20 years and phased in over three years beginning in fiscal year for the State and amortized over 20 years and phased in over five years beginning in fiscal year for the employers. CalPERS applied the assumptions beginning with the June 30, 2015 valuation for the schools pool, which was used to establish employer contribution rates for fiscal year CalPERS estimates that the new demographic assumptions could cost public agency employers up to 9% of payroll for safety employees and up to 5% of payroll for miscellaneous employees at the end of the five year phase-in period. To the extent, however, that future experiences differ from CalPERS current assumptions, the required employer contributions may vary. In April 2017, CalPERS adopted an employer contribution rate of % for the schools pool and a member contribution rate of 6.5% for school employees subject to PEPRA for the period of July 1, 2017 to June 30, The District is required to contribute toward CalPERS, at a State-determined percentage of CalPERS-eligible salaries. For fiscal year , the contribution percentage is %. In the current budget year, the total contribution is projected at $630,332, compared to a fiscal year general fund expense of $501,174. The District s employer contributions to CalPERS for fiscal years , and were $359,830, $392,578 and $501,174, respectively, and were equal to 100% of the required contributions for each year. With the change in actuarial assumptions described above, the District anticipates that its contributions to CalPERS will increase in future fiscal years as the increased costs are phased in. The implementation of PEPRA (see Governor s Pension Reform below), however, is expected to help reduce certain future pension obligations of public employers with respect to employees hired on or after January 1, Governor s Pension Reform. The Governor signed the California Public Employee s Pension Reform Act of 2013 (the Reform Act or PEPRA ) into law on September 12, The Reform Act affects both CalSTRS and CalPERS, most substantially as they relate to new employees hired after January 1, 2013 (the Implementation Date ). As it pertains to CalSTRS participants hired after the Implementation Date, the Reform Act changes the normal retirement age, increasing the eligibility for the 2% age factor (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. For non-safety CalPERS 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 also increases the eligibility requirement for the maximum age factor of 2.5% to age 67. A-14

47 The Reform Act also implements certain other changes to CalPERS and CalSTRS including the following: (a) all new participants enrolled in CalPERS and CalSTRS after the Implementation Date are required to contribute at least 50% of the total annual normal cost of their pension benefit each year as determined by an actuary, (b) CalSTRS and CalPERS are both required 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 CalSTRS members who retire with 25 years of service), and (c) pensionable compensation is capped for new participants enrolled after the Implementation Date at 100% of the federal Social Security contribution and benefit base for members participating in Social Security or 120% for CalSTRS and CalPERS members not participating in social security. The District is unable to predict what the amount of State pension liabilities will be in the future, or the amount of the contributions which the District may be required to make (except as already announced). CalSTRS and CalPERS are more fully described in the District s financial statements attached hereto as APPENDIX B ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, GASB 67 and 68. In June 2012, the Governmental Accounting Standards Board ( GASB ) approved a pair of related statements, Statement Number 67, Financial Reporting for Pension Plans ( Statement Number 67 ), which addresses financial reporting for pension plans, and Statement Number 68, Accounting and Financial Reporting for Pensions ( Statement Number 68 ), which establishes new accounting and financial reporting requirements for governments that provide their employees with pensions. The guidance contained in these statements will change how governments calculate and report the costs and obligations associated with pensions. Statement Number 67 replaces the current requirements of Statement Number 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, for most public employee pension plans, and Statement Number 68 replaces the current requirements of Statement Number 27, Accounting for Pensions by State and Local Governmental Employers, for most government employers. The new statements also replace the requirements of Statement Number 50, Pension Disclosures, for those governments and pension plans. Certain of the major changes include: (i) the inclusion of unfunded pension liabilities on the government s balance sheet (such unfunded liabilities are currently typically included as notes to the government s financial statements); (ii) full pension costs would be shown as expenses regardless of actual contribution levels; (iii) lower actuarial discount rates would be required to be used for most plans for certain purposes of the financial statements, resulting in increased liabilities and pension expenses; and (iv) shorter amortization periods for unfunded liabilities would be required to be used for certain purposes of the financial statements, which generally would increase pension expenses. Statement Number 67 became effective beginning in fiscal year , and Statement Number 68 became effective beginning in fiscal year The District is unable to predict what the amount of State pension liabilities will be in the future, or the amount of the contributions which the District may be required to make. See APPENDIX B ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, (Remainder of This Page Intentionally Left Blank) A-15

