NEW ISSUE BOOK-ENTRY ONLY RATINGS

Transcription

1 NEW ISSUE BOOK-ENTRY ONLY RATINGS Moody s: Standard & Poor s: In the opinion of Sidley Austin llp, San Francisco, California, Bond Counsel, under existing law and assuming compliance with certain covenants in the documents pertaining to the Bonds and requirements of the Internal Revenue Code of 1986, as amended, as described herein, interest on the Bonds is not includable in the gross income of the owners of the Bonds for federal income tax purposes. In the further opinion of Bond Counsel, interest on the Bonds is not treated as an item of tax preference in calculating the federal alternative minimum taxable income of individuals and corporations. Interest on the Bonds, however, is included as an adjustment in the calculation of federal corporate alternative minimum taxable income and may therefore affect a corporation s alternative minimum tax liability. In the further opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxes imposed by the State of California. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See TAX MATTERS herein for further information. $289,655,000 SAN FRANCISCO UNIFIED SCHOOL DISTRICT (CITY AND COUNTY OF SAN FRANCISCO, CALIFORNIA) $226,000,000 General Obligation Bonds (Proposition A, Election of 2006), Series F (2015) (Proposition A, Election of 2011), Series C (2015) Dated: Date of Delivery $63,655, General Obligation Refunding Bonds Aa2 AA- Due: June 15, as shown on the inside cover The San Francisco Unified School District (City and County of San Francisco, California) General Obligation Bonds (Proposition A, Election of 2006), Series F (2015) (the Series F Bonds ) were authorized at an election of the registered voters of the San Francisco Unified School District (the District ) held on November 7, 2006, at which more than the minimum requisite 55% of the persons voting on the measure voted to authorize the issuance and sale of up to $450,000,000 aggregate principal amount of general obligation bonds of the District. A portion of the Bonds (defined below) represents the sixth series of bonds issued pursuant to that authorization and are issued for the purpose of constructing a number of projects within the District, as more fully described herein under the caption INTRODUCTION Purpose of Issue. The San Francisco Unified School District (City and County of San Francisco, California) General Obligation Bonds (Proposition A, Election of 2011), Series C (2015) (the Series C Bonds and together with the Series F Bonds, the New Money Bonds ) were authorized at an election of the registered voters of the San Francisco Unified School District (the District ) held on November 8, 2011, at which more than the minimum requisite 55% of the persons voting on the measure voted to authorize the issuance and sale of up to $531,000,000 aggregate principal amount of general obligation bonds of the District. A portion of the Bonds (defined below) represents the third series of bonds issued pursuant to that authorization and are issued for the purpose of completing modernization projects within the District, as more fully described herein under the caption INTRODUCTION Purpose of Issue. The New Money Bonds will be issued in the aggregate principal amount of $226,000,000. The San Francisco Unified School District (City and County of San Francisco, California) 2015 General Obligation Refunding Bonds in the aggregate principal amount of $63,655,000 (the Refunding Bonds and together with the New Money Bonds, the Bonds ) are being issued to (i) refund the outstanding San Francisco Unified School District (City and County of San Francisco, California) General Obligation Bonds (Proposition A, Election of 2003), Series C (2006) on June 15, 2016, (ii) partially refund the San Francisco Unified School District (City and County of San Francisco, California) General Obligation Bonds (Proposition A Election of 2006), Series A (2007) on June 15, 2017 and (iii) pay a portion of the costs of issuing the Bonds. See ESTIMATED SOURCES AND USES OF FUNDS and REFUNDING PLAN Application and Investment of Refunding Bond Proceeds. The Bonds are obligations of the District only and are not obligations of the City and County of San Francisco (the City ), the State of California or any of its other political subdivisions. The Board of Supervisors of the City has the power and is obligated to levy and collect ad valorem taxes in each fiscal year upon the taxable property of the District in an amount sufficient to pay the principal of, premium, if any, and interest on each Bond as the same becomes due and payable. The Bonds are issued in fully registered form and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository of the Bonds as described herein under the caption THE BONDS Book-Entry Only System. Interest on the Bonds is payable on June 15 and December 15 of each year, and on the stated maturity thereof, commencing on June 15, Payments of principal of and interest on the Bonds will be paid by the Treasurer and Tax Collector of the City, as the Paying Agent, Bond Registrar and Transfer Agent (the Paying Agent ), to DTC for subsequent disbursement to DTC Participants (defined herein) who will remit such payments to the beneficial owners of the Bonds. See the inside front cover page for maturity dates, principal amounts, interest rates, initial public offering yields and CUSIP numbers for the Bonds. The Bonds are subject to redemption as described herein. See THE BONDS Redemption Provisions. This cover page contains certain information for general reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to making an informed investment decision. The Bonds are offered when, as and if issued, subject to the approval as to their legality by Sidley Austin llp, San Francisco, California, Bond Counsel. Sidley Austin llp has also acted as Disclosure Counsel to the District. Legal matters for the District will be passed upon by Danielle Houck, Esq., General Counsel to the District. Public Financial Management, Inc., San Francisco, California, served as Municipal Advisor to the District in connection with the delivery of the Bonds. It is expected that the Bonds in book-entry form will be available for delivery through the facilities of DTC in New York, New York, on or about October 21, Date of the Official Statement: October 8, 2015 See RATINGS herein.

2 MATURITY SCHEDULE $289,655,000 SAN FRANCISCO UNIFIED SCHOOL DISTRICT (CITY AND COUNTY OF SAN FRANCISCO, CALIFORNIA) $226,000,000 General Obligation Bonds (Proposition A, Election of 2006), Series F (2015) (Proposition A, Election of 2011, Series C (2015) Maturity Date (June 15) Principal Amount Base CUSIP Number: 79771T Interest Rate Initial Public Offering Yield Initial Public Offering Price CUSIP * Suffix 2016 $5,400, % 0.190% KL ,565, KM ,935, KN ,335, KP ,750, KQ ,190, KR ,650, KS ,845, KT ,335, KU ,850, C KV ,390, C KW ,965, C KX ,560, C KY ,190, KZ ,585, LA ,995, C LB ,550, LC ,030, C LD ,630, C LE ,250, LF2 * C A registered trademark of The American Bankers Association. CUSIP data is provided by CUSIP Global Services managed on behalf of the American Bankers Association by Standard & Poor s Financial Services LLC. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. CUSIP numbers are provided for convenience of reference and neither the District nor the Underwriters assume any responsibility for the accuracy of such data. Priced to par call on June 15, 2024.

