MATURITY SCHEDULE (See inside front cover)

Transcription

1 NEW ISSUE BOOK-ENTRY ONLY Insured Rating: S&P AA Underlying Rating: S&P A (See RATING ) In the opinion of Lozano Smith, LLP, Sacramento, California, Special Counsel, under existing law, subject, however to certain qualifications described herein, under existing law, the interest represented by the Certificates is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporation, although for the purpose of computing the alternative minimum tax imposed on certain corporations, interest on the Certificates is taken into account in determining certain income and earnings. In the further opinion of Special Counsel, interest represented by the Certificates is exempt from State of California personal income taxes. See TAX MATTERS. $18,125,000 LOS BANOS UNIFIED SCHOOL DISTRICT 2015 CERTIFICATES OF PARTICIPATION (Capital Facilities Project) Evidencing the Direct, Undivided Fractional Interests of the Owners Thereof in Lease Payments to be made by the Los Banos Unified School District to the Public Property Financing Corporation of California Dated: Date of Delivery Due: August 1, as shown on inside cover Purpose. The captioned certificates of participation (the Certificates ) are being executed and delivered by the Los Banos Unified School District (the District ) to (i) provide funds to finance the construction, acquisition, and installation of capital facilities at the District s new Junior High School campus (the Project ), as described herein, (ii) pay costs of executing and delivering the Certificates, and (iii) provide for a reserve fund surety for the Lease Payments (as defined herein) for the benefit of the Certificates. See ESTIMATED SOURCES AND USES OF PROCEEDS. Security. The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of July 1, 2015 (the Trust Agreement ), by and among U.S. Bank National Association, as trustee, the Public Property Financing Corporation of California (the Corporation ) and the District. Pursuant to a Site Lease, dated as of July 1, 2015, the District will lease certain District-owned Land and improvements as described in the Lease Agreement, and/or other suitable District-owned property (the Leased Property ) to the Corporation, and will lease the Leased Property back from the Corporation pursuant to a Lease Agreement, dated as of July 1, 2015 (the Lease Agreement ), by and between the Corporation and the District. The Certificates evidence direct, undivided fractional interests in Lease Payments to be made by the District, as lessee under the Lease Agreement, for use and possession of the Leased Property. The District has covenanted to budget and appropriate Lease Payments in each fiscal year in consideration of the use and occupancy of the Leased Property from any source of legally available funds, and to take such action as may be necessary to include all Lease Payments in its annual budgets and to make the necessary annual appropriations therefor. See SECURITY AND SOURCES OF PAYMENT OF THE CERTIFICATES Lease Payments herein. The District s obligation to make Lease Payments is subject to abatement in the event of the taking of, damage to or loss of use and possession of the Leased Property. Certificate Terms; Book-Entry Only. Interest with respect to the Certificates will be calculated at the rates shown on the inside cover page, payable semiannually on February 1 and August 1 of each year, commencing on February 1, 2016, and will be issued in fully-registered form without coupons in the denomination of $5,000 or any integral multiple of $5,000. The Certificates will be issued in book-entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). Purchasers of the Certificates will not receive certificates representing their interests in the Certificates. Payments of the principal of, premium, if any, and interest represented by the Certificates will be made to DTC, which is obligated in turn to remit such principal, premium, if any, and interest to its DTC Participants for subsequent disbursement to the beneficial owners of the Certificates. See THE CERTIFICATES - General and APPENDIX E BOOK-ENTRY ONLY SYSTEM. MATURITY SCHEDULE (See inside front cover) Prepayment. The Certificates are subject to prepayment prior to maturity as described herein. See THE CERTIFICATES Prepayment. Insurance. The scheduled payment of principal of and interest with respect to the Certificates when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Certificates by ASSURED GUARANTY MUNICIPAL CORP. Cover Page. This cover page of the Official Statement contains information for quick reference only and is not a complete summary of the Certificates or the Lease. Investors should read the entire Official Statement to obtain information essential to the making of an informed investment decision. See RISK FACTORS herein for a discussion of special risk factors that should be considered, in addition to the other matters set forth herein, in evaluating the investment quality of the Certificates. The obligation of the District to make lease payments does not constitute an obligation of the District for which the District is obligated to levy or pledge any form of taxation or for which the District has levied or pledged any form of taxation. Neither the Certificates nor the obligation of the District to make Lease Payments constitutes a debt of the District, the State of California or any of their respective political subdivisions in contravention of any constitutional or statutory debt limitation or restriction. The obligation of the District to make Lease Payments is subject to the District s beneficial use and possession of the Leased Property. The Certificates are offered when, as and if delivered and received by the Underwriter, subject to the approval as to legality by Lozano Smith, LLP, Sacramento, California, as Special Counsel. Lozano Smith, LLP, Sacramento, California is acting as Disclosure Counsel to the District, and Nossaman LLP, Irvine, California, is acting as counsel to the Underwriter. It is anticipated that the Certificates in book-entry form will be available for delivery through the facilities of The Depository Trust Company on or about July 22, The date of this Official Statement is July 8, 2015.

2 MATURITY SCHEDULE 2015 Certificates of Participation $6,300,000 Serial Certificates (Base CUSIP : ) Maturity Principal Interest (August 1) Amount Rate Yield Price CUSIP 2023 $505, % 2.590% % BM , BN , BP , c BQ , c BR , c BS , c BT , BU , BV , BW5 C = Yield to call at par on August 1, 2025 $2,460, % Term Certificates due August 1, 2035 Price: %, to Yield 4.050%; CUSIP BY1 $4,795, % Term Certificates due August 1, 2040 Price: %, to Yield 4.130%; CUSIP BZ8 $4,570, % Term Certificates due August 1, 2044 Price: %, to Yield 4.200%; CUSIP CA2 Copyright 2015, American Bankers Association. CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by the CUSIP Service Bureau, operated by Standard & Poor s, a division of McGraw-Hill Financial, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services Bureau. CUSIP numbers have been assigned by an independent company not affiliated with the District and are included solely for the convenience of the registered owners of the Certificates. Neither the District nor the Underwriter is responsible for the selection or uses of these CUSIP numbers, and no representation is made as to their correctness on the Certificates or as included herein. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Certificates as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Certificates. Piper Jaffray & Co. Since Member SIPC and FINRA.

3 LOS BANOS UNIFIED SCHOOL DISTRICT BOARD OF EDUCATION Mr. Anthony Parreira, President Mrs. Marlene Smith, Vice President Mr. Tommy Jones, Clerk Mr. Dennis Areias, Member Mrs. Carole Duffy, Member Mr. Dominic Falasco Member Mr. John Mueller, Member DISTRICT ADMINISTRATION Steve Tietjen, Ed.D., Superintendent Dean Bubar, Assistant Superintendent, Administrative Services Don Laursen, Director of Fiscal Services PROFESSIONAL SERVICES SPECIAL COUNSEL, DISCLOSURE COUNSEL, AND DISTRICT COUNSEL Lozano Smith, LLP Sacramento, California FINANCIAL ADVISOR Fieldman, Rolapp & Associates Irvine, California TRUSTEE US Bank National Association Los Angeles, California UNDERWRITER S COUNSEL Nossaman, LLP Irvine, California

4 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Certificates. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the District, in any press release, and in any oral statement made with the approval of an authorized officer of the District or any other entity described or referenced herein, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, forecast, expect, intend and similar expressions identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representations in connection with the offer or sale of the Certificates other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the District, or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Certificates by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Stabilization of Prices. In connection with this offering, the Underwriter may over-allot or effect transactions which stabilize or maintain the market price of the Certificates 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 Certificates to certain dealers and others at prices lower than the public offering prices set forth on the inside front cover page hereof and said public offering prices may be changed from time to time by the Underwriter. Involvement of Underwriter. 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 a part of, its 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. Involvement of Certificate Insurer. Assured Guaranty Municipal Corp. ( Certificate Insurer ), as insurer of the Certificates, has provided the following statement for inclusion in this Official Statement: Certificate Insurer makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, Certificate Insurer has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Certificate Insurer, supplied by Certificate Insurer, and presented under the heading CERTIFICATE INSURANCE and Appendix G - Specimen Certificate Insurance Policy. Information Subject to Change. The information set forth in this Official Statement has been furnished by the District and other sources that are believed to be reliable, but it is not guaranteed as to accuracy or completeness. This Official Statement speaks only as of its date, and the information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or any other entity described or referenced herein since the date of this Official Statement. Document Summaries. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions. District Website. The District maintains a website at However, the information presented there is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Certificates. THE CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE CERTIFICATES HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

5 TABLE OF CONTENTS INTRODUCTION... 1 The District... 1 Purpose of the Certificates... 1 Security and Source of Payment of the Certificates... 1 Description of the Certificates... 2 Continuing Disclosure... 3 Professionals Involved in the Offering... 3 Certificate Owners Risks... 3 Other Information... 3 THE PROJECT... 4 THE LEASED PROPERTY... 4 THE CERTIFICATES... 4 General... 4 Prepayment... 5 Prepayment Procedures... 7 SCHEDULE OF LEASE PAYMENTS... 8 SECURITY AND SOURCES OF PAYMENT OF THE CERTIFICATES General Lease Payments Lease Payment Fund Reserve Fund Additional Payments Insurance ESTIMATED SOURCES AND USES OF PROCEEDS DEBT SERVICE SCHEDULE CERTIFICATE INSURANCE RISK FACTORS General Considerations Security for the Certificates Constitutional and Statutory Provisions Affecting District Revenues and Appropriations Abatement Absence of Earthquake Insurance Hazardous Substances Other Limitations on Liability No Acceleration Upon Default Limited Recourse on Default Addition and/or Substitution of Leased Property Leased Property Value Investment of Lease Payment Fund Deposits Loss of Tax Exemption Secondary Market Change in Law Regarding Tax Exemption IRS Audits Seismic Risk, Flood Risk, and Drought Risk Concentration of Ownership THE CORPORATION THE DISTRICT Introduction Administration Enrollment Labor Relations Retirement Benefits Other Post-Employment Benefits Public Entity Risk Pools and Joint Power Authorities DISTRICT FINANCIAL INFORMATION Accounting Practices Financial Statements Budget Process General Fund Budgets Long-Term Debt State Funding of Education; State Budget Process State Dissolution of Redevelopment Agencies State Budget Measures Revenue Sources Developer Fees Legal Challenge to State Funding of Education Ad Valorem Property Taxation Assessed Valuations Tax Rates Appeals of Assessed Value Tax Levies and Delinquencies Alternative Method of Tax Apportionment Largest Secured Property Taxpayers in District CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Article XIIIA of the California Constitution Legislation Implementing Article XIIIA State-Assessed Utility Property Article XIIIB of the California Constitution Article XIIIC and Article XIIID of the California Constitution Proposition Propositions 98 and Proposition Jarvis v. Connell Proposition 1A and Proposition Proposition Proposition Future Initiatives TAX MATTERS FINANCIAL ADVISOR CONTINUING DISCLOSURE ABSENCE OF MATERIAL LITIGATION RATING UNDERWRITING MISCELLANEOUS APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS... A-1 APPENDIX B - PROPOSED FORM OF OPINION OF SPECIAL COUNSEL... B-1 APPENDIX C - AUDIT REPORT OF THE DISTRICT FOR THE YEAR ENDED JUNE 30, C-1 APPENDIX D - FORM OF CONTINUING DISCLOSURE CERTIFICATE... D-1 APPENDIX E - BOOK-ENTRY ONLY SYSTEM... E-1 APPENDIX F - CITY OF LOS BANOS AND COUNTY OF MERCED DEMOGRAPHIC INFORMATION... F-1 APPENDIX G - SPECIMEN CERTIFICATE INSURANCE POLICY... G-1 i

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7 $18,125,000 Los Banos Unified School District 2015 Certificates of Participation, (Capital Facilities Project) Evidencing the Direct, Undivided Fractional Interests of the Owners Thereof in Lease Payments to be Made by the Los Banos Unified School District to the Public Property Financing Corporation of California INTRODUCTION This Introduction is not a summary of this Official Statement and is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. This Official Statement, which includes the cover page, Table of Contents and Appendices hereto, provides certain information concerning the sale and delivery of Los Banos Unified School District 2015 Certificates of Participation, (Capital Facilities Project) in the aggregate principal amount of $18,125,000 (the Certificates ) evidencing the direct, undivided fractional interests of the registered owners thereof (the Owners ) in Lease Payments (as hereinafter defined) to be made by the Los Banos Unified School District (the District ) pursuant to a Lease Agreement, dated as of July 1, 2015 (the Lease Agreement ), by and between the Public Property Financing Corporation of California, as lessor (the Corporation ), and the District, as lessee, for the use and possession of certain District-owned land and improvements and/or other suitable District-owned property, as described herein and in the Lease Agreement. The District The Los Banos Unified School District was established in 1965 and is located in Merced County, California (the County ). The District operates eight (8) elementary schools, one junior high school, two comprehensive high schools, one alternative high school, and one independent study school. The District encompasses 640 square miles and serves approximately 10,000 students. The District is governed by a seven member Board of Education (the Board ), each member of which is elected to a four year term. Elections for positions to the Board are held every two years, alternating between three and four available positions. The management and policies of the District are administered by a Superintendent appointed by the Board who is responsible for day to day District operations as well as the supervision of the District s other personnel. See LOS BANOS UNIFIED SCHOOL DISTRICT. Purpose of the Certificates The net proceeds of the Certificates will be used to (i) provide funds to finance construction, acquisition, and installation of capital facilities at the District s new Junior High School campus, (ii) pay costs of executing and delivering the Certificates, and (iii) provide for a reserve fund surety for the Lease Payments (as defined herein). See THE PROJECT and ESTIMATED SOURCES AND USES OF PROCEEDS. Security and Source of Payment of the Certificates The Certificates are being executed and delivered pursuant to a Trust Agreement (the Trust Agreement ), dated as of July 1, 2015, by and among the District, the Corporation and US Bank National Association, as trustee (the 1

8 Trustee ). The District is required under the Lease Agreement to pay Lease Payments for the use and possession of the Leased Property, as further described under the caption THE LEASED PROPERTY herein. The Leased Property is not being improved with proceeds of the Certificates. The District is also required to pay any taxes and assessments, and is responsible for all maintenance and repair of the Leased Property. Pursuant to an Assignment Agreement, dated as of July 1, 2015 (the Assignment Agreement ), by and between the Corporation and the Trustee, the Corporation will assign to the Trustee, for the benefit of the Owners, substantially all of its rights under the Lease Agreement and a Site Lease, dated as of July 1, 2015 (the Site Lease ), by and between the District and the Corporation, including its rights to receive and collect Lease Payments and prepayments from the District under the Lease Agreement and rights as may be necessary to enforce payment of Lease Payments and prepayments. All rights assigned by the Corporation pursuant to the Assignment Agreement will be administered by the Trustee in accordance with the provisions of the Trust Agreement for the equal and proportionate benefit of all Owners. The Certificates evidence fractional and undivided interests in the right to receive Lease Payments and prepayments thereof to be made by the District to the Corporation under the Lease Agreement. The Lease Payments are designed to pay, when due, the principal and interest with respect to the Certificates. The District has covenanted in the Lease Agreement that it will take such action as may be necessary to include the Lease Payments and other payments due under the Lease Agreement in its annual budgets and to make the necessary annual appropriations therefor. The District s obligation to make Lease Payments is subject to abatement in the event of the taking of, damage to, or loss of use and possession of, the Leased Property. See RISK FACTORS - Abatement herein. The obligation of the District to make Lease Payments does not constitute an obligation of the District for which the District is obligated to levy or pledge any form of taxation or for which the District has levied or pledged any form of taxation. Neither the Certificates nor the obligation of the District to make Lease Payments constitutes a debt of the District, the State of California or any of their respective political subdivisions in contravention of any constitutional or statutory debt limitation or restriction. Description of the Certificates For a more complete description of the Certificates and the basic documentation pursuant to which they are being sold and delivered, see THE CERTIFICATES and APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS. The summaries and descriptions in the Official Statement of the Trust Agreement, the Lease Agreement, the Site Lease, the Assignment Agreement and other agreements relating to the Certificates are qualified in their entirety by the form thereof and the information with respect thereto included in such documents. Prepayment. The Certificates are subject to optional prepayment. The Certificates are subject to extraordinary optional prepayment, in whole or part, on any date and without premium, from the proceeds of general obligation bonds and/or state grants. The Certificates also are subject to mandatory prepayment from certain proceeds of insurance or eminent domain proceedings credited towards the prepayment of the Lease Payments under the Lease and the Trust Agreement, in each case, as described herein. See THE CERTIFICATES - Prepayment herein. The Registration, Transfers and Exchanges. The Certificates will be executed and delivered as fully registered Certificates, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ( DTC ), and will be available to actual purchasers of the Certificates in the denominations set forth above, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described herein. Owners will not be entitled to receive physical delivery of the Certificates. See APPENDIX E - BOOK-ENTRY ONLY SYSTEM. If the book-entry only system described below is no longer used with respect to the Certificates, then the Certificates will be registered and transferred in accordance with the Trust 2

9 Agreement. The Certificates are being delivered in the minimum denominations of $5,000 principal amount and any integral multiple thereof. Payments. Interest with respect to the Certificates is calculated at the rates shown on the inside cover page, payable semiannually on February 1 and August 1 of each year, commencing on February 1, 2016 (each, an Interest Payment Date ), and will be issued in fully-registered form without coupons in denominations of $5,000 or any integral multiple of $5,000. Payments of principal, premium, if any, and interest due with respect to the Certificates are payable by the Trustee to DTC. Disbursement of such payments to DTC Participants is the responsibility of DTC and disbursement of such payments to the Owners is the responsibility of DTC Participants. If the book-entry only system is no longer used with respect to the Certificates, then the Owners will become the registered owners of the Certificates and will be paid principal and interest by the Trustee, all as described herein. See APPENDIX E BOOK-ENTRY ONLY SYSTEM. Continuing Disclosure The District has covenanted for the benefit of the holders and Owners of the Certificates to provide certain financial information and operating data relating to the District by not later than nine months following the end of the District s Fiscal Year (which would be March 31 following its Fiscal Year ending on June 30) (the Annual Report ), commencing with the report for the Fiscal Year ending June 30, 2015, which will be due by March 31, 2016, and to provide notices of the occurrence of certain enumerated events. These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12(b)(5) promulgated under the Securities Exchange Act of 1934, as amended. See CONTINUING DISCLOSURE and APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE. Professionals Involved in the Offering U.S. Bank National Association, Los Angeles, California, will act as Trustee with respect to the Certificates. The Certificates will be delivered subject to the approval as to their legality by Lozano Smith, LLP, Sacramento, California, acting as Special Counsel. Lozano Smith, LLP, Sacramento, California is also acting as Disclosure Counsel with respect to the Certificates, and as Counsel to the District, and Nossaman LLP, Irvine, California, is acting as counsel to the Underwriter. Fieldman, Rolapp, & Associates, Irvine, California, has served as financial advisor to the District in connection with the execution and delivery of the Certificates. Certificate Owners Risks Certain events could affect the ability of the District to make the Lease Payments when due. See RISK FACTORS herein for a discussion of certain factors that should be considered, in addition to other matters set forth herein, in evaluating an investment in the Certificates. Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies of the Lease Agreement, the Site Lease, the Trust Agreement, the Assignment Agreement and the Continuing Disclosure Certificate and information concerning the Certificates are available from the office of the Financial Advisor, Fieldman, Rolapp & Associates, MacArthur Boulevard, Suite 1100, Irvine, California , telephone: (949) or from the Assistant Superintendent - Administrative Services, Los Banos Unified 3

10 School District, 1717 S. 11th Street, Los Banos, California ; (209) The District may impose a charge for copying, mailing and handling. This Official Statement contains brief descriptions of, among other things, the District, the Corporation, the Certificates, the Trust Agreement, the Lease Agreement, the Assignment Agreement, the Site Lease Agreement and certain other matters relating to the security for the Certificates. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to documents and agreements are qualified in their entirety by reference to such documents, and agreement and references herein to the Certificates are qualified in their entirety by reference to the form thereof included in the Trust Agreement. Copies of such documents will be available for inspection at the principal office of the Trustee after delivery of the Certificates. Capitalized terms used but not otherwise defined herein will have the meanings assigned thereto in the Trust Agreement or the Lease Agreement. The sale and delivery of the Certificates to potential investors is made only by means of the Official Statement. THE PROJECT The net proceeds of the Certificates will be used by the District to finance construction, acquisition, and installation of capital facilities at the District s new Junior High School campus (the Project ). Construction of the Project began in March 2015 and is due to be completed by August The site of the Project is separate and distinct from the Leased Property and is not subject to the Site Lease or the Lease Agreement. However, upon completion of the Project, the District has covenanted in the Lease Agreement to substitute the real property and improvements constituting the Project for the Leased Property, at which time the Leased Property will be released from the Site Lease and the Lease Agreement. Upon such substitution, the Project will become subject to the Lease Agreement. See The Leased Property. THE LEASED PROPERTY Pursuant to the Site Lease, the District is leasing the Leased Property to the Corporation and leasing the Leased Property back from the Corporation pursuant to the Lease Agreement. The Leased Property consists of certain District-owned land and improvements as described in the Lease Agreement, currently comprised of the Los Banos Junior High School campus. The insured value of the Leased Property is more than $35,000,000. See RISK FACTORS Leased Property Values herein. Upon the completion of Project, the District intends to release the Los Banos Junior High School campus from the term of the Lease Agreement and the Site Lease and substitute the new Junior High School site and improvements (e.g., the completed Project) for the Leased Property. The value of the Project, upon completion, is expected to be at least equal to the aggregate original principal amount of the Certificates. For a summary of the substitution requirements under the Lease, see APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS LEASE Addition and/or Substitution of Leased Property. Under the Site Lease and Lease Agreement, the District may supplement the Leased Property with, and/or substitute, other suitable District-owned property in place of the Leased Property. General THE CERTIFICATES The Certificates will be dated the date of delivery (the Date of Delivery ) and mature on the dates set forth on the inside cover page of this Official Statement. The Certificates will be executed as registered Certificates, without coupons, in denominations of $5,000 principal amount or any integral multiple thereof. Interest with respect to the Certificates will be payable each February 1 and August 1, commencing February 1, 2016 (each, an Interest Payment Date ) at the interest rates set forth on the inside cover page of this Official 4

11 Statement. Each Certificate will be dated as of the date of its execution, and interest represented by any such Certificate will be payable from the Interest Payment Date next preceding that Certificate s date of execution, unless: (a) the Certificate is executed following the close of business on the 15th day preceding an Interest Payment Date (the Record Date ) and on or before the next succeeding Interest Payment Date, in which event interest represented by such Certificate will be payable from that Interest Payment Date, (b) the Certificate is executed on or before the first Record Date, in which event interest represented by that Certificate will be payable from the Closing Date, or (c) as of the date of any Certificate, interest represented by such Certificate is in default, in which event interest represented by such Certificate will be payable from the Interest Payment Date on which interest has previously been paid or made available for payment with respect to that Certificate. Interest with respect to the Certificates will be computed on the basis of a 360-day year comprised of twelve 30- day months. Owners of Current Interest Certificates in an aggregate principal amount of $1,000,000 or more may, by providing written request to the Trustee, receive interest with respect to the Certificates by wire transfer to a bank account within the United States that is on record with the Trustee as of the Record Date. The Certificates evidence and represent direct, fractional and undivided interests of the Owners thereof in the Lease Payments to be made by the District. To the extent Lease Payments are abated or not made under the Lease Agreement, then all Owners will receive a proportionate reduction in their payments. If the Lease Agreement is prepaid in part, for any reason, then the Owner will be entitled only to the remaining Lease Payments. Principal and premium, if any, with respect to the Certificates will be payable upon surrender by the Owners thereof at the principal office of the Trustee. Interest with respect to the Certificates will be payable by check mailed by first class mail to the Owners of record at the address shown on the Certificate registration books maintained by the Trustee for such purpose. Prepayment Extraordinary Prepayment. The Certificates are subject to prepayment prior to their respective stated maturity dates, at the option of the District, from the proceeds of a future authorization of general obligation bonds or State grants, or any combination thereof, as a whole or in part, on any date at a prepayment price equal to the principal amount of the Certificates called for prepayment, together with interest accrued thereon to the date of prepayment, without premium. Optional Prepayment. The Certificates maturing on or before August 1, 2025, are not subject to optional prepayment prior to their respective stated maturity dates. The Certificates maturing on or after August 1, 2026, are subject to prepayment 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, 2025, at a prepayment price equal to the principal amount of the Certificates called for prepayment, together with interest accrued thereon to the date of prepayment, without premium. 5

12 Mandatory Sinking Fund Prepayment. The term Certificates maturing on August 1, 2035, are subject to mandatory sinking fund prepayment on August 1 in each of the years and in the respective principal amounts as set forth in the following schedule, at a prepayment price equal to 100% of the principal amount thereof to be prepaid, together with interest accrued thereon to the date fixed for prepayment, without premium: Mandatory Sinking Fund Prepayment Date (August 1) Principal Amount to be Prepaid 2033 $790, , ,000 Maturity. The term Certificates maturing on August 1, 2040, are subject to mandatory sinking fund prepayment on August 1 in each of the years and in the respective principal amounts as set forth in the following schedule, at a prepayment price equal to 100% of the principal amount thereof to be prepaid, together with interest accrued thereon to the date fixed for prepayment, without premium: Mandatory Sinking Fund Prepayment Date (August 1) Principal Amount to be Prepaid 2036 $ 885, , , , ,035,000 Maturity. The term Certificates maturing on August 1, 2044, are subject to mandatory sinking fund prepayment on August 1 in each of the years and in the respective principal amounts as set forth in the following schedule, at a prepayment price equal to 100% of the principal amount thereof to be prepaid, together with interest accrued thereon to the date fixed for prepayment, without premium: Mandatory Sinking Fund Prepayment Date (August 1) Principal Amount to be Prepaid 2041 $1,075, ,120, ,165, ,210,000 Maturity. The principal amount to be prepaid in each year shown above will be reduced proportionately, or as otherwise directed by the District, in integral multiples of $5,000, by any portion of such term Certificates optionally prepaid prior to the mandatory sinking fund prepayment date. 6

13 Mandatory Prepayment from Net Proceeds of Insurance or Condemnation. The Certificates are subject to mandatory prepayment, in whole or in part, on any day in inverse order of maturity from certain proceeds of insurance or eminent domain proceedings credited towards the prepayment of the Lease Payments under the Lease and the Trust Agreement, at a prepayment price equal to 100% of the principal amount to be prepaid, together with accrued interest represented thereby to the date fixed for prepayment, without premium. Selection of Certificates for Prepayment. Whenever provision is made in the Trust Agreement for the prepayment of Certificates and less than all Outstanding Certificates of any one maturity are called for prepayment, the Trustee will select Certificates of such maturity for prepayment by lot, and the Trustee shall promptly notify the District and the Corporation in writing of the Certificates or portions thereof so selected for prepayment. For the purposes of such selection, Certificates will be deemed to be composed of $5,000 portions, and any such portion may be separately prepaid. Prepayment Procedures When prepayment is authorized or required pursuant to the Trust Agreement, the Trustee will give notice of the prepayment of the Certificates on behalf and at the expense of the District. Such notice must: (a) state the prepayment date and prepayment price; (b) state the CUSIP numbers or maturities of the Certificates to be prepaid, if less than all of the then Outstanding Certificates are to be called for prepayment; (c) if a Certificate is to be prepaid only in part, identify the portion of the Certificate which is to be prepaid; (d) require that such Certificates be surrendered on the prepayment date at the Office of the Trustee for prepayment at said prepayment price; and (e) state that interest represented by the Certificates will not accrue from and after the prepayment date; (f) state that on the prepayment date the principal and premium, if any, represented by each Certificate will become due and payable, together with accrued interest represented thereby to the prepayment date, and that from and after such date interest represented thereby ceases to accrue and be payable. The Trustee will mail notice of prepayment by first class mail with postage prepaid, to the Information Services and the Securities Depositories, and to the Owners of Certificates designated for prepayment at their respective addresses appearing on the Registration Books, at least 30 days but not more than 60 days prior to the prepayment date. Neither the failure to receive any such notice nor any defect in any notice so mailed will affect the sufficiency of the proceedings for the prepayment of such Certificates or the cessation of accrual of interest represented thereby from and after the date fixed for prepayment. So long as DTC is the registered Owner of the Certificates, all such notices will be provided to DTC as the Owner, without respect to the Ownership of the Certificates. See APPENDIX E BOOK-ENTRY ONLY SYSTEM. Notice having been given to the Owners of the Certificates as aforesaid, and the moneys for the prepayment (including the interest to the applicable date of prepayment), having been set aside in the Lease Payment Fund, the Certificates will become due and payable on said date of prepayment, and upon presentation and surrender thereof at 7

14 the Office of the Trustee, said Certificates will be paid at the unpaid principal amount (or applicable portion thereof) with respect thereto, plus interest accrued and unpaid to said date of prepayment. If, on said date of prepayment, moneys for the prepayment of all the Certificates to be prepaid, together with interest to said date of prepayment, will be held by the Trustee so as to be available therefor on such date of prepayment, and, if notice of prepayment thereof shall have been given as aforesaid, then, from and after said date of prepayment, interest with respect to the Certificates to be prepaid will cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the prepayment of Certificates shall be held in trust for the account of the Owners of the Certificates so to be prepaid, and will be held by the Trustee in cash uninvested. SCHEDULE OF LEASE PAYMENTS Lease Payments are required to be made by the District under the Lease Agreement on each January 15 and July 15 (each, a Lease Payment Date ), commencing January 15, 2016, to and including the final date of maturity of the Certificates, for the use and possession of the Leased Property for the period commencing as of the Date of Delivery and terminating on August 31, 2044, or extended as provided in the Lease Agreement. The table on the following page summarizes the semi-annual payment requirements of the District on each Lease Payment Date. [REMAINDER OF PAGE INTENTIONALLY BLANK] 8

15 Lease Payment Date TABLE 1 LOS BANOS UNIFIED SCHOOL DISTRICT Lease Payment Schedule Principal Component 9 Interest Component Aggregate Lease Payment January 15, 2016 $ 397, $ 397, July 15, , , January 15, , , July 15, , , January 15, , , July 15, , , January 15, , , July 15, , , January 15, , , July 15, , , January 15, , , July 15, , , January 15, , , July 15, , , January 15, , , July 15, 2023 $ 505, , , January 15, , , July 15, , , , January 15, , , July 15, , , , January 15, , , July 15, , , , January 15, , , July 15, , , , January 15, , , July 15, , , , January 15, , , July 15, , , , January 15, , , July 15, , , , January 15, , , July 15, , , , January 15, , , July 15, , , ,010, January 15, , , July 15, , , ,026, January 15, , , July 15, , , ,040, January 15, , , July 15, , , ,054, January 15, , , July 15, , , ,072, January 15, , , July 15, , , ,089, January 15, , , July 15, , , ,111, January 15, , , July 15, , , ,127, January 15, , , July 15, ,035, , ,147, January 15, , , July 15, ,075,000 91, ,166, January 15, , , July 15, ,120,000 69, ,189, January 15, , , July 15, ,165,000 47, ,212, January 15, , , July 15, ,210,000 24, ,234, Totals $18,125,000 $14,928, $33,053,393.75

16 SECURITY AND SOURCES OF PAYMENT OF THE CERTIFICATES Neither the Certificates nor the obligation of the District to make Lease Payments constitutes an obligation of the District for which the District is obligated to levy or pledge, or for which the District has levied or pledged, any form of taxation. Neither the Certificates nor the obligation of the District to make Lease Payments constitutes a debt of the District, the State of California or any of their respective political subdivisions in contravention of any constitutional limitation or any statutory debt limitation or restriction. General Each Certificate represents a direct, undivided, fractional interest in the Lease Payments and prepayments to be made by the District to the Trustee under the Lease Agreement. The District is obligated to pay Lease Payments from any source of legally available funds, and has covenanted in the Lease Agreement to include all Lease Payments coming due in its annual budgets and to make the necessary annual appropriations therefor. The Corporation, pursuant to the Assignment Agreement, has assigned all of its rights under the Lease Agreement (excepting certain rights as specified therein), including the right to receive Lease Payments, to the Trustee for the benefit of the Owners. By the fifteenth calendar day preceding the Interest Payment Date, the District must pay to the Trustee a Lease Payment (to the extent required under the Lease Agreement) which is equal to the amount necessary to pay the principal of and interest due with respect to the Certificates on the next succeeding Interest Payment Date. Under the Lease Agreement, the District agrees to pay certain taxes, assessments, utility charges, and insurance premiums charged with respect to the Leased Property and the Certificates and fees and expenses of the Trustee. The District is responsible for repair and maintenance of the Leased Property during the term of the Lease Agreement. The District may at its own expense in good faith contest such taxes, assessments and utility and other charges unless the Corporation notifies the District that in its reasonable opinion, by reason of nonpayment of any such items the interest of the Corporation in the Leased Property will be materially endangered or any part thereof will be subject to loss or forfeiture, in which case the District will promptly pay such items or provide the Corporation with full security against any loss which may result from nonpayment, in form satisfactory to the Corporation and the Trustee. The District s obligation to make Lease Payments will be abated in the event of, and to the extent of, substantial interference with use and possession of the Leased Property arising from damage, destruction, or taking by eminent domain or condemnation of the Leased Property. However, there will be no abatement of Lease Payments to the extent that the proceeds of hazard insurance, rental interruption insurance proceeds or eminent domain proceeds or amounts in the Reserve Fund or other form of security are available to pay Lease Payments that would otherwise be abated under this provision, and such proceeds and amounts will constitute a special fund for the payment of the Lease Payments. Abatement would not constitute a default under the Lease Agreement and the Trustee would not be entitled in such event to pursue remedies against the District. See RISK FACTORS - Abatement herein. If the District defaults under the Lease Agreement, the Trustee, as assignee of the Corporation, may terminate the Lease Agreement and re-lease the Leased Property or may retain the Lease Agreement and hold the District liable for all Lease Payments thereunder on an annual basis. Under no circumstances will the Trustee have the right to accelerate Lease Payments. See RISK FACTORS - No Acceleration Upon Default herein. Lease Payments Subject to the provisions of the Lease Agreement regarding abatement in the event of loss of use and possession of any portion of the Leased Property (see RISK FACTORS - Abatement herein) and prepayment of Lease Payments (see the provisions relating to prepayment under the caption THE CERTIFICATES above), the District agrees to pay to the Corporation, its successors and assigns, as annual rental for the use and possession of the Leased Property, the Lease Payments to be due and payable during the term of the Lease Agreement on or before the fifteenth day prior to each Interest Payment Date. 10

17 Lease Payment Fund Under the Trust Agreement, the Trustee will establish a special fund designated as the "Lease Payment Fund." All moneys at any time deposited by the Trustee in the Lease Payment Fund will be held by the Trustee in trust for the benefit of the District and the Owners of the Certificates. Amounts held in the Lease Payment Fund may only be invested in Permitted Investments, which includes, without limitation, Federal Securities, money market funds rated in the highest category or the Local Agency Investment Fund held by the California State Treasurer. The Trust Agreement provides that Interest earnings on the Lease Payment Fund will be deposited in or charged to the respective funds from which such investments were made; provided, however, that all income received on the investment of amounts on deposit in the Reserve Fund, if any, will be applied as set forth in Section 4.02 of the Trust Agreement. The Trust Agreement requires that Lease Payments will be deposited in the Lease Payment Fund. Pursuant to the Trust Agreement, on February 1 and August 1 of each year, commencing February 1, 2016, the Trustee will apply such amounts in the Lease Payment Fund as are necessary to make interest and principal payments, respectively, with respect to the Certificates as the same becomes due and payable, in the amounts specified in the Lease Agreement. Reserve Fund Under the Trust Agreement, the Trustee will establish a special fund designated as the "Reserve Fund," to be held by the Trustee in trust for the benefit of the District and the Owners of the Certificates and applied solely as provided in the Trust Agreement. On the Closing Date the Trustee shall deposit the reserve fund surety in the Reserve Fund to satisfy the Reserve Requirement (as defined in APPENDIX A). See ESTIMATED SOURCES AND USES OF FUNDS. Moneys in the Reserve Fund will be held in trust as a reserve for the payment when due of the Lease Payments on behalf of the District. If on any Interest Payment Date the moneys on deposit in the Reserve Fund and the Lease Payment Fund (excluding amounts required for payment of principal, interest, represented by any Certificates theretofore having come due but not presented for payment) are sufficient to pay or prepay all Outstanding Certificates, including all principal, interest and prepayment represented thereby, then the Trustee will, upon the written request of the District, transfer all amounts then on deposit in the Reserve Fund to the Lease Payment Fund to be applied for such purpose to the payment of the Lease Payments on behalf of the District. Any amounts remaining in the Reserve Fund on the date of payment in full, or provision for such payment as provided in the Trust Agreement, of all obligations represented by the Outstanding Certificates and upon all fees and expenses then due and owing to the Trustee, will be withdrawn by the Trustee and applied towards such payment or paid to the District. At any time, moneys on deposit in the Reserve Fund may be substituted for in whole or in part by the District with a letter of credit, surety bond, bond insurance policy or other form of guaranty from a financial institution, totaling an amount equal to the Reserve Requirement, upon presentation to the Trustee of such letter of credit, surety bond, bond insurance policy or other form of guaranty from a financial institution. Upon such substitution, the Trustee shall transfer amounts on deposit in the Reserve Fund to the Lease Payment Fund in an amount equal to the maximum limits or principal amount, as applicable, of such letter of credit, surety bond, bond insurance policy or other form of guarantee. Additional Payments In addition to the Lease Payments, the District will also pay such Additional Payments as shall be required for the payment of all administrative costs of the Corporation relating to the Leased Property or the Certificates, including without limitation, all expenses, compensation and indemnification of the Trustee payable by the District under the 11

18 Trust Agreement, taxes of any sort whatsoever payable by the Corporation as a result of its interest in the Leased Property or undertaking of the transactions contemplated in the Lease Agreement or the Trust Agreement, fees of auditors, accountants, attorneys or engineers, and all other necessary administrative costs of the Corporation or charges required to be paid by it in order to maintain its existence or to comply with the terms of the Certificates or of the Trust Agreement including premiums or insurance maintained pursuant to the Lease Agreement to indemnify the Corporation and its employees, officers, directors, agents, successors and assigns and the Trustee. Insurance Pursuant to the Lease Agreement, the District will obtain a CLTA leasehold title insurance policy on the Leased Property in an amount at least equal to the aggregate principal component of Outstanding Certificates. The Lease Agreement also requires that the District maintain rental interruption insurance to insure against loss of Lease Payments from the Leased Property in an amount not less than the maximum remaining scheduled Lease Payments in any two consecutive Fiscal Years during the remaining term of the Lease Agreement. The District is obligated to obtain a standard comprehensive general public liability and property damage insurance policy or policies and workers compensation insurance. The District is also obligated to procure and maintain casualty insurance providing coverage against loss or damage to the Leased Property. See APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - The Lease Agreement. The proceeds of any rental interruption insurance will be paid to the Trustee and deposited in the Lease Payment Fund to be credited towards the payment of the Lease Payments in the order in which such Lease Payments become due and payable. The Lease Agreement requires the District to apply the Net Proceeds of any insurance award received by it either to replace or repair the Leased Property or to prepay Certificates if certain certifications with respect to the adequacy of the Net Proceeds to make repairs, and the timing thereof, cannot be made. The amount of Lease Payments will be abated and Lease Payments due under the Lease Agreement may be reduced during any period in which material damage or destruction to all or part of the Leased Property substantially interferes with the District s use and possession thereof. See RISK FACTORS - Abatement herein. [REMAINDER OF PAGE INTENTIONALLY BLANK] 12