48 Summary of General Fund Revenues and Expenditures The following tables summarize the District s audited financial results for the fiscal years through , as well as a comparison of the adopted general fund budget to audited actuals for fiscal years through , and the adopted budget for fiscal year See also APPENDIX B ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2017 for the District s audited financial statements for the year ending June 30, LAKE TAHOE COMMUNITY COLLEGE DISTRICT Statement of Revenues, Expenses and Change in Net Assets Fiscal Years through Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Operating Revenues Student tuition and fees $2,813,317 $2,952,288 $3,084,189 $3,250,976 $3,103,945 Less: Scholarship discounts and allowances (1,150,555) (1,192,205) (1,090,916) (1,146,212) (1,026,969) Net tuition and fees 1,662,762 1,760,083 1,993,273 2,104,764 2,076,976 Other Operating Revenue TOTAL $1,662,762 $1,760,083 $1,993,273 $2,104,764 $2,076,976 Operating Expenses Salaries $9,381,553 $9,357,125 $9,446,081 $10,243,679 $10,592,979 Employee benefits 3,990,299 3,396,658 3,279,085 2,622,976 4,473,467 Supplies, materials and other operating expenses and services 2,796,457 3,059,957 4,299,446 4,818,750 6,290,359 Student financial aid 2,355,640 2,512,364 2,271,209 2,121,988 1,922,281 Equipment, maintenance, and repairs Other Operating Expenses Depreciation 829,489 1,218,066 1,358,658 1,415,145 1,567,623 TOTAL $19,353,438 $19,544,170 $20,654,479 $21,222,538 $24,846,709 Operating Income (Loss) (17,690,676) (17,784,087) (18,661,206) (19,117,774) (22,769,733) Non-Operating Revenues (Expenses) State apportionments, non-capital $8,097,230 $7,668,934 $7,865,003 $8,907,460 $8,762,939 Federal grants 3,471,892 3,775,436 2,798,460 2,513,961 2,654,888 State grants 1,659,326 1,766,033 2,790,544 4,240,907 4,536,456 Local grants ,285 1,738,305 Local property taxes, levied for general purposes 3,452,632 3,564,120 3,774,278 3,940,126 4,145,224 Taxes levied for specific purposes ,536,034 1,558,990 State taxes and other revenues ,906 - Investment income 37,560 5,704 5, Interest expense on capital related debt (65,194) (94,656) (35,346) (58,516) (1,690,089) Investment income on capital asset-related debt, net ,994 93,397 Transfer to fiduciary funds (4,704) (187,588) (154,997) (176,997) (176,997) Other non-operating revenue 253, , , TOTAL NON-OPERATING REVENUES (EXPENSES) $16,902,479 $16,863,547 $17,359,580 $22,308,160 $21,623,113 Income Before Other Revenues and Expenses - $(1,060,250) $(1,301,626) $3,190,386 $1,146,620 State revenues, capital - 163, , , ,573 Change in Net Assets $ (788,197) (896,322) (1,200,250) 3,329,025 (788,047) Net Assets, Beginning of Year 30,752,520 30,244,138 (1) 17,193,038 (2) 15,992,788 19,321,814 Prior Period Adjustment (986, 210) Net Assets, End of Year $29,964,323 (1) $29,347,816 (2) $15,992,788 $19,321,813 $17,547,557 (1) Discrepancy between Net Assets, End of Year for Fiscal Year and Net Assets, Beginning of the Year for Fiscal Year is attributable to deferred issuance costs reported in connection with GASB Statement No. 65 and capitalized interest reported in connection with GASB Statement No. 62. (2) Discrepancy between Net Assets, End of Year for Fiscal Year and Net Assets, Beginning of the Year for Fiscal Year is attributable to restatement of long-term obligations in connection with the implementation of GASB Statement No. 68. Source: District s audited financial statements for fiscal years ended June 30, 2013, 2014, 2015, 2016 and A-16