3 Maturity Date (June 15) Principal Amount $63,655, General Obligation Refunding Bonds Base CUSIP Number: 79771T Interest Rate Initial Public Offering Yield Initial Public Offering Price CUSIP Suffix 2016 $2,275, % 0.20% LG ,160, LH ,280, LJ ,645, LK ,025, LL ,430, LM ,850, LN ,290, LP ,110, LQ ,265, LR ,325, C L54 C A registered trademark of The American Bankers Association. CUSIP data is provided by CUSIP Global Services managed on behalf of the American Bankers Association by Standard & Poor s Financial Services LLC. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. CUSIP numbers are provided for convenience of reference and neither the District nor the Underwriters assume any responsibility for the accuracy of such data. Priced to par call on June 15, 2024.

4 No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representations other than those contained herein. If given or made, such other information or representations must not be relied upon as having been authorized by the District. 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 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. The financial and other information relating to the District presented or incorporated by reference in this Official Statement has been provided by the District from its records, except for information expressly attributed to other sources. The presentation of information, including tables of receipts from taxes and other revenues, is intended to show recent historic information and is not intended to indicate future or continuing trends in the financial position or other affairs of the District. No representation is made that past experience, as it might be shown by such financial and other information, will necessarily continue or be repeated in the future. All other information set forth herein has been obtained from DTC and other sources (other than the District). Such information is believed to be reliable but is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the District or the Municipal Advisor. The information and expressions of opinion herein are subject to change without notice, and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement is being submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the District. The Bonds have not been registered under the Securities Act of 1933, in reliance upon an exemption contained in such Act. The Bonds have not been registered under the securities laws of any state. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE ORIGINAL PURCHASERS MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE ORIGINAL PURCHASERS MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS, INSTITUTIONAL INVESTORS, BANKS OR OTHERS AT PRICES LOWER OR HIGHER THAN THE INITIAL PUBLIC OFFERING PRICES AND/OR YIELDS STATED ON THE INSIDE COVER PAGES HEREOF AND SAID INITIAL PUBLIC OFFERING PRICES AND/OR YIELDS MAY BE CHANGED FROM TIME TO TIME BY THE ORIGINAL PURCHASERS. CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, budget, project, projection or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The District does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur. The District maintains a website. However, the information presented there is not part of this Official Statement, is not incorporated by reference herein and should not be relied upon in making an investment decision with respect to the Bonds.

5 SAN FRANCISCO UNIFIED SCHOOL DISTRICT Name Board of Education Term Expires Emily M. Murase, President January 2019 Matt Haney, Vice President January 2017 Sandra Lee Fewer January 2017 Hydra B. Mendoza-McDonnell January 2019 Rachel Norton January 2017 Shamann Walton January 2019 Jill Wynns January 2017 District Officials Richard Carranza, Superintendent Myong Leigh, Deputy Superintendent, Policy and Operations Danielle Houck, Esq., General Counsel Reeta Madhavan, Chief Financial Officer David Goldin, Chief Facilities Officer & Interim Bond Program Manager Leonard Tom, Director of Finance & Administration, SFUSD Bond Program Paulette Terrell, Director of Fiscal Services SPECIAL SERVICES Municipal Advisor Public Financial Management, Inc. San Francisco, California Bond Counsel and Disclosure Counsel Sidley Austin LLP San Francisco, California Paying Agent, Bond Registrar and Transfer Agent José Cisneros Treasurer and Tax Collector of the City and County of San Francisco, California Verification Agent for the Refunding Bonds Causey Demgen & Moore Inc. Denver, Colorado

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7 TABLE OF CONTENTS Page INTRODUCTION... 1 Authority for Issuance... 1 Purpose of Issue... 2 Security for the Bonds... 3 THE BONDS... 3 Description of the Bonds... 3 Book-Entry Only System... 4 Redemption Provisions... 4 Defeasance... 6 SERIES F BONDS AND SERIES C BONDS PLAN OF FINANCE... 7 REFUNDING PLAN... 7 Application and Investment of Refunding Bond Proceeds... 8 ESTIMATED SOURCES AND USES OF FUNDS... 9 DEBT SERVICE SCHEDULE SECURITY AND SOURCES OF PAYMENT FOR THE BONDS General Tax Rates, Levies, Collections and Delinquencies Assessed Valuation of Taxable Property State-Assessed Utility Property Assessed Valuation of Single Family Homes Assessed Valuation and Parcels by Land Use of Secured Property Teeter Plan Largest Secured Property Taxpayers CITY AND COUNTY INVESTMENT POOL General Investment of Bond Proceeds LEGAL MATTERS AND RELATED INVESTMENT CONSIDERATIONS CONTINUING DISCLOSURE FINANCIAL STATEMENTS OPINION OF BOND COUNSEL TAX MATTERS MUNICIPAL ADVISOR RATINGS UNDERWRITING LEGALITY FOR INVESTMENT IN CALIFORNIA ADDITIONAL INFORMATION APPENDIX A DISTRICT FINANCIAL AND DEMOGRAPHIC INFORMATION... A-1 APPENDIX B PROPOSED FORMS OF OPINION OF BOND COUNSEL... B-1 APPENDIX C FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, C-1 APPENDIX D BOOK-ENTRY ONLY SYSTEM... D-1 APPENDIX E PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT... E-1 APPENDIX F EXCERPTS FROM THE CITY AND COUNTY OF SAN FRANCISCO INVESTMENT PORTFOLIO REPORT... F-1 i