19 TABLE 2 LOS BANOS UNIFIED SCHOOL DISTRICT Estimated Sources and Uses of Proceeds The estimated sources and uses of proceeds to be received from the sale of the Certificates are as follows: Sources Uses Certificate Proceeds: Par Amount $18,125, Net Original Issue Premium 330, Total $18,455, Project Fund Deposits: Construction Fund $18,000, Delivery Date Expenses: Costs of Issuance (1) 205, Certificate insurance premium 100, Reserve fund surety premium 17, Underwriter s Discount 131, Total $18,455, (1) Includes financial advisory fees, legal fees, printing fees, title report, and other miscellaneous costs of issuance. [REMAINDER OF PAGE INTENTIONALLY BLANK] 13

20 TABLE 3 LOS BANOS UNIFIED SCHOOL DISTRICT Debt Service Schedule The table below shows annual debt service payments on the Certificates, assuming no optional, extraordinary, or mandatory prepayment (other than scheduled mandatory sinking fund prepayment). Year Ending (August 1) Principal Interest Debt Service $ 776, $ 776, , , , , , , , , , , , , $ 505, , ,262, , , ,262, , , ,260, , , ,258, , , ,259, , , ,258, , , ,261, , , ,262, , , ,263, , , ,261, , , ,263, , , ,261, , , ,258, , , ,259, , , ,259, , , ,262, , , ,259, ,035, , ,259, ,075, , ,257, ,120, , ,259, ,165,000 95, ,260, ,210,000 48, ,258, Totals $18,125,000 $14,928, $33,053,

21 Certificate Insurance Policy CERTIFICATE INSURANCE Concurrently with the issuance of the Certificates, Assured Guaranty Municipal Corp. ("AGM") will issue its Municipal Bond Insurance Policy for the Certificates (the "Policy"). The Policy guarantees the scheduled payment of principal of and interest with respect to the Certificates when due as set forth in the form of the Policy included as Appendix G to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Assured Guaranty Municipal Corp AGM is a New York domiciled financial guaranty insurance company and an indirect subsidiary of Assured Guaranty Ltd. ( AGL ), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol AGO. AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, infrastructure and structured finance markets. Neither AGL nor any of its shareholders or affiliates, other than AGM, is obligated to pay any debts of AGM or any claims under any insurance policy issued by AGM. AGM s financial strength is rated AA (stable outlook) by Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ), AA+ (stable outlook) by Kroll Bond Rating Agency, Inc. ( KBRA ) and A2 (stable outlook) by Moody s Investors Service, Inc. ( Moody s ). Each rating of AGM should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies, including withdrawal initiated at the request of AGM in its sole discretion. In addition, the rating agencies may at any time change AGM s long-term rating outlooks or place such ratings on a watch list for possible downgrade in the near term. Any downward revision or withdrawal of any of the above ratings, the assignment of a negative outlook to such ratings or the placement of such ratings on a negative watch list may have an adverse effect on the market price of any security guaranteed by AGM. AGM only guarantees scheduled principal and scheduled interest payments payable by the issuer of bonds insured by AGM on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the relevant insurance policy), and does not guarantee the market price or liquidity of the securities it insures, nor does it guarantee that the ratings on such securities will not be revised or withdrawn. Current Financial Strength Ratings. On June 29, 2015, S&P issued a credit rating report in which it affirmed AGM s financial strength rating of AA (stable outlook). AGM can give no assurance as to any further ratings action that S&P may take. On November 13, 2014, KBRA assigned an insurance financial strength rating of AA+ (stable outlook) to AGM. AGM can give no assurance as to any further ratings action that KBRA may take. On July 2, 2014, Moody s issued a rating action report stating that it had affirmed AGM s insurance financial strength rating of A2 (stable outlook). On February 18, 2015, Moody s published a credit opinion under its new financial guarantor ratings methodology maintaining its existing rating and outlook on AGM. AGM can give no assurance as to any further ratings action that Moody s may take. For more information regarding AGM s financial strength ratings and the risks relating thereto, see AGL s Annual Report on Form 10-K for the fiscal year ended December 31, Capitalization of AGM. At March 31, 2015, AGM s policyholders surplus and contingency reserve were approximately $3,730 million and its net unearned premium reserve was approximately $ 1,702 million. Such amounts represent the combined surplus, contingency reserve and net unearned premium reserve of AGM, AGM s wholly owned subsidiary Assured Guaranty (Europe) Ltd. and 60.7% of AGM s indirect subsidiary Municipal Assurance 15

22 Corp.; each amount of surplus, contingency reserve and net unearned premium reserve for each company was determined in accordance with statutory accounting principles. Incorporation of Certain Documents by Reference. Portions of the following documents filed by AGL with the Securities and Exchange Commission (the SEC ) that relate to AGM are incorporated by reference into this Official Statement and shall be deemed to be a part hereof: (i) (ii) the Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (filed by AGL with the SEC on February 26, 2015); and the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 (filed by AGL with the SEC on May 8, 2015). All consolidated financial statements of AGM and all other information relating to AGM included in, or as exhibits to, documents filed by AGL with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, excluding Current Reports or portions thereof furnished under Item 2.02 or Item 7.01 of Form 8-K, after the filing of the last document referred to above and before the termination of the offering of the Bonds shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Copies of materials incorporated by reference are available over the internet at the SEC s website at at AGL s website at or will be provided upon request to Assured Guaranty Municipal Corp.: 31 West 52nd Street, New York, New York 10019, Attention: Communications Department (telephone (212) ). Except for the information referred to above, no information available on or through AGL s website shall be deemed to be part of or incorporated in this Official Statement. Any information regarding AGM included herein under the caption CERTIFICATE INSURANCE Assured Guaranty Municipal Corp. or included in a document incorporated by reference herein (collectively, the AGM Information ) shall be modified or superseded to the extent that any subsequently included AGM Information (either directly or through incorporation by reference) modifies or supersedes such previously included AGM Information. Any AGM Information so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded. Miscellaneous Matters. AGM or one of its affiliates may purchase a portion of the Certificates or any uninsured bonds offered under this Official Statement and such purchases may constitute a significant proportion of the bonds offered. AGM or such affiliate may hold such Certificates or uninsured certificates of participation for investment or may sell or otherwise dispose of such Certificates or uninsured certificates of participation at any time or from time to time. AGM makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading CERTIFICATE INSURANCE. 16

23 RISK FACTORS The following factors, which represent major risk factors that have been identified at this time, should be considered along with all other information in this Official Statement by potential investors in evaluating the credit quality of the Certificates. There can be no assurance that other major risk factors do not exist or will not become evident at any future time regarding the credit quality of the Certificates. The discussion below does not purport to be, nor should it be construed to be, complete or a summary of all factors that may affect the financial condition of the District, the District s ability to make Lease Payments in the future, the effectiveness of any remedies that the Trustee may have or the circumstances under which Lease Payments may be abated. No representation is made as to the future financial condition of the District. Payment of the Lease Payments is a general fund obligation of the District and the ability of the District to make Lease Payments may be adversely affected by its financial condition as of any particular time. General Considerations Security for the Certificates The obligation of the District to make the Lease Payments does not constitute a debt of the District or of the State or of any of their respective political subdivisions in contravention of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the District or the State is obligated to levy or pledge any form of taxation or for which the District or the State has levied or pledged any form of taxation. Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the District, the District is obligated under the Lease Agreement to pay the Lease Payments and Additional Payments from any source of legally available funds and the District has covenanted in the Lease Agreement that it will take such action as may be necessary to include all Lease Payments and Additional Payments due under the Lease Agreement in its annual budgets and to make necessary annual appropriations for all such rental payments. The District is currently liable and may become liable on other obligations payable from general revenues, some of which may have a priority over the Lease Payments. The District has the capacity to enter into other obligations that may constitute additional charges against its revenues. To the extent that additional obligations are incurred by the District, the funds available to make Lease Payments may be decreased. If the District s revenue sources are less than its total obligations, the District could choose to fund other activities before making Lease Payments and other payments due under the Lease Agreement. Constitutional and Statutory Provisions Affecting District Revenues and Appropriations Article XIIIB of the State Constitution places certain limits on the appropriations the District is permitted to make. See CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS herein. Abatement The obligation of the District under the Lease Agreement to pay Lease Payments is in consideration for the use and possession of the Leased Property. The obligation of the District to make Lease Payments (other than to the extent that funds to make Lease Payments are available in the Lease Payment Fund) may be abated in whole or in part if the District does not have full use and possession of the Leased Property. The amount of Lease Payments due under the Lease Agreement will be adjusted or abated during any period in which by reason of damage, destruction or taking by eminent domain or condemnation, there is substantial interference with the use and possession of any portion of the Leased Property. During abatement, available moneys on deposit in the Lease Payment Fund, and other special sources of money, including without limitation, proceeds of rental interruption insurance, shall be applied to pay the Lease Payments. 17

24 If damage or destruction to the Leased Property results in abatement or adjustment of Lease Payments and the resulting Lease Payments, together with moneys in the Lease Payment Fund, or other special sources of money, including without limitation, proceeds of rental interruption insurance, are insufficient to make all payments of principal and interest due with respect to the Certificates during the period that the Leased Property is being replaced, repaired or reconstructed, then such payments of principal and interest may not be made, and the only remedy available to the Trustee or Owners will be the proceeds from rental interruption insurance. Such insurance is required to provide coverage of Lease Payments for up to two years during this period. Notwithstanding the foregoing provisions of the Lease Agreement and the Trust Agreement specifying the extent of abatement in the event of the District s failure to have use and possession of the Leased Property, such provisions may be superseded by operation of law and, in such event, the resulting Lease Payments of the District may not be sufficient to pay all of that portion of the remaining principal and interest with respect to the Outstanding Certificates. Absence of Earthquake Insurance Much of California is seismically active, with numerous faults that could be earthquake sources. The District is obligated under the Lease Agreement to procure and maintain, or cause to be procured and maintained, earthquake insurance on the Leased Property, only if available at a reasonable cost from reputable insurers in the reasonable opinion of the District. The District does not presently have earthquake insurance or expect to be able to obtain such insurance at a reasonable cost. Thus, if seismic activity caused significant damage to the Leased Property, the value of such property could be adversely affected. The District is not able to predict whether or to what extent these results might occur. See RISK FACTORS Seismic Risk and Flood Risk herein. Should an earthquake cause damage to the Leased Property such that there results in substantial interference with the use and occupancy of the Leased Property, Lease Payments would be abated but the policy of rental interruption insurance would not cover the abatement. See APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS LEASE herein and SPECIAL RISK FACTORS above for a discussion of the abatement provisions. The District would, however, promptly apply for Federal disaster aid or State disaster aid if the Leased Property is damaged or destroyed as a result of an earthquake. Any money received as a result of such disaster aid will be used to repair, reconstruct, restore or replace the damaged or destroyed portions of the Leased Property or, at the option of the District, to prepay all outstanding Certificates if such use of such disaster aid is permitted. See THE CERTIFICATES Prepayment Provisions herein. All school buildings in California are required to be constructed pursuant to the Field Act, California State Building Code, Title 24. The Field Act requires substantially higher construction standards for public schools and hospitals than are required for other types of construction. The Field Act requires that building systems be capable of withstanding seismic forces from the most credible earthquake likely to occur in the vicinity of the Leased Property. Hazardous Substances Owners and operators of real property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as CERCLA or the Superfund Act, is the most well-known and widely applicable of these laws. In addition, State laws impose particular requirements with regard to hazardous substances. Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substance condition of property whether or not the owner (or operator) has anything to do with creating or handling the hazardous substance. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the financial and legal ability of the property owner or operator to develop the affected property or other adjacent property, and the value of the affected property or adjacent property. The valuation of the Leased Property did not take into account the possible reduction in marketability and value of the Leased Property by reason of the possible existence of a hazardous substance condition of the parcel. While the District is not aware of any such condition, it is possible that such hazardous substance conditions do currently exist and that the District is not aware of them. 18

25 Further, it is possible that liabilities may arise in the future with respect to the Leased Property resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of the Leased Property. Other Limitations on Liability Although the District covenants to budget and appropriate annually to provide for Lease Payments, the District has not pledged its full faith and credit to such payment. If the District s revenue sources are less than its total obligations in any year, then the District could choose to fund other District services before paying one or all of the annual Lease Payments. Except as expressly provided in the Trust Agreement, the Corporation will not have any obligation or liability to the Owners with respect to the payment when due of the Lease Payments by the District, or with respect to the performance by the District of other agreements and covenants required to be performed by it contained in the Lease Agreement or the Trust Agreement, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Trust Agreement. The enforceability of the rights and remedies of the Owners of the Certificates, and the obligations incurred by the District, may become subject to the following: the Federal Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under state law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State of California and its governmental bodies in the interest of servicing a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the Owners to judicial discretion and interpretation of their rights in bankruptcy or otherwise and consequently may entail risks of delay, limitation, or modification of their rights. No Acceleration Upon Default In the event of a default by the District, the remedy of acceleration of the remaining Lease Payments is not available. The District will only be liable for Lease Payments on an annual basis, and the Trustee would in the event of default be required to seek a separate judgment each year for that year s defaulted Lease Payments. Any such suit for money damages would be subject to limitations on legal remedies against public agencies in California. Limited Recourse on Default The Lease Agreement and the Trust Agreement provide that the Trustee may take possession of the Leased Property and re-lease it if there is a default by the District and that, If such re-leasing occurs, the District would be liable for any resulting deficiency in the Lease Payments. The Lease Agreement provides that the Trustee may have such rights of access to the Leased Property as may be necessary to exercise any remedies. Portions of the Leased Property may not be easily recoverable, because they may be affixed to property not owned by the Corporation and, even if recovered, may be of little or no value to others. Furthermore, due to the essential nature of the Leased Property in relation to the District, it is not certain whether a court would permit the exercise of the remedies of repossession and leasing with respect thereto. The Trustee is not empowered to sell the Leased Property for the benefit of the Owners. In the event of a default, there is no available remedy of acceleration of the total Lease Payments due over the term of the Lease Agreement. The District will be liable for Lease Payments only on an annual basis, and the Trustee would be required to seek a separate judgment in each fiscal year for that fiscal year s rental payments. 19

26 Alternatively, the Trustee may terminate the Lease Agreement with respect to the Leased Property and proceed against the District to recover damages pursuant to the Lease Agreement. Any suit for money damages would be subject to limitations on legal remedies against school districts in California, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Addition and/or Substitution of Leased Property The Lease Agreement provides that, upon the satisfaction of certain conditions specified therein, the District may add and/or substitute other public facilities or real property for all or any portion of the Leased Property. The Lease Agreement requires that any property that will comprise the Leased Property as of the time of such addition and/or substitution must have (i) a useful life at least equal to the lesser of (a) the useful life of the Leased Property or (b) the final Lease Payment Date, (ii) a value at least equal to the aggregate original principal amount of the Certificates, and (iii) a fair rental value at least equal to the Lease Payments thereafter coming due. Such an addition and/or replacement could have an adverse impact on the security for the Certificates, particularly if an event requiring abatement of Lease Payments and Additional Payments were to occur subsequent to such addition and/or substitution. Leased Property Value The District has estimated the value of the real property constituting the Leased Property based on the Leased Property s last insured value as of July 1, (See THE LEASED PROPERTY herein.) The District has not sought the present opinion of any other appraiser. A different present opinion of such value might be rendered by an appraiser. The fee estate will not be assigned to the Trustee but, rather, the rights of the Corporation under the Lease Agreement, which is for a limited term, will be assigned to the Trustee. (See APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS attached hereto.) Thus, the value of the real property constituting the Leased Property and the buildings and improvements thereon are not necessarily an accurate measure of the value of the interest in the Lease Agreement assigned to the Trustee. Investment of Lease Payment Fund Deposits Under the Lease Agreement, the District is required to make Lease Payments which will at least equal the annual Lease Payment Fund Deposits to be made to the Lease Payment Fund for the Certificates as described under SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES Sinking Fund Payments. The Lease Payment Fund Deposits are calculated to aggregate the principal amount represented by the Certificates at maturity. Amounts in the Lease Payment Fund will be invested in Federal Securities, money market funds rated in the highest category or the Local Agency Investment Fund held by the California Treasurer and used to pay the Certificates at maturity. While the Lease Payment Fund may only be invested in the safest investments, all investments contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected, decline in market value and loss or delayed receipt of principal. The occurrence of these events with respect to amounts held in the Lease Payment Fund could have a material adverse effect on the security and source of payment for the Certificates. Loss of Tax Exemption As discussed under the heading TAX MATTERS, certain acts or omissions of the District in violation of its covenants in the Trust Agreement and the Lease Agreement could result in the interest (and original issue discount) represented by the Certificates being includable in gross income for purposes of federal income taxation retroactive to the date of delivery of the Certificates. Should such an event of taxability occur, the Certificates would not be subject to a special prepayment and would remain Outstanding until maturity. 20

27 Secondary Market There can be no assurance that there will be a secondary market for the Certificates, or if a secondary market exists, that the Certificates can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, pricing of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could substantially differ from the original purchase price. Change in Law Regarding Tax Exemption There are or may be pending in the Congress of the United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or affect the market value of the Certificates. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the Certificates should consult their own tax advisors regarding any pending or proposed federal tax legislation. Special Counsel expresses no opinion regarding any pending or proposed federal tax legislation. IRS Audits The Internal Revenue Service (the Service ) has an ongoing program of auditing tax exempt obligations to determine whether, in the view of the Service, interest on such tax exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the Service will commence an audit of the Certificates. If an audit is commenced, then under current procedures the Service may treat the District as a taxpayer and the Certificateholders may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Certificates until the audit is concluded, regardless of the ultimate outcome. Seismic Risk, Flood Risk, and Drought Risk The City of Los Banos is situated at the eastern flank of the Diablo Range mountains, one of the northwest trending Coastal Ranges of the Central Valley geomorphic province. Formed during the late Mesozoic period ( million years ago), the valley was originally part of the ocean floor. The subduction of the Proto-Pacific plate beneath the North American plate, and subsequent uplift of the coastal ranges in the Cenozoic Period (65-2 million years ago), caused an extraordinarily flat area to be enclosed by mountain ranges. Marine conditions existed in the valley for millions of years until further tectonic movements and climate change gradually drained the area of water. The subject area is mainly flat in nature, underlain with sediments from alluvial deposits as well as non-marine sedimentary rocks. The nearest mountain range is located about 20 miles to the west. The Leased Property is not insured against earthquakes or floods. See RISK FACTORS Absence of Earthquake Insurance herein. Seismic Considerations. According to the California Geological Survey, no active earthquake faults are known to exist within the greater Los Banos area. The nearest known fault is the Tesla-Ortiglita fault zone and the O Neill fault zone, both located about eight miles west of Los Banos. Although they do not pass through the city, these faults can produce ground motion in Los Banos. The Testa-Ortigalita fault is considered capable of generating a 6 to 7 Richter Magnitude earthquake with a recurrence interval of 2,000 to 5,000 years. Effects of Earthquakes. Earthquakes can cause geologic failures ranging from ground shaking, surface rupture along the fault zone, to related secondary ground failures. Secondary ground failures include liquefaction, landslides, ground lurching and seiches, and lateral spreading. Liquefaction is the temporary loss of cohesion in saturated, granular soils. Lateral spreading is the horizontal movement of loose, unconsolidated sedimentary deposits and imported fill material. Lurching is the horizontal movement of soil, sediments or fill found on steep slopes and embankments. A seiche is the periodic oscillation of a body of water resulting from seismic shaking. All of these secondary ground failures could cause major structural damage to existing buildings, including tilting or settlement of 21

28 foundations, twisting and breaking of structural building components, debris shedding, and potentially even collapse of buildings. In the case of seiches, damage to levees and dams could be significant. (Seismic-induced flooding will be explained in detail in the next section). Los Banos distance to fault zones in the region, including the Ortigalita, Calaveras, San Andreas and Hayward Faults, places it within Maximum Expectable Earthquake Intensity Zone III where High Severity, Most Probable Damage could result should an earthquake occur in the region. Over the years, the Los Banos area has experienced several noticeable shocks from earthquakes. This included the 1983 Coalinga and 1989 Loma Prieta earthquakes. In both cases, the epicenters were too far to cause any severe damage. The 1906 Great San Francisco Earthquake, however, did cause major damage in Los Banos. Seismic Safety. The California Geological Survey has undertaken a complete probabilistic seismic hazard analysis for the City. Based on that study the peak ground acceleration (PGA) is 0.38 gravity (g is the unit for measuring PGA where 1 g = 9.8m/s2) for residential and commercial construction. This ground motion has a 10 percent chance of being exceeded over 50 years and is termed the Design Basis Earthquake by the 2001 Uniform Building Code. For public schools, hospitals, and essential services buildings (e.g. fire stations, police stations, city halls, etc.) the design basis earthquake PGA is slightly higher at 0.49 gravity. Flooding/Dam Inundation. Flooding due to dam inundation can be the result of natural or man-made factors, such as earthquakes, erosion, or structural design flaws. Snow melt or landslides also may trigger a dam failure by overtopping the dam. A dam failure can cause catastrophic loss of life, damage to property, and displacement of Los Banos residents. Next to earthquakes, it is the most dangerous natural hazard facing the city. Three dams close to Los Banos have the potential of inundating portions or the whole of the greater Los Banos area. Flood zone mapping by the U.S. Army Corps of Engineers indicates that all of this area is located within the San Luis Reservoir dam inundation area. Northern portions of the area are also located within the Los Banos Detention Reservoir and the Little Panoche Reservoir Dam inundation area. Los Banos Detention Reservoir is located southwest of the area on Los Banos Creek. The reservoir has a capacity of 34,600 acre-feet and was constructed in 1965 to protect areas surrounding Los Banos from regular flooding. The dam is 167 feet high and provides recreation facilities for picnicking, camping, swimming, fishing, and boating. Little Panoche Detention Dam, completed in 1966, contains a little more than a million yards of earthfill in its 151-foot-high embankment. The dam s crest is 1,440 feet long and has a capacity of 5,580 acre-feet. Both Los Banos and Little Panoche Dams are joint federal/state facilities and are classified as earthfill detention dams. The San Luis Dam was constructed in 1967 to control flood waters in the San Luis Canal. The dam is 382 feet high and contains 77,656,000 cubic yards of material. The dam s crest is 30 feet thick. In the United States, only the U.S. Army Corps of Engineers Fort Peck and Oahe Dams along the Missouri River Basin carry greater mass. The dam structure is constructed to withstand an earthquake of magnitude 8.3 occurrence. All three dams are owned by the U.S. Bureau of Reclamation. They are regularly inspected to ascertain their structural integrity. Storm Drainage. In Los Banos, storm water runoff is discharged through a combination of natural and man-made drainage structures including creeks, waterways and irrigation channels. Currently, flood zone mapping by the Federal Emergency Management Agency indicates the Los Banos Planning Area is located outside of the 100 and 500- year floodplains. The relatively flat topography, low incidence of rain and availability of various drainage management facilities make sudden floods by rain unlikely. Drought. In January, 2014, a state of emergency was proclaimed due to the severe drought conditions faced by the State. Legislation was enacted in February2014 to support drought relief. The State Budget included, and the State Budget includes, one-time resources to continue immediate drought-related efforts including aid in assessing water conditions and provide public outreach regarding water conservation. The District is located in the 22

29 San Joaquin Valley, in an agricultural area of Merced County, and as such relies on water supply to support the local economy. Continued drought conditions, to the extent not mitigated by the State s drought measures described above, could cause job loss, a decline in student enrollment due to displaced workers in the area, and subsequent reduction in funding levels to the District. See State Finances below. A culmination of such events could have an adverse impact on the District s ability to appropriate for Lease Payments supporting the Certificates in future years. State Finances The district is dependent on the State to set its funding levels in each fiscal year. See DISTRICT FINANCIAL INFORMATION State Funding of Education; State Budget Process herein. Changes in the prevailing economic conditions within the State or the State s funding priorities could substantially alter the general fund revenues available to the District in any fiscal year. The District cannot predict whether such changes may occur or how such changes may affect the District s finances. Concentration of Ownership The top three largest secured property taxpayers in the District account for nearly 10% of the total secured assessed value in the District for Concentration of ownership presents a risk in that if one or more of the largest property owners were to default on their taxes, were to successfully appeal the tax assessments on property within the District, or suffer a significant loss in taxable value of such property due to the complete or partial destruction of such property, a substantial decline in property tax revenues could result. See DISTRICT FINANCIAL INFORMATION Largest Secured Taxpayers Fiscal Year herein. THE CORPORATION The Public Property Financing Corporation of California, a nonprofit public benefit corporation, was incorporated pursuant to the Nonprofit Public Benefit Corporation Law of the State of California (Title 1, Division 2, Part 2 of the California Corporations Code). The Corporation was established in order to facilitate and assist California school districts and other public entities in financing their capital projects and equipment needs. The Corporation s principal place of business is located at 2945 Townsgate Road, Suite 200, Westlake Village, California [REMAINDER OF PAGE INTENTIONALLY BLANK] 23

30 THE DISTRICT Introduction The District was established in 1965 and is located in Merced County in California s Great Central Valley. The District operates eight (8) elementary schools, one junior high school, two comprehensive high schools, one alternative high school, and one independent study school. The District s area equals approximately 640 square miles serving approximately 10,000 students. Administration The District is governed by a seven-member Board of Education, each member of which is elected to a four-year term. Elections for positions to the Board of Education are held every two years, alternating between three and four available positions. Current members of the Board of Education, together with their office and the date their term expires, are listed below: TABLE 4 LOS BANOS UNIFIED SCHOOL DISTRICT Board of Education Members Name Office Term Expires Mr. Anthony Parreira President December 2018 Mrs. Marlene Smith Vice President December 2018 Mr. Tommy Jones Clerk December 2016 Mr. Dennis Areias Member December 2018 Mrs. Carole Duffy Member December 2016 Mr. Dominick Falasco Member December 2016 Mr. John Mueller Member December 2018 Superintendent and Administrative Personnel. The Superintendent of the District, appointed by the Board, is responsible for management of the day-to-day operations and supervises the work of other District administrators. Steve Tietjen, Ed.D., Superintendent. Dr. Tietjen was hired by the District as Superintendent in Prior to joining the District, Dr. Tietjen served as Superintendent of Woodlake Schools for 14 years. Dr. Tietjen received a Masters in Education from Fresno State University and a Ph.D. from the University of Southern California. Dean Bubar, Assistant Superintendent, Administrative Services. Mr. Bubar was hired by the District as Assistant Superintendent, Business Services in Prior to joining the District Mr. Bubar served as the Director of Business Services for Hollister School District for 10 years. Mr. Bubar received a Bachelor of Science in Business Administration from California Polytechnic State University, San Luis Obispo. Don Laursen, Director of Fiscal Services. Mr. Laursen was hired by the District as Director of Fiscal Services in Prior to joining the District Mr. Laursen served as Director of Fiscal Services for Cutler-Orosi Joint Unified School District. Mr. Laursen received a Bachelor of Science in Business Administration from California Polytechnic State University, San Luis Obispo. 24

31 Enrollment District enrollment increased by 15.28% between and The following table shows enrollment and A.D.A. history for the District for the last ten fiscal years. TABLE 5 LOS BANOS UNIFIED SCHOOL DISTRICT Enrollment, Average Daily Attendance and Base Revenue Limit/LCFF Base Grant per ADA Fiscal Years through Fiscal Year Enrollment Annual % Change Average Daily Attendance (1) Annual % Change ,768 N/A 8,123 N/A , % 8, % ,975 (1.14)% 8,344 (0.49)% ,749 (2.22)% 8,174 (2.04)% , % 8, % , % 8, % , % 8, % , % 9, % , % 9, % , % 9, % Note: All amounts are rounded to the nearest whole number. (1) Data based on State legislation which reconfigured ADA to represent actual attendance without regard to excused absences. Reflects ADA as of the second principal reporting period (P-2 ADA), ending on April 15 of each school year. Includes charter school and county instructed students, but excludes adult education and regional occupational program students. Source: The District. Labor Relations As of March 1, 2015, the District employed 496 full-time equivalent certificated employees and 466 classified employees. In addition, the District employed 142 part-time faculty and staff. There are two formal bargaining units in the District. The Los Banos Teachers Association (the Teachers Association ), represents the certificated employees and California Schools Employees Association (the CSEA ) represents the classified employees. The District s contract with the Teachers Association was approved by the Board on November 13, 2014 and expires June 30, The District s contract with the CSEA also was approved by the Board on November 13, 2014 and expires on June 30, By law, each contract is in effect until a new contract is approved. Retirement Benefits The information set forth below regarding the CalSTRS and CalPERS programs, other than the information provided by the District regarding its annual contributions thereto, has been obtained from publicly available sources which are believed to be reliable but are not guaranteed as to accuracy or completeness, and should not to be construed as a representation by either the District or the Underwriter. The District participates in retirement plans with the State Teachers Retirement System ( CalSTRS ), which covers all full-time certificated District employees, and the State Public Employees Retirement System ( CalPERS ), which covers classified employees. Classified school personnel who are employed four or more hours per day may participate in CalPERS. For more information regarding the District s retirement benefits obligations, see APPENDIX C ANNUAL FINANCIAL REPORT OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2013, Note L - EMPLOYEE RETIREMENT SYSTEMS. 25

32 CalSTRS. The District contributes to CalSTRS, a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalSTRS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and survivor benefits to beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers' Retirement Law. For fiscal year , active plan members are required to contribute 8.15 % of their salary and the District is required to contribute 8.88% of annual teacher payroll. The actuarial methods and assumptions used for determining the rate are those adopted by CalSTRS Teachers' Retirement Board. The contribution requirements of the plan members and employers are established by State statute. See discussion of rates in California Public Employees Pension Reform Act of 2013 below.) The District's contributions to CalSTRS for the fiscal years ending June 30, 2014, 2013, and 2012, were $2,812,598, $2,601,368, and $2,515,319 respectively, and equal 100% of the required contributions for each year. The District has budgeted $3,380,837 for this expense in The State also contributes to CalSTRS, with its contribution for fiscal year equal to 3.454% of teacher payroll. See DISTRICT FINANCIAL MATTERS State Budget Measures State Budget below for a discussion on the recently adopted State budget that increases such contribution rates. CalSTRS produces a comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalSTRS comprehensive annual financial report may be obtained from CalSTRS. The information presented in these reports is not incorporated by reference in this Official Statement. CalPERS. The District contributes to the School Employer Pool under CalPERS, a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalPERS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and survivor benefits to plan members and beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the Public Employees' Retirement Laws. For fiscal year , active plan members hired before January 1, 2013 are required to contribute 7.0 % of their salary, members hired after January 1, 2013 are required to contribute 6.0% of their salary, and the District is required to contribute an actuarially determined rate. (See discussion of rates in California Public Employees Pension Reform Act of 2013 below.) The actuarial methods and assumptions used for determining the rate are those adopted by the CalPERS Board of Administration. The required employer contribution rate for fiscal year is % of covered payroll. The contribution requirements of the plan members are established by State statute. The District's contributions to CaIPERS for the fiscal years ending June 30, 2014, 2013, and 2012, were $1,481,302, $1,359,230, and $1,207,875, respectively, and equal 100 % of the required contributions for each year. The amount contributed by the State on behalf of the District was $0. The District has budgeted $1,692,064 for this expense in State Pension Trusts. Each of CalSTRS and CalPERS issues a separate comprehensive financial report that includes financial statements and required supplemental information. Copies of such financial reports may be obtained from each of CalSTRS and CalPERS as follows: (i) CalSTRS, P.O. Box 15275, Sacramento, California ; (ii) CalPERS, P.O. Box , Sacramento, California Moreover, each of CalSTRS and CalPERS maintains a website, as follows: (i) CalSTRS: (ii) CalPERS: However, the information presented in such financial reports or on such websites is not incorporated into this Official Statement by any reference. 26

33 Both CalSTRS and CalPERS have substantial statewide unfunded liabilities. The amount of these unfunded liabilities will vary depending on actuarial assumptions, returns on investments, salary scales, and participant contributions. The following table summarizes information regarding the actuarially-determined accrued liability for both CalSTRS and CalPERS. TABLE 6 LOS BANOS UNIFIED SCHOOL DISTRICT Funded Status CalSTRS (defined benefit program) And CalPERS (Schools Plan) (Dollar Amounts in Millions) (1) Plan Public Employees Retirement Fund (CalPERS) State Teachers Retirement Fund Defined Benefit Program (CalSTRS) Accrued Liability Value of Trust Assets Unfunded Liability $ 61,487 $ 49,482 (2) $(12,005) 222, ,614 (3) (73,667) (1) Amounts may not sum due to rounding. (2) Reflects market value of assets as of June 30, (3) Reflects actuarial value of assets as of June 30, Source: CalPERS State & Schools Actuarial Valuation; CalSTRS Defined Benefit Program Actuarial Valuation. Unlike CalPERS, CalSTRS contribution rates for participant employers and employees hired prior to the Implementation Date (defined herein), as well as the State s base contribution rate, are set by statute and prior to fiscal year did not vary from year-to-year based on actuarial valuations. In recent years, the combined employer, employee, and State contributions to CALSTRS have been significantly less than actuarially required amounts. As a result, and due in part to investment losses, the unfunded liability of CalSTRS has increased significantly. This unfunded liability was expected to continue to increase in the absence of legislation requiring additional or increased contributions. The District can make no representations regarding the future program liabilities of CalSTRS, or whether the District will be required to make larger contributions to CalSTRS in the future. However, see DISTRICT FINANCIAL MATTERS State Budget Measures Budget below for a discussion of the recently adopted State budget that increases such contribution rates for fiscal year and following years. The District can also provide no assurances that the District s required contributions to CalPERS will not increase in the future. On April 17, 2013, the CalPERS board of administration (the CalPERS Board ) approved new actuarial policies aimed at returning CalPERS to fully-funded status within 30 years. The policies include a rate smoothing method with a 30-year amortization period for gains and losses and a five-year ramp-up of rates at the start and a five year rampdown of rates at the end. The CalPERS Board delayed the implementation of the new policies until fiscal year for the State, schools and all other public agencies. California Public Employees Pension Reform Act of The Governor signed the California Public Employee s Pension Reform Act of 2013 ( PEPRA ) into law on September 12, PEPRA 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, PEPRA 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, PEPRA 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

34 PEPRA 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, while excluding previously allowed forms of compensation under the formula such as payments for unused vacation, annual leave, personal leave, sick leave, or compensatory time off. CalSTRS Unfunded Liability Drops Significantly. One of the benefits of a long-term funding solution for CalSTRS is a decrease in the system s unfunded liability. Before the passage of the CalSTRS funding bill, AB 1469 (effective on July 1, 2014), the unfunded liability (the difference between the actuarial value of assets and actuarial liabilities that is based on the historic 7.5% annual rate of return on investment) was pegged at $74 billion. When counted another way, based on Governmental Accounting Standards Board ( GASB ) standards, the net pension liability was as high as $167 billion. The GASB methodology factors in a mixed, more conservative discount rate because the fund was projected to run out of money in the future. Because the CalSTRS funding solution was adopted before the end of the fiscal year, and the Defined Benefit program is no longer projected to run out of funds in any future year according to CalSTRS s actuary, the calculated net pension liability has been significantly reduced. The net pension liability is now $59.9 billion due to the new funding plan, above-average returns in fiscal year , and the fact that net assets of supplemental programs and accounts (such as the Defined Benefit Supplemental program and the Cash Balance Benefit program) are included in the calculation. GASB 68 will require school and community college districts to recognize their proportionate share of the net pension liability of their employees pension programs (i.e., CalSTRS and CalPERS) starting with the fiscal year. While districts will still have to reflect their attributed portion of the unfunded liability, it will now be significantly smaller for CalSTRS. CalPERS Board Adopts Controversial Pensionable Compensation Regulation. Due to the implementation of PEPRA, CalPERS has been promulgating regulations to support the provisions of PEPRA. In May 2014, CalPERS issued draft regulations for defining the types of compensation that can be counted toward the pension benefit for new members generally those hired on or after the January 1, 2013 Implementation Date. This opened up the public comment period, during which time CalPERS received many comments, both in opposition and in support of the draft regulations. After reviewing the comments, CalPERS staff recommended to the Board that the regulations should be adopted as proposed. The regulations specify that pensionable compensation for new members consists of the normal monthly rate of pay or base pay as long as it is for services rendered on a full-time basis during normal work hours and other criteria are met. The regulations then contain a long list of the other types of compensation that can count toward pensionable compensation as long as they meet the same criteria as for the base pay. 28

35 The types of pay that CalPERS has seen used in LEAs and that are included on this list as counting toward pensionable compensation are as follows: Longevity pay: Additional compensation to employees who have been with an employer, or in a specified job classification, for a certain minimum period of time exceeding five years Educational incentive: Compensation to employees for completing educational courses, certificates and degrees which enhance their ability to do their job (in school agencies this is typically referred to as a degree stipend or professional growth increment); a program or system must be in place to evaluate and approve acceptable courses; the cost of education that is required for the employee s current job classification is not included in this item of pensionable compensation Reading specialist premium: Compensation to certificated employees who have obtained special training and provide literacy instruction as part of their teaching duties Undergraduate/graduate/doctoral credit: Compensation to school district employees who are required to obtain a specified degree Bilingual premium: Compensation to employees who are routinely and consistently assigned to positions requiring communication skills in languages other than English School yard premium: Compensation to part-time school district employees who are routinely and consistently assigned to supervise students during recreation Severely disabled premium: Compensation to school instructional aides who are routinely and consistently assigned to work with severely disabled students Shift differential: Compensation to employees who are routinely and consistently scheduled to work other than a standard daytime shift, e.g., graveyard shift, swing shift, shift change, rotating shift, split shift, or weekends Temporary upgrade pay: Compensation to employees who are required by their employer or governing board or body to work in an upgraded position/classification of limited duration (in school agencies this is typically referred to as out-of-class pay) This last item, the temporary upgrade pay, is the most controversial item. Many comments were submitted specifically about this item, with, as one would expect, labor groups supporting it and employers and Governor Brown opposing it. The District can make no representations regarding the future of the regulations or how implementation of the regulations may affect the District s future contributions to CalPERS. GASB 67 and 68. In June 2012, 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 27 replaces the current requirements of Statement Number 27, Accounting for Pensions by State and Local Governmental Employers, for most government employers. The new statements also replace the requirements of Statement Number 50, Pension Disclosures, for those governments and pension plans. Certain of the major changes include: (i) the inclusion of unfunded pension liabilities on the government s balance sheet (such unfunded liabilities are currently typically included as notes to the government s financial statements); (ii) full pension costs would be shown as expenses regardless of actual contribution levels; (iii) lower actuarial discount rates would be required to be used for most plans for certain purposes of the financial statements, resulting in increased liabilities and pension expenses; and (iv) shorter amortization periods for unfunded liabilities would be required to be used for certain purposes of the financial statements, which generally would increase pension expenses. Statement Number 67 took effect for fiscal years beginning after June 15, 2013, and Statement Number 68 took effect for fiscal years beginning after June 15,