49 LAKE TAHOE COMMUNITY COLLEGE DISTRICT General Fund Revenues, Expenditures and Changes in Fund Balance (Restricted and Unrestricted) through Budgeted Actuals Budgeted Actuals Budgeted Actuals Budgeted Revenue Federal Revenues $ 1,039,414 $ 997,262 $ 716,978 $ 626,512 $ 854,994 $ 937,347 $ 1,200,938 State Revenues 10,226,780 9,983,031 12,386,029 12,919,764 13,801,067 13,101,506 14,171,549 Local Revenues 5,029,190 5,492,684 5,326,397 5,573,054 5,578,894 5,716,510 5,897,873 TOTAL $16,295,384 $16,472,977 $18,429,404 $19,119,330 $20,234,955 $19,755,363 $21,270,360 Expenditures Academic Salaries $5,475,506 $5,574,887 $5,963,747 $5,806,498 $5,659,783 $5,626,590 $5,967,476 Classified Salaries 3,594,870 3,530,872 3,923,677 3,754,437 4,266,858 4,199,471 4,611,125 Employee Benefits 3,084,725 3,125,813 3,329,152 3,530,579 3,755,228 3,784,336 4,123,490 Books and Supplies 463, , , , , , ,196 Services/Other Operating Expenditures 3,297,425 3,171,574 3,645,187 3,380,437 4,784,756 4,123,151 4,711,457 Capital Outlay 243, , , , , , ,627 TOTAL $16,158,791 $16,057,184 $17,795,107 $17,331,445 $19,723,082 $18,659,000 $20,926,371 Excess/(Deficiency) of Revenues and Expenditures $136,593 $415,793 $634,297 $1,787,885 $511,873 $1,096,363 $343,989 Other Financing Sources $111,186 $126,007 $228,325 $ 161,020 $218,076 $ 163,457 $219,013 Other Outgo (528,633) (539,941) (803,891) (1,250,271) (580,898) (1,162,293) (589,071) Net Increase/Decrease in Fund Balance $(280,854) $1,859 $58,731 $698,634 $149,051 $97,527 $(26,069) Fund Balance, Beginning $1,796,660 $1,796,660 $1,798,519 $1,798,519 $2,497,153 $2,497,153 $2,594,680 Fund Balance, Ending $1,515,806 $1,798,519 $1,857,250 $2,497,153 $2,646,204 $2,594,680 $2,568,611 Sources: District s audited financial statements for fiscal years ended June 30, 2015, 2016 and 2017; District s adopted budgets for fiscal years ended June 30, 2015, 2016, 2017 and A-17

50 Accounting Practices; Annual Audit The accounting policies of the District conform to generally accepted accounting principles in accordance with the definitions, instructions and procedures of the California Community Colleges Budget and Accounting Manual. The Budget and Accounting Manual has the authority of regulation in accordance with Title 5, Section of the California Code of Regulations, as defined in California Education Code Section Each community college district is required to follow the Budget and Accounting Manual in accordance with Education Code Section For most activities and funds, a modified accrual basis is used. Revenues are recognized only when they are earned, measurable and available: collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures are recognized when an event or transaction is expected to draw upon current spendable resources. The District s financial statements are presented in accordance with GASB Statement No. 34 and No. 35, following a business-type activity model. These financial statements allow for the presentation of financial activity and results with respect to the District as a whole, rather than focusing on individual funds. The District s financial statements are presented using an accrual basis of accounting, recognizing revenues when earned and expenses when an obligation has been incurred. Vavrinek, Trine, Day & Co., LLP, Certified Public Accountants, serves as independent auditor to the District and its report for fiscal year ended June 30, 2017, is attached hereto as APPENDIX B. The District considers its audited financial statements to be public information, and accordingly no consent has been sought or obtained from the auditor in connection with the inclusion of such statements in this Official Statement. The auditor has made no representation in connection with inclusion of the audit herein that there has been no material change in the financial condition of the District since the audit was concluded. The District is required by law to file its audited financial statements with the County Clerk, County Superintendent of Schools, the Board of Governors of the California Community Colleges, and the State Department of Finance no later than December 31 following the close of each fiscal year. Long-Term Obligations The District carries on its books long-term obligations consisting of post-employment benefits, accrued vacation and other obligations, and capital lease obligations. See, generally, APPENDIX B ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, Post-Employment Benefits. The District offers subsidized health insurance benefits to all employees who retire from the District and meet the age and service requirements for eligibility (age 55 or older and a minimum ten years of service). The amount of the District s contribution towards such annual premiums per employee is determined according to collective bargaining agreements or court settlements. The District recognizes the cost of providing those benefits and related administrative costs when paid. Costs associated with employee benefits, including post-retirement benefits, have been rapidly increasing due to rising health care costs and health insurance premiums. Beginning in fiscal year , the District was required to implement GASB Statement No. 75 ( GASB 75 ) which replaced GASB Statement No. 45 as the accounting standard for Other Post Employment Benefit ( OPEB ) plans. On November 5, 2017, Total Compensation Systems, Inc., actuarial consultants, completed a study of the District s outstanding post-employment benefit obligations as of June 30, The actuarial study calculates the cost of benefits for current retirees, known as the pay-as-you-go cost. As of the date of the report, the District s pay-as-you-go cost of providing retiree health benefits in the year beginning July 1, 2017 was estimated to be $169,288. For current employees, the value of benefits accrued in the year beginning July 1, 2017 (the service cost ) is $114,087. This service cost would increase each year based on covered payroll and had the District begun accruing retiree health benefits when each current employee and retiree was hired, a substantial liability would have accumulated. That estimated liability is called the Total OPEB Liability ( TOL ) and is estimated to be $1,705,370. Under GASB 75, TOL is the portion of the actuarial present value of projected benefit payments attributable to employees service prior to the measurement date (previously termed the Actuarial Accrued Liability or AAL). A-18