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9 OFFICIAL STATEMENT $289,655,000 SAN FRANCISCO UNIFIED SCHOOL DISTRICT (CITY AND COUNTY OF SAN FRANCISCO, CALIFORNIA) $226,000,000 General Obligation Bonds (Proposition A, Election of 2006), Series F (2015) (Proposition A, Election of 2011), Series C (2015) $63,655, General Obligation Refunding Bonds INTRODUCTION This Official Statement (which includes the cover page through the Appendices attached hereto) is furnished by the San Francisco Unified School District (the District ) to provide information concerning the (i) $226,000,000 aggregate principal amount of San Francisco Unified School District (City and County of San Francisco, California) General Obligation Bonds (Proposition A, Election of 2006), Series F (2015) (the Series F Bonds ) and San Francisco Unified School District (City and County of San Francisco, California) General Obligation Bonds (Proposition A, Election of 2011), Series C (2015) (the Series C Bonds and together with the Series F Bonds, the New Money Bonds ) and (ii) $63,655,000 aggregate principal amount of San Francisco Unified School District (City and County of San Francisco, California) 2015 General Obligation Refunding Bonds (the Refunding Bonds and together with the New Money Bonds, the Bonds ). The Official Statement makes reference to resolutions and to other documents and statutes. Such references do not purport to be complete, comprehensive or definitive and are qualified in their entirety by reference to each such document. Authority for Issuance The Series F Bonds and the Series C Bonds. The Series F Bonds and the Series C Bonds are being issued under the provisions of Article XIIIA of the Constitution of the State of California ( Article XIIIA ) and Title 1, Division 1, Part 10, Chapters 1 and 1.5 of the Education Code of the State of California (commencing at Section 15100). At an election held on November 7, 2006, more than the minimum requisite 55% of the votes cast by eligible voters within the District authorized the District to issue up to $450,000,000 of general obligation bonds (the 2006 Proposition A Authorization ). Bonds representing the 2006 Proposition A Authorization are being issued pursuant to a resolution of the Board of Education of the District adopted on August 11, 2015 (the District Resolution ) and a resolution of the Board of Supervisors of the City and County of San Francisco (the City ) adopted on December 12, The Series F Bonds represent the sixth series of bonds issued under the 2006 Proposition A Authorization. Following the issuance of the Series F Bonds, the District will not have any remaining authorized and unissued bonds under the 2006 Proposition A Authorization. At an election held on November 8, 2011, more than the minimum requisite 55% of the votes cast by eligible voters within the District authorized the District to issue up to $531,000,000 of general obligation bonds (the 2011 Proposition A Authorization ). Bonds representing the 2011 Proposition A Authorization are being issued pursuant to the District Resolution and a resolution of the Board of Supervisors of the City adopted on January 24, The Series C Bonds represent the third series of bonds issued under the 2011 Proposition A Authorization. Following the issuance of the Series C Bonds, the District will not have any remaining authorized and unissued bonds under the 2011 Proposition A Authorization. The Series F Bonds and the Series C Bonds were authorized by the voters of the District pursuant to provisions of the Constitution of the State of California (the State ) affected by Proposition 39, the Constitutional initiative passed by voters statewide on November 7, 2000, permitting approval of certain general obligation bonds of school and community college districts by a minimum 55% approving vote. See APPENDIX A DISTRICT FINANCIAL AND DEMOGRAPHIC INFORMATION CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Proposition 39 herein. 1

10 Proposition 39 requires the District to establish a citizens bond oversight committee (the Committee ) that is responsible for review of the expenditure of general obligation bond proceeds issued under the 2006 Proposition A Authorization and the 2011 Proposition A Authorization. The District Board of Education has approved the establishment of the Committee by the date required by Proposition 39. The Committee is required to report annually to the public by March 31 of each year regarding financial matters and performance of the District s general obligation bond program. No District officials, employees or consultants may sit on the Committee, and no proceeds of bonds authorized by the 2006 Proposition A Authorization or the 2011 Proposition A Authorization may be expended to support the activities of the Committee. The Refunding Bonds. The Refunding Bonds are being issued pursuant to the provisions of Articles 9 and 11 of Chapter 3 of Part 1 of Division 2, Title 5 of the Government Code of the State of California, commencing with Section et seq. (the Act ) and other applicable law, and pursuant to a resolution adopted by the Board of Education of the District on August 11, 2015 (the Refunding Resolution ). Purpose of Issue The New Money Bonds. Proceeds from the Series F Bonds issued pursuant to the 2006 Proposition A Authorization will be used to modernize and repair school facilities to health, safety, instructional and accessibility standards and, where applicable, replace portable trailers with permanent classrooms, upgrade bathrooms, science labs, plumbing, electrical and other building systems, replace heating and ventilation systems, and renovate classrooms and to pay all necessary legal, financial, engineering and contingent costs in connection therewith as further specified in the 2006 Proposition A Authorization (the 2006 Project ). Proceeds from the Series C Bonds issued pursuant to the 2011 Proposition A Authorization will be used to repair and rehabilitate facilities to current accessibility, health, safety and instructional standards, replace worn-out plumbing, electrical and other major building systems, replace aging heating, ventilation and air handling systems, renovate outdated classrooms and training facilities, construct facilities to replace aging modular classrooms, and to pay all necessary legal, financial, architectural, engineering, construction management and similar planning costs and contingent costs in connection therewith as further specified in the 2011 Proposition A Authorization (the 2011 Project ). The District expects to use a portion of the proceeds of the Series F Bonds and the Series C Bonds, along with proceeds from bonds previously issued pursuant to the 2006 Proposition A Authorization and the 2011 Proposition A Authorization, to fund the review, design and construction management of projects at District sites, as well as construction expenditures relating to said projects, as summarized in the tables below: District Proposition A, Election of 2006 Bonds Project Components and Estimated Costs (Dollars in Millions) Series A (1) Series B (2) Series C, D and E (3) Series F Total Bond Program Management $15.0 $4.0 $16.9 $0.0 $35.9 Design and Engineering Pre-Construction Construction Construction Management Project Contingency $100.0 $150.0 $185.0 $15.0 $450.0 (1) (2) (3) These bonds were issued on March 15, These bonds were issued on February 5, These bonds were issued on May 27, Source: The District 2