36 Other Post-Employment Benefits Plan Description. The District provides a self-funded, single employer, defined benefit plan to provide medical, prescription drug, dental and vision benefits to Certificated, Management, Supervisory, Administrative, Classified, and Confidential employees and their spouses. Certificated, Management, Supervisory, Confidential and Administrative employees may retire with District-paid medical and prescription drug benefits after age 57 with 20 years of service immediately prior to retirement. If a separate Retirement/Longevity benefit is eliminated in the future, then Certificated employees would be entitled to receive District-paid benefits after age 55 with 12 years of service immediately prior to retirement. Retirees choosing to retire after July 1, 2020 may self-pay benefits between ages 57 and 59 to retain eligibility for District-paid benefits commencing at age 59. District-paid benefits end at age 65 and are capped at $909 per month. Classified employees retiring after age 57 with 15 years of service immediately prior to retirement receive District-paid benefits until age 65. District paid benefits end at age 65 and are capped at $909 per month. The District is a member in a joint powers agreement, the Self Insured Schools of California (S.I.S.C.III) as described under Public Entity Risk Pools and Joint Powers Authorities below, to provide this health coverage. Funding Policy. The contribution requirements of plan members and the District are established and may be amended by the District, the District's bargaining units and unrepresented groups. The required contribution is based on projected pay as you go financing requirements, with the District s practice being to fully fund the Annual Required Contribution. Additionally, the District participates in the Self Insured Schools of California GASB 45 Trust, an agent multiple-employer plan as defined in Governmental Accounting Standards Board (GASB) Statement No. 43 with pooled administrative and investment functions. The Trust was established as a mechanism for accumulating funding for other postemployment benefits liabilities. However, contributions are voluntarily determined by the District. The Self Insured Schools of California GASB 45 Trust issues an annual stand-alone financial report which can be obtained by contacting SISC at P.O. Box 1847, Bakersfield, California or by phoning SISC at Annual OPEB Cost and Net OPEB Obligation. The District's annual Other Postemployment Benefits (OPEB) cost (expense) is based on the Annual Required Contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (UAAL) (or funding excess) over a period not to exceed 30 years. [REMAINDER OF PAGE INTENTIONALLY BLANK] 30

37 The following table shows the components of the District's annual OPEB cost for the fiscal year , the amount actually contributed to the plan, and changes in the District's net OPEB obligation to the retiree health plan: TABLE 7 LOS BANOS UNIFIED SCHOOL DISTRICT Annual OPEB Cost and Net OPEB Obligation Annual required contribution (ARC) $907,473 Interest on net OPEB obligation 36,822 Adjustments to annual required contribution (34,219) Annual OPEB cost (expense) 910,076 Employer Contributions made (524,928) Increase in OPEB obligation 385,148 Beginning Net OPEB obligation 526,028 Ending Net OPEB obligation $911,176 Source: District Audit Report for fiscal year The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for the most recent and prior years are as follows: Fiscal Year Ended Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation 6/30/2011 $806, % $ /30/2012 $724, % $182,846 6/30/2013 $908, % $526,028 6/30/2014 $910, % $911,176 Source: District Audit Reports for fiscal years through Funded Status and Funding Progress. As of July 1, 2014, the most recent actuarial valuation date, the funded status of the retiree health plan was as follows: Actuarial accrued liability (AAL) $7,542,442 Actuarial value of plan assets 1,770,225 Unfunded accrued actuarial liability (UAAL) $5,772,217 Funded Ratio (actuarial value of plan assets/aal) 23.5% Annual covered payroll (active plan members) $41,206,644 UAAL as a percentage of annual covered payroll 14.0% Source: District Audit Report for fiscal year Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, investment returns, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding 31

38 progress presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actual methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the July 1, 2014 actuarial valuation, the projected unit credit actuarial method was used. The actuarial assumptions were based on a standard set of assumptions used for similar situations, modified as appropriate for the District. The assumptions included a 7% investment rate of return and a healthcare cost trend rate of increase ranging from 8% to 5% over the next 4 plus years. The unfunded actuarial accrued liability (UAAL) is being amortized using an open 30 year amortization period and the level dollar amount method.. For further information regarding the District s Post-Employment Benefits, see also APPENDIX C AUDIT REPORT OF THE DISTRICT FOR THE YEAR ENDED JUNE 30, 2014, Note M - Post-Employment Benefits Other Than Pension Benefits. Public Entity Risk Pools and Joint Power Authorities The District participates in four public entity risk pools under joint powers agreements (JPAs): Organization for Self-insured Schools (O.S.S.), Merced County Schools Insurance Group (M.C.S.I.G.), California's Valued Trust (C.V.T.), and the Self-Insured Schools of California (S.I.S.C. III). The relationship between the Los Banos Unified School District and the JPAs is such that none of the JPAs is a component unit of the District for financial reporting purposes. The JPAs were established as agencies under the provisions of the California Government Code, Title I, Division 7, Chapter 5, Article 1, Section 6500, et. seq. The purpose of each JPA is to provide self-insurance programs as follows: O.S.S. provides a self-insurance program for liability and property claims against the public educational agency members, and provides a forum for discussion, study, development, and implementation of recommendations of mutual interest regarding self-insurance. M.C.S.I.G. is an insurance purchasing pool for workers' compensation insurance. The workers' compensation experience of the participating districts is calculated as one experience and a common premium rate is applied to all districts in the JPA. C.V.T. provides the services necessary and appropriate for the establishment, operation and maintenance of a medical self-insurance fund that provides for the payment of medical, dental, vision, and prescription claims of the member public educational agency employees and their covered dependents and to minimize the total cost of annual medical insurance of their respective member organizations. District Teachers Association employees are covered under this JPA. S.I.S.C. III provides the services necessary and appropriate for the establishment, operation and maintenance of a medical Self-Insurance Fund that provides for payment of medical, dental, vision, and prescription claims of the member public educational agency employees and the if covered dependents and to minimize the total cost of annual medical insurance of their respective member organizations. District CSEA and unrepresented employees are covered under this JPA. Membership in the JPAs consists of various public educational agencies. 32

39 The JPAs are governed by boards consisting of representatives from the member public educational agencies and related associations. The boards control the operations of each JPA, including selection of management and approval of operating budgets, independent of any influence by member public educational agencies beyond their representation on the board. Each member public educational agency pays a premium based on student population, or number of covered individuals. Surpluses remain in each fund or JPA, while deficits are covered by assessments on the member districts in proportion to their participation in each JPA. During the last three fiscal (claims) years, none of the above programs have had settlements or judgments that exceeded pooled or insured coverage, There have been no significant reductions in pooled or insured liability coverage from coverage in the prior year. DISTRICT FINANCIAL INFORMATION The following selected financial information provides a brief overview of the District s finances. This financial information has been extracted from the District s audited financial statements and, in some cases, from unaudited information provided by the District s Fiscal Services Department. The District s most recent audited financial statements of the District, including an unqualified auditor s opinion, are included as APPENDIX C hereto. See APPENDIX C AUDIT REPORT OF THE DISTRICT FOR THE YEAR ENDED JUNE 30, Accounting Practices The accounting practices of the District conform to generally accepted accounting principles in accordance with policies and procedures of the California School Accounting Manual. This manual, according to Section of the California Education Code, is to be followed by all California school districts. District accounting is organized on the basis of fund groups, with each group consisting of a separate set of selfbalancing accounts containing assets, liabilities, fund balances, revenues and expenditures. The major fund classification is the general fund which accounts for all financial resources not requiring a special fund placement. The District s fiscal year begins on July 1 and ends on June 30. Governmental funds are generally accounted for using the modified accrual basis of accounting. Revenues are recognized when measurable and available, except for certain revenue sources which are not susceptible to accrual. Expenditures are recognized in the accounting period in which the liability is incurred. GASB published its Statement No. 34 Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments on June 30, Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments, such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management s Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting, (iii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting and (iv) required supplementary information. The District s financial statements are prepared in accordance with Statement No. 34. Financial Statements The District s general fund finances the legally authorized activities of the District for which restricted funds are not provided. General fund revenues are derived from sources such as State apportionments, taxes, use of money and property, and aid from other governmental agencies. The District s June 30, 2014 Audit Report was prepared by M. Green and Company LLP, Certified Public Accountants, Visalia, California. The auditor has not participated in the preparation of this Official Statement, and has not provided any update of the financial statements in connection with their inclusion in this Official Statement. Audited financial statements for the District for the fiscal year ended June 30, 2013, and prior fiscal years are on file with the District and available for public inspection at the Office of the 33

40 Superintendent of the District. See APPENDIX C AUDIT REPORT OF THE DISTRICT FOR THE YEAR ENDED JUNE 30, Copies of such financial statements will be mailed to prospective investors and their representatives upon written request to the District. The District may impose a charge for copying, mailing and handling. Budget Process The District is required by provisions of the State Education Code to maintain a balanced budget each year, in which the sum of expenditures and the ending fund balance cannot exceed the sum of revenues and the carry-over fund balance from the previous year. School districts annual general fund expenditures are characterized in large part by multi-year expenditure commitments such as union contracts. Year-to-year fluctuations in State and local funding of school district general funds could result in revenue decreases which, if large enough, may not easily be offset by an equal reduction in expenditures until at least the following fiscal year. School districts are required by State law to maintain general fund reserves that can be drawn upon in the event of a resulting excess of expenditures over revenues for a given fiscal year. The District is required to maintain a general fund reserve of 3% but because of the uncertainty of State funding, has consistently exceeded that amount in recent years. The District s general fund reserves for through are shown in the following table: TABLE 8 LOS BANOS UNIFIED SCHOOL DISTRICT General Fund Reserves through (1) 25.10% (1) 25.30% (1) 22.10% (1) 17.78% (1) 11.53% (2) 14.78% (1) Audited figures. (2) Budgeted. Source: District Audit Reports for fiscal years through ; and Adopted Budget for The State Department of Education imposes a uniform budgeting and accounting format for school districts. The budget process for school districts was substantially amended by Assembly Bill 1200 ( AB 1200 ), which became State law on October 14, Portions of AB 1200 are summarized below. School districts must adopt a budget on or before July 1 of each year. The budget must be submitted to the county superintendent of schools within five days of adoption or by July 1, whichever occurs first. A district may select either a dual or single budget cycle. The dual budget option requires a revised and readopted budget by August 1 that is subject to State-mandated standards and criteria. The revised budget must reflect changes in projected income and expenses subsequent to July 1. The single budget is only readopted if it is disapproved by the county office of education, or as needed. The District is on a single budget cycle and adopts its budget on or before July 1. For both dual and single budgets submitted on July 1, the county superintendent will examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical corrections necessary to bring the budget into compliance, will determine if the budget allows the district to meet its current obligations and will determine if the budget is consistent with a financial plan that will enable the district to meet its multi-year financial commitments. On or before August 15, the county superintendent will approve or disapprove the adopted budget for each school district. Budgets will be disapproved if they fail the above standards. The district board must be notified by August 15 of the county superintendent s recommendations for revision and reasons for the recommendations. The county superintendent may assign a fiscal advisor or appoint a committee to 34

41 examine and comment on the superintendent s recommendations. The committee must report its findings no later than August 20. Any recommendations made by the county superintendent must be made available by the district for public inspection. The law does not provide for conditional approvals; budgets must be either approved or disapproved. No later than August 20, the county superintendent must notify the Superintendent of Public Instruction of each school district whose budget has been disapproved. For all dual budget options and for single and dual budget option districts whose budgets have been disapproved, the district must revise and readopt its budget by September 8, reflecting changes in projected income and expense since July 1, including responding to the county superintendent s recommendations. The county superintendent must determine if the budget conforms with the standards and criteria applicable to final district budgets and not later than October 8, will approve or disapprove the revised budgets. If the budget is disapproved, then the county superintendent will call for the formation of a budget review committee pursuant to Education Code Section Until a district s budget is approved, the district will operate on the lesser of its proposed budget for the current fiscal year or the last budget adopted and reviewed for the prior fiscal year. Under the provisions of AB 1200, each school district is required to file interim certifications with the county office of education as to its ability to meet its financial obligations for the remainder of the then-current fiscal year and, based on current forecasts, for the subsequent two fiscal years. The county office of education reviews the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that will be unable to meet its financial obligations for the remainder of the fiscal year or subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations of the current fiscal year or subsequent two fiscal years. The District has never had an adopted budget disapproved by the County Superintendent of Schools, and has not received a negative or qualified certification of an interim financial report pursuant to AB General Fund Budgets The table on the following page shows the audited income and expense statements for the District for fiscal years through , and budgeted figures for for the District s general fund. For further information regarding District finances, see also APPENDIX C - AUDIT REPORT OF THE DISTRICT FOR THE YEAR ENDED JUNE 30, [REMAINDER OF PAGE INTENTIONALLY BLANK] 35

42 TABLE 9 LOS BANOS UNIFIED SCHOOL DISTRICT Summary of General Fund Revenues, Expenditures and Changes in Fund Balance For Fiscal Years through (1) Revenues (3) Audited Audited Audited Audited Second Interim (2) Revenue Limit/ LCFF Sources $46,122, $47,474, $49,091, $61,820, $72,912, Federal Revenue 7,922, ,706, ,355, ,866, ,937, Other State Revenue 12,759, ,968, ,756, ,072, ,911, Other Local Revenue 1,466, ,114, , ,549, ,090, Total Revenues $68,271, $66,264, $67,182, $75,308, $86,852, Expenditures Certificated Salaries 30,590, ,941, ,252, ,975, ,566, Classified Salaries 10,204, ,287, ,801, ,728, ,264, Employee Benefits 15,548, ,408, ,321, ,506, ,655, Books and Supplies 4,865, ,659, ,141, ,185, ,947, Services and Other Operating Expenditures 4,760, ,315, ,161, ,799, ,371, Capital Outlay 932, , , ,230, ,840, Other Outgo (Excluding Transfers of Indirect Costs) 511, , , ,065, ,693, Other Outgo - Transfers of Indirect Costs (151,204.66) (178,870.58) (168,990.75) (241,408.10) (247,916.00) Total Expenditures $67,262, $67,360, $69,083, $77,250, $88,091, Excess (Deficiency) of Revenues Over Expenditures Before Other Financing Sources & Uses 1,008, (1,096,562.90) (1,901,113.96) (1,941,469.63) (1,239,130.00) Other Financing Sources and Uses Interfund Transfers Transfers In 39, , Transfers Out 4, , ,317, Other Sources/Uses Sources 43, , , ,121, Uses Contributions Total Other Financing Sources/Uses $78, $46, $209, $160, ($1,196,093.00) Net Change in Fund Balance $1,087, $(1,050,488.23) $(1,691,389.71) $(1,780,736.00) $(2,435,223.00) Beginning Fund Balance $16,291, $17,378, $16,327, $14,636, $12,855, Ending Fund Balance $17,378, $16,327, $14,636, $12,855, $10,420, (1) Totals may not sum due to rounding. (2) 2nd Interim Report approved March 12, (3) With implementation of the Local Control Funding Formula program in fiscal year , the categorical funding received in prior years as part of Other State sources has been folded into the LCFF income sources, thereby increasing income from Revenue limit/lcff sources and decreasing income from Other State sources. Source: District Audit Reports for fiscal years through ; and budgeted from District s 2nd Interim Reports for

43 The following table shows the District s general fund budget for the fiscal year TABLE 10 LOS BANOS UNIFIED SCHOOL DISTRICT General Fund Budget for Fiscal Year (1), (2) REVENUES LCFF Sources $ 87,838,199 Federal Revenue 5,264,000 Other State Revenue 11,406,000 Other Local Revenue 672,573 TOTAL REVENUES (2) $105,180,772 EXPENDITURES (3) Certificated Salaries $40,725,272 Classified Salaries 13,122,897 Employee Benefits 22,082,155 Books and Supplies 7,799,210 Services, Other Operating Expenses 5,838,967 Capital Outlay 1,750,245 Other Outgo (excluding Transfers of 1,946,307 Indirect Costs) Other Outgo - Indirect Costs (276,000) TOTAL EXPENDITURES $ 92,989,053 EXCESS (DEFICIENCY) OF REVENUES $12,191,719 OVER EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers In -- Transfers Out 10,000,000 Other sources -- TOTAL, OTHER FINANCING SOURCES (USES) NET CHANGE IN FUND BALANCES $ 2,191,719 Fund balance beginning $10,614,165 Fund balance ending $12,805,884 (1) Restricted and Unrestricted General Fund Revenues. (2) Columns may not sum to Totals due to rounding. (3) Expenditures by Budget Object Code. Source: District s adopted General Fund Budgets for fiscal year [REMAINDER OF PAGE INTENTIONALLY BLANK] 37

44 Long-Term Debt Long-term obligations include debt and other long-term liabilities. Changes in long-term obligations for the year ended June 30, 2014, are as follows: TABLE 11 LOS BANOS UNIFIED SCHOOL DISTRICT Summary of Long Term Debt For Fiscal Year Ended June 30, 2014 Beginning Balances Increases Decreases Ending Balances Amounts Due Within One Year General Obligation Bonds: Current Interest $43,595,000 $ -- $990,000 $42,605,000 $1,105,000 Capital Appreciation 4,967, , ,000 4,432, ,000 Anticipation Note -- 9,037, ,037, Bond Premium 489, , ,028 25,441 Capital Leases 229, , , , ,563 Certificates of Participation 8,175, ,000 7,435, ,000 Compensated Absences* 1,036,549 78, ,114, Totals $58,493,610 $9,470,710 $2,576,320 $65,388,000 $2,699,004 * Because of the nature of compensated absences and uncertainty over when vacations will be taken, a statement of debt service requirements to maturity has not been presented. Source: District Audit Report for fiscal year [REMAINDER OF PAGE INTENTIONALLY BLANK] 38

45 General Obligation Bonds. The following table reflects the District s outstanding general obligation bonds as of June 30, 2014: TABLE 12 LOS BANOS UNIFIED SCHOOL DISTRICT Summary of Outstanding General Obligation Bonds As of June 30, 2014 Issue Date Maturity Date Series Interest Rate % Amount of Original Issue Outstanding 6/30/2013 Accreted/ Issued Redeemed Outstanding 6/30/2014 3/19/96 8/1/ Series A General $2,883,434 $ 4,967,707 $ 125, ,000 $4,432,736 Obligation Bonds Capital Appreciation Bonds 7/15/08 8/1/33 General Obligation ,000,000 32,105, ,000 31,780,000 Bonds, Election of 2008, Series /15/08 -- Bond Premium , , , ,028 9/15/10 8/1/ General Obligation ,840,000 11,490, ,000 10,825,000 Refunding Bonds 12/17/13 8/14/ General Obligation Bond Anticipation Notes ,968, ,037, ,037,261 Totals $59,232,359 $49,052,176 $ 9,162,290 $1,675,441 $59,539,025 Source: District Audit Report for fiscal year [REMAINDER OF PAGE INTENTIONALLY BLANK] 39

46 On June 10, 2015, the District issued $9,998, in initial principal amount of its General Obligation Bonds, Election of 2008, Series 2015B (the Series 2015B Bonds ). The Series 2015B Bonds constitutes the final series of bonds to be issued under the District s 2008 authorization. A portion of the proceeds of the Series 2015B Bonds were applied to the defeasance of the District s 2013 General Obligation Bond Anticipation Notes, originally issued on December 17, 2013 and scheduled to mature on December 1, 2018, with a maturity value of $9,610,000 (the BANs ). Accordingly, the BANs are no longer outstanding. In addition, on June 10, 2015, the District issued $29,790,000 in principal amount of its 2015 General Obligation Refunding Bonds (the 2015 Refunding Bonds ). The proceeds of the 2015 Refunding Bonds were applied to the advance refunding and defeasance of the callable portion of the District s General Obligation Bonds, Election of 2008, Series 2008 ( Refunded 2008 Bonds ). Debt service on all of the District s outstanding general obligation bonds, including the Series 2015B Bonds and the 2015 Refunding Bonds (and giving effect to the refunding of the Refunded 2008 Bonds and defeasance of the BANs), assuming no early optional redemptions, is as shown in the table on the following page. [REMAINDER OF PAGE INTENTIONALLY BLANK] 40

47 TABLE 13 LOS BANOS UNIFIED SCHOOL DISTRICT (Merced County, California) General Obligation Bonds Aggregate Debt Service Period Ending (August 1) 1996 Bonds Series A Unrefunded 2008 Bonds 2010 Refunding Bonds Series 2015 B Bonds 2015 Refunding Bonds Aggregate Total Debt Service 2015 $ 685, $ 574, $ 1,047, $ 658, $ 2,965, , , ,049, ,355, ,823, , , ,048, ,394, ,929, , ,046, ,237, ,034, , ,049, ,324, ,148, , ,046, ,418, ,265, , ,053, ,516, ,395, ,044, ,618, ,663, ,047, ,720, ,767, ,049, ,828, ,877, ,049, ,941, ,990, ,050, ,059, ,110, ,045, ,186, ,231, ,311, ,311, ,446, ,466, ,582, ,582, ,727, ,727, $3,290, , ,876, ,030, ,030, ,190, ,190, ,360, ,360, ,535, ,535, ,715, ,715, ,555, ,555, Totals $5,270, $2,043, $13,628, $26,675, $44,914, $92,551,

48 Capital Leases. Commitments under capitalized lease agreements for portable classrooms and equipment provide for minimum future lease payments as of June 30, 2014, as follows: TABLE 14 LOS BANOS UNIFIED SCHOOL DISTRICT Outstanding Capital Lease Obligations Fiscal Year Ending June 30 Principal Interest Lease Payment 2015 $148,563 $10,214 $158, ,273 4,600 81, ,546 1,546 75,092 Total $299,382 $16,360 $315,742 Source: District. Certificates of Participation. In April 1996, the District delivered current interest Certificates of Participation in the amount of $9,800,000 and convertible capital appreciation Certificates of Participation in the amount of $6,135,245 (the 1996 COPs ) to build new schools. A portion of the proceeds of the 2002 Bonds was used to refund a portion of the 1996 COPs. On May 1, 2015, the District prepaid the remaining principal component of the 1996 COPs and, accordingly, no 1996 COPs remain outstanding. On September 20, 2012, the District issued $7,495,000 of current interest Certificates of Participation with interest rates ranging from 2.000% to 3.125%. The Certificates of Participation were issued to finance the construction, acquisition, and installation of capital facilities at certain campuses. Future commitments for the 2012 COPs, which are payable from the General Fund in the same manner as the Lease Payments, are as follows: TABLE 15 LOS BANOS UNIFIED SCHOOL DISTRICT Outstanding Certificates of Participation Year Ending (August 1) Principal Interest Total 2015 $ 580, $ 175, $ 755, , , , , , , , , , , , , , , , , , , , , , Totals $ 6,340, $861, $7,201, Source: District. 42

49 State Funding of Education; State Budget Process Revenue Limit Funding. Prior to fiscal year , school districts operated under general purpose revenue limits established by the State Board of Education ( SBE ). In general, revenue limits were calculated for each school district by multiplying the average daily attendance for such district by a base revenue limit per unit of ADA. Revenue limit calculations were generally adjusted annually in accordance with a number of factors designed to provide cost of living adjustments ( COLAs ) and to equalize revenues among school districts of the same type. Funding of a school district s revenue limit was provided by a mix of local property taxes and State apportionments of basic and equalization aid. Beginning in fiscal year , school districts are now being funded based on uniform rates determined on the basis of grade spans. See Local Control Funding Formula herein. Basic Aid Funding. Prior to fiscal year , a majority of the funding that California schools received was determined by the State revenue limit formula. See Revenue Limit Funding above and Local Control Funding Formula herein. Each district received a portion of the local property taxes collected within the district boundaries. This amount was compared to the total revenue limit for the district; the balance was received in the form of State aid. Therefore, the sum of the property taxes and State aid was equal to the district s revenue limit. Districts which received the minimum amount of State aid were known as basic aid districts. Basic aid school districts continued to receive only special categorical funding, which was deemed to satisfy the basic aid requirement of $120 per student per year guaranteed by Article IX, Section 6 of the State Constitution. The implication for basic aid districts was that the legislatively determined allocations to school districts, and other politically determined factors, were less significant in determining their primary funding sources. Rather, property tax growth and the local economy were the primary determinants. All other districts were revenue limit districts. The District was a revenue limit school district. Local Control Funding Formula. State Assembly Bill 97 (Chapter 47, Statutes of 2013) ( A.B. 97 ), enacted as part of the State budget, established a new system for funding school districts, charter schools and county offices of education. This new system replaced the revenue limit funding system for determining State apportionments, as well as the majority of categorical program funding. The new system can also affect whether a district qualifies as a basic aid or revenue limit district. The primary component of A.B. 97 is the implementation of the Local Control Funding Formula ( LCFF ). Beginning in fiscal year , the bulk of funding for school districts is being provided on the basis of target base funding grants per unit of ADA (each, a Base Grant ) assigned to each of four grade spans. Each Base Grant is subject to certain adjustments, as further described herein. According to a report published by the State Legislative Analyst s Office, the State general fund cost of fully implementing the LCFF in fiscal year would have been approximately $18 billion more than what was spent on education in the prior fiscal year (assuming current levels of property tax revenue, ADA and enrollment). Given this cost, the LCFF is being implemented over a span of eight fiscal years, during which time school districts will receive annual funding increases based on the gap between their respective prior-year funding level and the target LCFF allocation following full implementation. In each year, each school district is expected to see the same proportion of their funding gap closed, with dollar amounts varying depending on the size of district s funding gap. The State cost to fund the LCFF in each fiscal year will fluctuate depending on a number of factors, including the provision of COLAs, fluctuations in ADA and student demographics, and growth in property tax revenues. The specific Base Grants, per unit of ADA, for each grade span are as follows: (a) $6,845 for grades K-3; (b) $6,947 for grades 4-6; (c) $7,154 for grades 7-8; and (d) $8,289 for grades The differences among Base Grants are linked to differentials in the fiscal year statewide average revenue limit rates by district type, and are intended to recognize the generally higher costs of education at higher grade levels. 43

50 The Base Grants for grades K-3 and 9-12 are subject to adjustments of 10.4% and 2.6%, respectively, to cover the costs of class size reduction in early grades and support college and career readiness programs in high schools. As adjusted, the Base Grants per unit of ADA for grades K-3 and 9-12 are $7,557 and $8,505, respectively. Following full implementation of the new funding system, and unless otherwise collectively bargained for, school districts serving students in grades K-3 must maintain an average class enrollment of 24 or fewer students in grades K-3 at each school site in order to continue receiving the adjustment to the K-3 Base Grant. Such school districts must also make progress towards this class size reduction goal in proportion to the growth in their funding over the implementation period. Supplemental funds derived from the adjustment to the Base Grant for grades 9-12 must be spent to advance college and career readiness goals outlined in the respective district s LCAP, as defined herein. School districts that serve students of limited English proficiency ( EL students), students from low income families that are eligible for free or reduced priced meals ( LI students) and foster youth are eligible to receive additional funding grants. Enrollment counts are unduplicated, such that students may not be counted as both EL and LI. Foster youth automatically meet the eligibility requirements for free or reduced priced meals, and are therefore not discussed herein separately. A.B. 97 authorizes a supplemental grant add-on (each, a Supplemental Grant ) for school districts that serve EL/LI students, equal to 20% of the applicable adjusted Base Grant multiplied by such districts percentage of unduplicated EL/LI student enrollment. In addition, school districts whose EL/LI populations exceed 55% of their total enrollment are eligible for a concentration grant add-on (each, a Concentration Grant ) equal to 50% of the applicable adjusted Base Grant multiplied the percentage of such district s unduplicated EL/LI student enrollment in excess of the 55% threshold. For certain school districts that would have received greater funding levels under the prior revenue limit system, A.B. 97 provides for a permanent economic recovery target ( ERT ) add-on, equal to the difference between the revenue limit allocations such districts would have received under the prior system in fiscal year , and the target LCFF allocations owed to such districts in the same year. To derive the projected funding levels, A.B. 97 assumes the discontinuance of deficit revenue limit funding, implementation of a 1.94% COLA in fiscal years through , and restoration of categorical funding to pre-recession levels. The ERT add-on will be paid incrementally over the eight-year implementing period of the LCFF. The District does not qualify for the ERT add-on. The sum of a school district s adjusted Base, Supplemental, and Concentration Grants will be multiplied by such district s P-2 ADA for the current or prior year, whichever is greater (with certain adjustments applicable to small school districts). This funding amount, together with any applicable ERT or categorical block grant add-ons, will yield a district s total LCFF allocation. Generally, the amount of annual State apportionments received by a school district will amount to the difference between such total LCFF allocation and such district s share of applicable local property taxes. Most school districts receive a significant portion of their funding from such State apportionments. As a result, decreases in State revenues may significantly affect appropriations made by the Legislature to school districts. Certain schools districts, known as basic aid districts, have allocable local property tax collections that equal or exceed such districts total LCFF allocation, and result in the receipt of no State apportionment aid. Basic aid school districts receive only special categorical funding, which is deemed to satisfy the basic aid requirement of $120 per student per year guaranteed by Article IX, Section 6 of the State Constitution. The implication for basic aid districts is that the legislatively determined allocations to school districts, and other politically determined factors, are less significant in determining their primary funding sources. Rather, property tax growth and the local economy are the primary determinants. The District is not a basic aid school district and formerly was a revenue limit district. Accountability. The SBE has adopted regulations regarding the expenditure of supplemental and concentration funding. These regulations include a requirement that school districts increase or improve services for EL/LI students in proportion to the increase in funds apportioned to such districts on the basis of the number and concentration of such EL/LI students, as well as the conditions under which school districts can use supplemental or concentration funding on a school-wide or district-wide basis. 44

51 School districts are also required to adopt local control and accountability plans ( LCAPs ) disclosing annual goals for all students, as well as certain numerically significant student subgroups, to be achieved in eight areas of State priority identified by A.B. 97. LCAPs may also specify additional local priorities. LCAPs must specify the actions to be taken to achieve each goal, including actions to correct identified deficiencies with regard to areas of State priority. LCAPs are required to be adopted every three years, beginning in fiscal year , and updated annually thereafter. The SBE has adopted a template LCAP for use by school districts. Support and Intervention. A.B. 97 establishes a new system of support and intervention to assist school districts to meet the performance expectations outlined in their respective LCAPs. School districts must adopt their LCAPs (or annual updates thereto) in tandem with their annual operating budgets, and not later than five days thereafter submit such LCAPs or updates to their respective county superintendents of schools. On or before August 15 of each year, a county superintendent may seek clarification regarding the contents of a district s LCAP (or annual update thereto), and the district is required to respond to such a request within 15 days. Within 15 days of receiving such a response, the county superintendent can submit non-binding recommendations for amending the LCAP or annual update, and such recommendations must be considered by the respective school district at a public hearing within 15 days. A district s LCAP or annual update must be approved by the county superintendent by October 8 of each year if the superintendent determines that (a) the LCAP or annual update adheres to the SBE template, and (b) the district s budgeted expenditures are sufficient to implement the actions and strategies outlined in the LCAP. A school district is required to receive additional support if its respective LCAP or annual update thereto is not approved, if the district requests technical assistance from its respective county superintendent, or if the district does not improve student achievement across more than one State priority for one or more student subgroups. Such support can include a review of a district s strengths and weaknesses in the eight State priorities, or the assignment of an academic expert to assist the district to identify and implement programs designed to improve outcomes. Assistance may be provided by the California Collaborative for Educational Excellence, a State agency created by A.B. 97 and charged with assisting school districts to achieve the goals set forth in their LCAPs. On or before October 1, 2015, the SBE is required to develop rubrics to assess school district performance and the need for support and intervention. A.B. 97 also authorizes the State Superintendent of Public Instruction (the State Superintendent ), with the approval of the SBE, to intervene in the management of persistently underperforming school districts. The State Superintendent may intervene directly or assign an academic trustee to act on his or her behalf. In so doing, the State Superintendent is authorized to (a) modify a district s LCAP, (b) impose budget revisions designed to improve student outcomes, and (c) stay or rescind actions of the local governing board that would prevent such district from improving student outcomes; provided, however, that the State Superintendent is not authorized under A.B. 97 to rescind an action required by a local collective bargaining agreement. Other State Sources. In addition to State allocations determined pursuant to the LCFF, the District receives other State revenues consisting primarily of restricted revenues designed to implement State mandated programs. Beginning in fiscal year , categorical spending restrictions associated with a majority of State mandated programs were eliminated, and funding for these programs was folded into the LCFF. Categorical funding for 14 programs was excluded from the LCFF including, among others, child nutrition, after school education and safety, special education, and State preschool and school districts will continue to receive restricted State revenues to fund these programs. The State Budget Process. According to the State Constitution, the Governor of the State (the Governor ) must propose a budget to the State Legislature no later than January 10 of each year. Under an initiative constitutional amendment approved by the State s voters on November 2, 2010 as Proposition 25, a final budget must be adopted by a majority vote (rather than a supermajority, as was the case prior to the passage of Proposition 25) of each house 45

52 of the Legislature no later than June 15, although this deadline has been breached in the past. Any tax increase provision of such final budget shall continue to require approval by a two-thirds majority vote of each house of the State Legislature. The budget becomes law upon the signature of the Governor, who may veto specific items of expenditure. As discussed below, the Governor introduced his proposed State Budget for fiscal year on January 9, 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 school districts without an adopted budget or emergency appropriation, and funds for State programs cannot be disbursed by the State Controller until that time unless the expenditure is (i) authorized by a continuing appropriation found in statute, (ii) mandated by the Constitution (such as appropriations for salaries of elected State officers), or (iii) mandated by federal law (such as payments to State workers at no more than minimum wage). The State Controller has consistently stated that basic State funding for schools is continuously appropriated by statute, but that special and categorical funds may not be appropriated without an adopted budget. 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. State Dissolution of Redevelopment Agencies On December 30, 2011, the California Supreme Court issued its decision in the case of California Redevelopment Association v. Matosantos ( Matosantos ), finding A.B.x1 26, a trailer bill to the State budget, to be constitutional. As a result, all redevelopment agencies in California ceased to exist as a matter of law on February 1, The Court in Matosantos also found that A.B.x1 27, a companion bill to A.B.x1 26, violated the California Constitution, as amended by Proposition 22. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Proposition 1A and Proposition 22 herein. A.B.x1 27 would have permitted redevelopment agencies to continue operations provided their establishing cities or counties agreed to make specified payments to school districts and county offices of education, totaling $1.7 billion statewide. A.B.x1 26 was modified by Assembly Bill No (Chapter 26, Statutes of ) ( A.B ), which, together with A.B.x1 26, is referred to herein as the Dissolution Act. The Dissolution Act provides that all rights, powers, duties and obligations of a redevelopment agency under the California Community Redevelopment Law that have not been repealed, restricted or revised pursuant to A.B.x1 26 will be vested in a successor agency, generally the county or city that authorized the creation of the redevelopment agency (each, a Successor Agency ). All property tax revenues that would have been allocated to a redevelopment agency, less the corresponding county auditorcontroller s cost to administer the allocation of property tax revenues, are now allocated to a corresponding Redevelopment Property Tax Trust Fund ( Trust Fund ), to be used for the payment of pass-through payments to local taxing entities, and thereafter to bonds of the former redevelopment agency and any enforceable obligations of the Successor Agency, as well as to pay certain administrative costs. The Dissolution Act defines enforceable obligations to include bonds, loans, legally required payments, judgments or settlements, legal binding and enforceable obligations, and certain other obligations. Among the various types of enforceable obligations, the first priority for payment is tax allocation bonds issued by the former redevelopment agency; second is revenue bonds, which may have been issued by the host city, but only where the tax increment revenues were pledged for repayment and only where other pledged revenues are insufficient to make scheduled debt service payments; third is administrative costs of the Successor Agency, equal to at least $250,000 in any year, unless the oversight board reduces such amount for any fiscal year or a lesser amount is agreed to by the Successor Agency; then, fourth tax revenues in the Trust Fund in excess of such amounts, if any, will be allocated as residual distributions to local taxing entities in the same proportions as other tax revenues. Moreover, 46

53 all unencumbered cash and other assets of former redevelopment agencies will also be allocated to local taxing entities in the same proportions as tax revenues. Notwithstanding the foregoing portion of this paragraph, the order of payment is subject to modification If a Successor Agency timely reports to the Controller and the Department of Finance that application of the foregoing will leave the Successor Agency with amounts insufficient to make scheduled payments on enforceable obligations. If the county auditor controller verifies that the Successor Agency will have insufficient amounts to make scheduled payments on enforceable obligations, then it shall report its findings to the Controller. If the Controller agrees there are insufficient funds to pay scheduled payments on enforceable obligations, then the amount of such deficiency shall be deducted from the amount remaining to be distributed to taxing agencies, as described as the fourth distribution above, then from amounts available to the Successor Agency to defray administrative costs. In addition, if a taxing agency entered into an agreement pursuant to Health and Safety Code Section for payments from a redevelopment agency under which the payments were to be subordinated to certain obligations of the redevelopment agency, such subordination provisions shall continue to be given effect. As noted above, the Dissolution Act expressly provides for continuation of pass-through payments to local taxing entities. Per statute, 100% of contractual and statutory 2% pass-throughs, and 56.7% of statutory pass-throughs authorized under the Community Redevelopment Law Reform Act of 1993 (A.B. 1290, Chapter 942, Statutes of 1993) ( A.B ), are restricted to educational facilities without offset against revenue limit apportionments by the State. Only 43.3% of A.B pass-throughs are offset against State aid so long as the District uses the moneys received for land acquisition, facility construction, reconstruction, or remodeling, or deferred maintenance as provided under Education Code Section 42238(h). A.B.X1 26 states that in the future, pass-throughs shall be made in the amount which would have been received had the redevelopment agency existed at that time, and that the County Auditor- Controller shall determine the amount of property taxes that would have been allocated to each redevelopment agency had the redevelopment agency not been dissolved pursuant to the operation of A.B.X1 26 using current assessed values and pursuant to statutory pass-through formulas and contractual agreements with other taxing agencies. Successor Agencies continue to operate until all enforceable obligations have been satisfied and all remaining assets of the Successor Agency have been disposed of. A.B provides that once the debt of the Successor Agency is paid off and remaining assets have been disposed of, the Successor Agency shall terminate its existence and all pass-through payment obligations shall cease. The District can make no representations as to the extent to which its revenue limit apportionments from the State may be offset by the future receipt of residual distributions or from unencumbered cash and assets of former redevelopment agencies any other surplus property tax revenues pursuant to the Dissolution Act. State Budget Measures The following information concerning the State s budget has been obtained from Schools Services of California, Inc. The District believes the information to be reliable; however, the District does not guarantee the accuracy or completeness of this information and has not independently verified such information. Furthermore, it should not be inferred from the inclusion of this information herein that the principal of or interest on the Notes or Bonds is necessarily payable from the General Fund of the District State Budget. The main State budget bill for fiscal year , and more than a dozen trailer bills, were approved by the State Legislature on June 15, 2014, the Constitutional deadline for the Legislature to approve a budget. Consistent with the Budget Conference Committee action, but with some important differences from Governor Jerry Brown s May Revision, the Legislature approved Senate Bill 852 and more than a dozen trailer bills. The Governor signed the budget bill and the trailer bills on June 20, The State Budget is based on the Governor s revenue forecast, and much of the framework is the same as the May Revision, but with important changes. 47