51 The District has set aside funds to cover retiree health liabilities in a GASB 75 qualifying trust. The Fiduciary Net Position of this trust at June 30, 2017 was $557,498, leaving a Net OPEB Liability ( NOL ) of $1,147,872. Under GASB 75, for plans funded through a trust the NOL represents the unfunded portion of the liability (previously termed the Unfunded Actuarial Accrued Liability or UAAL). The OPEB Expense for the fiscal year ending June 30, 2017 is $165,608, which may be subject to adjustments particularly if the reporting date differs from the measurement date. Early Retirement Incentive. In , the District offered an early retirement incentive for full time faculty meeting eligibility requirements. These employees were offered an employer contribution to a 403b account in the total amount of $3,475 per complete year of service with the District, with no maximum. Payments did not exceed $52,000 annually, less the total employee voluntary contribution for that year. Payments were issued in annual installments during in June 2014 and June 2015, and payment in full occurred by June 30, In each fiscal year since, any additional costs have been defeased in part annually, and the balance was defeased by June 30, Accrued Vacation and Other Obligations. The long-term portion of compensated absence for the District as of June 30, 2017, was approximately $380,511. The District calculated the unfunded faculty banked leave as of June 30, 2017 to be $40,402. General Obligation Bonds. On November 4, 2014, voters in the District approved a bond measure authorizing the District to issue bonds in an aggregate principal amount not to exceed $55 million the 2014 Authorization to upgrade college facilities, modernize academic and job-training classrooms, science labs, and facilities, build a Public Safety Training Center, modernize technology, improve safety and energy efficiency, and improve facilities, sites and equipment. Pursuant to the 2014 Authorization, the District has issued its 2015 General Obligation Bonds, Election of 2014, Series A in the principal amount of $19,000,000 on August 20, 2015, of which $16,720,000 is currently outstanding. Insurance, Risk Pooling and Joint Powers Arrangements The District participates in the Statewide Association of Community Colleges Joint Powers Authority ( SWACC ) for property and liability insurance ($250,250,000 limit) and workers compensation coverage ($1,000,000 limit). Settled claims have not exceeded the commercial coverage in any of the past three years. As of June 30, 2017, there has not been a significant reduction in coverage from the prior year. With respect to workers compensation coverage, a common premium rate is applied to all member districts. Each participant pays its workers compensation premium based on its individual rate. Total savings are then calculated and each participant s individual performance is compared to the overall saving. A participant will then either receive money from or be required to contribute to the equity-pooling fund. The equity pooling arrangement ensures that each participant shares equally in the overall performance of SWACC. The District also participates in the Tri-County School Insurance Group Joint Powers Authority to provide employee medical benefits. Rates are set through an annual calculation process. The relationship between the District and the joint powers authorities are such that the joint powers authorities are not component units of the District for financial reporting purposes. A-19

52 Limitations on Revenues CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS On June 6, 1978, California voters approved Proposition 13 ( Proposition 13 ), which added Article XIIIA to the State Constitution ( Article XIIIA ). Article XIIIA limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on (i) indebtedness approved by the voters prior to July 1, 1978, (ii) bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-thirds of the voters on such indebtedness, and (iii) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures are included in the proposition. The Measure Q authorization under which the Bonds are issued was approved pursuant to clause (iii). Article XIIIA defines full cash value to mean the county assessor s valuation of real property as shown on the tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership have occurred after the 1975 assessment. This full cash value may be increased at a rate not to exceed 2% per year to account for inflation. Article XIIIA has subsequently been amended to permit reduction of the full cash value base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the full cash value base in the event of reconstruction of property damaged or destroyed in a disaster and in other minor or technical ways. County of Orange v. Orange County Assessment Appeals Board No. 3. Section 51 of the Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property as a result of natural disasters, economic downturns or other factors, to subsequently recapture such value (up to the pre-decline value of the property) at an annual rate higher than 2%, depending on the assessor s measure of the restoration of value of the damaged property. The constitutionality of this procedure was challenged in a lawsuit brought in 2001 in the Orange County Superior Court, and in similar lawsuits brought in other counties, on the basis that the decrease in assessed value creates a new base year value for purposes of Proposition 13 and that subsequent increases in the assessed value of a property by more than 2% in a single year violate Article XIIIA. On appeal, the California Court of Appeal upheld the recapture practice in 2004, and the State Supreme Court declined to review the ruling, leaving the recapture law in place. Legislation Implementing Article XIIIA. Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the taxing area based upon their respective situs. Any such allocation made to a local agency continues as part of its allocation in future years. Beginning in the fiscal year, assessors in the State no longer record property values on tax rolls at the assessed value of 25% of market value which was expressed as $4 per $100 assessed value. All taxable property is now shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100% of market value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value. Article XIIIB of the State Constitution An initiative to amend the State Constitution entitled Limitation of Government Appropriations was approved on September 6, 1979, thereby adding Article XIIIB to the State Constitution ( Article XIIIB ). Under A-20