11 District Proposition A, Election of 2011 Bonds Project Components and Estimated Costs (Dollars in Millions) Series A (1) Series B (2) Series C Total Bond Program Management $ 11.9 $ 7.5 $9.4 $28.5 Design and Engineering Pre-Construction (9.8) (3) 17.6 Construction Construction Management Project Contingency $115.0 $205.0 $211.0 $531.0 (1) (2) These bonds were issued on March 22, These bonds were issued on January 23, (3) Reflects an adjustment to estimated pre-construction costs required for the prior series of bonds issued pursuant to this authorization. Source: The District Refunding Bonds. The Refunding Bonds are being issued to (i) refund of the outstanding San Francisco Unified School District (City and County of San Francisco, California) General Obligation Bonds (Proposition A, Election of 2003), Series C (2006), (ii) partially refund the San Francisco Unified School District (City and County of San Francisco) General Obligation Bonds (Proposition A Election of 2006), Series A (2007) (collectively with the bonds described in clause (i), the Refunded Bonds )and (iii) pay a portion of the costs of issuing the Bonds. See REFUNDING PLAN Application and Investment of Refunding Bond Proceeds and ESTIMATED SOURCES AND USES OF FUNDS herein. Security for the Bonds The Bonds are general obligation bonds of the District; the Board of Supervisors of the City has the power and is obligated to annually levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates), for the payment of the principal of and interest on all of the District s general obligation bonds, including the Bonds. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS herein. Description of the Bonds THE BONDS The Bonds will be dated the date of delivery and will be issued in denominations of $5,000 or any integral multiple thereof, and will mature on the dates and in the principal amounts and bear interest at the rates per annum, all as set forth on the inside cover page of this Official Statement. Interest on the Bonds accrues from the date of delivery and is payable semiannually on June 15 and December 15 of each year (each, an Interest Payment Date ), commencing June 15, Interest will accrue on the Bonds on the basis of a 360-day year comprised of twelve 30-day months. The Bonds will be issued in fully registered form and, when issued, will be registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for the Bonds. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references herein to the Owners or registered owners shall mean Cede & Co. as aforesaid, and shall not mean the Beneficial Owners (as defined herein) of the Bonds. So long as Cede & Co. is the registered owner of the Bonds, principal of, premium, if any, and interest on the Bonds are payable by wire transfer by the City Treasurer, as paying agent (the Paying Agent ) and as bond 3

12 registrar (the Bond Registrar ), to Cede & Co., as nominee for DTC. DTC is obligated, in turn, to remit such amounts to the DTC Participants (as defined herein) for subsequent disbursement to the Beneficial Owners. Payments of principal, and premium, if any, for any Bonds shall be made only upon the surrender of such Bonds to the Paying Agent at its principal office. See APPENDIX D BOOK-ENTRY ONLY SYSTEM herein. For details on the debt service for the Bonds, see DEBT SERVICE SCHEDULE. Book-Entry Only System The Bonds will be issued in book-entry form only and will be initially issued and registered in the name of Cede & Co. as nominee of DTC. Purchasers of beneficial ownership interests in the Bonds from participants in the DTC system (the Beneficial Owners ) will not receive physical certificates representing their interest in the Bonds. See APPENDIX D BOOK-ENTRY ONLY SYSTEM. Redemption Provisions Optional Redemption of New Money Bonds. The New Money Bonds maturing on or before June 15, 2024, are not subject to redemption prior to their respective maturity dates. The New Money Bonds maturing on or after June 15, 2025, are subject to redemption at the option of the District, from any source of funds, as a whole or in part, on any date on or after June 15, 2024, at a redemption price equal to the principal amount of New Money Bonds called for redemption, together with interest accrued thereon to the date fixed for redemption, without premium. If less than all of the New Money Bonds are called for redemption, the Paying Agent will select New Money Bonds for redemption from such maturity dates as are selected by the District, and by lot within each such maturity in such manner as the Paying Agent shall determine. Optional Redemption of Refunding Bonds. The Refunding Bonds maturing on or before June 15, 2024, are not subject to redemption prior to their respective maturity dates. The Refunding Bonds maturing on or after June 15, 2025, are subject to redemption at the option of the District, from any source of funds, as a whole or in part, on any date on or after June 15, 2024, at a redemption price equal to the principal amount of Refunding Bonds called for redemption, together with interest accrued thereon to the date fixed for redemption, without premium. If less than all of the Refunding Bonds are called for redemption, the Paying Agent will select Refunding Bonds for redemption from such maturity dates as are selected by the District, and by lot within each such maturity in such manner as the Paying Agent shall determine. Selection of New Money Bonds for Redemption. Whenever provision is made for the redemption of New Money Bonds and less than all New Money Bonds are to be redeemed, the Bond Registrar, upon written instruction from the District, will select New Money Bonds for redemption as so directed. Within a maturity, the Bond Registrar will select New Money Bonds for redemption by lot. Redemption by lot shall be in such manner as the Bond Registrar will determine; provided, however, that the portion of any New Money Bond to be redeemed in part shall be in the principal amount of $5,000 or any integral multiple thereof. So long as the New Money Bonds are held in book-entry form, the selection of New Money Bonds for redemption shall be governed by the procedures of DTC. See APPENDIX D BOOK-ENTRY ONLY SYSTEM. Selection of Refunding Bonds for Redemption. Whenever provision is made for the redemption of Refunding Bonds and less than all Refunding Bonds are to be redeemed, the Bond Registrar, upon written instruction from the District, will select Refunding Bonds for redemption as so directed. Within a maturity, the Bond Registrar will select Refunding Bonds for redemption by lot. Redemption by lot shall be in such manner as the Bond Registrar will determine; provided, however, that the portion of any Refunding Bond to be redeemed in part shall be in the principal amount of $5,000 or any integral multiple thereof. So long as the Refunding Bonds are held in book-entry form, the selection of Refunding Bonds for redemption shall be governed by the procedures of DTC. See APPENDIX D BOOK-ENTRY ONLY SYSTEM. 4