54 Deferrals. To balance working within the Governor s revenue figures while accommodating some of the Legislature s spending priorities, the State Budget does not eliminate all deferrals. For , nearly $1 billion in deferrals are still active for K-14 education. However, the State Budget includes a positive trigger if next year s May Revision reflects higher than anticipated revenues, an additional payment of up to the full amount of deferrals would be made, potentially resulting in the full elimination of deferrals by the end of Mandates. The State Budget will begin to chip away at the education mandates portion of the wall of debt. For K-12 districts $400.5 million will be provided towards funding prior mandate claims on a per-average daily attendance basis. The Budget trailer bill includes intent language that school districts prioritize these funds for implementation of the Common Core State Standards ( CCSS ), though a district can use these funds for any onetime purpose, as determined by the governing board. No specific dollars are provided for CCSS. Increased Local Control Funding Formula ( LCFF ) Funding. Spending above the Governor s May Revision proposal, the State Budget provides an additional $250 million towards implementation of the LCFF for schools. The gap closure is now estimated to be a little more than 29% of the current funding gap. Local Reserves. The State Budget contains the controversial provisions requiring districts to substantiate the need for an unassigned or assigned ending fund balance above the districts required minimum reserve beginning with budgets adopted for the fiscal year. At the public hearing for budget adoption or revision, a district must substantiate the reasons for this excess, and the County Office of Education will be required to determine whether the district complied with these requirements. With the Rainy Day Fund (Proposition 2) having been approved by voters at the November 2014 statewide general election, in the year following a deposit into the Proposition 98 portion of the Rainy Day Fund, districts would not be able to have reserves more than twice the minimum required by state regulations (or three times in the case of the Los Angeles Unified School District). COEs could provide districts an exemption under extraordinary fiscal circumstances, but only for up to two consecutive fiscal years within a three-year period; in the third year, or in any year a district does not receive an exemption, a district would need to spend down its reserves to the new maximum or below. The language was amended between its drafting and its adoption to clarify that the reserve cap is only active in the year immediately after a fiscal year in which the state makes a deposit into the Proposition 98 reserve. CalSTRS Rates. Selecting a path between the Governor s proposal and the Legislature s alternative proposal, the CalSTRS rate schedule adopted with the State Budget for employers takes a smaller step in year one, but does not spike at year four as the alternative proposal would have. As specified in Assembly Bill 1469, the employer and employee rates on the member s compensation that is creditable to the Defined Benefit Program earned after July 1 of each year is as follows: Year Employer Pre-PEPRA Employee Post-PEPRA Employee % 8.00% 8.000% % 8.15% 8.150% % 9.20% 8.560% % 10.25% 9.205% % 10.25% 9.205% % 10.25% 9.205% % 10.25% 9.205% % 10.25% 9.205% CalSTRS is given the authority to adjust the employer contribution rate after to reflect the contribution required to eliminate the current unfunded actuarial obligation by June 30, (CalSTRS will also be able to adjust 48

55 the state rate, but not the employee rate.) The increase or decrease cannot change by more than 1% and cannot supplant the state s obligation. Career Pathways Program Trust. The State Budget includes $250 million to fund a second round of support for the Career Pathways Program a major priority of Senate President pro Tempore Darrell Steinberg. Early Childhood Education. The State Budget provides additional funding for preschool and makes a few changes to the existing Transitional Kindergarten ( TK ) program. In total, funding was increased by $155 million in Proposition 98 support and an additional $100 million in non-proposition 98 funds for the following: 7,500 additional full-year, part-day preschool slots 500 additional alternative payment slots 1,000 general slots An increase in the standard reimbursement rate of 5% 50 million for quality grants to local educational agencies ( LEAs ) $35 million in one-time money targeted to professional development and facilities Regarding TK, there are two changes: Trailer bill language states the intent that TK curriculum be aligned to the California Preschool Learning Foundations developed by the California Department of Education Specifies that as a condition of receipt of funding, teachers assigned to a TK classroom after July 1, 2015, have been issued at least one credential by the Commission on Teacher Credentialing (CTC) and by August 1, 2020, have at least 24 units in early childhood education or childhood development, or comparable professional experience, or a child development permit issued by the CTC State Budget. On June 19, 2015, the State legislature approved the main State budget bill (AB 93 and SB 97), and several trailer bills including education trailer bill AB 104, the K-12 omnibus bill, and SB 78, for fiscal year (the State Budget ), and on June 24, 2015, the Governor signed the State Budget. The Governor will release an adopted State Budget in summer 2015 at which time the District will evaluate the adopted State Budget to determine its impact on the District s finances. The State Budget takes effect July 1, 2015, and provides a spending plan for $115.4 billion from the general fund, including expansion of child care, increased funding for public schools, and provision for health care to immigrant children who are not legal residents. Proposition 98 will receive $68.4 billion in fiscal year , an increase of 12.4% above the funding level adopted in the State Budget. The State Budget includes an additional $6 billion in fiscal year for implementing the LCFF, bringing LCFF funding to $52 billion, a 13% year-over-year increase. For K-12 schools, the State Budget increases funding levels by more than $3,000 per student over fiscal year levels. The State Budget includes total funding of $83.2 billion for K-12 programs and also includes $68.4 billion in Proposition 98 funds for fiscal year , an increase of $7.6 billion over prior year s levels. The State Budget reduces the Proposition 98 maintenance factor to $772 million. Significant adjustments in the State Budget as they pertain to K-12 education include the following: Local Control Funding Formula. The State Budget continues implementation of the LCFF with an infusion of $6 billion in additional Proposition 98 revenues. The new formula provides funding to move all school districts and charter schools toward a system of school finance that allocates similar amounts per ADA as base grants within four grade spans, and provides additional percentage increases, or weights, for class-size reduction in grades TK through 3, CTE for grades 9-12, and supplemental/concentration grants on behalf of students who are not English language proficient, who are from low-income families, or who are in foster care. The proposed $6 billion LCFF 49

56 increase is expected to close the funding gap for each school district and charter school, compared with their funding level adjusted for changes in ADA, by 51%. Actual percentage and per-ada increases for individual school districts and charter schools can vary significantly from this average, depending on the LEA gap between current funding and the LCFF full implementation target. K-12 Deferrals. The State Budget provides $897 million in one-time Proposition 98 funds to eliminate all remaining outstanding deferral debt for K-12. At their peak, the inter-year deferrals for K-12 had reached a high of $9.5 billion, or about 20% of annual payments to schools. While dollars used to finally eliminate the deferrals count toward Proposition 98 expenditures for the State s purposes, they do not initially provide more spending authority to schools. K-12 Mandates. The State Budget provides $3.2 billion in one-time Proposition 98 funds to reimburse K-12 LEAs for the costs of state mandated programs. Funding will be allocated on a per-ada basis and is available for discretionary purposes such as implementation of Common Core standards (professional development, teacher training, purchase of instructional materials and technology infrastructure) or for other one-time purposes, such as maintenance and deferred maintenance. Proposition 39. The State Budget provides $313.4 million for K-12 grants, to be allocated on a per-ada basis. Emergency Repair Program. The State Budget provides $273.4 million in one-time Proposition 98 General Fund resources to retire the state's facilities funding obligation under the terms of the Williams settlement. Routine Restricted Maintenance. The State Budget establishes a new phase-in for the return of the 3% required contribution to routine restricted maintenance accounts ( RRMAs ) for school districts participating in the School Facility Program. School districts are now required to contribute to their RRMA at least 2% percent by fiscal year and at least 3% by fiscal year For fiscal year and fiscal year , school districts are required to contribute, at minimum, the amount that was deposited in the account in fiscal year RRMA funds may be used for drought mitigation purposes. School Facilities/OPSC staffing. While the State Budget does not include funding for a school construction State assistance program. The Governor, in his Budget proposal, discussed the belief that the ongoing fiscal capacity of the State to fund school facilities as it has through the Leroy F. Greene School Facility Program is no longer sustainable, and that the capacity for local school districts to fund their construction needs was greatly enhanced with the passage of Proposition 39 in 2000 that reduced the voter-support rate for local General Obligation bonds from an arduous two-thirds vote to 55%. The Governor, in his Budget proposal, outlined two broad principles for the next school facilities proposal that align closely to the tenets of the LCFF, which are (1) enhanced local control and flexibility and (2) targeting resources to areas of need. The State Budget decreases Office of Public School Construction ( OPSC ) staff by 37 positions, some of which are currently filled. The reductions in OPSC staff equate to a savings of $4.47 million. Such reduction in staffing is being done, according to the State Budget, to "align administrative resources with the expected workload" for the School Facility Program. Technology Infrastructure. The State Budget provides $50 million in one-time Proposition 98 funding to assist those LEAs most in need of securing internet connectivity and infrastructure in order to administer the computer-based assessments called for under Common Core. The first round recipients of more than $27 million in Broadband Infrastructure Improvement Grants were announced on January 7, Approximately 300 sites were identified as lacking online capacity to administer last year s field tests, and approximately 227 school sites were awarded funding. 50

57 Career Technical Education. The State Budget creates the Career technical Education Incentive Grant program ( CTE program ). The CTE program provides one-time Proposition 98 funding for LEAs to establish new, or to expand, high-quality CTE programs, through competitive grants in three sizes based on ADA, in the amounts of $400 million for fiscal year , $300 million for fiscal year , and $200 million for fiscal year The CTE program includes higher weighting of LEA applicants who establish new programs, serve low-income, Englishlearner, or foster youth students, have a high drop-out rate, or are located in areas with high unemployment rates. Educator Support. The State Budget provides $500 million in one-time funds under Proposition 98 for the professional development of teachers and administrators. The State Budget allocates $490 million of the amount towards promoting educator quality and effectiveness. Special Education. The State Budget includes $60.1 million towards improved services and outcomes for disabled students. The State Budget allocates $10 million of such amounts on a one-time basis with the remainder ($50.1 million) ongoing. Adult Education. The State Budget includes $500 million of Proposition 98 funds for the Adult Education Block Grant a program designed to provide more effective adult education and training. The program will be coordinated by various entities, including school districts, community colleges, universities, local workforce investment boards, libraries, social service agencies, public safety agencies, and employers. Early Education. The State Budget provides $34.4 million, $30.9 million of which is from Proposition 98 funds and the remainder from the general fund, for the provision of access to full-day preschool for low-income families. Additionally, the State Budget shifts $145 million from general child care to State preschools in order to allow LEAs who are preschool providers access to a single funding stream under Proposition 98. Future Actions. The District cannot predict what actions will be taken in the future by the State legislature and the Governor to address changing State revenues and expenditures. The District also cannot predict the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and State economic conditions and other factors over which the District will have no control. Certain actions or results could produce a significant shortfall of revenue and cash, and could consequently impair the State s ability to fund schools. State budget shortfalls in future fiscal years may also have an adverse financial impact on the financial condition of the District. 51

58 Revenue Sources The District categorizes its general fund revenues into four sources: TABLE 16 LOS BANOS UNIFIED SCHOOL DISTRICT District Revenue Sources Percentage of Total District Revenues Revenue Source (1) (1) (1) (1) (2) Revenue limit/lcff sources 67.6% 71.8% 71.7% 80.4% 83.9% Federal revenues Other State revenues Other local revenues (1) (2) Audited. Budgeted. Source: District. Each of these revenue sources is described below. Revenue Limit Sources and LCFF. State funding, under the LCFF, consists of Base Grants and supplemental grants, and, prior to implementation of the LCFF, the District received State apportionment of basic and equalization aid in an amount equal to the difference between the District s revenue limit and its property tax revenues. For the fiscal year , the District received $47,474,039 from revenue limit sources, comprising approximately 72% of its general fund revenues. For fiscal year , the District received $49,091,927 of revenue limit sources income, comprising approximately 72% of its general fund revenues. For fiscal year , the District received $58,087,185 from LCFF sources or approximately 80% of its general fund revenues. For fiscal year , the District has budgeted $71,019,210 from LCFF sources or approximately 84% of its general fund revenues. Federal Revenues. The federal government provides funding for several District programs, including special education programs, programs under the Education Consolidation and Improvement Act, and specialized programs such as Drug Free Schools. Most of the federal revenues received by the District are restricted. For fiscal year , the District received $4,706,936 of Federal Revenues, comprising approximately 8% of general fund total revenues. For fiscal year , the District received $356,937 of Federal Revenues, comprising approximately 6% of general fund total revenues. For fiscal year , the District received $3,635,618 of Federal Revenues, comprising approximately 5% of general fund total revenues. For fiscal year the District has budgeted $4,096,718 of Federal Revenues, comprising approximately 7% of general fund total revenues. Other State Revenues. In addition to revenue limit sources prior to fiscal year and the LCFF starting in fiscal year , the District receives substantial Other State revenues. These Other State Revenues are primarily restricted revenues funding items such as the After School Education and Safety, Home-to-School Transportation, Economic Impact Aid, and Special Education. For fiscal year , the District received $14,451,278 of Other State Revenues, comprising approximately 19% of general fund total revenues. For fiscal year , the District received $14,315,048 of Other State Revenues, comprising approximately 21% of general fund total revenues. For fiscal year , the District received $7,369,790 of Other State Revenues, comprising approximately 13% of general fund total revenues. For fiscal year , the District has budgeted $5,729,266 of Other State Revenues, comprising approximately 8% of general fund total revenues. 52

59 The District receives State aid from the California State Lottery (the Lottery ), which was established by a constitutional amendment approved in the November 1984 general election. Lottery revenues must be used for the education of students and cannot be used for non-instructional purposes such as real property acquisition, facility construction, or the financing of research. Moreover, State Proposition 20 approved in March 2000 requires that 50% of the increase in Lottery revenues over levels must be restricted to use on instruction material. The District budgeted receipt of $1,500,000 in Lottery money for fiscal year Other Local Revenues. In addition to property taxes, the District receives additional local revenues from items such as the leasing of property owned by the District and interest earnings. For fiscal year , the District received $1,156,969 of Other Local Revenues, comprising approximately 1.3% of general fund total revenues. For fiscal year , the District received $978,378 of Other Local Revenues, comprising approximately 1.4% of general fund total revenues. For fiscal year , the District received $1,396,812 of Other Local Revenues, comprising approximately 2% of general fund total revenues. For fiscal year , the District has budgeted $720,200 of Other Local Revenues, comprising approximately 1.3% of general fund total revenues. Developer Fees The District collects developer fees to finance essential school facilities within the District. The following table of developer fee revenues reflects the collection of fees from fiscal years through fiscal year , and the projected amount of developer fees for fiscal year TABLE 17 LOS BANOS UNIFIED SCHOOL DISTRICT Developer Fees Fiscal Years through Year Total Revenues $ 270, , , , (1) 910,000 (1) Projected. Source: The District Legal Challenge to State Funding of Education 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 - State Funding of Education and Recent State Budgets above. On May 20, 2010, a plaintiff class of numerous current California public school students and several school districts, together with the California Congress of Parents, Teachers & Students, the Association of California School Administrators and the California School Boards Association filed a Complaint in Alameda County Superior Court challenging the system of financing for public schools in California as unconstitutional. In Maya Robles-Wong, et al. v. State of California, plaintiffs seek declaratory and injunctive relief, including a permanent injunction compelling the State to abandon the existing system of public school finance. On July 16, 2010, the California Teachers Association filed a Complaint in Intervention, making the same allegations and seeking the same declaratory and injunctive relief. On January 14, 2011, the Court issued an order sustaining the State s demurrers to the Complaint and Complaint in 53

60 Intervention that provided that the Plaintiffs and Intervener could file amended complaints, consistent with the Court s order, by March 16, 2011 (parties stipulated to such date). The case is still pending. The District cannot predict the outcome of the Maya Robles-Wong litigation; however if successful, the lawsuit could result in a change to how school finance is implemented in the State of California. The State has not entered into any contractual commitment with the District, the County, the Underwriter or the Owners of the Certificates to provide State budget information to the District or the Owners of the Certificates. Although they believe the State sources of information listed above are reliable, neither the District nor the Underwriter assumes any responsibility for the accuracy of the State budget information set forth or referred to herein or incorporated by reference herein. Ad Valorem Property Taxation Taxes are levied by the Counties for each fiscal year on taxable real and personal property which is situated in the District as of the preceding January 1. For assessment and collection purposes, property is classified either as "secured" or "unsecured" and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State-assessed public utilities property and real property having a tax lien which is sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the "unsecured roll." Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, then such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. Property on the secured roll with respect to which taxes are delinquent becomes tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1.5% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, then the property is subject to sale by the County Treasurer. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid, on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, then an additional penalty of 1.5% attaches to them on the first day of each month until paid. The taxing authority has four ways of collecting delinquent unsecured personal property taxes: (1) bringing a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Clerk and County Recorder's office in order to obtain a lien on certain property of the taxpayer; and (4) seizing and selling personal property, improvements, or possessory interests belonging or assessed to the assessee. Assessed Valuations The assessed valuation of property in the District is established by the County Assessor of each County, except for public utility property which is assessed by the State Board of Equalization. Assessed valuations are reported at 100% of the "full value" of the property, as defined in Article XIIIA of the California Constitution. The full value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the area, or to reflect declines in property value caused by substantial damage, destruction or other factors, including assessment appeals filed by property owners. Certain classes of property such as churches, colleges, not-for-profit hospitals, and charitable institutions, are exempt from property taxation and do not appear on the tax rolls. No reimbursement is made by the State for such exemptions. 54

61 Property within the District had a local secured taxable assessed valuation for fiscal year of $3,124,598,095. The following table shows a summary of assessed valuations for the District for the fiscal years from to TABLE 18 LOS BANOS UNIFIED SCHOOL DISTRICT Assessed Valuation Summary Fiscal Year through Fiscal Year Source: California Municipal Statistics, Inc. Local Secured Utility Unsecured Total $2,604,020,499 $2,403,455 $143,825,933 $2,750,249, ,647,279,375 2,793, ,638,563 2,804,711, ,666,167,371 2,793, ,837,629 2,840,798, ,804,767,432 2,793, ,078,916 2,997,639, ,124,598,095 3,349, ,555,694 3,317,503,445 The table below shows the assessed valuation of the District for fiscal year by local political jurisdiction. TABLE 19 LOS BANOS UNIFIED SCHOOL DISTRICT Assessed Valuation by Jurisdiction (1) Assessed Valuation % of Assessed Valuation% of Jurisdiction Jurisdiction: in School District School District of Jurisdiction in School District City of Los Banos $2,127,260, % $2,127,260, % Unincorp. Merced County 1,190,243, $10,064,958, % Total District $3,317,503, % Merced County $3,317,503, % 18,867,870, % (1) Before deduction of redevelopment incremental valuation. 55

62 The tables below show land use in the District by assessed valuation and parcels, and the per-parcel valuation of single-family homes in the District, for fiscal year TABLE 20 LOS BANOS UNIFIED SCHOOL DISTRICT Assessed Valuation and Parcels by Land Use Fiscal Year Assessed Valuation (1) Parcels Amount % of Total Number % of Total Non-Residential: Agricultural $ 626,310, % 2, % Commercial 348,911, Vacant Commercial 23,782, Industrial/Food Processing 372,594, Vacant Industrial 3,484, Recreational/Duck Clubs 24,406, Government/Social/Institutional 11,013, Vacant Unclassified 1,146, Miscellaneous 344, Subtotal Non-Residential $1,411,994, % 3, % Residential: 2+ Residential Units/Apartments 55,152, Mobile Home 6,003, Mobile Home Park 4,470, Vacant Residential 41,117, , Subtotal Residential $1,712,603, % 11, % Total $3,124,598, % 15, % (1) Local secured assessed valuation; excluding tax-exempt property. Source: California Municipal Statistics, Inc. 56

63 TABLE 21 LOS BANOS UNIFIED SCHOOL DISTRICT Per Parcel Assessed Valuation of Single Family Homes Fiscal Year No. of Average Median Parcels Assessed Value Assessed Value Assessed Value Single Family Residential 10,370 $1,605,859,789 $154,856 $147, No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $24, % 0.559% $ 1,001, % 0.062% $25,000 - $49, ,453, $50,000 - $74, ,884, $75,000 - $99,999 1, ,333, $100,000 - $124,999 1, ,912, $125,000 - $149,999 1, ,075, $150,000 - $174,999 1, ,073, $175,000 - $199,999 1, ,775, $200,000 - $224, ,738, $225,000 - $249, ,816, $250,000 - $274, ,620, $275,000 - $299, ,611, $300,000 - $324, ,955, $325,000 - $349, ,995, $350,000 - $374, ,636, $375,000 - $399, ,691, $400,000 - $424, ,456, $425,000 - $449, ,870, $450,000 - $474, ,296, $475,000 - $499, , $500,000 and greater ,164, Totals 10, % $1,605,859, % (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc. Tax Rates The table below summarizes the total ad valorem tax rates levied by all taxing entities in Tax Rate Area (a typical tax rate area located in the City of Los Banos) for fiscal years through TABLE 22 LOS BANOS UNIFIED SCHOOL DISTRICT Typical Total Tax Rates per $100 of Assessed Valuation (TRA 4-001) (1) Fiscal Years through General Los Banos Unified School District Merced Com College Dist SFID No Total Source: California Municipal Statistics, Inc. 57

64 Appeals of Assessed Value General. There are two types of appeals of assessed values that could adversely impact property tax revenues within the District. Appeals may be based on Proposition 8 of November 1978, which requires that for each January 1 lien date, the taxable value of real property must be the lesser of its base year value, annually adjusted by the inflation factor pursuant to Article XIIIA of the State Constitution, or its full cash value, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in value. Under California law, property owners may apply for a reduction of their property tax assessment by filing a written application, in a form prescribed by the State Board of Equalization, with the County board of equalization or assessment appeals board. In most cases, the appeal is filed because the applicant believes that present market conditions (such as residential home prices) cause the property to be worth less than its current assessed value. Proposition 8 reductions may also be unilaterally applied by the County Assessor. Any reduction in the assessment ultimately granted as a result of such appeal applies to the year for which the application is made and during which the written application was filed. These reductions are subject to yearly reappraisals and are adjusted back to their original values when market conditions improve. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA. A second type of assessment appeal involves a challenge to the base year value of an assessed property. Appeals for reduction in the base year value of an assessment, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. The base year is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date. No assurance can be given that property tax appeals in the future will not significantly reduce the assessed valuation of property within the District. Tax Levies and Delinquencies Beginning in , Article XIIIA and its implementing legislation shifted the function of property taxation primarily to the counties, except for levies to support prior-voted debt, and prescribed how levies on county-wide property values are to be shared with local taxing entities within each County. Under the Teeter Plan, the County funds the District its full tax levy allocation rather than funding only actual collections (levy less delinquencies). In exchange, the County receives the interest and penalties that accrue on delinquent payments, when the late taxes are collected. The County does include the secured, but not the unsecured, ad valorem tax levy for the District's general obligation bonds under the Teeter Plan. See TAX BASE FOR REPAYMENT OF BONDS Alternative Method of Tax Apportionment herein. Alternative Method of Tax Apportionment The Board of Supervisors of the County has approved the implementation of the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the Teeter Plan ), as provided for in section 4701 et seq. of the California Revenue and Taxation Code. The Teeter Plan guarantees distribution of 100% of the general taxes levied to the taxing entities within the County, with the County retaining all penalties and interest penalties affixed upon delinquent properties and redemptions of subsequent collections. Under the Teeter Plan, the 58

65 County apportions secured property taxes on a cash basis to local political subdivisions, including the District, for which the County acts as the tax-levying or tax-collecting agency. At the conclusion of each fiscal year, the County distributes 100% of any taxes delinquent as of June 30th to the respective taxing entities. Teeter Plan was effective beginning the fiscal year commencing July 1, The Teeter Plan is applicable to secured property tax levies. As adopted by the County, the Teeter Plan excludes Mello-Roos Community Facilities Districts, special assessment districts, and benefit assessment districts. 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 receives a petition for its discontinuance joined in by resolutions adopted by at least two-thirds of the participating revenue districts in the County, in which event the Board of Supervisors is to order discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year. If the Teeter Plan is discontinued subsequent to its implementation, then only those secured property taxes actually collected would be allocated to political subdivisions (including the District) for which the County acts as the tax-levying or tax-collecting agency, but penalties and interest would be credited to the political subdivisions. The table below shows the secured assessment roll collections and delinquencies for parcels within the County for fiscal years through TABLE 23 LOS BANOS UNIFIED SCHOOL DISTRICT Secured Tax Charges and Delinquencies Fiscal Years through Secured Amt. Del. % Del. Tax Charge (1) June 30 June $139,890,284 $ 5,212, % ,031,175 5,001, ,553,018 12,204, ,391,304 19,469, ,414,686 16,033, ,685,966 10,124, ,280,858 7,662, ,359,329 6,959, ,402,043 5,412, ,877,806 3,950, (1) All property taxes collected by the County. Source: California State Controller s Office. 59

66 Largest Secured Property Taxpayers in District The following table shows the 20 largest secured property taxpayers in the District as determined by secured assessed valuation in fiscal year TABLE 24 LOS BANOS UNIFIED SCHOOL DISTRICT Largest Secured Taxpayers Fiscal Year Property Owner Primary Land Use Assessed Valuation % of Total (1) 1. Morning Star Packing Co. LP / Liberty Packing Industrial Food Processing $209,713, % 2. Ingomar Packing Company Industrial Food Processing 75,487, California Milk Producers Industrial Food Processing 32,233, Hostetler Ranches LLC Agricultural 24,226, Wal-Mart Real Estate Business Trust Commercial 20,300, Kagome USA Inc. Industrial Food Processing 20,279, Target Corp. Commercial 18,983, David & Carolyn Santos Farms LP Agricultural 18,069, Bowles Farming Company Inc. Agricultural 17,338, Teixeira & Sons Agricultural 16,696, A&H Investments Agricultural 12,479, Lowes HIW Inc. Commercial 11,979, Home Depot USA Inc. Commercial 11,477, Frank Solomon, Jr. Commercial 11,428, Tri Iest Dairy Dairy 11,390, Colorado/Eagle Rock LLC Commercial 10,763, Calmat Co. Sand & Gravel 10,578, McCorduck Properties Los Banos LLC Commercial 10,243, Vulcan Lands Inc. Sand & Gravel 10,179, Manuela O. Godhino Agricultural 9,735, Totals $563,584, % (1) local secured assessed valuation: $3,124,598,095 Source: California Municipal Statistics, Inc. Overlapping Debt Obligations Set forth on the following page is a direct and overlapping debt report (the "Debt Report") prepared by California Municipal Statistics, Inc. and dated as of May 1, The Debt Report is included for general information purposes only. The District has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such 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. 60

67 Assessed Valuation: $3,317,503,445 TABLE 25 LOS BANOS UNIFIED SCHOOL DISTRICT Statement of Direct and Overlapping Bonded Debt Dated as of May 1, 2015 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 5/1/15 (1) Los Banos Unified School District % $51,776,344 (2) Merced Community College District School Facilities Imp. Dist ,985,349 Yosemite Community College District ,142 San Luis Water District, I.D. No ,000 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $60,081,835 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Merced County Certificates of Participation % $ 3,162,303 Merced County Pension Obligations ,958,340 Los Banos Unified School District Certificates of Participation ,700,000 TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $12,820,643 OVERLAPPING TAX INCREMENT DEBT: $26,040,000 COMBINED TOTAL DEBT $98,942,478 (3) (1) Excludes any bonds sold between date of preparation (3/6/15) and 5/1/15. (2) Excludes issue to be sold. (3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Ratios to Assessed Valuation: Direct Debt ($51,776,344) % Total Direct and Overlapping Tax and Assessment Debt 1.81% Combined Direct Debt ($58,476,344) % Combined Total Debt % Ratios to Redevelopment Incremental Valuation ($418,766,140): Total Overlapping Tax Increment Debt % Source: California Municipal Statistics, Inc. 61

68 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Neither the Certificates nor the obligation of the District to make Lease Payments constitutes an obligation of the District for which the District is obligated to levy or pledge, or for which the District has levied or pledged, any form of taxation. Neither the Certificates nor the obligation of the District to make Lease Payments constitutes a debt of the District, the State of California or any of their respective political subdivisions in contravention of any constitutional limitation or any statutory debt limitation. Article XIIIA of the California Constitution Article XIIIA ( Article XIIIA ) of the State Constitution limits the amount of ad valorem taxes on real property to 1% of full cash value as determined by the county assessor. Article XIIIA defines full cash value to mean the county assessor s valuation of real property as shown on the bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed or a change in ownership has occurred after the 1975 assessment, subject to exemptions in certain circumstances of property transfer or reconstruction. Determined in this manner, the full cash value is also referred to as the base year value. The full cash value is subject to annual adjustment to reflect increases, not to exceed 2% for any year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors. Article XIIIA has been amended to allow for temporary reductions of assessed value in instances where the fair market value of real property falls below the adjusted base year value described above. Proposition 8 approved by the voters in November of 1978 provides for the enrollment of the lesser of the base year value or the market value of real property, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property, or other factors causing a similar decline. In these instances, the market value is required to be reviewed annually until the market value exceeds the base year value. Reductions in assessed value could result in a corresponding increase in the annual tax rate levied by the Counties to pay debt service on the Bonds. See SECURITY AND SOURCE OF PAYMENT FOR THE BONDS in the front part of this Official Statement. Article XIIIA requires a vote of two-thirds or more of the qualified electorate of a city, county, special district or other public agency to impose special taxes, while totally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. Article XIIIA exempts from the 1% tax limitation any taxes above that level required to pay debt service (a) on any indebtedness approved by the voters prior to July 1, 1978; or (b) as the result of an amendment approved by State voters on June 3, 1986, on any bonded indebtedness approved by two-thirds or more of the votes cast by the voters for the acquisition or improvement of real property on or after July 1, 1978; or (c) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% or more of the votes cast on the proposition, but only if certain accountability measures are included in the proposition. The taxes for payment of the Bonds as well as the District s outstanding bonds of the 2002, 2006, and 2012 Authorizations fall within the exception de-scribed in clause (c) of the immediately preceding sentence. In addition, Article XIIIA requires the approval of two-thirds of all members of the State Legislature to change any State taxes for the purpose of increasing tax revenues. 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 relevant county and distributed ac-cording to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to

69 Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the annual adjustment not to exceed 2% are allocated among the various jurisdictions in the taxing area based upon their respective situs. Any such allocation made to a local agency continues as part of its allocation in future years. All taxable property value included in this Official Statement is shown at 100% of taxable value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value. Both the United States Supreme Court and the California State Supreme Court have upheld the general validity of Article XIIIA. State-Assessed Utility Property Some amount of property tax revenue of the District is derived from utility property which is considered part of a utility system with components located in many taxing jurisdictions. Under the State Constitution, such property is assessed by the State Board of Equalization ( SBE ) as part of a going concern rather than as individual pieces of real or personal property. Such State-assessed property is allocated to the counties by the SBE, taxed at special countywide rates, and the tax revenues distributed to taxing jurisdictions (including the District) according to statutory formulae generally based on the distribution of taxes in the prior year. The California electric utility industry has been undergoing significant changes in its structure and in the way in which components of the industry are regulated and owned. Sale of electric generation assets to largely unregulated, non-utility companies may affect how those assets are assessed, and which local agencies are to receive the property taxes. The District is unable to predict the impact of these changes on its utility property tax revenues, or whether legislation may be proposed or adopted in response to industry restructuring, or whether any future litigation may affect ownership of utility assets or the State s methods of assessing utility property and the allocation of assessed value to local taxing agencies, including the District. So long as the District is not a basic aid district, taxes lost through any reduction in assessed valuation will be compensated by the State as equalization aid under the State s school financing formula. See DISTRICT FINANCIAL MATTERS - State Funding of Education; State Budget Process herein. Article XIIIB of the California Constitution Article XIIIB ( Article XIIIB ) of the State Constitution, as subsequently amended by Propositions 98 and 111, respectively, limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and in population and for transfers in the financial responsibility for providing services and for certain declared emergencies. As amended, Article XIIIB de-fines: (a) change in the cost of living with respect to school districts to mean the percentage change in California per capita income from the preceding year; and (b) change in population with respect to a school district to mean the percentage change in the average daily attendance ( ADA ) of the school district from the preceding fiscal year. For fiscal years beginning on or after July 1, 1990, the appropriations limit of each entity of government shall be the appropriations limit for the fiscal year adjusted for the changes made from that fiscal year pursuant to the provisions of Article XIIIB, as amended. 63

70 The appropriations of an entity of local government subject to Article XIIIB limitations include the proceeds of taxes levied by or for that entity and the proceeds of certain state subventions to that entity. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to the entity from (a) regulatory licenses, user charges and user fees (but only to the extent that these proceeds exceed the reasonable costs in providing the regulation, product or service); and (b) the investment of tax revenues. Appropriations subject to limitation do not include (a) refunds of taxes; (b) appropriations for debt service; (c) appropriations required to comply with certain mandates of the courts or the federal government; (d) appropriations of certain special districts; (e) appropriations for all qualified capital outlay projects as defined by the State legislature; (f) appropriations derived from certain fuel and vehicle taxes, and (g) appropriations derived from certain taxes on tobacco products. Article XIIIB includes a requirement that all revenues received by an entity of government other than the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years. Article XIIIB also includes a requirement that 50% of all revenues received by the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be transferred and allocated to the State School Fund pursuant to Section 8.5 of Article XVI of the State Constitution. See Propositions 98 and 111 below. Article XIIIC and Article XIIID of the California Constitution On November 5, 1996, the voters of the State of California approved Proposition 218, popularly known as the Right to Vote on Taxes Act. Proposition 218 added to the California Constitution Articles XIIIC and XIIID (respectively, Article XIIIC and Article XIIID ), which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing and future taxes, assessments, fees and charges. According to the Title and Summary of Proposition 218 prepared by the California Attorney General, Proposition 218 limits the authority of local governments to impose taxes and property-related assessments, fees and charges. Among other things, Article XIIIC establishes that every tax is either a general tax (imposed for general governmental purposes) or a special tax (imposed for specific purposes), prohibits special purpose government agencies such as school districts from levying general taxes, and prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds vote; and also provides that the initiative power will not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. Article XIIIC further provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the California Constitution and special taxes approved by a two-thirds vote under Article XIIIA, Section 4. Article XIIID deals with assessments and property- related fees and charges, and explicitly provides that nothing in Article XIIIC or XIIID will be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development. The District does not impose any taxes, assessments, or property-related fees or charges which are subject to the provisions of Proposition 218. It does, however, receive a portion of the basic 1% ad valorem property tax levied and collected by the County pursuant to Article XIIIA of the California Constitution. The provisions of Proposition 218 may have an indirect effect on the District, such as by limiting or reducing the revenues other-wise 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. 64

71 Proposition 26 On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution to expand the definition of tax to include any levy, charge, or exaction of any kind imposed by a local government except the following: (a) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (b) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (c) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (d) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (e) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (f) a charge imposed as a condition of property development; and (g) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor s burdens on, or benefits received from, the governmental activity. Propositions 98 and 111 On November 8, 1988, voters of the State of California approved Proposition 98, a combined initiative constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act (the Accountability Act ). Certain provisions of the Accountability Act have, however, been modified by Proposition 111, discussed below, the provisions of which became effective on July 1, The Accountability Act changed State funding of public education below the university level and the operation of the State s appropriations limit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (hereinafter referred to collectively as K-14 school districts ) at a level equal to the greater of (a) the same percentage of the State general fund revenues as the percentage appropriated to such districts in ; and (b) the amount actually appropriated to such districts from the State general fund in the previous fiscal year, adjusted for increases in enrollment and changes in the cost of living. The Accountability Act permits the Legislature to suspend this formula for a one-year period. The Accountability Act also changed how tax revenues in excess of the State appropriations limit are distributed. Any excess State tax revenues up to a specified amount are, instead of being returned to taxpayers, be transferred to K-14 school districts. Any such transfer to K-14 school districts would be excluded from the appropriations limit for K-14 school districts and the K-14 school district appropriations limit for the next year is automatically 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 can be transferred to K-14 school districts is 4% of the minimum State spending for education mandated by the Accountability Act. Since the Accountability Act is unclear in some details, there can be no assurances that the Legislature or a court might not interpret the Accountability Act to require a different percentage of State general fund revenues to be allocated to K-14 school districts, or to apply the relevant percentage to the State s budgets in a different way than is proposed in the Governor s Budget. On June 5, 1990, the voters of the State of California approved Proposition 111 (Senate Constitutional Amendment No. 1) called the Traffic Congestion Relief and Spending Limit Act of

72 ( Proposition 111 ) which further modified Article XIIIB and Sections 8 and 8.5 of Article XVI of the State Constitution with respect to appropriations limitations and school funding priority and allocation. The most significant provisions of Proposition 111 are summarized as follows: (a) Annual Adjustments to Spending Limit. The annual adjustments to the Article XIIIB spending limit were liberalized to be more closely linked to the rate of economic growth. Instead of being tied to the Consumer Price Index, the change in the cost of living is now measured by the change in California per capita personal in-come. The definition of change in population specifies that a portion of the State s spending limit is to be adjusted to reflect changes in school attendance. (b) Treatment of Excess Tax Revenues. Excess tax revenues with respect to Article XIIIB are now determined based on a two-year cycle, so that the State can avoid having to return to taxpayers excess tax revenues in one year if its appropriations in the next fiscal year are under its limit. In addition, the Proposition 98 provision regarding excess tax revenues was modified. After any two-year period, if there are excess State tax revenues, 50% of the excess are to be transferred to K-14 school districts with the balance returned to taxpayers; under prior law, 100% of excess State tax revenues went to K-14 school districts, but only up to a maximum of 4% of the schools minimum funding level. Also, reversing prior law, any excess State tax revenues transferred to K-14 school districts are not built into the school districts base expenditures for calculating their entitlement for State aid in the next year, and the State s appropriations limit is not to be increased by this amount. (c) Exclusions From Spending Limit. Two exceptions were added to the calculation of appropriations which are subject to the Article XIIIB spending limit. First, there are excluded all appropriations for qualified capital out-lay projects as defined by the Legislature. Second, there are excluded any increases in gasoline taxes above the 1990 level (then nine cents per gallon), sales and use taxes on such increment in gasoline taxes, and increases in receipts from vehicle weight fees above the levels in effect on January 1, These latter provisions were necessary to make effective the transportation funding package approved by the Legislature and the Governor, which expected to raise over $15 billion in additional taxes from 1990 through 2000 to fund transportation pro-grams. (d) Recalculation of Appropriations Limit. The Article XIIIB appropriations limit for each unit of government, including the State, is to be recalculated beginning in fiscal year It is based on the actual limit for fiscal year , adjusted forward to as if Proposition 111 had been in effect. (e) School Funding Guarantee. There is a complex adjustment in the formula enacted in Proposition 98 which guarantees K-14 school districts a certain amount of State general fund revenues. Under prior law, K-14 school districts were guaranteed the greater of (i) 40.9% of State general fund revenues (the first test ) or (ii) 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, schools will receive the greater of (A) the first test; (B) the second test, or (C) a third test, which will replace the second test in any year when growth in per capita State general fund revenues from the prior year is less than the annual growth in California per capita personal income. Under the third test, schools will receive the amount appropriated in the prior year adjusted for change in enrollment and per capita State general fund revenues, plus an additional small adjustment factor. If the third test is used in any year, then the difference between the third test and the second test will become a credit to schools which will be paid in future years when State general fund revenue growth exceeds personal income growth. Proposition 39 On November 7, 2000, California voters approved an amendment (commonly known as Proposition 39) to the California Constitution. This amendment (a) allows school facilities bond measures to be approved by 55% (rather than two-thirds) of the voters in local elections and permits property taxes to exceed the current 1% limit in order to 66