53 Article XIIIB state and local governmental entities have an annual appropriations limit and are not permitted to spend certain moneys which are called appropriations subject to limitation (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the appropriations limit. Article XIIIB does not affect the appropriation of moneys which are excluded from the definition of appropriations subject to limitation, including debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the appropriations limit is to be based on certain expenditures, and is to be adjusted annually to reflect changes in consumer prices, populations, and services provided by these entities. Among other provisions of Article XIIIB, if these entities revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. In fiscal year the District had an appropriations limit of $31,217,295 with appropriations subject to the limit of $12,905,248. In fiscal year the District estimates an appropriations limit of $30,854,334 and appropriations subject to the limit of $13,525,486. Any proceeds of taxes received by the District in excess of the allowable limit are absorbed into the State s allowable limit. Article XIIIC and Article XIIID of the State Constitution On November 5, 1996, the voters of the State approved Proposition 218, popularly known as the Right to Vote on Taxes Act. Proposition 218 added Articles XIIIC and XIIID to the State Constitution ( Article XIIIC and Article XIIID, respectively), which contain a number of provisions affecting the ability of local agencies, including community college 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 community 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 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 State Constitution and special taxes approved by a two-thirds vote under Article XIIIA, Section 4. Article XIIID deals with assessments and property-related fees and charges, and explicitly provides that nothing in Article XIIIC or XIIID will be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development. The District does not impose any taxes, assessments, or property-related fees or charges which are subject to the provisions of Proposition 218. It does, however, receive a portion of the basic 1% ad valorem property tax levied and collected by the County pursuant to Article XIIIA of the State Constitution. The provisions of Proposition 218 may have an indirect effect on the District, such as by limiting or reducing the revenues otherwise available to other local governments whose boundaries encompass property located within the District thereby causing such local governments to reduce service levels and possibly adversely affecting the value of property within the District. Statutory Limitations On November 4, 1986, State voters approved Proposition 62, an initiative statute limiting the imposition of new or higher taxes by local agencies. The statute (a) requires new or higher general taxes to be approved by twothirds of the local agency s governing body and a majority of its voters; (b) requires the inclusion of specific information in all local ordinances or resolutions proposing new or higher general or special taxes; (c) penalizes local agencies that fail to comply with the foregoing; and (d) required local agencies to stop collecting any new or higher general tax adopted after July 31, 1985, unless a majority of the voters approved the tax by November 1, Appellate court decisions following the approval of Proposition 62 determined that certain provisions of Proposition 62 were unconstitutional. However, the Court upheld Proposition 62 in its decision on September 28, A-21