13 Notice of Redemption. Upon written instruction from the District, the Bond Registrar shall give notice (a Redemption Notice ) of the redemption of Bonds. Such Redemption Notice shall specify: (a) the date of such Redemption Notice, (b) the name of the Bonds, (c) the Bonds or designated portions thereof (in the case of redemption of the Bonds in part but not in whole) which are to be redeemed, (d) the date of redemption, (e) the place or places where the redemption will be made, including the name and address of the Bond Registrar, (f) the redemption price, (g) the CUSIP numbers assigned to each maturity of the Bonds to be redeemed, (h) if less than all of a maturity of the Bonds are to be redeemed, the Bond numbers of the Bonds to be redeemed and, in the case of any Bond to be redeemed in part only, the respective portions of the Principal Amount of such Bond to be redeemed, (i) the original issue date, interest rate and stated maturity date of each Bond to be redeemed in whole or in part, and (j) in the case of a conditional redemption, that such redemption is conditional upon certain circumstances. Such Redemption Notice shall further state that on the specified date there shall become due and payable upon each Bond or portion thereof being redeemed the redemption price thereof, together with the interest accrued to the redemption date, and that from and after such date, interest with respect thereto shall cease to accrue. The Bond Registrar shall provide such Redemption Notice: (a) at least 30 but not more than 45 days prior to the redemption date, to the respective Owners of Bonds designated for redemption by first class mail, postage prepaid, at their addresses appearing on the books of the Bond Registrar; (b) at least 32 days prior to the redemption date to the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access system; and (c) as may be required pursuant to the terms of the Continuing Disclosure Agreement (defined below). Neither failure to receive nor failure to give any Redemption Notice nor any defect in any such Redemption Notice so given shall affect the sufficiency of the proceedings for the redemption of the affected Bonds. Partial Redemption of Bonds. Upon the surrender of any Bond redeemed in part only, the Bond Registrar will execute and deliver to the Owner thereof a new Bond or Bonds, of like tenor and maturity and of authorized denominations equal to the unredeemed portion of the Bond surrendered. Such partial redemption will be valid upon payment of the amount required to be paid to such Owner, and the District will be released and discharged thereupon from all liability to the extent of such payment. Effect of Notice of Redemption. Notice having been given as required in the District Resolution, and the moneys for redemption (including the interest to the applicable date of redemption) having been set aside in the Debt Service Fund or held in trust for such purposes as provided by law, the Bonds to be redeemed will become due and payable on such date of redemption. If on such redemption date, money for the redemption of all the Bonds to be redeemed, together with interest to such redemption date, is held by the Paying Agent so as to be available therefor on such redemption date, and if notice of redemption thereof has been given, then from and after such redemption date, interest on the Bonds to be redeemed will cease to accrue and become payable. Rescission of Notice of Redemption. The District may rescind any optional redemption and notice thereof for any reason on any date prior to the date fixed for redemption by causing written notice of the rescission to be given to the Owners of the Bonds so called for redemption. In the event that any Bond is subject to optional redemption and moneys sufficient to redeem the principal of and interest on all of such Bonds proposed to be redeemed shall not be on deposit in the Debt Service Fund or in any escrow fund established for redemption of such Bonds on such date fixed for redemption, the redemption and notice thereof shall be rescinded and in each and every such case, the District and the Owners of the Bonds so called for redemption, as the case may be, shall be restored to their former positions and rights. Notice of rescission of redemption shall be given in the same manner in which notice of redemption was originally given. Neither failure to receive nor failure to give nor any defect in any such notice of rescission of redemption shall affect the validity of the rescission. Transfer and Exchange. Any Bond may be exchanged for Bonds of like tenor and maturity upon presentation and surrender at the principal office of the Bond Registrar, together with a request for exchange signed by the Owner or by a person legally empowered to do so in a form satisfactory to the Bond Registrar. A Bond may be transferred on the Bond Register only upon presentation and surrender of such Bond at the principal office of the Bond Registrar together with an assignment executed by the Owner or a person legally empowered to do so in a form satisfactory to the Bond Registrar. Upon exchange or transfer, the Bond Registrar will complete, authenticate and deliver a new Bond or Bonds of like tenor and maturity of any authorized denomination or denominations requested by the Owner equal to the principal amount of the Bond surrendered and bearing or accruing interest at the 5

14 same rate and maturing on the same date. The Bond Registrar may require the payment by any Owner of the Bonds requesting any such transfer of any tax or other governmental charge required to be paid with respect to such transfer. Defeasance Payment of all or any portion of the New Money or Refunding Bonds may be provided for prior to the applicable series of Bonds respective stated maturities by irrevocably depositing with the Paying Agent (or any commercial bank or trust company designated by the District to act as escrow agent with respect thereto): (a) an amount of cash equal to the principal amount of all of such Bonds to be redeemed or a portion thereof, and all unpaid interest thereon to maturity, except that in the case of Bonds which are to be redeemed prior to such Bonds stated maturities and for which notice of such redemption has been given as described above or an irrevocable election to give such notice has been made by the District, the amount to be deposited will be the principal amount thereof, all unpaid interest thereon to the redemption date, and premium, if any, due on such redemption date; or (b) Defeasance Securities (as defined below) not subject to call, except as described in the definition below, maturing and paying interest at such times and in such amounts, together with interest earnings and cash, if any, as will, without reinvestment, as certified by an independent certified public accountant, be sufficient to pay the principal and all unpaid interest to maturity, or to the redemption date, as the case may be, and any premium due on the Bonds to be redeemed, as such principal and interest come due; provided, that, in the case of the Bonds which are to be redeemed prior to maturity, notice of such redemption will be given as described above or an irrevocable election to give such notice has been made by the District; then, all obligations of the District with respect to said outstanding Bonds will cease and terminate, except only the obligation of the Treasurer to pay or the District to cause to be paid from the funds deposited as described in this paragraph, to the Registered Owners of said Bonds all sums due with respect thereto, and the tax covenant obligations of the District with respect to such Bonds; provided, that the District shall have received an opinion of nationally recognized bond counsel that provision for the payment of said Bonds has been made as required by the authorizing Resolution for such Bonds. As used in this section, the following terms have the meanings given below: Defeasance Securities means (a) non-callable direct and general obligations of the United States of America (including state and local government series), or obligations that are unconditionally guaranteed as to principal and interest by the United States of America, including in the case of direct and general obligations of the United States of America) evidences of direct ownership of proportionate interests in future interest or principal payments of such obligations; provided that investments in such proportionate interests must be limited to circumstances wherein (i) a bank or trust company acts as custodian and holds the underlying United States obligations; (ii) the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor of the underlying United States obligations; and (iii) the underlying United States obligations are held in a special account, segregated from the custodian s general assets, and are not available to satisfy any claim of the custodian, any person claiming through the custodian, or any person to whom the custodian may be obligated; provided that such obligations are rated in one of the two highest rating categories assigned by any two Rating Agencies; (b) non-callable obligations of government sponsored agencies that are rated in one of the two highest rating categories assigned by any two Rating Agencies but are not guaranteed by a pledge of the full faith and credit of the United States of America; and (c) Advance Refunded Municipal Securities. Rating Agency means Moody s or Standard & Poor s, or, in the event that either Moody s or Standard & Poor s is no longer a nationally recognized rating agency, any other nationally recognized rating agency. Advance Refunded Municipal Securities means any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local government unit of any such state (a) which are not callable prior to maturity or as to which irrevocable instructions have been given to the trustee, fiscal agent or other fiduciary for such bonds or other obligations by the obligor to give due notice of redemption and to call such bonds or other obligations for redemption on the date or dates specified in such instructions, (b) which are secured as to principal 6