73 repay the bonds, and (b) changes existing statutory law regarding charter school facilities. As adopted, the constitutional amendments may be changed only with another statewide vote of the people. The statutory provisions could be changed by a majority vote of both houses of the Legislature and approval by the Governor, but only to further the purposes of the proposition. The local school jurisdictions affected by this proposition are K-12 school districts, including the District, community college districts, and county offices of education. As noted above, the California Constitution previously limited property taxes to 1% of the value of property, and property taxes could only exceed this limit to pay for (i) any local government debts approved by the voters prior to July 1, 1978, or (ii) bonds to acquire or improve real property that receive two-thirds voter approval after July 1, The 55% vote requirement applies only if the local bond measure presented to the voters includes: (a) a requirement that the bond funds can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities; (b) a specific list of school projects to be funded and certification that the school board has evaluated safety, class size reduction, and information technology needs in developing the list; and (c) a requirement that the school board conduct annual, independent financial and performance audits until all bond funds have been spent to ensure that the bond funds have been used only for the projects listed in the measure. Legislation approved in June 2000 placed certain limitations on local school bonds to be approved by 55% of the voters. These provisions require that the tax rate levied as the result of any single election be no more than $60 (for a unified school district), $30 (for a high school or elementary school district), or $25 (for a community college district), per $100,000 of taxable property value, when assessed valuation is projected to increase in accordance with Article XIIIA of the Constitution. These requirements are not part of Proposition 39 and can be changed with a majority vote of both houses of the Legislature and approval by the Governor. Jarvis v. Connell On May 29, 2002, the California Court of Appeal for the Second District decided the case of Howard Jarvis Taxpayers Association, et al. v. Kathleen Connell (as Controller of the State of California). The Court of Appeal held that either a final budget bill, an emergency appropriation, a self-executing authorization pursuant to state statutes (such as continuing appropriations) or the California Constitution or a federal mandate is necessary for the State Controller to disburse funds. The foregoing requirement could apply to amounts budgeted by the District as being received from the State. To the extent the holding in such case would apply to State payments reflected in the District s budget, the requirement that there be either a final budget bill or an emergency appropriation may result in the delay of such payments to the District if such required legislative action is delayed, unless the payments are selfexecuting authorizations or are subject to a federal mandate. On May 1, 2003, the California Supreme Court upheld the holding of the Court of Appeal, stating that the Controller is not authorized under State law to disburse funds prior to the enactment of a budget or other proper appropriation, but under federal law, the Controller is required, notwithstanding a budget impasse and the limitations imposed by State law, to timely pay those State employees who are subject to the minimum wage and overtime compensation provisions of the federal Fair Labor Standards Act. Proposition 1A and Proposition 22 On November 2, 2004, California voters approved Proposition 1A, which amends the State constitution to significantly reduce the State s authority over major local government revenue sources. Under Proposition 1A, the State cannot (a) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (b) shift property taxes from local governments to schools or community colleges, (c) change how property tax revenues are shared among local governments without two-third approval of both houses of the State Legislature, or (d) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also amends the State Constitution to require the State to suspend certain State laws creating mandates in any year that the State does not fully reimburse local governments for 67

74 their costs to comply with the mandates. This provision does not apply to mandates relating to schools or community colleges or to those mandates relating to employee rights. Proposition 22, The Local Taxpayer, Public Safety, and Transportation Protection Act, approved by the voters of the State on November 2, 2010, prohibits the State from enacting new laws that require redevelopment agencies to shift funds to schools or other agencies and eliminates the State s authority to shift property taxes temporarily during a severe financial hardship of the State. In addition, Proposition 22 restricts the State s authority to use State fuel tax revenues to pay debt service on state transportation bonds, to borrow or change the distribution of state fuel tax revenues, and to use vehicle license fee revenues to reimburse local governments for state mandated costs. Proposition 22 impacts resources in the State s general fund and transportation funds, the State s main funding source for schools and community colleges, as well as universities, prisons and health and social services programs. According to an analysis of Proposition 22 submitted by the Legislative Analyst s Office (the LAO ) on July 15, 2010, the expected reduction in resources available for the State to spend on these other programs as a consequence of the passage of Proposition 22 was expected to be approximately $1 billion in fiscal year , with an estimated immediate fiscal effect equal to approximately 1% of the State s total general fund spending. The longer-term effect of Proposition 22, according to the LAO analysis, will be an in-crease in the State s general fund costs by approximately $1 billion annually for several decades. See DISTRICT FINANCIAL MATTERS State Dissolution of Redevelopment Agencies above. Proposition 30 On November 6, 2012, voters of the State of California approved the Temporary Taxes to Fund Education, Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment (also known as Proposition 30 ), which temporarily increases the State Sales and Use Tax and personal income tax rates on higher incomes. Proposition 30 temporarily imposes an additional tax on all retailers, at the rate of 0.25% of gross receipts from the sale of all tangible personal property sold in the State from January 1, 2013 to December 31, Proposition 30 also imposes an additional excise tax on the storage, use, or other consumption in the State of tangible personal property purchased from a retailer on and after January 1, 2013 and before January 1, 2017, for storage, use, or other consumption in the State. This excise tax is being levied at a rate of 0.25% of the sales price of the property so purchased. For personal income taxes imposed beginning in the taxable year commencing January 1, 2012 and ending in the taxable year ending December 31, 2018, Proposition 30 increases the marginal personal income tax rate by: (a) 1% for taxable income over $250,000 but less than $300,000 for single filers (over $340,000 but less than $408,000 for joint filers), (b) 2% for taxable income over $300,000 but less than $500,000 for single filers (over $408,000 but less than $680,000 for joint filers), and (c) 3% for taxable income over $500,000 for single filers (over $680,000 for joint filers). The revenues generated from the temporary tax increases are included in the calculation of the Proposition 98 minimum funding guarantee for school districts and community college districts. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Propositions 98 and 111 herein. From an accounting perspective, the revenues generated from the temporary tax increases are being deposited into the State account created pursuant to Proposition 30 called the Education Protection Account (the EPA ). Pursuant to Proposition 30, funds in the EPA are allocated quarterly, with 89% of such funds provided to school districts and 11% provided to community college districts. The funds will be distributed to school districts and community college districts in the same manner as existing unrestricted per-student funding, except that no school district will receive less than $200 per unit of ADA and no community college district will receive less than $100 per full time equivalent student. The governing board of each school district and community college district is granted sole authority to determine how the moneys received from the EPA are spent, provided that, the appropriate governing board is required to make these spending determinations in open session at a public meeting and such local governing boards are prohibited from using any funds from the EPA for salaries or benefits of administrators or any other administrative costs. 68

75 Proposition 2 On November 4, 2014, voters approved the Rainy Day Budget Stabilization Fund Act (also known as Proposition 2 ). Proposition 2 is a legislatively-referred constitutional amendment which makes certain changes to State budgeting practices, including substantially revising the conditions under which transfers are made to and from the State s Budget Stabilization Account (the BSA ) established by the California Balanced Budget Act of 2004 (also known as Proposition 58 ). Under Proposition 2, and beginning in fiscal year and each fiscal year thereafter, the State will generally be required to annually transfer to the BSA an amount equal to 1.5% of estimated State general fund revenues (the Annual BSA Transfer ). Supplemental transfers to the BSA (a Supplemental BSA Transfer ) are also required in any fiscal year in which the estimated State general fund revenues that are allocable to capital gains taxes exceed 8% of total estimated general fund tax revenues. Such excess capital gains taxes net of any portion thereof owed to K-14 school districts pursuant to Proposition 98 will be transferred to the BSA. Proposition 2 also increases the maximum size of the BSA to an amount equal to 10% of estimated State general fund revenues for any given fiscal year. In any fiscal year in which a required transfer to the BSA would result in an amount in excess of the 10% threshold, Proposition 2 requires such excess to be expended on State infrastructure, including deferred maintenance. For the first 15 year period ending with the fiscal year, Proposition 2 provides that half of any required transfer to the BSA, either annual or supplemental, must be appropriated to reduce certain State liabilities, including making certain payments owed to K-14 school districts, repaying State interfund borrowing, reimbursing local governments for State mandated services, and reducing or prefunding accrued liabilities associated with State-level pension and retirement benefits. Following the initial 15-year period, the Governor and the Legislature are given discretion to apply up to half of any required transfer to the BSA to the reduction of such State liabilities. Any amount not applied towards such reduction must be transferred to the BSA or applied to infrastructure, as described above. Proposition 2 changes the conditions under which the Governor and the Legislature may draw upon or reduce transfers to the BSA. The Governor does not retain unilateral discretion to suspend transfers the BSA, nor does the Legislature retain discretion to transfer funds from the BSA for any reason, as previously provided by law. Rather, the Governor must declare a budget emergency, defined as an emergency within the meaning of Article XIIIB of the Constitution or a determination that estimated resources are inadequate to fund State general fund expenditures, for the current or ensuing fiscal year, at a level equal to the highest level of State spending within the three immediately preceding fiscal years. Any such declaration must be followed by a legislative bill providing for a reduction or transfer. Draws on the BSA are limited to the amount necessary to address the budget emergency, and no draw in any fiscal year may exceed 50% of funds on deposit in the BSA unless a budget emergency was declared in the preceding fiscal year. Proposition 2 also requires the creation of the Public School System Stabilization Account (the PSSSA ) into which transfers will be made in any fiscal year in which a Supplemental BSA Transfer is required (as described above). Such transfer will be equal to the portion of capital gains taxes above the 8% threshold that would be otherwise paid to K- 14 school districts as part of the minimum funding guarantee. A transfer to the PSSSA will only be made if certain additional conditions are met, as follows: (i) the minimum funding guarantee was not suspended in the immediately preceding fiscal year, (ii) the operative Proposition 98 formula for the fiscal year in which a PSSSA transfer might be made is Test 1, (iii) no maintenance factor obligation is being created in the budgetary legislation for the fiscal year in which a PSSSA transfer might be made, (iv) all prior maintenance factor obligations have been fully repaid, and (v) the minimum funding guarantee for the fiscal year in which a PSSSA transfer might be made is higher than the immediately preceding fiscal year, as adjusted for ADA growth and cost of living. Proposition 2 caps the size of the PSSSA at 10% of the estimated minimum guarantee in any fiscal year, and any excess funds must be paid to K-14 school districts. Reductions to any required transfer to the PSSSA, or draws on the PSSSA, are subject to the same budget emergency requirements described above. However, Proposition 2 also mandates draws on the PSSSA in any 69

76 fiscal year in which the estimated minimum funding guarantee is less than the prior year s funding level, as adjusted for ADA growth and cost of living. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID of the California Constitution and the above-described Propositions were each adopted as measures that qualified for the ballot pursuant to the State s initiative process. From time to time other initiative measures could be adopted further affecting District revenues or the District s ability to expend revenues. The nature and impact of these measures cannot be anticipated by the District. TAX MATTERS Federal Tax Status. In the opinion of Lozano Smith, LLP, Sacramento, California, Special Counsel, subject, however to the qualifications set forth below, under existing law, the interest represented by the Certificates is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, interest represented by the Certificates is taken into account in determining certain income and earnings. The opinions set forth in the preceding paragraph are subject to the condition that the District comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Certificates in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The District has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Certificates. Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public (excluding bond houses and brokers) at which a Certificate is sold is less than the amount payable at maturity thereof, then such difference constitutes "original issue discount" for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which each Certificate is sold is greater than the amount payable at maturity thereof, then such difference constitutes "original issue premium" for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount is disregarded. Under the Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Certificate on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Certificates to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Certificate. The Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Certificates who purchase the Certificates after the initial offering of a substantial amount of such maturity. Owners of such Certificates should consult their own tax advisors with respect to the tax consequences of ownership of Certificates with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Certificates under federal individual and corporate alternative minimum taxes. Under the Code, original issue premium is amortized on an annual basis over the term of the Certificate (said term being the shorter of the Certificate's maturity date or its call date). The amount of original issue premium 70

77 amortized each year reduces the adjusted basis of the owner of the Certificate for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Certificate is amortized each year over the term to maturity of the Certificate on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Bond premium is not deductible for federal income tax purposes. Owners of Premium Certificates, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Certificates. California Tax Status. In the further opinion of Special Counsel, interest represented by the Certificates is exempt from California personal income taxes. Other Tax Considerations. Owners of the Certificates should also be aware that the ownership or disposition of, or the accrual or receipt of interest represented by, the Certificates may have federal or state tax consequences other than as described above. Special Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Certificates other than as expressly described above. There are or may be pending in the Congress of the United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or affect the market value of the Certificates. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the Certificates should consult their own tax advisors regarding any pending or proposed federal tax legislation. Special Counsel expresses no opinion regarding any pending or proposed federal tax legislation. The Internal Revenue Service (the Service ) has an ongoing program of auditing tax exempt obligations to determine whether, in the view of the Service, interest on such tax exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the Service will commence an audit of the Certificates. If an audit is commenced, then under current procedures the Service may treat the District as a taxpayer and the Certificateholders may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Certificates until the audit is concluded, regardless of the ultimate outcome. Form of Opinion. A copy of the proposed form of opinion of Special Counsel with respect to the Certificates is attached to this Official Statement as APPENDIX B. FINANCIAL ADVISOR Fieldman, Rolapp, & Associates, Irvine, California, has served as financial advisor (the Financial Advisor ) to the District in connection with the issuance of the Certificates. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness or fairness of the information contained in the Official Statement. The fees of the Financial Advisor are contingent upon the sale and delivery of the Certificates. The Financial Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. CONTINUING DISCLOSURE The District has covenanted in a Continuing Disclosure Certificate for the benefit of the holders and Owners of the Certificates to provide certain financial information and operating data relating to the District no later than nine months following the end of the District s Fiscal Year (which would be March 31 following the District s fiscal year ending on June 30) (the Annual Report ), commencing with the report for the fiscal year ending June 30, 2015 (which is due no later than March 31, 2016), and to provide notices of the occurrence of certain enumerated events, if material. 71

78 The Annual Report and notices of certain significant 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 and the notice of significant events is set forth in APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE. These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12(b)(5) promulgated under the Securities Exchange Act of 1934, as amended. In the five year period previous to the date of this Official Statement, the District timely and completely filed each Annual Report with respect to its prior continuing disclosure undertakings, and most, but not all event notices with respect thereto. The District either did not file or filed late certain event notices related to changes in the ratings of bond insurers insuring certain of the District s prior debt issuances. The District has retained the firm of Applied Best Practices, Irvine, California, as it dissemination agent with respect to the Certificates and all continuing disclosure undertakings with respect to the District s outstanding debt issuances. ABSENCE OF MATERIAL LITIGATION At the time of delivery of and payment for the Certificates, the District and the Corporation will each certify that there is no action, suit, litigation, inquiry or investigation before or by any court, governmental agency, public board or body served, or to the best knowledge of the District or the Corporation threatened, against the District or the Corporation in any material respect affecting the existence of the District or the Corporation or the titles of their officers to their respective offices or seeking to prohibit, restrain or enjoin the sale, execution or delivery of the Certificates or the payment of Lease Payments or challenging, directly or indirectly, the validity or enforceability of the proceedings to lease the Property back from the Corporation, the Trust Agreement, the Lease Agreement, the Assignment Agreement or the Site Lease. There is no action, suit, or proceeding known to be pending or threatened, to restrain or enjoin the execution or delivery of the Certificates, or in any way contesting or affecting the validity of the Certificates or any proceedings of the District taken with respect thereto. The District is not aware of any litigation, pending or threatened, questioning the political existence of the District. RATING Standard & Poor s Credit Market Services, a Division of the McGraw-Hill Companies ( S&P ), is expected to assign a rating of AA (stable outlook) to the Certificates, with the understanding that a municipal bond insurance policy insuring the payment, when due, of principal of and interest with respect to the Certificates will be issued by AGM at the time of delivery of the Certificates. In addition, S&P has assigned an underlying rating of A (stable) to the Certificates. The rating reflects only the view of S&P, and any explanation of the significance of such rating should be obtained from S&P at the following address: Standard & Poor s, 55 Water Street, 45th Floor, New York, NY There is no assurance that the rating will be retained for any given period of time or that the same will not be revised downward or withdrawn entirely by S&P if, in the judgment of S&P, circumstances so warrant. The District undertakes no responsibility to oppose any such revision or withdrawal. Any such downward revision or withdrawal of the rating obtained may have an adverse effect on the market price of the Certificates. UNDERWRITING The Certificates are being purchased for reoffering by Piper Jaffray & Co. (the Underwriter ) The Underwriter has agreed to purchase the Certificates at the purchase price of $18,324, (representing the aggregate principal amount of the Certificates of $18,125,000.00, less an underwriter s discount of $131,768.75, and plus $330, of net original issue premium). The Certificate Purchase Agreement relating to the Certificates provides that the 72

79 Underwriter will purchase all of the Certificates, if any are purchased. The obligation to make such purchase is subject to certain terms and conditions set forth in such Certificate Purchase Agreement. The Underwriter may offer and sell the Certificates to dealers and others at a price lower than the offering price stated on the inside cover page hereof. The offering price may be changed from time to time by the Underwriter. The Underwriter has entered into a distribution agreement ( Distribution Agreement ) with Charles Schwab & Co., Inc. ( CS&Co ) for the retail distribution of certain securities offerings, including the Certificates, at the original issue prices. Pursuant to the Distribution Agreement, CS&Co. will purchase Certificates from the Underwriter at the original issue price less a negotiated portion of the selling concession applicable to any Certificates that CS&Co. sells. [REMAINDER OF PAGE INTENTIONALLY BLANK] 73

80 MISCELLANEOUS The references herein to the Lease Agreement, the Site Lease, the Trust Agreement, and the Assignment Agreement are brief outlines of certain provisions thereof. Such outlines do not purport to be complete and for full and complete statements of such provisions reference is made to said documents. Copies of the documents mentioned under this heading are available from the office of the Financial Advisor, Fieldman, Rolapp & Associates, MacArthur Boulevard, Suite 1100, Irvine, California , telephone: (949) , or for inspection at the District, and following delivery of the Certificates will be on file at the Office of the Trustee in Los Angeles, California. References are made herein to certain documents and reports which are brief summaries thereof which do not purport to be complete or definitive. Reference is made to such documents and reports for full and complete statements of the content thereof. Any statement 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 Certificates. The execution and delivery of this Official Statement has been duly authorized by the District. LOS BANOS UNIFIED SCHOOL DISTRICT By: /s/ Steve Tietjen, Ed.D Superintendent 74

81 APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS The following are brief summaries of the provisions of the Site Lease, the Lease Agreement, the Trust Agreement and the Assignment Agreement. These summaries are not intended to be definitive. Reference is made to the actual documents (copies of which are available from the District) for the complete terms thereof. DEFINED TERMS The following terms have the following meanings, notwithstanding that any such terms may be elsewhere defined in this Official Statement. Any terms not expressly defined in this Summary but previously defined in this Official Statement have the respective meanings previously given. Assignment Agreement means the Assignment Agreement, dated as of July 1, 2015, by and between the Corporation as assignor and the Trustee as assignee, as originally executed or as thereafter amended pursuant to any duly authorized and executed amendments thereto. Bond Counsel means (a) Lozano Smith, LLP, or (b) any other attorney or firm of attorneys of nationally recognized expertise with respect to legal matters relating to obligations the interest on which is excludable from gross income pursuant to Section 103 of the Tax Code. Business Day means a day other than a Saturday, Sunday or legal holiday, on which banking institutions in the State of California or State of New York, or in any state in which the Office of the Trustee is located, are not closed for corporate trust business. Certificates means the 2015 Certificates of Participation, executed and delivered pursuant to the Trust Agreement in the aggregate principal amount shown on the cover page of this Official Statement. Closing Date means the day when the Certificates, duly executed by the Trustee, are delivered to the Original Purchaser. Code means the Internal Revenue Code of 1986 as in effect on the date of issuance of the Certificates or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of execution and delivery of the Certificates, together with applicable temporary and final regulations promulgated, and applicable official public guidance published, under the Code. Completion Date means the date on which the District shall file a certificate with the Trustee stating that the Project has been completed in accordance with all requirements of the District. Continuing Disclosure Certificate shall mean that certain Continuing Disclosure Certificate executed by the District and dated the date of execution and delivery of the Certificates, as originally executed and as it may be amended from time to time in accordance with the terms thereof. Corporation means Public Property Financing Corporation of California, a nonprofit public benefit corporation duly organized and existing under the laws of the State of California. Corporation Representative means the President, Vice President, or Treasurer/Secretary of the Corporation, or any other person authorized to act on behalf o the Corporation under or with respect to the Lease and Trust Agreement by resolution of the Board of Directors of the Corporation delivered to the Trustee. A-1

82 Costs of Issuance means all items of expense directly or indirectly payable by or reimbursable to the District or the Corporation relating to the execution and delivery of the Lease or the execution, sale and delivery of the Certificates, including but not limited to filing and recording costs, settlement costs, printing costs, reproduction and binding costs, initial fees and charges of the Trustee (which shall include legal fees and the first annual administration fee of the Trustee), financing discounts, legal fees and charges, insurance fees and charges, financial and other professional consultant fees, costs of rating agencies for credit ratings, fees for execution, transportation and safekeeping of the Certificates and charges and fees in connection with the foregoing. Costs of Issuance Fund means the fund by that name established and held by the Trustee pursuant to the Trust Agreement. Depository means (a) initially, DTC, and (b) any other Securities Depository acting as Depository. Depository System Participant means any participant in the Depository's book-entry system. District means the Los Banos Unified School District, a unified school district duly organized and existing under the Constitution and laws of the State of California. District Representative means the Superintendent or Deputy Superintendent, Administrative Services of the District, or any other person authorized to act on behalf of the District under or with respect to the Lease and Trust Agreement by resolution of the Board of Education of the District delivered to the Trustee. DTC means The Depository Trust Company, New York, New York, and its successors and assigns. Federal Securities means any of the following which at the time of investment are legal investments under the laws of the State of California for the funds purported to be invested therein: (a) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America); and (b) obligations of any agency, department or instrumentality of the United States of America the timely payment of principal of and interest on which are fully guaranteed by the United States of America. Fiscal Year means the twelve-month period beginning on July 1 of any year and ending on June 30 of the next succeeding year, or any other twelve-month period by the District as its fiscal year pursuant to written notice filed with the Trustee. Insurance and Condemnation Fund means the fund by that name to be established and held by the Trustee pursuant to the Trust Agreement. Interest Payment Date means, with respect to any Certificate, February 1, 2016, and each February 1 and August 1 thereafter to and including the date of maturity or prepayment of such Certificate. Lease means the Lease Agreement, dated as of July 1, 2015, by and between the Corporation as lessor and the District as lessee, as originally executed or as thereafter amended pursuant to any duly authorized and executed amendments thereto. Lease Payment Date means, with respect to the Certificates, January 15, 2016, and each January 15 and July 15 thereafter, to and including the final date of maturity of the certificates. Lease Payment Fund means the fund by that name established and held by the Trustee pursuant to the Trust Agreement. A-2

83 Lease Payments means all payments required to be paid by the District pursuant to the Lease, including any prepayment thereof pursuant to the Lease. Leased Property means the land described as such in Exhibit A attached to the Lease, including all buildings, facilities and other real property situated thereon as of the Closing Date. Net Proceeds means an insurance proceeds or eminent domain award (including any proceeds of sale to a governmental entity under threat of the exercise of eminent domain powers), paid with respect to the Project, to the extent remaining after payment therefrom of all expenses incurred in the collection thereof. Nominee means (a) initially, Cede & Co. as nominee of DTC, and (b) any other nominee of the Depository. Original Purchaser means Piper Jaffray & Co., the original purchaser of the Certificates. Outstanding, when used as of any particular time with respect to Certificates, means (subject to the provisions of the Trust Agreement) all Certificates theretofore executed and delivered by the Trustee hereunder except (a) Certificates theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Certificates for the payment or prepayment of which funds or Federal Securities in a sufficient amount shall have theretofore been deposited with the Trustee whether upon or prior to the maturity or prepayment date of such Certificates), provided that, if such Certificates are to be prepaid prior to maturity, notice of such prepayment shall have been given as provided in the Trust Agreement or provision satisfactory to the Trustee shall have been made for the giving of such notice; and (c) Certificates in lieu of or in exchange for which other Certificates shall have been executed and delivered by the Trustee pursuant to the Trust Agreement. Owner, when used with respect to a Certificate, means the person in whose name the ownership of such Certificate shall be registered on the Registration Books. Participating Underwriter shall have the meaning ascribed thereto in the Continuing Disclosure Certificate. Permitted Encumbrances means, as of any time: (a) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the District may permit to remain unpaid pursuant to Article V; (b) the Site Lease, the Lease, the Assignment Agreement, and any other agreement or document contemplated hereunder to be recorded against the project; (c) any right or claim of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed by law; (d) the exceptions disclosed in the title insurance policy with respect to the Leased Property issued as of the Closing Date by Stewart Title Guaranty Company; and (e) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions which exist of record and which the District certifies in writing will not materially impair the use of the Project for its intended purposes. Permitted Investments means any of the following which at the time of investment are legal investments under the laws of the State of California as shall be specified to the Trustee by the District, for the moneys proposed to be invested therein: (a) Federal Securities; (b) obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including: Export-Import Bank, Farmers Home Administration, General Services Administration, U.S. Maritime Administration, Small Business Administration, Government National Mortgage Association, U.S. Department of Housing & Ur-ban Development, and Federal Housing Administration; A-3

84 (c) bonds, notes or other evidences of indebtedness rated AAA by S&P and Aaa by Moody s issued by Fannie Mae or Freddie Mac with remaining maturities not exceeding three years; (d) U.S. dollar denominated deposit accounts (including those with the Trustee or with any affiliate of the Trustee), federal funds and banker s acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of A-1 or A-1+ by S&P and P-1 by Moody s, and maturing no more than 360 days after the date of purchase; (e) commercial paper which is rated at the time of purchase in the single highest classification, A-1+ by S&P and P-1 by Moody s and which matures not more than 270 days after the date of purchase; (f) investments in a money market fund rated AAAm or AAAm-G or better by S&P, which may include funds for which the Trustee or its affiliates provide investment advisory or other management services; (g) any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (i) which are rated, based on the escrow, in the highest rating category of S&P and Moody s or (ii)(a) which are fully secured as to principal and interest and redemption premium (if any) by a fund consisting only of cash or Federal Securities, which fund may be applied only to the payment of such principal of and interest and redemption premium (if any) in such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates under such irrevocable instructions, as appropriate, and (B) which fund is sufficient, as verified by an independent accountant, to pay principal of and interest and redemption premium (if any) on the bonds or other obligations described in this paragraph on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to above, as appropriate; (h) the Local Agency Investment Fund which is administered by the California Treasurer for the investment of funds belonging to local agencies within the State of California, provided for investment of funds held by the Trustee, the Trustee is entitled to make investments and withdrawals in its own name as Trustee; and (i) shares in a California common law trust established pursuant to Title 1, Di-vision 7, Chapter 5 of the California Government Code which invests exclusively in investments permitted by Section of Title 5, Division 2, Chapter 4 of the California Government Code, as it may be amended, including, but not limited to the California Asset Management Program (CAMP). Project means construction, acquisition, and installation of capital facilities at certain of the District s campuses, all to be used for the educational purposes of the District. The District reserves the right to amend the description and scope of the Project from time to time in its sole discretion. Project Costs means all costs of acquiring, constructing, improving and equipping the Project which are paid from moneys on deposit in the Project Fund, including but not limited to: (a) all costs required to be paid to any person under the terms of any agreement for or relating to the construction, acquisition, and installation of the Project; (b) obligations incurred for labor and materials in connection with the construction, acquisition, and installation of the Project; (c) the cost of performance or other bonds and any and all types of insurance that may be necessary or appropriate to have in effect in connection with the construction, acquisition, and installation of the Project; A-4

85 (d) all costs of engineering, architectural services and other preliminary investigation expenses, including the actual out-of-pocket costs for site investigations, surveys, hazardous materials investigations, test borings, surveys, estimates, plans and specifications and preliminary investigations therefor, development fees, sales commissions, and for supervising construction, as well as for the performance of all other duties required by or consequent to the proper construction, acquisition, and installation of the Project; (e) any sums required to reimburse the Corporation or the District for advances made for any of the above items or for any other costs incurred and for work done, including but not limited to administrative costs of the Corporation or the District, which are properly chargeable to the construction, acquisition, and installation of the Project; (f) all financing costs incurred in connection with the construction, acquisition, and installation of the Project, including but not limited to Costs of Issuance and other costs incurred in connection with this Trust Agreement and the financing of the Project; and (g) the interest components of the Lease Payments prior to the Completion Date. Project Fund means the fund established pursuant to the Trust Agreement. Record Date means the close of business on the fifteenth (15th) day of the month preceding each Interest Payment Date, whether or not such fifteenth (15th) day is a Business Day. Registration Books means the records maintained by the Trustee for registration of the ownership and transfer of ownership of the Certificates. Reserve Fund means the fund by that name established and held by the Trustee pursuant to the Trust Agreement. Reserve Requirement means, as of the date of calculation thereof, an amount equal to the lesser of (a) 10% of the original principal amount of the Certificates, or (b) the maximum amount of Lease Payments (excluding Lease Payments with respect to which the District shall have posted a security deposit pursuant to Section 9.1 of the Lease) coming due in the current or any future Fiscal Year, or (c) 125% of average annual Lease Payments; provided, however, that if the Certificates are partially refunded, such amount shall be reduced to an amount equal to the Reserve Requirement relating to the Certificates not so refunded, as specified in a certificate of a District Representative delivered to the Trustee. S&P means Standard & Poor s, a Division of McGraw-Hill Companies, and its successors and assigns. Securities Depositories means The Depository Trust Company, and, in accordance with then current guidelines of the Securities and Exchange Commission, such other securities depositories as the District may designate in a written request of the District delivered to the Trustee. Site Lease means the Site Lease, dated as of July 1, 2015, by and between the District as lessor and the Corporation as lessee of the Leased Property, as originally executed or as thereafter amended pursuant to any duly authorized and executed amendments thereto. Site Lease Payment means the payment in the amount of the net purchase price of the Certificates, which is due and payable under the Site Lease as the rental for the Leased Property. A-5

86 Trust Agreement means the Trust Agreement dated as of July 1, 2015, by and among the Trustee, the Corporation and the District, together with any duly authorized and executed amendments thereto. Trustee means U.S. Bank, National Association, or any successor thereto acting as Trustee pursuant to the Trust Agreement. SITE LEASE Under the Site Lease, the District leases the Leased Property to the Corporation, and the Corporation leases the Leased Property from the District, upon the terms and conditions set forth in the Site Lease. The term of the Site Lease commences on the Closing Date, and terminates on August 31, 2044, or such earlier or later date on which the Lease Payments are paid in full or provision is made for such payment, but in no event later than November 1, The Corporation agrees to pay to the District, as rental for the use and occupancy of the Leased Property during the term of the Site Lease, the Site Lease Payment, which is due and payable upon execution and delivery of the Site Lease. No further amounts are due and payable by the District as rental for the Project under the Site Lease. Lease of Leased Property; Term LEASE The Corporation subleases the Leased Property back to the District pursuant to the Lease. The Lease commences on the Closing Date, and terminates on the date on which the Certificates are paid or deemed to have been paid in full in accordance with the Trust Agreement, except under certain circumstances such as the taking of all or any portion of the Leased Property in eminent domain proceedings. Addition and/or Substitution of Leased Property The District has the option at any time during the term of the Lease, to add and/or substitute other real property (a Substitute Property ) for the Leased Property or any portion thereof (a Former Property ), provided that the District satisfies all of the conditions precedent to such substitution as set forth in the Lease, including the following: (a) No Event of Default has occurred and is continuing. (b) The District has filed with the Corporation and the Trustee, and caused to be recorded in the office of the Merced County Recorder sufficient memorialization of, an amendment to the Lease which adds to APPENDIX A thereto a description of such Substitute Property and deletes there-from the description of such Former Property. (c) The District has obtained a CLTA policy of title insurance which insures the District s lease-hold estate under the Lease in such Substitute Property, subject only to Permitted Encumbrances, in an amount at least equal to the estimated value thereof; (d) The District has certified in writing to the Corporation and the Trustee that such Substitute Property serves the educational purposes of the District and constitutes property which the District is permitted to lease under the laws of the State of California, and has been determined to be essential to the proper, efficient and economic operation of the District and to serve an essential governmental function of the District. (e) The Substitute Property does not cause the District to violate any of its covenants, representations and warranties made in the Lease or in the Trust Agreement. A-6

87 (f) The District has filed with the Corporation and the Trustee an appraisal or other written documentation which establishes that the Substitute Property must have (i) a useful life at least equal to (a) the lesser of the useful life of the Leased Property or (b) the final Lease Payment Date and (ii) a value at least equal to the aggregate original principal amount of the Certificates and a fair rental value at least equal to the Lease Payments thereafter coming due. (g) The District has mailed written notice of such substitution to each rating agency which then maintains a rating on the Certificates. Lease Payments; Abatement Payment of Lease Payments. The District agrees to pay semiannual Lease Payments, subject to abatement as described below, as the rental for the use and occupancy of the Leased Property. On each Lease Payment Date, the District is obligated to deposit with the Trustee the full amount of the Lease Payments coming due and payable on the next Interest Payment Date, to the extent required to be paid by the District under the Lease. Any amount on deposit in the Lease Payment Fund on any Lease Payment Date is required to be credited towards the payment then required to be deposited by the District with the Trustee. The District agrees to take such actions as may be necessary to include all Lease Payments required to be paid by it under the Lease in its annual budgets and to appropriate such Lease Payments in each Fiscal Year during the term of the Lease. Abatement of Lease Payments. The amount of Lease Payments shall be abated during any period in which by reason of damage or destruction (other than by eminent domain which is hereinbefore provided for) there is substantial interference with the use and occupancy by the District of the Leased Property or any portion thereof. The amount of such abatement shall be determined by the District such that the resulting Lease Payments represent fair consideration for the use and occupancy of the portions of the Leased Property not damaged or destroyed, calculated in accordance with the following paragraph. Such abatement shall continue for the period commencing with such damage or destruction and ending with the substantial completion of the work of repair or reconstruction. In the event of any such damage or destruction, the Lease shall continue in full force and effect and the District waives any right to terminate the Lease by virtue of any such damage and destruction. Notwithstanding the foregoing, there shall be no abatement of Lease Payments under this paragraph to the extent that the proceeds of hazard insurance, rental interruption insurance, or amounts in the Reserve Fund are available to pay Lease Payments which would otherwise be abated under this paragraph, it being hereby declared that such proceeds and amounts constitute a special fund for the payment of the Lease Payments. Title At all times during the term of the Lease, the District will hold title to the Leased Property, subject to the provisions of the Site Lease and other Permitted Encumbrances. Upon the termination of the Lease, all right, title and interest of the Corporation in and to the Leased Property will be transferred to and vested in the District. Upon the payment in full of all Lease Payments, or upon the deposit by the District of security for such Lease Payments as provided in the Lease, all right, title and interest of the Corporation in and to the Leased Property will be transferred to and vested in the District. Maintenance, Utilities, Taxes and Modifications All improvement, repair and maintenance of the Leased Property is the responsibility of the District, and the District will pay for or otherwise arrange for the payment of all utility services supplied to the Leased Property, and will pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Leased Property resulting from ordinary wear and tear or want of care on the part of the District or any assignee or sublessee. The District will also pay all taxes and assessments of any type or nature, if any, charged to the Corporation or the District affecting the Leased Property or the respective interests or estates therein; provided that with respect to special A-7

88 assessments or other governmental charges that may lawfully be paid in installments over a period of years, the District will be obligated to pay only such installments as are required to be paid during the Term of the Lease as and when the same become due. Insurance The Lease requires the District to maintain or cause to be maintained the following insurance against risk of physical damage to the Leased Property and other risks for the protection of the Certificate Owners, the Corporation and the Trustee: Public Liability and Property Damage Insurance. The District will maintain or cause to be maintained, throughout the term of the Lease, comprehensive public liability and property damage insurance in protection of the Corporation, the District and their respective members, officers, agents, employees and assigns. Such insurance must provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Leased Property. Such insurance must provide coverage in such liability limits and be subject to such deductibles as the District deems adequate and prudent. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the District, and may be maintained in whole or in part in the form of a program of self-insurance by the District, or in the form of the participation by the District in a joint powers authority or other program providing pooled insurance. The District shall apply the proceeds of such insurance toward extinguishment or satisfaction of the liability with respect to which the net proceeds are paid. Casualty Insurance. The District will procure and maintain, or cause to be pro-cured and maintained, at all times throughout the term of the Lease, casualty insurance against loss or damage to the insured buildings, facilities and other improvements constituting any part of the Leased Property, in an amount at least equal to the lesser of (a) the replacement value of such buildings, facilities and improvements, or (b) the aggregate principal amount of the Outstanding Certificates. Such insurance must, as nearly as practicable, cover loss or damage by fire, explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance. Such insurance may be subject to such deductibles as the District deems prudent. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the District, and may be maintained in whole or in part in the form of the participation by the District in a joint powers authority or other program providing pooled insurance; provided that such insurance may not be maintained by the District in the form of self-insurance. The Net Proceeds of such insurance shall be paid to the Trustee, deposited in the Insurance and Condemnation Fund, and shall be applied, at the option of the District, either (1) to the prepayment of the Certificates, in which case they shall be transferred to the Lease Payment Fund for such purpose, or (2) to the prompt replacement, repair, restoration, modification or improvement of the damaged or destroyed portions of the Leased Property by the District. Rental Interruption Insurance. The District will procure and maintain, or cause to be procured and maintained, at all times throughout the term of the Lease, rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of the buildings, facilities and other improvements constituting any part of the Leased Property, as a result of any of the hazards covered in the casualty insurance required by the Lease, in an amount at least equal to the maximum Lease Payments coming due and payable during the two consecutive Fiscal Years occurring at the time such insurance is being purchased. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the District, and may be maintained in whole or in part in the form of the participation by the District in a joint powers authority or other program providing pooled insurance; provided that such insurance may not be maintained by the District in the form of self-insurance. The Net Proceeds of such insurance, if any, shall be paid to the Trustee and deposited in the Lease Payment Fund, and shall be credited towards the payment of the Lease Payments allocable to the insured improvements as the same become due and payable. A-8

89 Title Insurance. The District will obtain a CLTA title insurance policy insuring the District's leasehold estate in the Leased Property, subject only to Permitted Encumbrances, in an amount at least equal to the aggregate principal amount of the Certificates. All Net Proceeds received under any such title insurance policy will be deposited with the Trustee in the Lease Payment Fund and will be credited towards the prepayment of the remaining Lease Payments pursuant to the Lease. If any insurance required pursuant to the Lease shall be provided in the form of self-insurance, then the selfinsurance program shall be maintained on an actuarially sound basis, and the District must annually cause to be prepared a certified actuarial statement attesting to the sufficiency of the program s assets. Prepayment of Lease Payments The District may post a security deposit to pay the Lease Payments, in whole or in part, in the amounts and on the dates set forth in the Lease. The Lease Payments are not subject to optional prepayment. The District is obligated to prepay the principal components of the Lease Payments in whole or in part on any date, from and to the extent of any Net Proceeds of insurance award or eminent domain award with respect to the Leased Property are deposited in the Lease Payment Fund for such purpose pursuant to the Lease and the Trust Agreement. Such Net Proceeds, to the extent remaining after payment of any delinquent Lease Payments, will be credited towards the District's prepayment obligations under the Lease. Assignment; Subleases The Corporation has assigned certain of its rights under the Lease to the Trustee pursuant to the Assignment Agreement. The District may not assign any of its rights in the Lease, and may sublease all or a portion of the Leased Property only under the conditions contained in the Lease, including the condition that such sublease not cause the interest component of the Lease Payments to become subject to federal or State of California personal income taxes. Amendment of Lease The Corporation and the District may at any time amend or modify any of the provisions of the Lease, but only: (a) with the prior written consent of the Owners of a majority in aggregate principal amount of the Outstanding Certificates; or (b) without the consent of the Trustee or any of the Certificate Owners, but only if such amendment or modification is for any one or more of the following purposes: (a) to add to the covenants and agreements of the District contained in the Lease, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power herein reserved to or conferred upon the District, (b) to cure any ambiguity, or to cure, correct or supplement any defective provision contained herein, for the purpose of conforming to the original intention of the District and the Corporation, (c) to amend any provision thereof relating to the Tax Code, but only if and to the extent such amendment will not adversely affect the status of the Certificates and the Lease under the Tax Code as tax-exempt obligations, in the opinion of Bond Counsel, (d) to amend the description of any component of the Leased Property to reflect accurately the property originally intended to be included therein, or to effectuate any substitution of property as permitted by the Lease or any release of property as permitted by the Lease, A-9