54 1995 in Santa Clara County Transportation Authority v. Guardino. This decision reaffirmed the constitutionality of Proposition 62. Certain matters regarding Proposition 62 were not addressed in the Supreme Court s decision, such as whether the decision applies retroactively, what remedies exist for taxpayers subject to a tax not in compliance with Proposition 62, and whether the decision applies to charter cities. Proposition 98 and Proposition 111 On November 8, 1988, voters approved Proposition 98, a combined initiative constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act (the Accountability Act ). The Accountability Act changed State funding of public education below the university level, and the operation of the State s Appropriations Limit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (collectively, K-14 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 , which percentage is equal to 40.9%, or (b) the amount actually appropriated to such districts from the general fund in the previous fiscal year, adjusted for growth in enrollment and inflation. Since the Accountability Act is unclear in some details, there can be no assurance that the Legislature or a court might not interpret the Accountability Act to require a different percentage of general fund revenues to be allocated to K-14 school districts than the 40.9%, or to apply the relevant percentage to the State s budgets in a different way than is proposed in the Governor s Budget. In any event, the Governor and other fiscal observers expect the Accountability Act to place increasing pressure on the State s budget over future years, potentially reducing resources available for other State programs, especially to the extent the Article XIIIB spending limit would restrain the State s ability to fund such other programs by raising taxes. The Accountability Act also changes how tax revenues in excess of the State Appropriations Limit are distributed. Any excess State tax revenues up to a specified amount would, instead of being returned to taxpayers, be transferred to K-14 school districts. Such transfer would be excluded from the Appropriations Limit for K-14 school districts and the K-14 school Appropriations Limits for the next year would automatically be increased by the amount of such transfer. These additional moneys would enter the base funding calculation for K-14 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 schools is 4% of the minimum State spending for education mandated by the Accountability Act, as described above. On June 5, 1990, State voters approved Proposition 111 (Senate Constitutional Amendment 1), which further modified the Constitution to alter the spending limit and education funding provisions of Proposition 98. Most significantly, Proposition 111 (1) liberalized the annual adjustments to the spending limit by measuring the change in the cost of living by the change in State per capita personal income rather than the Consumer Price Index, and specified that a portion of the State s spending limit would be adjusted to reflect changes in school attendance; (2) provided that 50% of the excess tax revenues, determined based on a two-year cycle, would be transferred to K-14 school districts with the balance returned to taxpayers (rather than the previous 100% but only up to a cap of 4% of the districts minimum funding level), and that any such transfer to K-14 school districts would not be built into the school districts base expenditures for calculating their entitlement for State aid in the following year and would not increase the State s appropriations limit; (3) excluded from the calculation of appropriations that are subject to the limit appropriations for certain qualified capital outlay projects and certain increases in gasoline taxes, sales and use taxes, and receipts from vehicle weight fees; (4) provided that the Appropriations Limit for each unit of government, including the State, would be recalculated beginning in the fiscal year, based on the actual limit for fiscal year , adjusted forward to as if Senate Constitutional Amendment 1 had been in effect; and (5) adjusted the Proposition 98 formula that guarantees K-14 school districts a certain amount of general fund revenues, as described below. Under prior law, K-14 school districts were guaranteed the greater of (a) 40.9% of general fund revenues (the first test ) or (b) the amount appropriated in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to per capita personal income) and enrollment (the second test ). Under Proposition 111, K-14 school districts would receive the greater of (a) the first test, (b) the second test or (c) a third test, which would replace the second test in any year when growth in per capita general fund revenues from the prior A-22

55 year was less than the annual growth in State per capita personal income. Under the third test, schools would receive the amount appropriated in the prior year adjusted for change in enrollment and per capita general fund revenues, plus an additional small adjustment factor. If the third test were used in any year, the difference between the third test and the second test would become a credit to be paid in future years when general fund revenue growth exceeds personal income growth. Proposition 30 and Proposition 55 On November 6, 2012, voters approved Proposition 30, also referred to as the Temporary Taxes to Fund Education, Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment. Proposition 30 temporarily (a) increased the personal income tax on certain of the State s income taxpayers by one to three percent for a period of seven years beginning with the 2012 tax year and ending with the 2019 tax year, and (b) increased the sales and use tax by one-quarter percent for a period of four years beginning on January 1, 2013 and ending with the 2016 tax year. The revenues generated from such tax increases are included in the calculation of the Proposition 98 minimum funding guarantee (see Proposition 98 and Proposition 111 above). The revenues generated from such temporary tax increases are deposited into a State account created pursuant to Proposition 30 (the Education Protection Account), and 89% of the amounts therein are allocated to school districts and 11% of the amounts therein are allocated to community college districts. The Proposition 30 sales and use tax increases expired at the end of the 2016 tax year. Under Proposition 30, the personal income tax increases were set to expire at the end of the 2018 tax year. However, the California Tax Extension to Fund Education and Healthcare Initiative ( Proposition 55 ), approved by voters on November 8, 2016, extends by twelve years the temporary personal income tax increases on incomes over $250,000 that was first enacted by Proposition 30; Proposition 55 did not extend the sales tax increases imposed by Proposition 30. Revenues from the income tax increase under Proposition 55 will be allocated to school districts and community colleges in the State. Proposition 51 At the November 8, 2016 Election, voters in the State approved the Kindergarten Through Community College Public Education Facilities Bond Act of 2016 ( Proposition 51 ). Proposition 51 authorizes the sale and issuance of $9 billion in general obligation bonds for new construction and modernization of K-14 facilities. The District makes no representation or guarantee that it will either pursue or qualify for Proposition 51 State facilities funding. K-12 School Facilities. Proposition 51 includes $3 billion for new construction of K-12 facilities and an additional $3 billion for modernization of existing K-12 facilities. K-12 school districts will be required to pay for 50% of new construction costs and 40% of modernization costs with local revenues. If a school district lacks sufficient local funding it may apply for additional state grant funding, up to 100% of the project costs. In addition, a total of $1 billion will be available for the modernization and new construction of charter school facilities ($500 million) and technical education facilities ($500 million). Generally, 50% of modernization and new construction project costs for charter school and technical education facilities must come from local revenues. However, schools that cannot cover their local share for these two project types may apply for State loans. State loans must be repaid over a maximum of 30 years for charter school facilities and 15 years for career technical education facilities. For career technical education facilities, State grants are capped at $3 million for a new facility and $1.5 million for a modernized facility. Charter schools must be deemed financially sound prior to project approval. Community College Facilities. Proposition 51 includes $2 billion for community college district facility projects, including land acquisition, new building construction, modernization of existing buildings, and equipment purchases. In order to receive funding, community college districts must submit project proposals to the Chancellor of the community college system, who then determines which projects to submit to the State Legislature and Governor based on a scoring system that considers in the amount of local funds contributed to the project. The Governor and State Legislature select among eligible projects as part of the annual state budget process. A-23