15 and interest and redemption premium, if any, by a fund consisting only of cash, direct United States. or United States guaranteed obligations, or any combination thereof, which fund may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the redemption date or dates specified in the irrevocable instructions referred to in clause (a) above, as appropriate, and (c) as to which the principal of and interest on the bonds and obligations of the character described in clause (a) above which have been deposited in such fund, along with any cash on deposit in such fund, have been verified by an independent certified public accountant as being sufficient to pay principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to in clause (a) above, as applicable. Moody s means Moody s Investor Services, Inc., its successors and assigns. Standard & Poor s means Standard & Poor s Ratings Service, a Standard & Poor s Financial Services, LLC business, its successors and assigns. SERIES F BONDS AND SERIES C BONDS PLAN OF FINANCE The District expects to use a portion of the net proceeds from the sale of the Bonds, which constitute the sixth issuance of bonds authorized pursuant to the 2006 Proposition A Authorization and the third issuance of bonds authorized pursuant to the 2011 Proposition A Authorization to finance the project components set forth under the caption INTRODUCTION Purpose of Issue herein. Such proceeds shall be deposited in the applicable subaccount of the 2015 San Francisco Unified School District General Obligation Building Fund (the Building Fund ) and shall be used only for purposes authorized by the 2006 Proposition A Authorization or the 2011 Proposition A Authorization. Proceeds from the sale of the Bonds not exceeding 2% of the principal amount of the Bonds shall be placed in the Costs of Issuance Fund to be held by U.S. Bank National Association, acting as Costs Administrator, and shall be used to pay costs of issuance relating to the Bonds. After payment of all costs of issuance in connection with the Bonds, the remaining balance in the Costs of Issuance Fund shall be transferred to the Treasurer for deposit to the credit of the applicable subaccount of the Building Fund of the District. Any purchase premium received by the District from the sale of the Bonds shall be deposited in the 2015 San Francisco Unified School District General Obligation Bond Debt Service Fund (the Debt Service Fund ) which is used only for payment of principal of and interest on the Bonds. Any surplus moneys in the Building Fund, not needed for the purposes authorized by the 2006 Proposition A Authorization or the 2011 Proposition A Authorization shall be transferred to the Debt Service Fund and used only for payment of principal of and interest on the Bonds. If, after payment in full of the Bonds, there remain excess proceeds, any such excess amounts shall be transferred to the general fund of the District as contemplated and permitted by law. REFUNDING PLAN The proceeds from the sale of the Refunding Bonds will be used by the District to (i) refund the Refunded Bonds and (ii) pay a portion of the costs of issuance associated with the Bonds. The specific maturities of the Refunded Bonds are set forth below. 7

16 Maturity (June 15) SAN FRANCISCO UNIFIED SCHOOL DISTRICT (CITY AND COUNTY OF SAN FRANCISCO, CALIFORNIA (Proposition A, Election of 2003) General Obligation Bonds Series C (2006) Redemption Date (June 15) Principal Amount Interest Rate Redemption Price CUSIP Suffix 2017 $4,570, % 100% June 15, 2016 DG $4,800, % 100% June 15, 2016 DH $4,995, % 100% June 15, 2016 DJ $5,195, % 100% June 15, 2016 DK $5,405, % 100% June 15, 2016 DL $5,675, % 100% June 15, 2016 DM $5,960, % 100% June 15, 2016 DN $6,215, % 100% June 15, 2016 DP $6,525, % 100% June 15, 2016 DQ $6,850, % 100% June 15, 2016 DR5 Base CUSIP Number: 79771T. A registered trademark of The American Bankers Association. CUSIP data is provided by CUSIP Global Services managed on behalf of the American Bankers Association by Standard & Poor s Financial Services LLC. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. CUSIP numbers are provided for convenience of reference and neither the District nor the Original Purchasers assume any responsibility for the accuracy of such data. Maturity (June 15) SAN FRANCISCO UNIFIED SCHOOL DISTRICT (CITY AND COUNTY OF SAN FRANCISCO, CALIFORNIA (Proposition A, Election of 2006) General Obligation Bonds Series C (2007) Redemption Date (June 15) Principal Amount Interest Rate Redemption Price CUSIP Suffix 2018 $5,010, % 100% June 15, 2017 ED $5,260, % 100% June 15, 2017 EE $5,520, % 100% June 15, 2017 EF $5,800, % 100% June 15, 2017 EG $6,090, % 100% June 15, 2017 EH $6,330, % 100% June 15, 2017 EJ2 Base CUSIP Number: 79771T. A registered trademark of The American Bankers Association. CUSIP data is provided by CUSIP Global Services managed on behalf of the American Bankers Association by Standard & Poor s Financial Services LLC. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. CUSIP numbers are provided for convenience of reference and neither the District nor the Original Purchasers assume any responsibility for the accuracy of such data. Application and Investment of Refunding Bond Proceeds A portion of the net proceeds from the sale of the Refunding Bonds shall be deposited with the Treasurer and Tax Collector of the City, acting as escrow agent (the Escrow Agent ), to the credit of the San Francisco Unified School District 2015 General Obligation Refunding Bonds Escrow Fund (the Escrow Fund ). The remaining portion of net proceeds from the sale of the Refunding Bonds shall be paid to U.S. Bank, National Association, acting as Costs Administrator, and shall be used to pay a portion of costs of issuance relating to the Bonds. 8