90 (e) to obligate the District to pay additional amounts of rental hereunder for the use and occupancy of the Leased Property or any portion thereof, but only if (A) such additional amounts of rental are pledged or assigned for the payment of any bonds, notes, leases or other obligations the proceeds of which are applied to finance the completion of the Project or other improvements to the Leased Property, and (B) the District has filed with the Trustee written evidence that the amendments made under this subsection (v) will not of themselves cause a reduction or withdrawal of any rating then assigned to the Certificates, or (f) in any other respect whatsoever as the Corporation and the District deem necessary or desirable, provided that, in the opinion of Special Counsel, such modifications or amendments do not materially adversely affect the interests of the Owners of the Certificates. The District must obtain and cause to be filed with the Trustee an opinion of Bond Counsel with respect to any amendment or modification hereof, stating that all conditions precedent to such amendment as set forth in the Lease have been satisfied. Promptly following the effective date of any amendment or modification under this paragraph, the District must mail written notice thereof to each rating agency which then maintains a rating on the Certificates. Events of Default Each of the following constitutes an event of default under the Lease: (a) Failure by the District to pay any Lease Payment or other payment required to be paid under the Lease at the time specified in the Lease. (b) Failure by the District to observe and perform any covenant, condition or agreement on its part to be observed or performed, other than as referred to in the preceding clause (a), for a period of thirty (30) days after written notice specifying such failure and requesting that it be remedied has been given to the District by the Corporation or the Trustee; provided, however, that if in the reasonable opinion of the District the failure stated in the notice can be corrected, but not within such thirty (30) day period, such failure will not constitute an Event of Default if the District commences to cure such failure within such thirty (30) day period and thereafter diligently and in good faith cures such failure in a reasonable period of time. (c) Certain events relating to the insolvency or bankruptcy of the District. Remedies on Default Whenever any Event of Default shall have happened and be continuing, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to the Lease; provided, however, that notwithstanding anything in the Lease or in the Trust Agreement to the contrary, there shall be no right under any circumstances to accelerate the Lease Payments or otherwise declare any Lease Payments not then in default to be immediately due and payable. The provisions of the Lease and the duties of the District and of its board, officers or employees shall be enforceable by the Corporation or its assignee by mandamus or other appropriate suit, action or proceeding in any court of competent jurisdiction. Trustee TRUST AGREEMENT The Trustee is appointed pursuant to the Trust Agreement and is authorized to prepare, execute and deliver the Certificates thereunder, and to act as a depository of amounts held thereunder. The Trustee is required to make deposits into and withdrawals from funds, and invest amounts held under the Trust Agreement in accordance with the District's instructions. A-10

91 Funds The Trust Agreement creates the Lease Payment Fund, the Reserve Fund, the Costs of Issuance Fund, and the Insurance and Condemnation Fund to be held in trust by the Trustee, and the Project Fund to be held by the Merced County Treasurer. Lease Payment Fund. There will be deposited in the Lease Payment Fund, when received by the Trustee, all Lease Payments and prepayments thereof, and any other amounts required to be deposited therein pursuant to the Trust Agreement or the Lease. Moneys on deposit in the Lease Payment Fund will be used to pay principal and interest and premium (if any) represented by the Certificates. Any earnings on investment of moneys in the Lease Payment Fund will remain therein and will be credited towards payment of the next Lease Payments. Any surplus remaining in the Lease Payment Fund after the payment of all Certificates, or provision for their payment has been made, will be paid to the District. Reserve Fund. On the Closing Date the Trustee will deposit an amount equal to the Reserve Requirement into the Reserve Fund, from the proceeds of the Certificates. If on any Interest Payment Date, there are insufficient moneys in the Lease Payment Fund to pay principal and interest then due, then the Trustee is required to apply the moneys in the Reserve Fund to make such payments on behalf of the District by transferring the amount necessary for this purpose to the Lease Payment Fund. Upon receipt of any delinquent Lease Payment with respect to which moneys have been advanced from the Reserve Fund, such Lease Payment shall be applied to replenish the Reserve Fund. Costs of Issuance Fund. The Trustee shall establish the Costs of Issuance Fund, into which shall be deposited amounts sufficient to pay Costs of Issuance. Funds will be disbursed from the Costs of Issuance upon receipt of a requisition of a District Representative meeting the requirements set forth in the Trust Agreement. Project Fund. The Merced County Treasurer will establish the Project Fund on behalf of the District, into which shall be deposited amounts available to pay Project Costs. On the Completion Date, the Merced County Treasurer shall withdraw all remaining monies in the Project Fund and deposit such monies in the Lease Payment Fund to be applied by the Trustee as a credit against the Lease Payment. Insurance and Condemnation Fund. Any net proceeds of insurance or condemnation awards with respect to the Leased Property will be deposited in the Insurance and Condemnation Fund. In the event of an insurance award, the net proceeds on deposit in the Insurance and Condemnation Fund will be used, as directed by the District, either (a) to replace, repair, restore, modify or improve the Leased Property if the District determines that such is economically feasible or in the best interests of the District, or (b) to the extent not so used, to prepay the Lease Payments allocable to the Leased Property and thereby prepay Certificates. In the event of an eminent domain award with respect to the Leased Property, then the net proceeds on deposit in the Insurance and Condemnation Fund will be used as directed by the District, as follows: (a) if the District determines that such eminent domain proceedings have not materially affected the interest of the District in the Leased Property or its ability to make payments under the Lease, such proceeds will be used either for repair, replacement or rehabilitation of the Leased Property, or credited towards the allocable Lease Payments next coming due and payable; or (b) if the District determines otherwise, and in any event if all of the Leased Property is taken in eminent domain proceedings, such proceeds will be used to prepay the Lease Payments and Certificates. Investment of Funds The Trustee is required to invest and reinvest all moneys held under the Trust Agreement, in Permitted Investments maturing not later than the date moneys are expected to be required for expenditure. All income or profit on any investments of funds held by the Trustee under the Trust Agreement will be deposited in the respective funds A-11

92 from which such investments were made, except that all amounts derived from the investment of amounts in the Reserve Fund will be transferred to the Lease Payment Fund to the extent not required to be retained in the Reserve Fund to maintain the Reserve Requirement. Remedies Upon Event of Default Upon the occurrence of an event of default by the District under the Lease the Trustee may, and at the written direction of the Owners of a majority in aggregate principal amount of the Certificates then Outstanding the Trustee shall, exercise any and all remedies available at law or pursuant to the Lease; provided, however, there shall be no right under any circumstances to accelerate the maturities of the Certificates or otherwise to declare any Lease Payment not then in default to be immediately due and payable. The Trustee is granted the power to control the proceedings in the event of a default, for the equal benefit of the Certificate Owners, and no Certificate Owner has the right to institute any suit, action or proceeding at law or in equity, unless (a) such Owner has previously notified the Trustee of the occurrence of an event of default, (b) the Owners of a majority in aggregate principal amount of the outstanding Certificates have requested the Trustee in writing to exercise its powers, (c) said Owners have tendered the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in complying with such request, and (d) the Trustee has failed to comply with such request for 60 days after receipt of such request and tender of such indemnity. Any amounts collected by the Trustee in an event of default are required to be applied first to the payment of the fees and expenses of the Trustee incurred in connection with such event of default and second to the payment of principal and interest represented by the Certificates (including interest on overdue installments of interest at the net effective rate of interest per annum then represented by the outstanding Certificates, but only to the extent funds are available for such purpose after payment of all other overdue amounts), ratably if necessary. Upon an event of default, the Trustee has a first lien on the amounts held under the Trust Agreement for its fees, charges and expenses. Amendment of Trust Agreement The Trust Agreement may be amended by agreement among the parties thereto without the consent of the Owners of the Certificates, but only (a) to add to the covenants and agreements of any party, other covenants to be observed, or to surrender any right or power reserved to the Corporation or the District, (b) to cure, correct or supplement any ambiguous or defective provision in accordance with the original intention of the Corporation and the District, (c) in any respect whatsoever in regard to questions arising thereunder, as the District and the Corporation may deem necessary or desirable and which do not, in the opinion of Bond Counsel, materially adversely affect the interests of the Owners of the Certificates, (d) to facilitate any amendment to the Lease which is permitted to be made thereto as described above, or (e) if and to the extent permitted in the opinion of Bond Counsel filed with the Trustee, the District and the Corporation, to delete or modify any of the provisions thereof relating to the exclusion from gross income for federal income tax purposes of interest represented by the Certificates. Any other amendment requires the approval of the Owners of a majority in aggregate principal amount of the Certificates then outstanding, provided that no such amendment may (a) extend the maturity or time of interest payment, or reduce the interest rate, amount of principal or premium payable on, any Certificate without such Owner's consent; (b) reduce the percentage of Owners of Certificates required to consent to any amendment or modification; or (c) modify any of the Trustee's rights or obligations without its consent. Defeasance Upon payment of the outstanding Certificates in whole, or upon the deposit of cash or non-callable Federal Securities with the Trustee sufficient with other available funds to retire the obligations represented by such Certificates at or before maturity, all rights thereunder of the Owners of such Certificates and all obligations of the Corporation, the Trustee and the District with respect to the Certificates ceases and terminates, except only the obligation of the Trustee to pay or cause to be paid, from Lease Payments paid by or on behalf of the District from funds so deposited, all sums represented thereby when due. A-12

93 ASSIGNMENT AGREEMENT The Corporation and the Trustee will enter into the Assignment Agreement under which the Corporation assigns and sets over to the Trustee, for the benefit of the Owners of the Certificates, all of the Corporation's rights under the Lease (subject to certain exceptions), including the right of the Corporation to receive and collect Lease Payments, its right to receive and collect proceeds of condemnation and insurance awards and the right to exercise rights and remedies of the Corporation in the Lease to enforce payments of amounts thereunder. The Trustee accepts such assignment for the purpose of securing such payments due to and rights of the Owners of the Certificates, subject to the provisions of the Trust Agreement. A-13

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95 APPENDIX B PROPOSED FORM OF OPINION OF SPECIAL COUNSEL [LETTERHEAD OF LOZANO SMITH] [Closing Date] Board of Education Los Banos Unified School District 1717 S. Eleventh Street Los Banos, California $18,125, Certificates of Participation Evidencing the Direct, Undivided Fractional Interests of the Owners Thereof in Lease Payments to be Made by the Los Banos Unified School District to the Public Property Financing Corporation of California Members of the Board of Education: FINAL OPINION OF SPECIAL COUNSEL We have acted as special counsel to the Los Banos Unified School District (the District ) in connection with the delivery by the District of the Lease Agreement dated as of July 1, 2015 (the Lease Agreement ) between the Public Property Financing Corporation of California (the Corporation ), as lessor, and the District, as lessee. Under the Trust Agreement dated as of July 1, 2015 (the Trust Agreement ) among the District, the Corporation and U.S. Bank National Association, as trustee (the Trustee ), the Trustee has executed and delivered the above captioned certificates of participation dated July 1, 2015 (the Certificates ). The Certificates evidence the direct, undivided fractional interests of the owners thereof in lease payments to be made by the District under the Lease Agreement (the Lease Payments ), which have been assigned by the Corporation to the Trustee pursuant to the Assignment Agreement, dated as of July 1, 2015 (the Assignment Agreement ) by and between the Corporation and the Trustee. The District authorized execution and delivery of the Lease Agreement, the Site Lease, dated as of July 1, 2015 (the Site Lease ), between the District, as lessor, and the Corporation, as lessee, the Trust Agreement and the Certificates pursuant to a resolution of the Board of Trustees adopted on April 9, 2015 (the Resolution ). The Certificates were sold to Piper Jaffray & Co., as Underwriter (the Underwriter ) pursuant to a Certificate Purchase Agreement, dated July 8, 2015 (the Purchase Agreement ), by and between the District and the Underwriter. In such connection, we have examined the Resolution, the Certificates, the Trust Agreement, the Lease Agreement, the Site Lease, the Assignment Agreement, the tax certificate, dated the date hereof and executed by the District (the Tax Certificate ), the Purchase Agreement, the Continuing Disclosure Certificate, dated the date hereof and executed by the District (the Continuing Disclosure Certificate ), certificates of the District and others, and such other law, documents, opinions and matters to the extent we deemed necessary to render the opinions or conclusions set forth herein. The opinions and conclusions herein are based on an analysis of existing laws, regulations, rulings, and court decisions and cover certain matters not directly addressed by such authorities. Such opinions or conclusions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to B-1

96 determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the District. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions referred to in the second paragraph hereof. We have further assumed compliance with all covenants and agreements contained in such documents. In addition, we call attention to the fact that the rights and obligations under the Certificates, the Trust Agreement, the Lease Agreement, the Site Lease, the Assignment Agreement, the Tax Certificate, the Continuing Disclosure Certificate, and the Purchase Agreement and their enforceability may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against school districts in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum, choice of venue, waiver, or severability provisions contained in the foregoing documents. We express no opinion herein regarding the accuracy, adequacy, or completeness of the Official Statement relating to the Certificates, dated July 8, Based upon and subject to the foregoing, and in reliance thereon, we are of the following opinions: 1. The District is a school district duly organized and validly existing under the laws of the State of California with the full power to enter into the Site Lease, the Lease Agreement and the Trust Agreement and to perform the agreements on its part contained therein. 2. The Site Lease, the Lease Agreement and the Trust Agreement have been duly approved by the District and the Corporation, and constitute valid and binding obligations of the District and the Corporation enforceable against the District and the Corporation. 3. The Certificates have been validly executed and delivered by the Trustee under the Trust Agreement and, by virtue of the assignment made pursuant to the Assignment Agreement, the owners of the Certificates are entitled to the benefits of the Lease Agreement. 4. The portion of the Lease Payments designated as and comprising interest and received by the owners of the Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporation, such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding sentence are subject to the condition that the District comply with all requirements of the Code that must be satisfied subsequent to the delivery of the Lease Agreement in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The District has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest with respect to the Certificates in gross income for federal income tax purposes to be retroactive to the date of delivery of the Lease Agreement. We express no opinion regarding other federal tax consequences arising with respect to the Lease Agreement and the Certificates. 5. The portion of the Lease Payments designated as and comprising interest and received by the owners of the Certificates is exempt from personal income taxation imposed by the State of California. Except as stated in the preceding paragraphs, we express no opinion as to any federal or state tax consequences of the receipt of interest with respect to, or the ownership or disposition of, the Certificates. B-2

97 Our opinions are based on existing law, which is subject to change. The opinions represent our legal judgment based upon a review of existing legal authorities that we deem relevant to render such opinions and are not a guarantee of results. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any fact or circumstance that may thereafter come to our attention or to reflect any change in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. Respectfully submitted, Lozano Smith, LLP B-3

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99 APPENDIX C AUDIT REPORT OF THE DISTRICT FOR THE YEAR ENDED JUNE 30, 2014

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101 LOS BANOS UNIFIED SCHOOL DISTRICT COUNTY OF MERCED LOS BANOS, CALIFORNIA AUDIT REPORT FOR THE YEAR ENDED JUNE 30,2014 M. GREEN AND COMPANY LLP Certified Public Accountants Visalia, CA 93277

102 Introductory Section

103 Los Banos Unified School District Audit For The Year Ended June TABLE OF CONTENTS INTRODUCTORY SECTION Table of Contents i-ii MANAGEMENT'S DISCUSSION AND ANALYSIS 1 FINANCIAL SECTION Auditors' Repo 9 Basic FinancialStatements Government-wide Financial Statements: Statement of Net Positio Statement of Activit Fund Financial Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Positio Statement of Revenues, Expenditures, and Chan Fund Balances Governmental Funds Fund Balances of Governmental Funds to the Statement of Activities Statement of Fiduciary Net Position Fiduciary Fund Notes to the Financial Statements Exhibit 12 Exhibit A-2 13 Exhibit A-3 15 Exhibit A-4 16 Exhibit A-5 Exhibit A-6 19 Exhibit A-7 20 REQUIRED SUPPLEMENTARY INFORMATION SECTION Schedules: General Fund 41 Exhibit B - l Cafeteria Fund 42 Exhibit B-2 Schedule of Funding Progress Postemployment Benefit Plan 43 Exhibit OTHER SUPPLEMENTARY INFORMATION SECTION Budgetary Schedules as Supplementary Information: Special Revenue Fund: Budgetary Comparison Schedule: Child Development Fund 44 Exhibit

104 Los Banos Unified School District Audit Report For The Year Ended June 30,2014 OF CONTENTS Capital Projects Funds: Budgetary Comparison Schedules: Capital Projects Fund Other Required Schedules Roos... Exhibit C-2 Exhibit C-3 Exhibit C-4 Exhibit C-5 Exhibit C-6 Exhibit C-7 Exhibit C-8 Local Education Agency Organization Structur Schedule of Average Daily Attendance Schedule of InstructionalTim Schedule of Financial Trends and Analy Reconciliationof Annual Fin With Audited Financial Schedule of Charter Schools Schedule of Expenditures of Federal Awa Notes to the Schedule of Expenditures of Table Table Table Table D-4 Table D-5 Table Table OTHER INDEPENDENT AUDITORS' REPORTS Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by Circular A Independent Auditors' Report on State Compliance... FINDINGS AND QUESTIONED COSTS SECTION Schedule of Findings and Questioned Costs Letter to Managemen Summary Schedule o

105 Management's Discussion and Analysis

106 LOS BANOS UNIFIED SCHOOL MERCED COUNTY MANAGEMENT DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30,2014 INTRODUCTION This Management Discussion and Analysis of Los Banos Unified School District's (District) financial statements provides an overall review of the District's financial activities for the fiscal year ended June 30, The analysis looks at the District's financial as a whole. The should be reviewed in conjunction with the auditor's transmittal letter, notes to the basic financial statements and the basic government wide financial statements to enhance the understanding of the District's financial performance. The District offers instruction to students from preschool through twelfth grade, including for vocational education. During , the District operated eight elementary schools, one junior high school, two comprehensive high schools, one continuation high school and one independent study school for the instruction of approximately 10,000 students. USING THE COMPREHENSIVE ANNUAL FINANCIAL REPORT This is part of a comprehensive annual financial report consisting of a series of financial statements and notes to those statements. The statements are organized so the reader can understand the District as a whole, and then proceed to provide an increasingly detailed look at specific financial activities. The Statement is provided to assist our citizens, taxpayers, investors and creditors in reviewing the District's finances and to show the District's accountability for the money it receives. FINANCIAL HIGHLIGHTS The Los Banos Unified School District's Government-wide Statement of Net Position illustrates total net position of $84.2 million, the result of assets of $153.5 million minus liabilities of $69.3 million. General Revenues accounted for $69.5 million in revenue, The District had $89.3 million in expenses related to activities. The General Fund reported fund balance of $12.9 million.

107 SIGNIFICANT EVENTS OF FISCAL YEAR The passage of Proposition 30 in November 2012 and the inauguration of the Local Control Funding Formula (LCFF) on July 1, 2013 have provided the District with much welcomed increased funding as Revenue Limit funding of $49,091,927 was followed by LCFF funding of $61,820,707. The District opened Mercey Springs Elementary School in August 2013 and plans for growth at the junior high level are well underway. Green Valley Charter School, an independent charter, opened another grade cohort in The readiness of District students for CSU and UC colleges and universities as measured by the A-G Completion Rate has increased from approximately 15% eight years ago to about 33% in The state wide average is 35% and District students are on track to be at 40% by The District invested $1.4 million in preparation for the transition to Common Core State Standards. The District is preparing for digitally delivered assessments by ensuring that all schools have access to high speed wireless internet and that there are enough devices at each school to assess all students in the window that will be provided by the State. STUDENT ENROLLMENT DEMOGRAPHIC TRENDS The District had enrollment of 9,958 students for the school year and 10,112 students in In addition to tracking enrollment, the District also closely monitors actual Average Daily Attendance (ADA). The District P-2 ADA was 9,423 projected to be 9,486 in 15. Figure District Enrollment vs. Actual Attendance

108 School districts place great importance on the accurate projection of student enrollment for the budget due to the broad range of funding and programs impacted by this number. These impacts range from the foundational LCFF funding for California school districts to how much a particular special program will receive and to the amount of one-time funds a district may receive. Increased ADA generates dollars to help offset the related cost of the additional enrollment, and the normal inflationary costs of operating the business of education. FUND OVERVIEW REPORTING THE DISTRICT AS A WHOLE The fund financial statements provide detailed information the most significant funds only, while the non-major funds are consolidated into a single group. Some funds are required by State statute, while other funds are established by the District to manage money for particular purposes and manage compliance with various regulations. The three types of funds: governmental, proprietary and fiduciary, each use different accounting approaches as further described in the notes to the financial statements. GOVERNMENTAL FUNDS Governmental funds focus on how money flows into and out of those funds and the balances left at year-end available for spending in future periods. These funds are reported using an accounting method called modified accrual accounting. Governmental fund statements provide a detailed shortterm view of the District's general governmental operations and the basic services it provides. Governmental fund information helps determine whether there are more or less financial resources available to spend in the near future to finance the District's programs. The relationship between the government-wide statements (reported in the Statement of Net Position and the Statement of Activities) and the governmental funds is reconciled in the notes to the financial statements. PROPRIETARY FUNDS Proprietary funds use full accrual accounting similar to commercial business-type activities, therefore the fund financial statements will essentially match the govemmental activities statements. The District operates no proprietary funds. FIDUCIARY FUNDS Fiduciary funds are used to account for resources held for the benefit of parties outside the governmental entity. Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the District's own programs. The District uses a fiduciary fund to account for resources held for student activities and groups, including Associated Student Body funds, and Trust and Scholarshipfunds.

109 Los Banos Unified School District is the trustee, or fiduciary, for its student activity funds. All of the District's fiduciary activities are reported in separate Statements of Fiduciary Net Position. The District is responsible for ensuring that the assets reported in these funds are used for their intended purpose. NOTES TO THE FINANCIAL STATEMENTS The notes provide additional information that is essential for a full understanding of the data provided in the government-wide and fund financial statements. THE DISTRICT AS A WHOLE The "Statement of Net Position" provides the perspective of the District as a whole. Table 1 provides a summary of the District's net position for fiscal year compared to Table 1. Net Position (amounts in millions) Governmental Activities Difference Current and Other Assets 33.3 $ 40.4 $ -7.1 Capital Assets Total Assets Current Liabilities Long-Term Debt Total Liabilities Net Position Invested in Capital Assets, Net of Related Debt Restricted Unrestricted Total Net Position

110 Table 2 compares the changes in net position for fiscal year to Table 2. Changes in Net Position (amounts in millions) Governmental Activities Difference Revenues Program Revenues Charges for Services $ 1.0 $ Operating Grants Contributions General Revenues Local Control Funding Formula Sources Federal Revenues State Revenues Local Revenues Loss on Disposal of Assets Total Revenues Expenses Instruction Instruction Related Student Support General Administration Maintenance Operations Other Total Expenses Change in Net Position GOVERNMENTAL FUNDS The District's Governmental Funds include Special Reserve Funds, Debt Service Funds, Capital Projects Funds, and most importantly, the General Fund. Figure 2 summarizes the District's General Fund revenue by source. Figure 3 summarizes the District's General Fund expenditures by function.

111 . Figure 2. General Fund Revenues by Source Other State13% Federal 5% Figure 3. General Fund Expenditures by Function General tdministration 6% Plant Services Other Outgo I,Debt Service0% Ancillary Services Pupil Services 7% Instruction Instruction Related Ancillary

112 GENERAL FUND BUDGET INFORMATION The District's budget is prepared in accordance with California law and is based on the modified accrual basis of accounting utilizing cash receipts, disbursements and encumbrances. The most significant fund is the General Fund. The District begins the budget development process in January of each year and adopts the budget by June 30. Mid-year budget reporting includes 1" and Interim Reports. Unaudited Actuals are compiled after 6/30 year end and the audit report follows after that. During the year, site and department budgets are reviewed continuously to inform management of changes. GENERAL FUND BUDGET VARIATIONS There are numerous reasons for Budget revisions: State of California budget revisions (State revenues comprise 93% of the general fund budget); staffing adjustments due to enrollment changes; staff turnover; salary increases granted by the Board of Trustees; health and welfare benefits rate changes; implementation of new instructional or categorical programs; and adjustments of budgeted grant awards as the actual award documents are received. For the District, the increased emphasis on closing the achievement gap for all of our students continues to push forward several academic-focused programs that will impact expenditures in personnel, instructional materials, outside services and supplies. The difference in ending fund balance between the final budget and the actual balance of the General Fund was an increase of $1.9 million and may be summarized as follows: $0.2 million increase in total revenues 1.7 million decrease in total expenditures $1.9 million increase in fund balance CAPITAL ASSETS CAPITAL ASSETS AND DEBT MANAGEMENT At the end of the fiscal year, the District had $120.1 million invested in land, improvements, buildings, equipment, and work in progress. Table 3 compares fiscal year amounts to

113 Table 3. Changes in Capital Assets (in millions) of Depreciation) Governmental Activities 2013 Difference Land $ 9.1 $ 0.7 Improvements Buildings Equipment Work in Progress Totals $ At June 30, 2014, the District had $65.3 million in debt outstanding. Table 4 compares fiscal year liabilities to Table 4. Outstanding at Year-end (in millions) Governmental Activities Difference General Obligation Bonds $ 56.5 $ 49.1 $ 7.4 Certificates of Participation Capitalized Lease Obligations Compensated Absences $ FORTHE FUTURE The State of California has come out of a budget crisis with mostly smooth sailing ahead in the nearto The Administration of Los Banos Unified School District and the Board of Trustees continue to monitor this situation very closely. CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have questions about this report or need additional financial information, please contact Dean Bubar, Assistant Superintendent-Administrative Services at (209) ext

114 Financial Section

115 FAX Site: Independent Auditors' Report Board of Trustees Los Banos Unified School District Eleventh Street Los Banos, California Members of the Board of Trustees: Report on the Financial Statements We have audited the accompanying financial statements of the governmental each major fund, and the aggregate remaining fund information of Los Banos Unified School District as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the District's basic statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. 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 auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Los Banos Unified School District, as of June 30, 2014, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America.

116 Other Matters Required Supplementary lnformation Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, budgetary comparison information and schedule of funding progress for OPEB benefits on pages 1-8 and 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 lnformation Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Los Banos Unified School District's basic financial statements. The schedule of expenditures of federal awards as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Profit Organizations is presented for purposes of additional analysis and is not a required part of the basic financial statements. The accompanying other required supplementary schedules as other supplementary information as required by the State's audit guide, Standards and Procedures for Audits of California Local Education Agencies published by the Education Audit Appeals Panel are not a required part of the basic financial statements. The schedule of expenditures of federal awards and other required supplementary schedules as supplementary information are the responsibility of management and were derived from and relate 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 schedule of expenditures of federal awards and other required supplementary schedules as supplementary information are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The budgetary comparison schedules presented as other supplementary information on pages 44 through 51 have 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 them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 15, 2014, on our consideration of Los Banos Unified School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Los Banos Unified School District's internal control over financial reporting and compliance. Visalia, California December 15,2014

117 Basic Financial Statements

118 LOS BANOS UNIFIED SCHOOL DISTRICT STATEMENT OF NET POSITION JUNE 30,2014 ASSETS: Current Assets: Cash in Governmental Activities Accounts Stores Inventories Other Current Assets Total Current Assets Noncurrent Assets: Capital Assets: Land Land Improvements, Net Net Equipment,Net Work in Progress Total Noncurrent Assets Total Assets LIABILITIES: Current Liabilities: Accounts Payable Long-Term Debt, due within one year Total Current Liabilities Noncurrent Liabilities: Other Postemployment Benefit Obligation Long-Term Debt, due in more than one year Total Noncurrent Liabilities Total Liabilities NET POSITION: Net Investment in Capital Assets Restricted For: Debt Service Capital Projects Specific Programs Legally Restricted Balances Unrestricted Total Net Position The accompanying are an integral part of this

119 LOS BANOS UNIFIED SCHOOL DISTRICT EXHIBIT A-2 Net (Expense) Changes in Program Revenues Net Position Ooeratina Charges for and Governmental Expenses Services Contributions Contributions Activities Government Activities: Instruction Instruction-Related Services Pupil Services Ancillary Services General Administration Plant Services Other Outao Total Governmental Activities Totai Primary Government General Revenues: LCFF Sources State Revenues Local Revenues Loss on Disposal of Assets Total General Revenues Change in Net Position Net Position Beginning Net Position Ending The accompanying notes are an integral of this statement

120 LOS BANOS UNIFIED SCHOOL DISTRICT BALANCE SHEET GOVERNMENTAL FUNDS JUNE ASSETS: Cash in County Treasury Cash on Hand and in Banks Cash in Revolving Fund Cash with a Fiscal Accounts Receivable Due from Other Funds Stores Inventories Other Current Assets Total LIABILITIES AND FUND BALANCE: Liabilities: Accounts Payable Due to Other Funds Unearned Revenue Total Liabilities Fund Balance: Nonspendable Fund Balances: Revolving Cash Stores Inventories Restricted Fund Balances Assigned Fund Balances Unassigned: for Economic Uncertainty Total Fund Balance Liabilities and Fund Balances General Fund Cafeteria Fund The accompanying notes are an integral part of this statement. 13

121 EXHIBIT A-3 Building Fund Other Governmental Funds Total Governmental Funds

122 [THIS PAGE INTENTIONALLY LEFT BLANK]

123 LOS BANOS UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30,2014 Total fundbalances -governmental funds balance sheet Amounts reported for governmental activities in the Statement of Net Position are differentbecause: Capital assets used in governmentalactivities are not reported in the funds. Bond premiums are amortized over the life of the bond. Payables for bond principal which are not due in the current period are not reported in the funds. Payables for capital leases which are not due in the current period are not reported in the funds. for which are not due in the current period are not reported in the funds. Other benefit liabilities which are not due and,. in the current are not reported in Net position of governmental activities Statement of Net Position The accompanying notes are an integral part of this statement. 15

124 LOS BANOS UNIFIED SCHOOL DISTRICT IN FUND BALANCES GOVERNMENTALFUNDS FOR THE YEAR ENDED JUNE 30,2014 Revenues: LCFF Sources: State Apportionment or State Aid Education Protection Account Funds Local Sources Federal Revenue Other State Revenue Other Local Revenue Total Revenues Expenditures: Instruction lnstruction Related Services Pupil Services Ancillary Services General Administration Plant Services Other Outgo Debt Service: Principal Interest Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Transfers In Transfers Out Proceeds From Sale of Bonds Other Sources Other Uses Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July 1 Fund Balance, June 30 General Fund Cafeteria Fund The accompanying notes are an integral part of this statement. 16

125 EXHIBIT A-5 Building Fund Other Governmental Funds Total Governmental Funds

126 LOS BANOS UNIFIED SCHOOL DISTRICT RECONCILIATION STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30,2014 EXHIBIT A-6 Net change in fund balances -total governmental funds $ 3,540,262 Amounts reported for governmental activities in the Statement of Activities ("SOA)are different because: Capital outlays are not reported as expenses in lhe SOA. The depreciation of capital assets used in governmental activities is not reported in the funds. Trade-in or disposal of capital assets decreases net position in the SOA but not in the funds. Amortization of is recognized in the SOA but not in the funds. Expenses not requiring the use of current financial resources are not reported as expenditures in the funds. Repayment of bond principal is an expenditure in the funds but is not an expense in the SOA. Repayment of capital lease principal is an expenditure in the funds but is not an expense in the SOA. of,, is an exoenditure in the funds but is not an exoense in the SOA. of interest on capital appreciation bonds is not reported in theiunds. (Increase) decrease in accrued interest from beginning of period to end of period. Compensated absences are reported as the amount earned in the SOA but as the amount paid in the funds Proceeds of long-term debt are recognized as other financing sources in the funds but not revenue in the SOA. Bond discounts are reported in the funds but not in the SOA. Other postemployment benefit obligation in excess of the "pay as you go" amount are expenses in the SOA but not expenditures in the funds. Change in net position of governmental activities Statement of Activities $ The accompanying notes are an integral part of this statement. 18

127 LOS BANOS UNIFIED SCHOOL DISTRICT STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30,2014 ASSETS: Cash on Hand and in Banks Total Assets LIABILITIES: Due to Student Groups Total Liabilities NET POSITION: Total Net Position Agency Fund Student Body Fund EXHIBIT A-7 The accompanying notes are an integral of this statement. 19

128 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2014 A. Summarv of Accounting Policies Banos Unified School District (District) accounts for its financial transactions in accordance with the policies and procedures of the Department of Education's "California School Accounting Manual". The accounting policies of the District conform to accounting principles generally accepted in the United States of America as prescribed by the GovernmentalAccounting Standards Board (GASB) and the American Institute of Certified Public Accountants (AICPA). Financial A reporting entity is comprised of the primary government and other organizations that are included to ensure the financial statements are not misleading. The primary government of the District consists of all funds, departments, boards and agencies that are not legally separate from the District. For Los Banos Unified School District, this includes general operations, food and student related activities of the District. 2. of Basis of a. Basis of Government-wide Statements: The statement of net position and the statement of activities include the financial activities of the overall government, except for fiduciary activities. Eliminations have been made to minimize the double-counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues and other nonexchange transactions. The statement of activities presents a comparison between direct expenses and program revenues for each function of the District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. The District does not allocate indirect expenses in the statement of activities. Program revenues include (a) fees, fines and charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the District's funds, with separate statements presented for each fund category. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as funds. The District reports the following major governmental funds: The General Fund is the District's primary operating fund. It is used to account for all financial resources of the District except those required to be accounted for in another fund. Fund 17, Special Reserve Fund for Other Than Capital Outlay Projects, currently defined as a special revenue fund in the California School Accounting Manual (CSAM), does not meet the GASB Statement No. 54 special revenue fund definition because the fund is not substantially composed of restricted or committed revenue sources. While the fund is authorized by statute and will remain open for internal reporting purposes, the fund functions effectively as an extension of the General Fund, and accordingly has been combined with the General Fund for presentationin the audited financial statements.

129 LOS BANOS UNIFIED SCHOOL DISTRICT NOTESTO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2014 The Cafeteria Fund is used to account separately for federal, state and local resources to operate the food service program and is used only for those expenditures as necessary for the operation of the District's food service program. The Building Fund exists to account separately for proceeds from the sale of bonds (Education Code Section 15146) and may not be used for any purposes other than those for which the bonds were issued. In addition, the District reports the following fund types: Non-Major Governmental Funds: Special Revenue Funds are used to account for the proceeds of specific revenue sources that are restricted to expenditures for specific purposes. The following special revenue fund is utilized by the District: The Child Development Fund is used to account separately for federal, state and local revenues to operate child development programs and is to be used only for expenditures for the operation of child development programs. Debt Service Funds are used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest, and related costs. The following debt fund is maintained: The Bond Interest and Redemption Fund is used to account for the accumulation of resources for and the repayment of District bonds, interest, and related costs. This fund is under the control of the Merced County Treasurer and, therefore, is not budgeted by the District. Capital Projects Funds are used to account for the acquisition construction of all major governmental general fixed assets. The District maintains the following capital project funds: The Building Fund exists to account separately for proceeds from the sale of bonds (Education Code Section 15146) and may not be used for any purposes other than those for which the bonds were issued. The Capital Facilities Fund is used to account separately for monies received from fees levied on developers or other agencies as a condition of approving a development (Education Code Sections Expenditures are restricted to the purposes specified in Government Code Sections or to the items specified in agreement with the developer (Government Code Section 66006). The County School Facilities Fund was established pursuant to Education Code Section to receive apportionments for the 1998 State School Facilities Fund (Proposition the 2002 State School Facilities Fund (Proposition or the 2004 State School Facilities Fund (Proposition 55) authorized by the State Allocation Board for new school facility construction, modernization projects, and facility hardship grants, as provided in the Leroy F. Greene School Facilities Act of 1998 (Education Code Section et seq). The Special Reserve Fund for Capital Outlay Projects exists primarily to provide for the accumulationof General Fund monies for capital outlay purposes. The Special Reserve Fund for Capital Outlay Projects exists primarily to provide the accumulationof General Fund monies for capital outlay purposes. The Capital Project Fund Mello Roos is used to account for capital projects financed by proceeds received from the Mello Roos District in Los Banos.

130 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2014 Fiduciary funds are reported in the fiduciary fund financial statements. However, because their assets are held in a trustee or agent capacity and are, therefore, not available to support District programs, these funds are not included in the government-wide statements. Agency Funds: These funds are used to report student activity funds and other resources held in a purely custodial capacity (assets equal liabilities). Agency funds typically involve only the receipt, temporary investment and remittance of fiduciary resources to individuals, private organizations or other governments. The following fund is in use: Student Body Funds are used to account for the activities of student groups. b. of Accounting Government-wide and Fiduciary Fund Financial Statements: These financial statements are reported using the economic resources measurement focus. They are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take transactions, in which the District (or receives) value without directly receiving (or giving) equal value inkxchange, include property taxes, donations. On the modified accrual basis. revenue from, taxes is recoonized in the fiscal vear for which the taxes are received. Revenue from entitlements and donations is in the year in which all eligibility requirements have been satisfied. Governmental Fund Financial Statements: Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accountina. Under this method. revenues are recoanized when measurable and available. The District considers all revenues reported in the be available if the revenues are collected within sixty days after year-end, The District does not consider revenues collected its year-end to be available in the current period. Revenues from local sources consist primarily of property taxes. Property tax revenues and revenues received from the State are recognized under the susceptible-to-accrual concept. Miscellaneous revenues are recorded as revenue when received in cash because they are generally measurable until actually received. earnings are recorded as earned. since they are both measurable and available. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources. When the District incurs an expenditure or expense for which both restricted and unrestricted resources may be used, it is the District's policy to use restricted resources first, then unrestricted resources. Encumbrance accounting is used in all budgeted funds to reserve portions of applicable appropriations for which commitments have been made. Encumbrances are recorded for purchase orders, contracts and other commitments when they are written. Encumbrances are liquidated when the commitments are paid. All encumbrances are liquidated as of June 30. Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all governmental funds. By state the District's governing board must adopt a finalbudget no later than July A public hearing must be conducted to receive comments prior to adoption. The District's governing board satisfied these requirements. These budgets are revised by the District's governing board and district superintendent during the year to give considerationto unanticipated income and expenditures.