56 Applications of Constitutional and Statutory Provisions The application of Proposition 98 and other statutory regulations has become increasingly difficult to predict accurately in recent years. For a discussion of how the provisions of Proposition 98 have been applied to school funding see DISTRICT FINANCIAL INFORMATION State Funding of the Community College System; State Budget Process. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC, Article XIIID, as well as Propositions 62, 98, 111 and 218, were each adopted as measures that qualified for the ballot pursuant to the State s initiative process. From time to time other initiative measures could be adopted, further affecting District revenues or the District s ability to expend revenues. A-24

57 APPENDIX B ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2017 B-1

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59 LAKE TAHOE COMMUNITY COLLEGE DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2017

60 LAKE TAHOE COMMUNITY COLLEGE DISTRICT TABLE OF CONTENTS JUNE 30, 2017 FINANCIAL SECTION Independent Auditor's Report 2 Management's Discussion and Analysis (Required Supplementary Information) 5 Basic Financial Statements - Primary Government Statement of Net Position 13 Statement of Revenues, Expenses, and Changes in Net Position 14 Statement of Cash Flows 15 Fiduciary Funds Statement of Net Position 17 Statement of Changes in Net Position 18 Discretely Presented Component Unit Lake Tahoe College Foundation Statement of Financial Position 19 Statement of Activities 20 Statement of Cash Flows 21 Notes to Financial Statements 22 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Changes in the District s Net OPEB (Asset) / Liability and Related Ratios 58 Schedule of District Contributions for OPEB 59 Schedule of OPEB Investment Returns 60 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 61 Schedule of the District's Proportionate Share of the Net Pension Liability 62 Schedule of District Contributions 63 Note to Required Supplementary Information 64 SUPPLEMENTARY INFORMATION District Organization 67 Schedule of Expenditures of Federal Awards 68 Schedule of Expenditures of State Awards 69 Schedule of Workload Measures for State General Apportionment 70 Reconciliation of Education Code Section (50 Percent Law) Calculation 71 Proposition 30 Education Protection Act (EPA) Expenditure Report 74 Reconciliation of Annual Financial and Budget Report (CCFS-311) With Fund Financial Statements 75 Notes to Supplementary Information 76 ADDITIONAL SUPPLEMENTARY INFORMATION Balance Sheet Governmental Funds 79 Statement of Revenues, Expenditures, and Changes in Fund Balance Governmental Fund 80 Balance Sheet Proprietary Funds 81 Statement of Revenues, Expenses and Retained Earnings Proprietary Funds 82 Cash Flow Statement Proprietary Funds 83 Balance Sheet Fiduciary Funds 84 Statement of Revenues, Expenses, and Changes in Fund Balance Fiduciary Funds 85 Reconciliation of Statement of Net Position to Balance Sheet 86 Notes to Additional Supplementary Information 87

61 LAKE TAHOE COMMUNITY COLLEGE DISTRICT TABLE OF CONTENTS JUNE 30, 2017 INDEPENDENT AUDITOR'S REPORTS Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 91 Report on Compliance for Each Major Program and on Internal Control Over Compliance Required By the Uniform Guidance 93 Report on State Compliance 95 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditor's Results 98 Financial Statement Findings and Recommendations 99 Federal Awards Findings and Questioned Costs 100 State Awards Findings and Questioned Costs 101 Prior Findings and Questioned Costs 102

62 FINANCIAL SECTION 1

63 Board of Trustees Lake Tahoe Community College District South Lake Tahoe, California Report on the Financial Statements INDEPENDENT AUDITOR'S REPORT We have audited the accompanying financial statements of the business-type activities, the aggregate discretely presented component unit (Lake Tahoe Community College Foundation), and the aggregate remaining fund information of Lake Tahoe Community College District (the District) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the Table of Contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and the Contracted District Audit Manual, issued by the California Community Colleges Chancellor's Office. 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 the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion Hopyard Road, Suite 335 Pleasanton, CA Tel: Fax:

64 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities, the aggregate discretely presented component unit, and the aggregate remaining fund information of the District as of June 30, 2017, and the respective changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter - Change in Accounting Principles As discussed in Notes 2 and 11 to the financial statements, in 2017, the District adopted new accounting guidance, Governmental Accounting Standards Board (GASB) Statement No. 74, Financial Reporting for Postemployment Benefits Plans Other than Pension Plans and GASB Statement No. 75 Accounting and Financial Reporting for Postemployment Benefits Other Than Pension. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require the Management's Discussion and Analysis, the Schedule of Other Postemployment Benefits (OPEB) Funding Progress, the Schedule of the District's Proportionate Share of the Net Pension Liability, and the Schedule of District Contributions 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 the District's basic financial statements. The accompanying supplementary information listed in the Table of Contents, including the Schedule of Expenditures of Federal Awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirement for Federal Awards, is presented for purposes of additional analysis and is not a required part of the basic financial statements. The accompanying supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the accompanying supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The accompanying unaudited supplementary information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. 3

65 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December , on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control over financial reporting and compliance. Pleasanton, California December 5,

66 LAKE TAHOE COMMUNITY COLLEGE DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 The discussion and analysis of Lake Tahoe Community College District's financial performance provides an overall review of the District's financial activities for the fiscal year ended June 30, The intent of the Management s Discussion and Analysis is to look at the District's financial performance as a whole. To provide a complete understanding of the District's financial standing, this analysis should be read in conjunction with the entire Independent Auditor's Report, particularly the District's financial statements beginning on page 13, and the notes to the basic financial statements beginning on page 22. The Management s Discussion and Analysis (MD&A) is an element of the reporting model adopted by the Governmental Accounting Standards Board (GASB) in Statement No. 34, "Basic Financial Statements and Management Discussion and Analysis for State and Local Governments." Statement No. 35 was subsequently released, defining financial reporting for public colleges and universities. The financial statements in this report have been prepared in accordance with these standards. The California Community College Chancellor's Office, through its Fiscal and Accountability Standards Committee, has recommended the Business Type Activity (BTA) model for financial reporting. Lake Tahoe Community College District has adopted the BTA reporting model for these financial statements. To provide a more meaningful analysis of the District's financial information, certain comparative information is required to be presented in the MD&A. The reader will find comparative information relative to Full Time Equivalent Student enrollment (FTES) as well as key highlights of the audited financial statements. As required, the annual report consists of three basic financial statements that provide information on the District as a whole: Statement of Net Position Statement of Revenues, Expenses and Change in Net Position Statement of Cash Flows Financial Highlights The State Budget Act was adopted on June 27, This state budget reflects an economy that has expanded for seven consecutive years and begins to prepare for a recession in the future. This is reinforced by the limiting of new ongoing spending obligations and increasing the state s rainy day fund. The FY16-17 budget does not provide a COLA, and it contains significantly less one-time revenue. The budget includes approximately $168,000 in one-time revenue, a significant decrease from the almost $1 million received in FY It also includes approximately $150,000 of new funding to the base allocation from the state, as well as an increase to the marginal FTES funding rate to $5,004 per FTES. 5

67 LAKE TAHOE COMMUNITY COLLEGE DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 Financial Highlights (Continued) The following chart summarizes the past five years of enrollment: FTES Growth/Decline 2012/ /17 For the fiscal year , each non-credit FTES was funded at $3, per student and $5, for each non-credit CDCP student. Each resident credit FTES was funded at a rate of $5, The District again qualified for stability funding in FY15-16 and will have until to restore FTES and corresponding funding to that of actual FTES of 1761 based on amounts. LTCC is in the second of three years of restoration of the 66 FTES that were stabilized in FY The district received an additional credit and 3.83 non-credit FTES adjustment. This adjustment allowed the district to end the year at 1,739 FTES which was 22 FTES below the target and full restoration. Ancillary Programs The District s Bookstore is operated by Barnes & Noble. In the past few years the District received a percentage of revenues from Barnes & Noble each year based upon the following scale: 4% on all gross sales up to $500,000. 5% on all gross sales over $500,000. The district received $18,354 in commissions from Barnes & Noble for the fiscal year. The new contract with Barnes & Noble for the period of July 1, 2017 June 30, 2019 states that the District will receive a percentage of revenues from Barnes & Noble upon the following scale: 0% on all gross sales up to $500,000 2% on all gross sales up to $500,000 The Child Development Center (CDC) was designed with the idea of service for the child, the child's family, LTCC and the community. The CDC also provides training for students interested in becoming teachers of children through observation and on-site participation. The operating deficit in fiscal year was $41,105 which was partially covered with a $30,000 subsidy from the general fund. 6