17 The amount deposited in the Escrow Fund will be sufficient to enable the Escrow Agent to pay the redemption price of the Refunded Bonds on or about June 15, 2016 or June 15, 2017 (as applicable), as well as the interest due on all such Refunded Bonds on and before such dates. The sufficiency of the amounts on deposit in the Escrow Fund, together with realizable interest and earnings thereon, to pay the redemption prices of the Refunded Bonds and the accrued interest due on the Refunded Bonds on the above-referenced date will be verified by Causey Demgen & Moore Inc. (the Verification Agent ). As a result of the deposit in the Escrow Fund and application thereof as described above, and assuming the accuracy of the Verification Agent s computations, the Refunded Bonds will be defeased and the obligation to levy ad valorem taxes for payment of the Refunded Bonds will cease. The amounts on deposit in the Escrow Fund will not be available to make payments on the Refunding Bonds. The deposit of moneys into the Escrow Fund will constitute an irrevocable deposit for the benefit of the holders of the Refunded Bonds. Any surplus moneys in the Escrow Fund, following the redemption of the Refunded Bonds and payment of costs of issuance, or surplus moneys received by the District from the sale of the Refunding Bonds, following payment of costs of issuance, shall be kept separate and apart in a fund designated as the San Francisco Unified School District, 2015 General Obligation Refunding Bonds Debt Service Fund (the Refunding Bonds Debt Service Fund ) and used only for payment of principal of and interest on the Refunding Bonds. If, after payment in full of the Refunding Bonds, there remain excess proceeds, any such excess amounts shall be transferred to the general fund of the District. ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds in connection with the Bonds are as follows: Estimated Sources of Funds Series F Bonds Series C Bonds Refunding Bonds Aggregate Principal Amount $15,000,000 $211,000,000 $63,655,000 $289,655,000 Original Issue Premium 1,524,774 21,438,317 10,190,741 33,153,832 Other Source of Funds/Transfer of Proceeds (1,464,796) (20,594,623) 22,059, Total Sources of Funds $15,059,978 $211,843,694 $95,905,160 $322,808,832 Estimated Uses of Funds Series F Series C Refunding Bonds Bonds Bonds Total Building Fund $14,955,000 $210,645, $225,600,000 Escrow Fund $95,606,465 95,606,465 Costs of Issuance (1) 45, , , ,072 Original Purchaser s Discount (2) 59, ,694 45, ,294 Total Uses of Funds $15,059,978 $211,843,694 $95,905,160 $322,808,832 Total (1) (2) Includes fees for printing, ratings, bond and disclosure counsel, financial advisor and other miscellaneous costs of issuance. Includes the Original Purchaser s compensation and expenses. DEBT SERVICE SCHEDULE The following table summarizes the semi-annual debt service requirements for the Bonds and all other outstanding general obligation bonds issued by the District (assuming no early redemptions other than mandatory sinking fund redemption). 9

18 DEBT SERVICE SCHEDULE Payment Date Series C Bonds Series F Bonds Refunding Bonds Debt Service for Outstanding General Obligation Bonds (1) Principal Interest Principal Interest Principal Interest Total Debt Service Fiscal Year Debt Service 12/15/2015 $16,115, $16,115, /15/ ,050, $5,050, $5,717, $350, $406, $2,275, $1,947, ,797, $105,912, /15/ ,679, ,322, , ,452, ,761, /15/ ,424, ,060, ,322, , , ,160, ,452, ,231, ,993, /15/ ,663, ,146, , ,398, ,502, /15/ ,438, ,410, ,146, , , ,280, ,398, ,492, ,995, /15/ ,729, ,960, , ,216, ,188, /15/ ,369, ,780, ,960, , , ,645, ,216, ,808, ,997, /15/ ,727, ,766, , ,025, ,786, /15/ ,867, ,170, ,766, , , ,025, ,025, ,701, ,488, /15/ ,758, ,562, , , ,398, /15/ ,788, ,580, ,562, , , ,430, , ,048, ,446, /15/2021 9,731, ,347, , , ,930, /15/ ,781, ,010, ,347, , , ,850, , ,480, ,411, /15/2022 8,648, ,257, , , ,530, /15/ ,628, ,190, ,257, , , ,290, , ,645, ,175, /15/2023 7,518, ,027, , , ,921, /15/ ,698, ,650, ,027, , , ,110, , ,546, ,468, /15/2024 6,191, ,786, , , ,259, /15/ ,261, ,130, ,786, , , ,265, , ,444, ,703, /15/2025 5,212, ,533, , , ,975, /15/ ,852, ,635, ,533, , , ,325, , ,330, ,306, /15/2026 4,469, ,267, , ,898, /15/ ,057, ,170, ,267, , , ,451, ,349, /15/2027 3,586, ,988, , ,716, /15/ ,471, ,725, ,988, , , ,161, ,878, /15/2028 2,839, ,694, , ,655, /15/ ,564, ,315, ,694, , , ,570, ,225, /15/2029 2,074, ,510, , ,692, /15/ ,074, ,685, ,510, , , ,277, ,969, /15/2030 1,280, ,319, , ,694, /15/ ,915, ,065, ,319, , , ,324, ,018, /15/ , ,058, , ,941, /15/ ,387, ,585, ,058, , , ,071, ,013, /15/ , , , ,211, /15/ ,099, ,030, , ,000, , ,026, ,238, /15/ , , , , /15/ ,590, , ,040, , ,226, ,138, /15/ , , , /15/ ,170, , ,080, , ,534, ,818,750.0 Total $957,082, $211,000, $98,136, ,000, $6,981, $63,655, $16,378, $1,368,548, $1,368,548,753.5 (1) Does not take into account subsidies expected to be received with respect to certain bonds issued as Qualified School Construction Bonds and as Build America Bonds. 10

19 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Principal of and interest on the Bonds are to be paid from the proceeds of an ad valorem tax authorized to be levied by the City on taxable property within the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates), in an amount sufficient to make such payments. The information in this section describes ad valorem property taxes in general as well as how they are assessed and levied. General The Bonds are obligations of the District only and are not obligations of the City, the State, or any of its other political subdivisions. The Board of Supervisors of the City has the power and is obligated to levy and collect ad valorem taxes in each fiscal year upon the taxable property of the District in an amount sufficient, together with other moneys available for such purpose, to pay the principal of and premium, if any, and interest on each Bond as the same becomes due and payable. The ad valorem taxes levied for debt service on the Bonds are deposited into the Debt Service Fund maintained by the Treasurer. The Treasurer is not authorized to lend or borrow any funds in the Debt Service Fund. Tax Rates, Levies, Collections and Delinquencies Proposition 13 and its implementing legislation impose the function of property tax allocation on counties in the State, except for levies to support voted debt prior to enactment of Proposition 13, and prescribe how levies on countywide property values are to be shared with local taxing entities within each county. School districts use the services of the local county for the assessment and collection of property taxes for district purposes. In the case of the District, the local county is the City and the District and the City are co-terminus. District property taxes, including the ad valorem taxes for payment of the Bonds, are assessed and collected by the City at the same time and on the same rolls as city and special district property taxes. For general operating purposes and not for payment of general obligation bonds, the City levies a 1% ad valorem tax (the 1% Levy ) on behalf of all taxing agencies in the City. The taxes collected are allocated on the basis of a formula established by State law enacted in Under this formula, the District and all other taxing entities receive a base year allocation plus an allocation on the basis of situs growth in assessed value (new construction, change of ownership, inflation) prorated among the jurisdictions which serve the tax rate areas within which the growth occurs. Tax rate areas are specifically defined geographic areas which were developed to permit the levying of taxes for less than countywide or less than citywide special and school districts. For the payment of the District s general obligation bonds, including general obligation refunding bonds, the City levies separate ad valorem taxes on all taxable property within the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates) in an amount sufficient to pay debt service on the District s general obligation bonds when due. Taxes are levied for each fiscal year on taxable real and personal property 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 real property the taxes on which are a lien sufficient, in the opinion of the Assessor for the City, to secure payment of the taxes. Other property is listed on the unsecured roll. Real property which changes ownership or is newly constructed is revalued at the time the change occurs or the construction is completed. The current year property tax rate is applied to the reassessed value, and the taxes are then adjusted by a proration factor that reflects the portion of the remaining tax year for which taxes are due. Government Code Sections through set forth the details of and procedures that all counties, including the City, must follow for calculating tax rates. The secured tax levy within the District consists of the District s share of the 1% Levy and unitary taxes assessed on a City-wide basis. The secured tax levy also includes 11