131 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE Formal budgetary integration was used as a management control device during the year for all budgeted funds. The District employs budget control by minor object and function and by individual appropriation accounts. Expenditures cannot legally exceed appropriations by major object code. All appropriations lapse at year end. See Note C for expenditures that exceeded appropriations. Assets. Liabilities and a. Investments Cash balances held in banks and in revolving funds are fully insured or collateralized In accordance with Education Code Section 41001, the District maintains substantially all its cash in the Merced County Treasury. The County pools these funds with those of other districts in the County and invests the cash. These pooled funds are carried at cost, which approximates market value. Interest earned is deposited quarierly into funds. Any investment losses are proportionately sharedby all funds in the pool. The County is authorized to deposit cash and invest excess funds by California Government Code Section et seq. The funds maintained by the County are either secured by federal depository insurance or are collateralized. information regarding the amount of dollars invested in derivatives with the Merced County Treasury was not available. b. Stores Inventories and lnventories are recorded using the purchases method in that the cost is recorded as an expenditure at the time individual inventory items are purchased. lnventories are valued at average cost and consist of expendable supplies held for consumption. lnventories of the General Fund are immaterial and have been omitted from these statements. The District has the option of reporting an expenditure in governmental funds for prepaid items either when purchased or during the benefiting period. The District has chosen to report the expenditurewhen incurred. Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated fixed assets are recorded at their estimated fair value at the date of the donation. The cost of normal maintenance and repairs that do not add to the value or capacity of the asset or materially extend assets' lives are not capitalized. A capitalization threshold of $5,000 is used. Capital assets are being depreciated using the straight-line method over the following estimated useful lives: Asset Class Estimated Useful Lives Buildings Improvements Vehicles Office Equipment Computer Equipment

132 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2014 d. lnterfund Activity lnterfund activity results from loans, services provided, reimbursements or transfers between funds. Loans are reported as interfund receivables and payables as appropriate and are subject to elimination upon Services provided, deemed to be at market or near market rates, are treated as revenues and expenditures or expenses. Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers and Transfers Out are netted and presented as a single "Transfers" on the government-wide statement of activities, when applicable. Similarly, interfund receivables and payabies are netted and presented as a single "Internal Balances'' line on the government-wide statement of net position, when applicable. e. Unearned Revenue Cash received for federal and state special projects and programs is recognized as revenue to the extent that qualified expenditures have been incurred. Unearned revenue is recorded to the extent cash received on specific projects and programs exceeds qualified expenditures. f. Absences Accumulated unpaid employee vacation benefits are recognized as liabilities of the District. compensated absence liability is reported on the government-wide statement of net position. The entire Accumulated sick leave benefits are not recognized as liabilities of the District. The District's policy is to record sick leave as an operating expense in the period taken since such benefits do not vest nor is payment probable; however, unused sick leave is added to the creditable period for calculation of retirement benefits when the employee retires. g. Fund Funds Fund balances of the governmental funds are classified as follows: Nonspendable Fund Balance represents amounts that cannot be spent because they are either not in spendable form (such as stores inventory, prepaid expenditures and revolving cash) or legally required to remain intact. Restricted Fund Balance represents amounts that are constrained by external parties, provisions or enabling legislation. Committed Fund Balance represents amounts that can be used for a specific purpose because of a formal action by the District's governing board, the District's highest level of decision making authority. Formal board action must be taken on or before June 30th of each fiscal year. Committed amounts cannot be used for any other purpose unless the governing board removes those constraints by taking the same type of formal action. The committed amount subject to the constraint may be determined after June 30th. Committed fund balance amounts may be used for other purposes with appropriate due process by the governing board. Commitments are typically done through adoption and amendment of the budget. Committed fund balance amounts differ from restricted fund balances in that the constraints on their use do not come from outside patties, constitutional provisions or enabling legislation.

133 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2014 Assigned Fund Balance represents amounts which the District intends to use for a specific purpose, but that do not meet the criteria to be classified as restricted or committed. Intent may be stipulated by the governing board or by an official or body to which the governing board delegates the authority. Specific amounts that are not restricted or committed in a special revenue, capital projects, debt service or permanent fund are assigned for purposes in accordance with the nature of their fund type or the fund's primary purpose. Assignments within the General Fund convey that the intended use of those amounts is for a specific purpose that is narrower than the general purposes of the District itself. Unassigned Fund Balance represents amounts which are unconstrained in that they may be spent any purpose. Only the General Fund reports a positive unassigned fund balance. Other governmental funds might report a negative balance in this classification because of overspending for specific purposes for which amounts had been restricted, committed or assigned. When an expenditure is incurred for a purpose for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds. In fiscal year 2011, the District adopted a minimum fund balance policy for the General Fund. The District is committed to maintaining a prudent level of financial resources to protect against the need to reduce service levels because of temporary revenue shortfalls or unpredictable expenditures. Therefore, the District will maintain an unassigned Reserve for Economic Uncertainties consisting of unassigned amounts equal to no less than prescribed for fiscal solvency review purposes pursuant to Education Code Section In the event that the balance drops below the established minimum level, the District's governing board will develop a plan to replenish the fund balance to the established minimum level within two years. h. Taxes Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are payable in two installments on November and February 1. Unsecured property taxes are payable in one installment on or before August 31. The County of Merced bills and collects the taxes for the District. i. Use of Estimates Compliance and The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 1. Finance-Related Leaal and Provisions In accordance with GASB Statement No. 38, "Certain Financial Statement Note Disclosures," violations of related legal and contractual provisions, if any, are reported below, along with actions taken to address such violations: Violation None reported Action Taken Not applicable

134 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, Deficit Fund or of Individual Funds Following are funds having deficit fund balances or net position at year end, if any, along with remarks which address such deficits: Fund None C. Excess of Expenditures Over Deficit Amount Not applicable Remarks Not applicable As of June 30, 2014, expenditures exceeded appropriations in individual funds as follows: Appropriations Category Excess Expenditures General Fund: Other Outao Capital Debt Service: Principal Child Development Fund: Employee Benefits Books and Supplies Services and Other Operating Expenditures Direct Costs Cafeteria Direct Costs Building Fund Capital Outlay Capital Facilities Fund: Services and Other Operating Expenditures Capital Projects Fund Mello Roos: Services and Other Operating Expenditures General Fund (Other Outgo): Budget for an expense in Other Outgo was projected based on Revenue Limit Sources calculations while LCFF Sources calculations were in effectfor the current year. General Fund (Capital Outlay): The majority of the excess expenditures were due to the construction of the new Mercey Springs Elementary School. Cafeteria Fund: Operation turned out larger than projected, therefore, the indirect cost was calculated on a larger direct cost base resulting in a larger indirect cost amount. General Fund (Debt Service: Principal), Child Development Fund, Building Fund #2, Capital Facilities Fund and Capital Projects Fund Mello Roos: The over-expenditures were caused by transactions for receivables and payables made after the final budget revision was approved.

135 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2014 D. Cash and Investments 1. Cash in County In accordance with Education Code Section 41001, the District maintains substantially all of its cash in the Merced County Treasury as part of the common investment pool ($21,312,839 as of June 30, 2014). The fair value of the District's portion of this pool as of that date, as provided by the pool sponsor, was $21,302,816. Assumptions made in determining the fair value of the pooled investment are available from the County Treasurer. Hand. in Banks and in Cash balances on hand and in banks ($367,690 as of June 30, 2014) and in the revolving fund ($29,162) are fully insured or collateralized. 3. Cash with The cash with fiscal agent is comprised of $772,250 representing the Certificates of Participation and General Obligation Bond Anticipation Notes funds that remain in trust accounts at U.S. Bank invested in Treasury Money Market Funds and cash accounts. 4. Specific and Cash and investments as of June 30, 2014, are classified in the accompanying financial statements, as follows: Statement of net position: Cash in County Treasury Cash on Hand and in Banks Cash in Revolving Fund Cash with Fiscal Fiduciary Fund: Cash on Hand and in Banks Total Credit Not rated Not Applicable Not Applicable Not Applicable Not Applicable Value $ 21,302,816 Cash and investments as of June 30,2014, consist of the following: Cash in County Treasury Deposits with Financial Institutions Cash with Fiscal Total by the Policy Education Code Section and the District's investment policy require operating funds to be deposited into the County Treasury and invested in accordance with the current investment policy of the Merced County Treasurer. Education Code Section authorizes the investment of surplus monies, not required for the immediate necessities of the District in any of the investments specified in Section or of the Government Code. Additionally, a variety of operational bank accounts are authorized, including but not limited to: Scholarship Accounts, Clearing Accounts and Revolving Cash Accounts. The District's investment policy does not contain any specific intended to limit the District's exposure to interest rate risk, credit risk and concentration of credit risk.

136 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2014 Authorized bv Debt Investment of debt proceeds held by the bond trustee is governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the District's investment policy. The table below identifies the investment types that are authorized for investments held by the bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk, credit risk and concentration of credit risk. Authorized investment U.S. Treasury U.S. Agency Securities Banker's Acceptances Commercial Paper Money Market Mutual Funds Investment Contracts Maximum Maturity None None 180 days 270 days 30 years Disclosure to Interest Risk. interest rate risk is the that changes in market interest rates will adversely affect the fair value of an investment. Generaliy, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The District has no investments that are subject to this risk. to Risk Generally, credit risk is the risk that an issuer or other counterparty to an investment will not fulfiii its obligations to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The District has no investments that are subject to this risk. The investment policy of the District contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code, which is investments in any one issuer (other than U.S. Treasury Securities, mutual funds, and external investment pools) that represent 5% or more of total District investments. The District has no investments subject to this risk. Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The California Government Code and the District's investment policy do not contain legal or policy requirements that wouid limit the exposure to custodiai credit risk for deposits, other than the following provision for deposits: The Caiifornia Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at 110% of the total amount deposited by the public agencies. Caiifornia law also allows financial institutions to secure governmental agency deposits by pledging first trust deed mortgage notes having a of 150% of the secured public deposits. As of June , the District's bank balance at each bank was insured up to $250,000, but a total of $1 11,184 was exposed to custodial credit risk because it was uninsured and collateralized with securities held by the pledging financial institutions' trust department or agent, but not in the name of the District.

137 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2014 The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty broker dealer) to a transaction, a government not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the District's investment policy do not contain legal or policy requirements that limit the exposure to custodial credit risk for investments. With respect to investments, custodial credit risk generally applies only to direct investments in marketable securities. Custodial credit risk does not apply to a local government's indirect investments in marketable securities. Custodial credit risk does not apply to a local government's indirect investment in securities through the use of mutual funds or government investment pools. Investment Policy The District is required by GASB Statement No. 31 to disclose its policy. for determining which investments, if any, are reported at The District's general policy is to report money market and short-term interest-earnina investment contracts at amortized cost and to, interest-earnina investment contracts using a cost-based measure. However, if the fair value of an is significantly affected impairment of the credit standing of the issuer or by other factors, it is reported at fair value. All other investments are reported at fair value unless a legal contract exists which guarantees a higher value. The term "short-term" refers to investments which have a remaining term of one year or less at time of purchase. The term "nonparticipating"means that the investment's value does not vary with market interest rate changes. Nonnegotiable certificates of deposit are examples of nonparticipating interest-earning investment contracts. The District's investments in external investment pools are reported at an amount determined by the fair value per share of the pool's underlying the is in which case they are reported at share A pool is one which is not registered with the Securities and Exchange Commission as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with the Rule 2a7 of the Investment Company Act of E. Receivable Accounts receivable as of June 30, 2014, consist of the following: Federal Government: Federal Programs State Government: State Aid Speciai Education Categorical Programs Child Nutrition Total State Government Local Government: Other Local Miscellaneous Totals Other General Cafeteria Governmental Fund Fund Funds Totals

138 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2014 F. Assets Capital asset activity for the year ended June 30, 2014, was as follows: Beginning Reclassificationsi Ending Balances Increases Decreases Balances Capital assets not being depreciated: Land 9,103, ,570 9,839,698 Work in progress Total capital assets not being depreciated Capital assets being depreciated: Buildings Equipment under capital lease 17,035, ,610 1,732,330 18,908,198 Total capital assets being depreciated 133,655,830 4,0065 5,914, ,576,437 Less accumulated depreciation for: ( ( ,., (518,852) (46,590) (4,783,087) under capital lease (77,430) (28,788) 46,590 (59,628) Improvements (4,912,681) (450,185) (5,362,866) Total accumulated depreciation (31,354,326) (3,413,487) (34,767,813) Total capital assets being depreciated, net 102,301, ,775 5,914,345 Governmentalactivities capital assets, net ) Depreciation was charged to functions, as follows: Instruction Instruction-Related Services Pupil Services Ancillary Services General Administration Plant Services Outgo Total G. and 1. Due To From Other Funds Balances due to and due from other funds at June 30, 2014, consisted of the following: Due To Fund Due From Fund Amount Purpose General Fund CafeteriaFund 337,802 Short-term loans General Fund Other Governmental Funds 87,687 Short-term loans Other GovernmentalFunds General Fund 43,141 Short-term loans Building Fund Other Governmental Funds 25 Short-term loans Total 468,655 All amounts due are scheduled to be repaid within one year.

139 BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, To and From Other Funds H. Short-Term Transfers to and from other funds at June 30, 2014, consisted of the following: Transfers From Transfers To Amount Reason General Fund Other Governmental Funds 42,356 Contribution General Fund Cafeteria Fund 14,828 Reimburse cafeteria expense Other Governmental Funds Other Governmental Funds 11,953 Debt service payment Total Tax and Revenue Notes The District accounts for current loans for cash flow purposes through the General Fund. The District chooses Tax and Revenue Anticipation Notes for cash flow purposes. Beginning Ending Description Balances Issued Redeemed Balances Cross Year Tax and Revenue Anticipation Note Series A On March 8, 2012, the governing board of Los Banos Unified School District approved participation in the California Cash Reserve Program funded by Tax and Revenue Anticipation Notes The District agreed to palticipate in the amount of $9,145,000. A letter was sent to the Merced County Office of Education dated February 14, 2013 detailing the agreement for all participating governments in Merced County. Repayment was made on October 2013 with an interest rate of 2%. The cost of issuance was $23,500 and the premium was $96,023. The underwriter's discount was $9,145. were used for cash flow purposes with unspent funds earning interest at the Merced County Treasury pool investment rate. Lona-Term Long-Term Debt Summary Long-term obligations include debt and other long-term liabilities. Changes in long-term obligations for the year ended June 30,2014, are as follows: Amounts Beginning Endina Due Within Balances Increases Decreases Governmental General Obliaation Bonds: Current Capital Appreciation 4,967,707 AnticipationNote Bond Premium 489,469 Leases 229,885 of Participation 8,175, ,435, ,000 Compensated Absences 1,036,549 78,044 1,114,593 Total Governmental Activities 0 Because of the nature of compensated absences and uncertainty over when vacations will be taken, a statement of debt service requirements to maturity has not been presented.

140 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2014 The funds typically used to liquidate long-term liabilities in the past, are as follows: Liability Absences General Obligation Bonds Capital Leases Certificates of Participation Activity Type Fund Governmental General Fund. Child Fund and Cafeteria Fund Governmental Bond lnterest and Redemption Fund Governmental General Fund Governmental Capital Facilities Fund In the government-wide financial statements, interest expense for the year ended June 30, 2014, was $2,214,984 and is included in the functional expenses as a direct charge. 2. Bonds On November 7, 1995, the voters of the District approved a maximum issuance of $22,000,000 in bonds to acquire and construct school facilities to reduce overcrowding, to upgrade and renovate classrooms and facilities at every school, and to provide students with access to computer technology. As part of this approval, the District issued $6,978,434 (initial principal amount) of 1996 Series A General Obligation Bonds, comprised of $4,095,000 Current lnterest Bonds and $2,883,434 of Capital Appreciation Bonds. If the Capital Appreciation Bonds are not fully redeemed before maturity, the Capital Appreciation Bonds appreciate to $8,385,000. lnterest on the Current lnterest Bonds is payable semi-annually on February 1 and August 1 of each year. In May 2002, the District sold the remaining $15,020,000 of authorized General Obligation Bonds. On February 5, 2008, voters authorized the issuance and sale of up to $44,000,000 aggregate principal amount of bonds of the District to finance the renovation, modernization and construction of various school facilities. In August 2008, $34,000,000 of the bonds were issued. lnterest is paid on these bonds on February 1 and August 1 of each year. The interest rates on these bonds vary from 2.05% to 4.75%. On September 15, 2010, the District issued General Obligation Refunding Bonds in the amount of $12,840,000. These bonds were used to retire the bond issued in lnterest rates on these bonds vary from to 4.00%. On December 17, 2013, the District entered into a General Obligation Bond Anticipation Note (Notes) for which proceeds will be applied to (a) finance the construction, renovation, modernization and equipping of school facilities as approved by the District's voters in Measure K; and (b) pay cost of issuance of the Notes. The Notes were issued with a maturity value of $9,610,000, including issuance costs of $190,000 and underwriter's discount of $89,685. The Notes were issued as capital appreciation bonds. Proceeds from the Series 2008 Bonds remaining in the amount of $10,000,000 will be used to pay the maturity value of the 2013 Notes. In government-wide financial statements long-term debt is reported as a liability in the government-wide statement of net position. Premiums are amortized over the life of the General Obligation Bonds and adjust interest rates based on the life of the bonds. Bond premiums are reported as part of the long-term bond debt. Premiums are amortized over the 25 years of the bonds commencing on August 1, 2008 and 17 years commencing on August 1,2010. Amortization for the year ended June 30,2014 was $25,441. In fund financial statements, government fund types recognize premiums during the current period. Premiums, whether or not added to actual proceeds received, are reported as other financing sources.

141 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE The outstanding General Obligation Bond debt as of June 30,2014, is as follows: Bonds Bonds Maturity Interest Original Outstanding Accretedi Outstanding Date Date Rate 1,2013 Issued Redeemed June /1/20 $ 2,883,434 $ 4,967,707 $ 125,029 $ 660,000 $ 4,432, /1/33 34,000,000 32,105, ,000 31,780, Bond Premium 540, , , ,840,000 11,490, ,000 10,825, ,968,532 9,037,261 9,037,261 $ $ $ $ $ The annual requirements to amortize General Obligation Bonds payable outstanding as of June 30, 2014, are as follows: 1996 Bonds. A Accreted Value Unaccreted Total Final Year Ended June of Obligation Interest Maturity , , Totals Capital Appreciation Bonds are accretive. Bond interest accumulates in the initial years and will be repaid in later years. Current Interest Bonds Bond Year Ended June 30, Principal Interest Total Premium $ $ Totals 2010 Refunding Bonds Year Ended 30. Principal Interest Total Premium ,000 $ 367,225 $ 1,047,225 $ 3, , ,925 1,049,925 3, , ,625 1,048,625 3, ,255, ,694 5,244,694 19, ,965, ,306 3,145,306 1,474 Totals $ $ $ $

142 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, General Bond Notes Totals Unaccreted Total Final Principal Interest Maturity Bond Year Ended June 30, Principal Interest Total Premium ,790,000 1,882,750 3,672,750 25, ,896,140 1,885,210 3,781,350 25, ,016,116 1,877,209 3,893,325 25, ,091,778 1,860,522 3,952,300 25, ,217,627 2,414,098 13,631,725 25, ,828,336 7,726,246 18,554, , ,080,000 4,793,012 16,873, , ,155,000 1,777,331 15,932,331 90,065 Totals There are a number of limitations and restrictions contained in the General Obligation Bond indentures. Management has indicated that the District is in compliance with all significant limitations and restrictions. On April 18,1996, the District issued $9,800,000of current interest Certificates of Participation Series A and $6,135,245Convertible Capital Appreciation Certificates of Participation Series B to build new schools. The proceeds from the May 2002 General Obligation Bond sale were used to pay off the Capital Appreciation Bonds part of the 1996 debt on May 31,2002. On September 20, 2012, the District issued $7,495,000of current interest Certificates of Participation with interest rates ranging from 2.000% to 3.125%. The Certificates of Participation were issued to finance the construction, acquisition, and installation of capital facilities at certain campuses. The annual requirements to amortize Certificates of Participation payable outstanding as of June 30, 2014, are as follows: of Ended June 30, Principal Interest Total ,000 24, , ,000 15, , Totals

143 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, Certificates of Year Ended June 30, Principal Interest Total ,000 $ 180,935 $ 750, , , , , , , , , , , , , ,525, ,881 3,739,881 Totals $ of Participation Year Ended June 30, Totals Principal Total 735,000 $ 205,826 $ 940, , The District has entered into capital lease agreements for capitalized equipment valued at $495,942. The agreements provide for title to pass upon expiration of the lease periods. lnterest on these leases range from 3.51% to Amortization of leased equipment under capital assets is included with depreciation expense. These commitments provide for minimum future lease payments as of June 30, 2014, as follows: 2017 Totals Ended June 30, Principal Interest Total 148,563 $ $ 158, ,873 The District will receive no sublease rental revenues nor pay any contingent rentals associated with these leases. 5. Service Debt service requirements on long-term debt at June 30, 2014, are as follows: Principal Interest Total $ $ 4,772,353 Totals

144 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2014 J. Fund Balances and Restricted Net Position Fund balances at June 30, 2014, are as follows: Other Total General Cafeteria Building Governmental Governmental Fund Fund Fund Funds Funds Nonspendable: Revolving Cash 24,800 4,362 29,162 Stores Inventory 48,600 48,600 Total Nonspendable 24,800 52,962 77,762 Restricted: Educational Purposes 702, ,290 Child Nutrition Program 2,981,017 Child Development 6,278 6,278 Debt Service 3,357,460 3,357,460 State School Facilities Proiects Capital Projects 8,258,572 3,665,333 11,923,905 Total Restricted ,981,017 Assigned: Assigned by District Unassigned: for Economic Uncertainty 2,366,922 2,366,922 Total Fund Balances The government-wide statement of net position reports $9,937,137 of restricted net position, none of which is restricted by enabling legislation. K. Participation in Public Risk Pools and Joint Power Authorities The Los Banos Unified School District participates in four public entity risk pools under joint powers agreements (JPAs): Organization for Self-insured Schools (O.S.S.), Merced County Schools Insurance Group (M.C.S.I.G.), California's Valued Trust (C.V.T.), and the Self-Insured Schools of California The relationship between the District and the JPAs is such that none of the JPAs is a component unit of the District for financial reporting purposes. The JPAs were established as agencies under the provisions of the California Government Code, Title I, Division 7, Chapter 5, Article Section 6500, seq. The purpose of each JPA is to provide self-insurance programs as follows: O.S.S. provides a self-insurance program for liability and property claims against the public educational agency members and provides a forum for discussion, study, development and implementation of recommendations of mutual interest regarding self-insurance. M.C.S.I.G. is an insurance purchasing pool for workers' compensation insurance. The workers' compensation experience of the participating districts is calculated as one experience and a common premium rate is applied to all districts in the JPA.

145 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2014 C.V.T. provides the necessary and appropriate for the establishment, operation and maintenance of a medical self-insurance fund that provides for the payment of medical, dental, vision, and prescription claims of the member public educational agency employees and their covered dependents and to minimize the total cost of annual medical insurance of their respective member organizations. District CSEA and unrepresented employees are covered under this JPA. S.I.S.C. provides the services necessary and appropriate for the establishment, operation and maintenance of a medical Self-Insurance Fund that provides for payment of medical, dental, vision, and prescription claims of the member public educational agency employees and their covered dependents and to minimize the total cost of annual medical insurance of their respective member organizations. District certificated employees are covered under this JPA. Membershipin the JPAs consists of various public educational agencies. The JPAs are governed by boards consisting of representatives from the member public educational agencies and related associations. The boards control the operations of each JPA, including selection of management and approval of operating budgets, independent of any influence by member public educational agencies beyond their representation on the board. Each member public educational agency pays a premium based on student population, or number of covered individuals. Surpluses remain in each fund or JPA, while deficits are covered by assessments on the member districts in proportionto their participation in each JPA. During the last three fiscal (claims) years, none of the above programs have had settlements or judgments that exceeded pooled or insured coverage. There have been no significant reductions in pooled or insured liability coverage from coverage in the prior year. L. Emplovee Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the State Teachers' Retirement System (STRS), and classified employees are members of the Public Employees' Retirement System (PERS). PERS: Plan The District contributes to the School Employer Pool under the California Public Employees' Retirement System (CalPERS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalPERS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the Public Employees' Retirement Law. CalPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalPERS annual financial report may be obtained from the CalPERS Executive Office,400 P Street, Sacramento, California Policy Active plan members are required to contribute 7% of their monthly salary (7% of monthly salary over $ if the member participates in Social Security), and the District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the Board of Administration. The required employer contribution rate for fiscal year was of covered payroll. The contribution requirements of the plan members are established by state statute. The District's contributions to CalPERS for the years ended June 30, 2014, 2013 and 2012 were $1,481,302, $1,359,230 and $1,207,875, respectively, and equal 100% of the required contributions for each year. The amount contributed by the State on behalf of the District was $0.

146 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2014 STRS: Plan The District contributes to the State Teachers' Retirement System (STRS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by STRS. The plan provides retirement, disability and survivor benefits to beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the State Teachers' Retirement Law. STRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the STRS annual financial report may be obtained from the STRS, 7667 Boulevard, Sacramento, California Funding Policy Active plan members are required to contribute 8% of their salary and the District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the STRS Teachers' Retirement Board. The required employer contribution rate for fiscal year was of annual payroll. The contribution requirements of the plan members are established by state statute. The District's contributions to STRS for the years ended June 30, 2014, 2013 and 2012 were $2,812,598, $2,601,368 and $2,515,319, respectively, and equal 100% of the required contributions for each year. The amount contributed by the State for the current fiscal year on behalf of the District was $1,586,633. M. Benefits Other Than Pension Plan The District provides a self-funded, single employer, defined benefit plan to provide medical, prescription drug, dental and vision benefits to Certificated, Management, Supervisory, Administrative, Classified, and Confidential employees and their spouses. Certificated, Management, Supervisory, Confidential and Administrative employees may retire with District-paid medical and prescription drug benefits after age 57 with years of service immediately prior to retirement. If a separate benefit is eliminated in the future, Certificated employees would be entitled to receive District-paid benefits after age 55 with 12 years of service immediately prior to retirement. Retirees choosing to retire after July 2020 may self-pay benefits between ages 57 and 59 to retain eligibility for District-paid benefits commencing at age 59. District-paid benefits end at age 65 and are capped at $1,082 per month. Classified employees retiring aiter age 57 with years of service immediately prior to retirement receive District-paid benefits until age 65. District paid benefits end at age 65 and are capped at $1,368 per month. The District is a member in a joint powers agreement (JPA), the Self-Insured Schools of California as described in Note K, to provide this health coverage. Fundina The contribution requirements of plan members and the District are established and may be amended by the District, the District's bargaining units and unrepresented groups. The required contribution is based on projected pay as you go financing requirements. Additionally, the District participates in the Self Insured Schools of California GASB 45 Trust, an agent multiple-employer plan as defined in Governmental Accounting Standards Board (GASB) Statement No. 43 with pooled administrative and investment functions. The Trust was established as a mechanism for accumulating funding for other postemployment benefits liabilities. However, contributions are voluntarily determined by the District. The Self Insured Schools of California GASB 45 Trust issues an annual stand-alone financial report which can be obtained by contacting at P.O. Box Bakersfield. California or by phoning at Annual OPEB Cost and OPEB The District's annual Other Postempioyment Benefits (OPEB) cost (expense) is based on the Annual Required Contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (UAAL) (or funding excess) over a period not to exceed 30 years.

147 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2014 The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the net OPEB obligation to the retiree health plan: Annual required contribution (ARC) 907,473 Interest on net OPEB obligation 36,822 Adjustmentto annual required contribution 9) Annual OPEB cost 910,076 Employer Contributions made (524,928) Increase net in OPEB obligation Beginning net obligation Ending net OPEB obligation The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for the current and prior years, are as follows: Percentage of Fiscal Year Annual Annual OPEB Net OPEB Ended OPEB Cost Cost Contributed Obligation , % $ 182, $ 908, % 526,028 $ 910, % $ 911,176 Funded Funding AS of July 1, 2012, the most recent actuarial valuation date, the funded status of the retiree health plan, was as follows: Actuarial accrued liability (AAL) Actuarial value of plan assets Unfunded accrued actuarial liability (UAAL) Funded Ratio (actuarial value of plan Annual covered payroll (active plan members) UAAL as a percentage of annual covered payroll Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about employment, mortality and the health care cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, Exhibit B-3 presented as required supplementary information following the notes to the financial statements, presents multi-year information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Methods and Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in the liabilities and actual value of assets, consistent with the long-term perspective of the calculations.

148 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2014 the July 1, 2012 actuarial valuation, the projected unit credit method was used. The actuarial assumptions were based on a standard set of assumptions used for similar situations, modified as appropriate for the District. The assumptions included a 7% investment rate of return and a healthcare cost trend rate of 7%. The unfunded actuarial accrued liability is being amortized using an open 30 year amortization period and the level dollar amount method. Awards and Grants The District has received state and federal funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could generate expenditure disallowances under terms of the grants, it is believed that any required reimbursement would not be material. Capital Events On August 26, 2014, the District entered into a capital lease agreement with Mercedes-Benz Financial USA LLC for the purchase of six school buses. The total amount of the purchase is $1,108,573 and is payable in five annual installments of $229,544, interest included. Earlv Incentives On July 17, 2014, the District was approved by Merced County Office of Education to issue retirement incentives to eight employees. The total cost to the District will be $463,724.

149 Required Supplementary Information Required supplementary information includes financial information and disclosures required by the Governmental Accounting Standards Board but not considered a of the basic financial statements.

150 LOS BANOS UNIFIED SCHOOL DISTRICT GENERAL FUND B-1 Revenues: LCFF Sources: State or State Aid Education Protection Account Funds Local Sources Federal Revenue Other State Revenue Other LocalRevenue Total Revenues Variance with Final Budget Budgeted Amounts Positive Oriainal Final Actual (Negative) Expenditures: Current: Ceitificated Salaries Classified Salaries Employee Benefits Books And Supplies Services And Other Other Outgo Direct Capital Debt Principal interest Total Expenditures Costs Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Transfers Out Other Sources Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July Fund Balance, June 30

151 LOS BANOS UNIFIED SCHOOL DISTRICT CAFETERIA FUND EXHIBIT Revenues: Federal Revenue Other State Revenue Other Locai Revenue Total Revenues Variance with Final Budget Budgeted Amounts Positive Original Final (Negative) Expenditures: Current: Classified Salaries Employee Benefits Books And Supplies And Other Operating Expenditures Direct Costs Capital Outlay Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Transfers In Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July 1 Fund Balance, June 30

152 LOS BANOS UNIFIED SCHOOL DISTRICT REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF FUNDING PROGRESS OTHER POSTEMPLOYMENT BENEFIT PLAN YEAR ENDED JUNE 30,2014 EXHIBIT Actuarial Actuarial Accrued Unfunded UAAL as a Actuarial Value of Liability (AAL) AAL Funded Covered Percentage Valuation Assets Entry Age (UAAL) Ratio Payroll Covered Payroll Date (a)

153 Other Supplementary Information This section includes financial information and disclosures not required by the Governmental Accounting Standards Board and not considered a of the basic financial statements. It may, however, include information which required by other entities.

154 BANOS UNIFIED SCHOOL DISTRICT CHILD DEVELOPMENTFUND SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE YEAR ENDED JUNE 30,2014 EXHIBIT Revenues: Federal Revenue Other State Revenue Other Local Revenue Total Revenues Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Expenditures: Current: Certificated Salaries Classified Salaries Employee Benefits Books And Supplies And Other Operating Expenditures Direct Costs Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Transiers In Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July 1 Fund Balance, June 30

155 LOS BANOS UNIFIED SCHOOL DISTRICT FUND PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2014 C-2 Revenues: Other Local Revenue Total Revenues Variance with Final Amounts Positive Original Final Actual (Negative) Expenditures: Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July Fund Balance, June 30

156 LOS BANOS UNIFIED SCHOOL DISTRICT BUILDING FUND CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2014 Revenues: Other Local Revenue Total Revenues Variance with Final Budget Budgeted Amounts Positive Final Actual (Negative) Expenditures: Current: Services And Other Operating Expenditures Capital Outlay Excess (Deficiency) of Revenues Over (Under] Expenditures Other Financing Sources Other Sources Other Uses Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July Fund Balance, June 30

157 LOS BANOS UNIFIED SCHOOL DISTRICT CAPITAL FACILITIES FUND CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2014 Revenues: Other Local Revenue Total Revenues Variance with Final Budaet Budgeted Amounts Oriqinal Final Actual (Negative) Expenditures: Current: Books And Supplies Services And Other Operating Expenditures Capital Outlay Debt Service: Principal Interest Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Total Other Financing Sources Net in Fund Balance Fund Balance, July Fund Balance, June 30

158 LOS BANOS UNIFIED SCHOOL COUNTY SCHOOL FACILITIES FUND CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2014 C-5 Revenues: Other Local Revenue Total Revenues Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Neqative) Expenditures: Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July Fund Balance, June 30

159 LOS BANOS UNIFIED SCHOOL DISTRICT SPECIAL RESERVE FUND FOR CAPITAL OUTLAY PROJECTS CAPITAL PROJECTS FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30,2014 C-6 Revenues: Other Local Revenue Total Revenues Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) 5,000 5,000 13,428 8,428 5,000 5,000 13, Expenditures: Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources Transfers In Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July 1 Fund Balance, June 30

160 LOS BANOS UNIFIED SCHOOL DISTRICT SPECIAL RESERVE FUND FOR CAPITAL OUTLAY PROJECTS CAPITAL PROJECTS FUND EXHIBIT C-7 Revenues: Other Local Revenue Total Revenues Budgeted Amounts Actual Variance with Final Budaet Expenditures: Current: Books And Supplies And Other Operating Expenditures Capital Outlay Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance. July 1 Fund Balance, June 30

161 LOS BANOS UNIFIED SCHOOL DISTRICT CAPITAL PROJECTS FUND CAPITAL PROJECTS FUND MELLO ROOS Revenues: Other Local Revenue Total Revenues Variance with Final Budaet Amounts Original Final Actual (Negative) Expenditures: Current: And Other Operating Expenditures Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change in Fund Balance Fund Balance, July 1 Fund Balance. June 30

162 LOS BANOS UNIFIED SCHOOL DISTRICT LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE JUNE 30,2014 TABLE The Los Unified School District was unified on July 1965, and consists of an area comprising approximately 667 square miles. operates eight elementary schools, one junior high school, two comprehensive high schools, one continuation high school and one independent study school. There were no boundary changes during the year. Governing Board Name Andree Dominic Falasco Tommy Jones Dennis Areias Carole Duffy Chase Hurley John Mueller Office President Vice-President Clerk Member Member Member Member Term and Term Expiration Four year term expires Four year term expires Four year term expires Four year term expires Four year term expires Four year term expires Four year term expires Administration Name Office Tenure Steve M. Superintendent years Dean Bubar Assistant Superintendent, Administrative Services 10 years Don Laursen Director of Fiscal Services 9 years

163 LOS BANOS UNIFIED SCHOOL DISTRICT SCHEDULE OF AVERAGE YEAR ENDED JUNE ATTENDANCE TABLE D-2 Second Period Report Annual Report Per Report Per Audit Per Report Per Audit Regular ADA Grades Regular ADA Grades 7 and 8: Regular ADA Grades 2: Regular ADA ADA Totals Average daily attendance is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of state funds are made to school districts. This schedule provides information regarding the aftendance of students at various grade levels and in different programs.

164 LOS BANOS UNIFIED SCHOOL DISTRICT SCHEDULE OF INSTRUCTIONAL YEAR ENDED JUNE 30,2014 TABLE D-3 Grade Level Kindergarten Grade 1 Grade 2 Grade 3 Grade 4 Grade 5 Grade 6 Grade 7 Grade 8 Grade 9 Grade 10 Grade 11 Ed. Code Ed. Code Number 46201(b) 46201(b) Days Minutes Adjusted Actual Traditional Requirement Reduced Minutes Calendar Status 36,000 NIA 57, Complied 50,400 52, Complied 50,400 52, Complied 50,400 52, Complied 54,000 52,500 53, Complied 54,000 52, Complied 54,000 52,500 53, Complied 54,000 59, Complied 54,000 59, Complied 64,800 NIA 64, Complied 64,800 NIA 64, Complied 64,800 NIA 64, Complied Grade 12 64,800 64, Complied School districts must maintain their instructional minutes as defined in Education Code Section This schedule is required of all districts, including basic aid districts. The District has received incentive funding for increasing instructional time as provided by the Incentives Longer Instructional Day. This schedule presents information on the amount of instruction time offered by the District and whether the District complied with the provisions of Education Code Sections through The District did not meet its target funding.

165 LOS BANOS UNIFIED SCHOOL DISTRICT SCHEDULE OF AND ANALYSIS YEAR ENDED JUNE 30,2014 TABLE Budget General Fund (see notes and 4) (see note 4) (see note 4) (see note 4) Revenues and other financial sources 81,235,394 77,116,675 68,951,062 Expenditures 81,205,027 78,840,227 70,642,452 68,843,789 Other uses and transfers out 24,165 57,184 Total outgo 81,229,192 78,897,411 70,642,452 68,843,789 Change in fund balance (deficit) 6,202 (1,780,736) (1,691,390) (1,054,567) Ending fund balance $ Available reserves (see note 2) Available reserves as a percentage of total outgo (see note 3) 3.0% 3.1% 3.0% 3.0% Total long-term debt $ $ Average daily attendance at P This schedule discloses the District's financial trends by displaying past years' data along with current year budget information. These financial trend disclosures are used to evaluate the District's ability to continue as a going concern for a reasonable period of time. The General Fund balance has decreased by (21.27%) over the past two years. The year budget projects an increase of $6,202 (0.05%). For a district of this size, the State recommends available reserves of at least three percent of total General Fund expenditures, transfers out and other uses (total outgo). The District has incurred operating deficits for the past three years, but projects a surplus during the fiscal year. Total long-term debt has increased by $13,743,944 over the past two years. Average daily attendance has increased 434 over the past two years. An increase of 63 ADA is anticipated during the fiscal year NOTES: (1) Budget 2015 is included for analytical purposes only and has not been subjected to audit, contained within the General Fund. (2) Available reserves consist of all unassigned fund balances and all funds reserved for economic uncertainties contained within the General Fund. (3) On behalf payments of $1,558,654 and $1,488,363 have been excluded from the calculation of available reserves for the years ended June 30,2014,2013 and (4) The Special Reserve for Other Than Capital Outlay has been included due to its consolidation into the General Fund.

166 LOS BANOS UNIFIED SCHOOL DISTRICT RECONCILIATIONOF ANNUAL FINANCIAL AND BUDGET REPORT AUDITED FINANCIAL STATEMENTS YEAR ENDED JUNE 30,2014 June 30,2014, annual financial and budget report fund balance Cafeteria Fund Adjustments and reclassifications: Increasing the fund balance: Accounts receivable understatement Net adjustments and reclassifications June 30, 2014, audited financial statement fund balance This schedule provides the information necessary to reconcile the balances of all funds as reported on the SACS report to the audited financial statements. Funds that required no adjustment are not presented.

167 LOS BANOS UNIFIED SCHOOL DISTRICT SCHEDULE OF CHARTER SCHOOLS YEAR ENDED JUNE 30,2014 TABLE D-6 The following charier school is chartered by the Los Banos Unified School District. Charter Schools Green Valley Charier School Included Audit? No

168 LOS BANOS UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30,2014 TABLE D-7 Federal Grantori Pass-Through Grantori Program Title Federal CFDA Number Pass-Through Entity Identifying Number Federal Expenditures S. DEPARTMENT OF HEALTH AND HUMAN SFRVICES Passed Through California Department of Education: Child Development: Federal Child Care, Center-based Billing Option (MAA) Total Passed Through California Department of Education Total U. S. Department of Health and Human DEPARTMENT OF EDUCATION Passed Through California Department of Education: NCLB: Title I, Part A, Basic Grants Low-Income and Neglected Special Education: IDEA Basic Local Assistance, Part B, 611 Education: IDEA Local Assistance. Part 61 Private Schools Department of Rehabilitation:Workability,. Transitions Partnership NCLB: Title A, Quality Total Passed Through California Department of Education Total U. S. Departmentof Education U. S. DEPARTMENT OF AGRICULTURE Passed Through California Department of Education: Child Nutrition: School Program (School Breakfast Needy) Child Nutrition: School Programs (School Lunch) Total Passed Through California Department of Education Total U. S. Departmentof Agriculture TOTAL EXPENDITURES OF FEDERAL AWARDS Indicates clustered program under OMB Circular A-133 Compliance Supplement The accompanying notes are an integral part of this schedule,

169 LOS BANOS UNIFIED SCHOOL DISTRICT NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30,2014 Basis of The accompanying schedule of expenditures of federal awards includes the federal grant activity of Los Unified School District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Circular A-133, Audits of States, Local Governments andnon-profit Organizations.

170 Other Independent Auditors' Reports

171 CERTIFIED PUBLIC FAX(559) Sire: Independent Auditors' Board of Trustees Los Banos Unified School District Eleventh Street Los Banos, California Members of the Board of Trustees: We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Los Banos Unified School District, as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise Los Banos Unified School District's basic financial statements and have issued our report thereon dated December 15,2014. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Los Banos Unified School District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Los Banos Unified School District's internal control. Accordingly, we do not express an opinion on the effectiveness of Los Banos Unified School District's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. We did identify a certain deficiency in internal control, described in the accompanying Schedule of Findings and Questioned Costs as item that we consider to be a significant deficiency.

172 Compliance and Other Matters As part of obtaining reasonable assurance about whether Los Banos Unified School District's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of Los Banos Unified School District in a separate letter dated December 15, Los Banos Unified School District's Response to Findings Los Banos Unified School District's response to the finding identified in our audit is described in the accompanying Schedule of Findings and Questioned Costs. Los Banos Unified District's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communicationis not suitable for any other purpose. Visalia, California December 15,2014

173 Green and Company LLP PUBLIC ACCOUNTANTS Box California. (559) FAX wwwmgreencpas.com on Compliance for Each Maior Federal Proaram and on Internal Control Over Compliance Required OMB Circular A-133 Board of Trustees Los Banos Unified School District Eleventh Street Los Banos, California Members of the Board of Trustees: Independent Auditors' Report on Compliance for Each Major Federal Program We have audited Los Banos School District's compliance with the types of compliance requirements described in the Circular A-133 Compliance Supplement that could have a direct and material effect on each of Los Banos Unified School District's major federal programs for the year ended June 30, Los Banos Unified School District's major federal programs are identified in the summary of auditors' results section of the accompanying Schedule of Findings and Questioned Costs. Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditors' Responsibility Our responsibility is to express an opinion on compliance for each of Los Banos Unified School District's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Circular A-133, Audits of States, Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Los Banos Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Los Banos Unified School District's compliance. Opinion on Each Major Federal Program In our opinion, Los Banos Unified School District, complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30,2014.

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

175 M. Green and Company CERTIFIED PUBLIC ACCOUNTANTS Web Site: Independent Auditors' Report on State Compliance Board of Trustees Los Banos Unified School District Eleventh Street Los Banos, California Members of the Board of Trustees: Report on State Compliance We have audited the District's compliance with the types of compliance requirements described in the Standards and Procedures for Audits of California K-12 Local Education Agencies , published by the California Education Audit Appeals Panel that could have a direct and material effect on each of the District's state programs identified below for the year ended June 30, Management's Responsibility for State Compliance Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its state programs Auditors' Responsibility Our responsibility is to express an opinion on compliance for each applicable program as identified in the State's audit guide, Standards and Procedures for Audits of California K-12 Local Education Agencies published by the Education Audit Appeals Panel. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States; and the State's audit guide, Standards and Procedures for Audits of California K-12 Local Education Agencies published by the Education Audit Appeals Panel. Those standards and audit guide require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a direct and material effect on the state programs noted below occurred. An audit includes examining, on a test basis, evidence about the District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the District's compliance with those requirements. In connection with the audit referred to above, we selected and tested transactions and records to determine the District's compliance with the state laws and regulations applicable to the following items: Proceduresin Procedures Description Audit Guide Performed Attendance Accounting: Attendance Reporting Teacher Certification and Misassignments Kindergarten Continuance lndependent Study continuation Education Instructional Time For School Districts Instructional Materials, General Requirements Yes Yes Yes Yes Yes Yes Yes

176 Ratios of Administrative Employees to Teachers Classroom Teacher Salaries Early Retirement Incentive GANN Limit Calculation School Accountability Report Card Juvenile Court Schools Local Control Funding Formula Certification Clean Energy Jobs Act Afler School Education and Safety Program: General Requirements Afler School Before School Education Protection Account Funds Common Core Implementation Funds Unduplicated Local Control Funding Formula Pupil Counts Contemporaneous Records of Attendance, For Charter Schools Mode of For Charter Schools Nonclassroom-Based Study, For Charter Schools Determination of Funding for Nonclassroom-Based Instruction, For Charter Schools Annual Instructional Minutes - Classroom Based, For Charter Schools Charter School Facility Grant Program Yes Yes Yes Yes Yes No (See Below) Yes Yes Yes Yes Yes Yes The term is used above to mean either the District did not offer the program during the current year or the program applies to a different type of local education agency. We did not perform testing for California Clean Energy Jobs Act since the District did not have expenditures from this source during the current fiscal year. Opinion on State Compliance In our opinion, Los Banos Unified School District complied, in all material respects, with the compliance requirements referred to above that are applicable to the statutory requirements listed in the schedule above for the year ended June 30,2014. Other Matters Other Information The results of our auditing procedures disclosed instances of noncompliance with the statutory requirements for programs noted above, which are required to be reported in accordance with the State's audit guide, Standards and Procedures for Audits of California K-12 Local Education Agencies published by the Education Audit Appeals Panel and which are described in the accompanying Schedule of Findings and Questioned Costs as items and Los Banos Unified School District's Responses to Findings Los Banos Unified School responses to the findings identified in our audit are described in the accompanying Schedule Findings and Questioned Costs. Los Banos Unified School District's responses were not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them.

177 Purpose of this Report The purpose of this report is solely to describe the scope of our testing of compliance and the results of that testing, and not to provide an opinion of the effectiveness of the entity's internal control or on compliance outside of the items tested as noted above. This report is an integral part of an audit performed in accordance with Standards and Procedures for Audits of California K-12 Local Education Agencies , published by the Education Audit Appeals Panel in considering the entity's compliance. Accordingly, this communication is not suitable for any other purpose. Visalia, California December 15,2014

178 Findings and Recommendations Section

179 LOS BANOS UNIFIED SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30,2014 A. Summary of Auditors' Results Financial Statements Type of auditors' report issued: Unmodified Internal control over financial reporting: One or more material weaknesses identified? Yes No One or more significant deficiencies identified that are not considered to be material weaknesses? X Yes None Reported Noncompliance material to financial statements noted? Yes No 2. Federal Awards Internal control over major programs: One or more material weaknesses identified? Yes No One or more significant deficiencies identified that are not consideredto be material weaknesses? Yes X None Reported Type of auditors' report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with section of Circular Yes No Identification of major programs: Numbers Name of Program or , and Special IDEA, Part Cluster NCLB: Title I, Part A, Basic Grants Low-Income and Neglected NCLB: Title Limited English Proficiency (LEP) Student Program Dollar threshold used to distinguishbetween type A and type Auditee qualifiedas low-risk auditee? Yes 3. State Awards Internal control over state programs: One or more material weaknesses identified? Yes X No

180 LOS BANOS UNIFIED SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30,2014 One or more significant deficiencies identified that are not considered to be material weaknesses? Yes None Type of auditors' report issued on compliance for state programs: Unmodified B. Financial Statement Findings SIGNIFICANT DEFICIENCY IN INTERNAL CONTROL STUDENT BODY REVENUES Generally Accepted Accounting Principles (GAAP) require the adoption of adequateinternalcontrols to safeguard assets and ensure proper recording of all activity. Condition During our testing of student body revenues, we noted that for the activity selected at Los Banos Junior High School, the District did not keep a record of yearbooks sold to allow for a final potential revenue calculation. Additionally, at Pacheco High School, a potential revenue form was not kept for spirit packs sold. Questioned Costs Not Applicable The issue is isolated to the student body revenues for Los Banos Junior High School and Pacheco High School. The lack of proper documentation increases the susceptibility for misappropriation of funds from student body activities. Established controls over student body revenue documentation were not followed consistently We recommend the District make a greater effort to ensure that procedures already in place for student body documentation are followed. Response The District concurs and will reinforce the existing procedures with site Administration and ASB clerical staff. C. Federal Award Findings and Questioned Costs NONE

181 LOS BANOS UNIFIED SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30,2014 D. State Award Findings and Questioned Costs STATE COMPLIANCE CONTINUATION EDUCATION ATTENDANCE Pursuant to Education Code Section if the LEA is not in compliance with a requirementthat is a condition of eligibility for the receipt of State funds, the audit report shall include the number of units of Average Daily Attendance (ADA), if any, that were inappropriately reported for apportionment. In addition,educationcode Section states, computing ADA of a school district there shall be included the attendance of pupiis while engaged in educational activities required of those pupils and under the immediate supervision and control of an employee of the District who possessed a valid certification document, registered as required by law". When testing continuation education's attendance for month seven at Luis High School, we noticed an error on the attendance class rosters. Six students were not listed on any of the signed teachers' class rosters for their portion of attendance in the period. Allowed ADA is based on the teachers' final certification of the class rosters. P-2 Attendance Report ADA was overstated by 0.16 ADA. Annual Attendance Report ADA was overstated by 0.14 ADA. Component differences are as follows: P-2 Continuation Education Grades 9-12: ADA per report ADA per audit = The difference is (0.16). Report Continuation Education Grades 9-12: ADA per report differenceis (0.14) ADA per audit = The Not Applicable The issue is isolated to attendance reporting at the continuation education site. There is no fiscal impact. The students in question attended school for the first part of the school period. Before the end of the school period, these students had un-enrolled. The teacher rosters were printed by the secretary at period end, after the students had un-enrolled, causing these students to not be included on the signed teacher rosters for the period of attendance. Recommendation We recommend the continuation education site update their attendance process to include all student attendance on each teacher signed roster, including those students who un-enroll before period end.

182 LOS BANOS UNIFIED SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30,2014 The District concurs with the finding and will use weekly rosters that include all students enrolled during the week. FINDING STATE COMPLIANCE SCHOOL ACCOUNTABILITY REPORT CARD Pursuant to the provisions of subdivision of Education Code Section 33126, if the Facility (FIT) was completed prior to the publication of the school's School Accountability Report Card (SARC), the information included in the SARC is required to agree to the FIT. The repair status of the external system inspected is reported on the SARC for Crossroads Alternative Education Center as when the FIT reports the repair status as Questioned Not Applicable The finding applies to reporting on the SARC for Crossroads Alternative Education Center. Parents of the students currently enrolled with the District, as well as those considering enrolling their children, do not have an accurate SARC with which to make decisions. The discrepancy was a clerical error. We recommend the District staff agree the information in the SARC to the most recent FIT prior publication. Response The District concurs and the SARC has been corrected. In the future, the District will check accuracy before publication. FINDING STATE COMPLIANCE AFTER SCHOOL EDUCATION AND SAFETY PROGRAM Education Code Section 8483 states that elementary school pupils must participate in the full day of the program every day during which the pupils participate. However, Education Code Section 8483 further states that every After School Education and Safety (ASES) Program may establish a policy regarding reasonable early daily release of pupils from the program and that every Before School Program may establish a policy regarding reasonable late daily arrival of pupils to the program.

183 LOS BANOS UNIFIED SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30,2014 At the Henry Miller Elementary School we identified one day for one student where the student was marked present on the sign sheet, however, due to a clerical error, he was marked absent on the monthly summary. We also identified four days for one student where the student departed early from the program without a reason for early departure. At Los Banos Elementary School we identified two attendance days where students arrived late with no reason for late arrival noted. Questioned Costs Not Applicable The finding is isolated to the ASES program at the Henry Miller Elementary School and Los Banos Elementary School. The District is out of compliance with the State requirements Sign sheets were not reviewedto ensure all reasons for early departure or late arrival were noted. Clerical errors were also made by staff entering daily attendance. We recommend the District ASES staff take more care in reviewing the daily sign sheets to ensure all students leaving early or arriving late have the appropriate early release or late arrival code noted. We also recommend the District ASES staff take more care in recording daily attendance to ensure attendance is properly reported. The ASES staff and parents have been reminded of the importance of coding students in and out of the program as the sign sheets are legal documents. ASES site level staff have also been reminded that they are responsible for checking daily that the sign sheets are being filled out properly. is then the responsibility of the ASES office staff to verify that all of the signatures and codes are in place. Lastly, after the attendance has been electronically documented, the ASES office staff is to make the final check for accuracy in that the names and numbers match. FINDING STATE COMPLIANCE LOCAL CONTROL FUNDING FORMULA PUPIL COUNTS Pursuant to Education Code Section the LEA shall annually submit its enrolled free and reduced-price meal (FRPM) eligibility, foster youth, and English learner pupil-level records for enrolled pupils to the State Superintendentusing the California Longitudinal Pupil Achievement Data System Pursuant to Education Code Section the audit LEA shall include procedures for determining if the English learner, foster youth, and free or reduced-price mealeligible pupil counts are consistent with the English Learner (EL), foster youth,and free or reduced-price meal (FRPM) eligible pupil records.

184 LOS BANOS UNIFIED SCHOOL DISTRICT FOR THE YEAR ENDED JUNE 30,2014 Condition During testing of unduplicated Local Control Funding Formula Pupil Counts, in one sample of eight students, one student was found to be ineligible. After expanding audit procedures to test 100 percent of the population where the error was discovered, we found eight additional students who were found ineligible. These students were reported on the certified 1.18 Youth Student List report with the following criteria: A. Were not free and reduced price meal eligible under the "NSLP Program" column. B. Identified as "EL", English learner, in the Designation" column. C. Marked "No" under the "Direct Certification" column. Each student was tested for correct reporting as an "EL" student. However, our test noted these nine students were not properly reclassified. Questioned Costs Not Applicable The error is isolated to the Volta Elementary School The total error in unduplicated pupil counts is nine students. This results in a fiscal impact of $4,905. Los Mercev Sorinas School Elementary Enrollment per Total unduplicated pupil counts per Unduplicated pupil count adjustment based on eligibility for EL Adjusted total unduplicated pupil Volta Elementarv School Total LEA Enrollment per Total unduplicated pupil counts per 251 7,781 Unduplicated pupil count adjustment based on eligibility for EL (9) Adjusted total unduplicated pupil The ineligible students were not correctly reclassified as non-el students in accordance with the District's reclassificationpolicy. We recommend the District review the accuracy of the EL students being reported on the certified 1.18 Youth Student List report. We recommend the District remit the funds back to the State.

185 LOS BANOS UNIFIED SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30,2014 Response The District concurs and will review the English Language student identification process with the affected staff.

186 I T D CERTIFIED PUBLIC ACCOUNTANTS Box Web Board of Trustees Los Banos Unified School District 1717 South Eleventh Street Los Banos, California Dear Members of the Board of Trustees:. Letter to Management We have completed the audit of Los Banos Unified School District for the year ended June 30, The followingitems came to our attention which we are providing for your consideration: Charity Bank our review of the bank accounts we noticed that San Luis High School opened a charity account in the current year in an attempt to eliminate charitable donations made from the student body account. The funds to open this account were transferred from the student body account. In effect, this account does not eliminate the un-allowed donations made from the student body account. We recommend the District close this account. Any fundraisers made specifically for a charity should not be accounted for in an account held in the District's name. Actual exceeded budgeted amounts in various major object codes for several funds for the year ended June 30, Proper internal controls dictate maintaining control over the budgeting process. We recommend the District review and revise budgets when over-expenditures are known to occur. Fund The currently maintains a Special Fund for Other Than Capital Outlay Projects. There was no fund balance or activity for the current year. We recommend the close this fund if future activity within it is not anticipated. Prior Year Student Body: During our review of the Student Body deposits, we noticed the ending ticket numbers for the football game selected were not initialed by the person recording the numbers. We recommended that all ticket numbers be recorded and initialed by someone other than the seller of the tickets. This recommendation has been implemented.

187 We would like to thank management and all of the office personnel for the excellent cooperation we received during our audit, and look forward to working with you in 2014 and beyond. Very truly yours, M. GREEN AND COMPANY LLP Certified Public Accountants December 15,2014

188 LOS BANOS UNIFIED SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30,2014 Current Status 09-3 Expense records for the student body were lmplemented inadequate. Two of the four invoices tested at Pacheco High School along with two of the four invoices tested at Los Banos High School were not signed for receipt of goods. At Los Banos Junior High, two of the four invoices tested along with one of the three invoices tested at San Luis High School were for donations which are not allowable activities for a student body. Additionally, at San Luis High School, one check was issued as a contribution to a nonprofit and two checks were issued for scholarships. Although funds received by the student body were specifically for those purposes, separate tracking was not kept. We recommended the District make a greater effort to ensure that procedures already in place for student body documentation be followed. Additionally, we recommended San Luis High School maintain all scholarship donations and payments in a separate scholarship account and all charity contributions separate from the student body account. Management's Explanation If Not Implemented During our testing of student body revenues, for one of two Not See current year finding revenue activities selected at Los Banos Junior High School, Implemented the District did not keep an inventory during the year on pencil sales to allow for a final potential revenue calculation. Additionally, none of the revenue activities selected at the San Luis High School had sufficient documentation to determine the potential revenue. We recommended the District make a greater effort to ensure that procedures already in place for student body documentation be followed. The After School Education and Safety (ASES) program at Los Banos Unified School District had established a Late Arrival Policy for the Before School Program. However, during our testing of the Before School Program sign-inlout sheets at the Union Elementary School site we discovered the reason for late arrival was not noted on all 40 students tested. We recommended the sign-inlout form utilized by the District be amended to include a column to allow the parent to indicate the reason that the child is arriving late. The reason noted should be in accordance with the District adopted Late Arrival Policy A clerical error occurred when completing the attendance supporting documentation. Home and hospital ADA for lmplemented lmplemented

189 LOS BANOS UNIFIED SCHOOL DISTRICT SUMMARY SCHEDULEOF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30,2014 Luis High School was incorrectly reported as special education on the annual report. Annual component differences were as follows: High School Home and Hospital: ADA per report ADA per audit The difference was High School Special Education: ADA per report = ADA per audit The difference was (1.96). We recommended the District amend their Annual Attendance Report to correct this difference and more closely review reports to ensure correct reporting in the future. Current Status Management's Explanation If Not Implemented

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191 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the Los Banos Unified School District (the District ) in connection with the issuance of the $18,125,000 Los Banos Unified School District 2015 Certificates of Participation (Capital Facilities Project) (the Certificates ). The Certificates are being issued under a Trust Agreement dated as of July 1, 2015 (the Trust Agreement ). The District hereby covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the holders and beneficial owners of the Certificates and in order to assist the Participating Underwriter in complying with Rule 15c2-12(b)(5) promulgated under the Securities Exchange Act of 1934, as amended. Section 2. Definitions. In addition to the definitions set forth above and in the Trust Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report means any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Annual Report Date means the date that is no more than nine months after the end of the District's fiscal year (currently March 31 based on the District s fiscal year end of June 30). Dissemination Agent means Applied Best Practices, LLC, of Irvine, California, or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation. Listed Events means any of the events listed in Section 5(a) of this Disclosure Certificate. MSRB means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Official Statement means the final official statement executed by the District in connection with the issuance of the Certificates. Participating Underwriter means Piper Jaffray & Co., the original underwriter of the Certificates, required to comply with the Rule in connection with offering of the Certificates. Rule means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. D-1

192 Section 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, being no later than nine months after the end of the District s fiscal year commencing March 31, 2016, with the report for the fiscal year, provide to the Participating Underwriter and the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the District) has not received a copy of the Annual Report, then the Dissemination Agent shall contact the District to determine if the District is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the District s fiscal year changes, then it shall give notice of such change in the same manner as for a Listed Event under Section 5(b). (b) If the District does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, then the District shall provide in a timely manner (or cause the Dissemination Agent to provide in a timely manner) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A. (c) With respect to each Annual Report, the Dissemination Agent shall: (1) determine each year prior to the Annual Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and (2) if the Dissemination Agent is other than the District, file a report with the District, certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided. Section 4. Content of Annual Reports. The District's Annual Report shall contain or incorporate by reference the following documents and information: (a) Audited financial statements of the District for the preceding fiscal year, prepared in accordance with the laws of the State of California and including all statements and information prescribed for inclusion therein by the Controller of the State of California. If the District s audited financial statements are not available by the Annual Report Date, then the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) Unless otherwise provided in the audited financial statements filed on or before the Annual Report Date, financial information and operating data with respect to the District for the preceding fiscal year, substantially similar to that provided in the corresponding tables in the Official Statement: (1) the average daily attendance in District schools on an aggregate basis for the most recent year for which data is available; (2) pension plan contributions made by the District for the for the most recent year for which data is available; D-2

193 (3) aggregate principal amount of short-term borrowings, lease obligations and other long-term borrowings of the District as of the end of the preceding fiscal year; (4) description of amount of general fund revenues and expenditures which have been budgeted for the most recent year for which data is available, together with audited actual budget figures for the preceding fiscal year; and (5) the District s total Local Control Funding Formula ( LCFF ) revenues for the most recent year for which data is available. (c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the District shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. (d) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which are available to the public on the MSRB s Internet web site or filed with the Securities and Exchange Commission. The District shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. (a) The District shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Certificates: (1) Principal and interest payment delinquencies. (2) Non payment related defaults, if material. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security. (7) Modifications to rights of security holders, if material. (8) Bond calls, if material, and tender offers. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the securities, if material. (11) Rating changes. (12) Bankruptcy, insolvency, receivership or similar event of the District or other obligated person. D-3

194 (13) The consummation of a merger, consolidation, or acquisition involving the District or an obligated person, or the sale of all or substantially all of the assets of the District or an obligated person (other than in the ordinary course of business), the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material. (14) Appointment of a successor or additional trustee or the change of name of a trustee, if material. (b) Whenever the District obtains knowledge of the occurrence of a Listed Event, the District shall, or shall cause the Dissemination Agent (if not the District) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Certificates under the Indenture. (c) The District acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), and (a)(14) of this Section 5 contain the qualifier if material. The District shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that the District determines the event s occurrence is material for purposes of U.S. federal securities law. (d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the District in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District. Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. Section 7. Termination of Reporting Obligation. The District's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Certificates. If such termination occurs prior to the final maturity of the Certificates, then the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(b). Section 8. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Applied Best Practices LLC, Irvine, California. Any Dissemination Agent (if not the District) may resign by providing 30 days written notice to the District. Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: D-4

195 (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Certificates, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Certificates, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Certificates in the manner provided in the Trust Agreement for amendments to the Trust Agreement with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Certificates. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, then the first Annual Report filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to this Disclosure Certificate modifying the accounting principles to be followed in preparing financial statements, then the Annual Report for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the District to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of any amendment made pursuant to this Section 9 shall be filed in the same manner as for a Listed Event under Section 5(b). Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, then the District shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 11. Default. If the District fails to comply with any provision of this Disclosure Certificate, then the Participating Underwriter or any holder or beneficial owner of the Certificates may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance. Section 12. Duties, Immunities and Liabilities of Dissemination Agent. (a) The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding D-5

196 liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the District hereunder, and shall not be deemed to be acting in any fiduciary capacity for the District, the Certificate holders or any other party. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates. (b) The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and shall be reimbursed for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. Section 12. Notices. Any notice or communications to be among any of the parties to this Disclosure Certificate may be given as follows: To the Issuer: To the Participating Underwriter: Los Banos Unified School District 1717 S. 11th Street Los Banos, CA Fax: (209) Piper Jaffray & Co. 50 California Street, Suite 3100 San Francisco, Ca Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Certificates, and shall create no rights in any other person or entity. Date: July, 2015 LOS BANOS UNIFIED SCHOOL DISTRICT By: Superintendent ACCEPTED AND AGREED TO: APPLIED BEST PRACTICES, LLC as Dissemination Agent By: Authorized Signatory D-6

197 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Los Banos Unified School District (the District ) Name of Bond Issue: $18,125,000Los Banos Unified School District 2015 Certificates of Participation (Capital Facilities Project) Date of Issuance: July, 2015 NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the abovenamed Certificates as required by the Trust Agreement dated as of July 1, 2015 authorizing the issuance of the Certificates. The District anticipates that the Annual Report will be filed by. Dated: [, 20 ] LOS BANOS UNIFIED SCHOOL DISTRICT By: [Form Only do not sign] Its: D-7

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199 APPENDIX E BOOK-ENTRY ONLY SYSTEM The following description of the Depository Trust Company ( DTC ), the procedures and record keeping with respect to beneficial ownership interests in the Certificates, payment of principal, interest and other payments on the Certificates to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Certificates and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Neither the issuer of the Certificates (the Issuer ) nor the trustee, fiscal agent or paying agent appointed with respect to the Certificates (the Agent ) take any responsibility for the information contained in this APPENDIX. No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Certificates, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Certificates, or (c) prepayment or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Certificates, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this APPENDIX. The current Rules applicable to DTC are on file with the Securities and Exchange Commission and the current Procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. 1. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the securities (the Securities ). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fullyregistered Security certificate will be issued for [each issue of] the Securities, [each] in the aggregate principal amount of such issue, and will be deposited with DTC. 2. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC is currently rated by Standard & Poor s as AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC s records. The ownership interest of each actual purchaser of each Security E-1

200 ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except if use of the book-entry system for the Securities is discontinued. 4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC s records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as prepayments, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. 6. Prepayment notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, then DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Prepayment proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of prepayment proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. E-2

201 9. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, If a successor depository is not obtained, then Security certificates are required to be printed and delivered. 10. Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC. 11. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof. E-3

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203 APPENDIX F CITY OF LOS BANOS AND COUNTY OF MERCED DEMOGRAPHIC INFORMATION The following information concerning the City of Los Banos (the City ) and the County of Merced (the County ) is included only for the purpose of supplying general information regarding the area of the District. The Certificates are not a debt of the City, the County, the State, or any of their political subdivisions and neither said City, County, said State, nor any of their political subdivisions is liable therefor. See the section herein entitled SECURITY FOR THE CERTIFICATES. General Information City of Los Banos The City of Los Banos, population 37,168, is situated on the west side of Merced County and is the county s second largest city. The City is conveniently located in the center of California and is about two hours from the cities of San Francisco, Oakland and Sacramento, as well as Yosemite National Park. California s Monterey Peninsula and the Pacific Ocean are accessible in one and a half hours, as well as the Valley s major cities of Stockton and Fresno. The Silicon Valley is just more than an hour s drive away. A combination of new enterprise, local government and agriculture-based operations all contribute to the City s economy, which continues to provide residents with a variety of amenities to enjoy. In addition to public services, including water, sewer, parks and recreation, and a strong public safety division, the City of Los Banos also offers a variety of retail and entertainment venues for its residents. The City was incorporated in 1907, operates under the Council/City Manager form of government, and employs approximately 150 full time employees. County of Merced The County is centrally located in the San Joaquin Valley with easy access to highways, train, bus and air services for travel to the San Francisco Bay Area, Monterey, Carmel, Lake Tahoe and Reno. The County was established by an act of the State Legislature in April 1855, forming the County from the southwestern portion of Mariposa County. The County encompasses approximately 2,020 square miles, and spans from the coastal ranges to the foothills of Yosemite National Park. The County has a population of approximately 265,000 residents. Transportation services in the County are excellent, with State Highway 99 and U.S. Interstate Highway 5 providing easy access to the rest of California and the West. Buses, Amtrak, and the Union Pacific Railroad provide freight and passenger services to other western destinations. Scheduled air passenger service is provided from airports in Modesto and Fresno. [REMAINDER OF PAGE INTENTIONALLY BLANK] F-1

204 Population Population estimates for the City and the County are shown in the following table. CITY OF LOS BANOS AND COUNTY OF MERCED Population Estimates Calendar Years 2010 through 2014 Year City of Los Banos Merced County , , ,397 36, , , , , , ,922 Source: California State Department of Finance. Employment and Industry The following tables show civilian labor force and wage and salary employment data for Merced County, for the years 2009 through These figures are county-wide statistics and may not necessarily accurately reflect employment trends in the City. [REMAINDER OF PAGE INTENTIONALLY BLANK] F-2

205 COUNTY OF MERCED Civilian Labor Force, Employment and Unemployment, Unemployment by Industry (Annual Averages) Civilian Labor Force (1) 105, , , , ,700 Civilian Employment 87,700 88,800 90,000 92,800 96,100 Civilian Unemployment 17,900 20,600 20,100 18,900 16,500 Civilian Unemployment Rate 16.9% 18.8% 18.3% 16.9% 14.7% Total, All Industries (2) 66,800 67,000 67,800 71,300 74,800 Total Farm 11,400 10,800 11,400 12,500 14,600 Total Nonfarm 55,400 56,200 56,400 58,800 60,200 Total Private 39,600 39,600 40,000 42,300 43,600 Goods Producing 10,200 9,900 9,600 10,000 10,300 Mining, Logging, and Construction 1,600 1,600 1,500 1,600 1,600 Manufacturing 8,600 8,300 8,100 8,400 8,700 Nondurable Goods 7,400 7,300 7,200 7,400 7,500 Service Providing 45,200 46,400 46,800 48,700 49,900 Private Service Producing 29,400 29,700 30,500 32,300 33,300 Trade, Transportation & Utilities 11,500 11,400 11,500 12,100 12,200 Wholesale Trade 2,000 2,000 1,900 2,200 2,200 Retail Trade 7,300 7,200 7,400 7,400 7,500 Transp., Warehousing & Utilities 2,200 2,200 2,200 2,400 2,500 Information 1,200 1,200 1, Financial Activities 1,600 1,600 1,600 1,600 1,500 Professional & Business Services 3,500 3,600 3,800 4,300 4,400 Educational & Health Services 5,600 5,900 6,300 7,900 8,300 Leisure & Hospitality 4,700 4,500 4,700 4,700 5,100 Other Services 1,400 1,400 1,400 1,400 1,400 Government 15,800 16,700 16,400 16,400 16,600 Federal Government State & Local Government 15,000 15,900 15,600 15,700 15,900 State Government 2,100 2,400 2,500 2,700 2,900 Local Government 13,000 13,500 13,100 13,000 13,000 Special Districts & Indian Tribes (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. Source: State of California Employment Development Department. F-3

206 Major Employers The following table shows the major employers in the County, listed in alphabetical order. MERCED COUNTY Major Employers as of January 1, 2015 (Listed Alphabetically) Employer Name Location Industry Anberry Physical Rehab Faculty Atwater Physical Therapists Atwater Elementary Teachers Atwater Professional Organizations Bianchi & Sons Packing Co Merced Fruits & Vegetables-Growers & Shippers E & J Gallo Winery Livingston Wineries (Mfrs) Foster Farms Livingston Poultry Processing Plants ((Mfrs) Gallo Cattle Co Atwater Cheese Processors (Mfrs) Golden Valley Health Ctr Merced Clinics Hilmar Cheese Co Hilmar Cheese Processors (Mfrs) J Marchini & Son Le Grand Farms Liberty Packing Co Los Banos Packing & Crating Service Live Oak Farms Le Grand Fruits & Vegetables-Growers & Shippers Livingston Union School Dist Livingston Schools Malibu Boats West Inc Merced Boat Dealers Sales & Service McLane Pacific Merced Food Service-Distributors (Whls) Merced County Human Svc Merced County Government-Social/Human Resources Mercy Medical Ctr Merced Merced Surgical Centers Pacific Gas & Electric Co Los Banos Electric Companies Quad/Graphics Inc Merced Printers (Mfrs) Sensient Dehydrated Flavors Livingston Dehydrating Service (Mfrs) University of Ca-Merced Merced Schools-Universities & Colleges Academic Walmart Merced Department Stores Walmart Supercenter Atwater Department Stores Werner Co Merced Ladders (Whls) Western Marketing & Sales Atwater Farms Yosemite Wholesale Warehouse Merced Grocers-Wholesale Source: State of California Employment Development Department, extracted from The America's Labor Market Information System (ALMIS) Employer Database, st Edition. Effective Buying Income "Effective Buying Income" is defined as personal income less personal tax and nontax payments, a number often referred to as "disposable" or "after-tax" income. Personal income is the aggregate of wages and salaries, other laborrelated income (such as employer contributions to private pension funds), proprietor's income, rental income (which includes imputed rental income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as "disposable personal income." F-4

207 The following table summarizes the median household effective buying income for the County of Merced, the State of California, and the United States for the years 2009 through COUNTY OF MERCED, THE STATE OF CALIFORNIA AND THE UNITED STATES Median Household Effective Buying Income As of January 1, 2009 through Merced County $37,780 $35,393 $36,745 $36,532 $34,919 California 49,736 47,177 47,062 47,307 48,340 United States 43,252 41,368 41,253 41,358 43,715 Source: The Nielson Company (US), Inc. Commercial Activity In 2009, the State Board of Equalization converted the business codes of sales and use tax permit holders to North American Industry Classification System codes. As a result of the coding change, data for 2009 and the following years is not comparable to that of years prior to A summary of historic taxable sales within the City of Los Banos during the past 5 years for which data is available is shown in the following table. CITY OF LOS BANOS Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (dollars shown in thousands) Retail Stores Total All Outlets Number of Permits Taxable Transactions Number of Permits Taxable Transactions $ 238, $ 278, , , (1) , , (1) , , (1) , , (1) (2) , ,333 (1) Retail Stores data is not comparable to prior years. Retail category now includes Food Services. (2) Figures for 3 rd quarter of Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). F-5

208 A summary of historic taxable sales within the County during the past 5 years for which data is available is shown in the following table. COUNTY OF MERCED Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (dollars shown in thousands) Retail Stores Total All Outlets Number of Permits Taxable Transactions Number of Permits Taxable Transactions ,086 $ 1,701,172 3,996 $ 2,387, ,410 1,444,269 3,617 2,050, (1) 2,468 1,533,505 3,671 2,134, (1) 2,456 1,684,878 3,605 2,374, (1) 2,557 1,778,567 3,734 2,512, (1)(2) 2, ,502 3, ,001 (1) Retail Stores data is not comparable to prior years. Retail category now includes Food Services. (2) Figures for 3 rd quarter of Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). Construction Activity Building activity for the past five years in the City of Los Banos is shown in the following table. CITY OF LOS BANOS Total Building Permit Valuations (Valuations in Thousands) Permit Valuation Total Residential $8,100 $0 $0 $ 5,938 $7,085 Total Nonresidential 2, ,074 7,539 TOTAL $10,200 $0 $0 $27,012 $14,624 New Dwelling Units Single Family Multiple Family TOTAL Source: Construction Industry Research Board, Building Permit Summary. F-6

209 Building activity for the past five years in the County of Merced is shown in the following table. COUNTY OF MERCED Total Building Permit Valuations (Valuations in Thousands) Permit Valuation Total Residential $ 40,316 $ 38,670 $ 31,290 $ 41,625 $45,759 Total Nonresidential 79,919 75, , , ,272 Total $120,235 $113,737 $131,525 $172,716 $214,031 New Dwelling Units Single Family Multiple Family Total Source: Construction Industry Research Board, Building Permit Summary. F-7

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211 APPENDIX G SPECIMEN CERTIFICATE INSURANCE POLICY

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213 MUNICIPAL BOND INSURANCE POLICY ISSUER: BONDS: $ in aggregate principal amount of Policy No: -N Effective Date: Premium: $ ASSURED GUARANTY MUNICIPAL CORP. ("AGM"), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the "Trustee") or paying agent (the "Paying Agent") (as set forth in the documentation providing for the issuance of and securing the Bonds) for the Bonds, for the benefit of the Owners or, at the election of AGM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the Business Day next following the Business Day on which AGM shall have received Notice of Nonpayment, AGM will disburse to or for the benefit of each Owner of a Bond the face amount of principal of and interest on the Bond that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by AGM, in a form reasonably satisfactory to it, of (a) evidence of the Owner's right to receive payment of the principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner's rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in AGM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by AGM is incomplete, it shall be deemed not to have been received by AGM for purposes of the preceding sentence and AGM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, who may submit an amended Notice of Nonpayment. Upon disbursement in respect of a Bond, AGM shall become the owner of the Bond, any appurtenant coupon to the Bond or right to receipt of payment of principal of or interest on the Bond and shall be fully subrogated to the rights of the Owner, including the Owner's right to receive payments under the Bond, to the extent of any payment by AGM hereunder. Payment by AGM to the Trustee or Paying Agent for the benefit of the Owners shall, to the extent thereof, discharge the obligation of AGM under this Policy. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. "Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer's Fiscal Agent are authorized or required by law or executive order to remain closed. "Due for Payment" means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity unless AGM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. "Nonpayment" means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. "Nonpayment" shall also include, in respect of a Bond, any payment of principal or interest that is Due for Payment made to an Owner by or on behalf of the Issuer which has been recovered from such Owner pursuant to the G-1

214 Page 2 of 2 Policy No. -N United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. "Notice" means telephonic or telecopied notice, subsequently confirmed in a signed writing, or written notice by registered or certified mail, from an Owner, the Trustee or the Paying Agent to AGM which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount and (d) the date such claimed amount became Due for Payment. "Owner" means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that "Owner" shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds. AGM may appoint a fiscal agent (the "Insurer's Fiscal Agent") for purposes of this Policy by giving written notice to the Trustee and the Paying Agent specifying the name and notice address of the Insurer's Fiscal Agent. From and after the date of receipt of such notice by the Trustee and the Paying Agent, (a) copies of all notices required to be delivered to AGM pursuant to this Policy shall be simultaneously delivered to the Insurer's Fiscal Agent and to AGM and shall not be deemed received until received by both and (b) all payments required to be made by AGM under this Policy may be made directly by AGM or by the Insurer's Fiscal Agent on behalf of AGM. The Insurer's Fiscal Agent is the agent of AGM only and the Insurer's Fiscal Agent shall in no event be liable to any Owner for any act of the Insurer's Fiscal Agent or any failure of AGM to deposit or cause to be deposited sufficient funds to make payments due under this Policy. To the fullest extent permitted by applicable law, AGM agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignment or otherwise, to the extent that such rights and defenses may be available to AGM to avoid payment of its obligations under this Policy in accordance with the express provisions of this Policy. This Policy sets forth in full the undertaking of AGM, and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto, (a) any premium paid in respect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds prior to maturity and (b) this Policy may not be canceled or revoked. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. In witness whereof, ASSURED GUARANTY MUNICIPAL CORP. has caused this Policy to be executed on its behalf by its Authorized Officer. ASSURED GUARANTY MUNICIPAL CORP. By Authorized Officer A subsidiary of Assured Guaranty Municipal Holdings Inc. 31 West 52nd Street, New York, N.Y (212) Form 500NY (5/90) G-2

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216 LOS BANOS UNIFIED SCHOOL DISTRICT 2015 CERTIFICATES OF PARTICIPATION (Capital Facilities Project)