20 the District s share of special voter approved ad valorem taxes assessed on a District-wide basis which are levied to pay debt service on the Bonds and the District s other voter approved bonds; such funds are not deposited with the District nor are they available to pay any of the District s operating expenses. In addition, the total secured tax levy includes special assessments, improvement bonds, supplemental taxes or other charges that have been assessed on property within the District. Since State law allows homeowners exemptions (described below) and certain businesses exemptions from ad valorem taxation, the homeowner s exemption is not included in the total secured tax levy. The combined secured tax rate is based on the amount necessary to pay all debt service obligations payable from ad valorem taxes and the assessed value of taxable property in a given year. Economic and other factors beyond the District s control, such as a general market decline in land values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes), or the complete or partial destruction of taxable property caused by natural or manmade disaster such as earthquake, flood, toxic dumping, etc., could cause a reduction in the assessed value of certain taxable property within the District and necessitate a corresponding increase in the annual tax rate to be levied on certain taxpayers to pay the principal of and premium, if any, and interest on the Bonds. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year, and become delinquent on December 10 and April 10, respectively. A penalty of 10% attaches immediately to all delinquent payments. Properties on the secured roll with respect to which taxes are delinquent become tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1.5% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then may be sold at public auction by the Treasurer. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Teeter Plan. Property taxes on the unsecured roll are due as of the January 1 lien dates and become delinquent on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5 p.m. on October 31, an additional penalty of 1.5% attaches to them on the first day of each month until paid. The City has four ways of collecting delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a judgment 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 recorder s office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. State law exempts $7,000 of the full cash value of an owner-occupied dwelling, but this exemption does not result in any loss of revenue to local entities, since an amount equivalent to the taxes which would have been payable on such exempt values is paid by the State. Further, California Education Code Section provides that all taxes levied with respect to general obligation bonds when collected will be paid into the county treasury of the county whose superintendent of schools has jurisdiction over the school district on behalf of which the tax was levied, to the credit of the debt service fund (or interest and sinking fund) of the school district, and will be used for the payment of the principal of and interest on the general obligation bonds of the school district and for no other purpose. Accordingly, the City may not borrow or spend such amounts nor can the District receive such funds and use them for operating purposes. Assessed Valuation of Taxable Property The District uses the services of the City for the assessment of taxable property in the District. The District has boundaries that are coterminous with the City, and assessed valuation of taxable property is the same for both District and City taxing purposes. Under Article XIIIA of the State Constitution added by Proposition 13 in 1978, property sold after March 1, 1975 must be reassessed to full cash value at the time of sale. The State prescribes the assessment valuation methodologies and the adjudication process that counties must employ in connection with the counties property assessments. As in every year, some appeals are multiple-year or retroactive in nature. 12

21 The City typically experiences increases in assessment appeals activity during economic downturns and decreases as the economy rebounds. Historically during severe economic downturns, partial reductions of up to approximately 30% of the assessed valuations appealed have been granted. Assessment appeals granted typically result in revenue refunds, and the level of refund activity depends on the unique economic circumstances of each fiscal year. Other taxing agencies such as the District, San Francisco Community College District and Bay Area Rapid Transit District share proportionately with respect to the 1% Levy in any refunds paid as a result of successful appeals. The table below summarizes the assessed valuation of taxable property within the District and the property tax levies and collections for all taxing entities within the District (including the City, the San Francisco Community College District, the San Francisco Bay Area Rapid Transit District, as well as the District) for Fiscal Years through See also APPENDIX A DISTRICT FINANCIAL AND DEMOGRAPHIC INFORMATION DIRECT AND OVERLAPPING DEBT. SAN FRANCISCO UNIFIED SCHOOL DISTRICT Assessed Valuation of Taxable Property and Property Tax Levies and Collections Fiscal Years through (Dollars in Thousands) Fiscal Year Net Assessed Valuation (NAV) (1) % Change from Prior Year Total Tax Rate per $100 (2) Total Tax Levy (000s) (3) Total Tax Collected (000s) (3) % Collected June ,865, % ,888,048 1,849, % ,649, ,918,680 1,883, ,043, ,997,645 1,970, ,489, ,138,245 2,113, ,809, ,134,995 N/A N/A (1) (2) (3) Note: Source: Based on preliminary assessed valuations for FY Net Assessed Valuation (NAV) is Total Assessed Value for Secured and Unsecured Rolls, less Non-reimbursable Exemptions and Homeowner Exemptions. Annual tax rate for unsecured property is the same rate as the previous year s secured tax rate. The Total Tax Levy and Total Tax Collected through FY is based on year-end current year secured and levies as adjusted through roll corrections, excluding supplemental assessments, as reported to the State of California (available on the website of the California State Controller s Office). Total Tax Levy for FY based on NAV times % tax rate. This table has been modified from the corresponding table in previous bond disclosures to make levy and collection figures consistent with statistical reports provided to the State of California. Office of the Controller, City and County of San Francisco. State-Assessed Utility Property The State Constitution provides that the State Board of Equalization (the SBE ), rather than counties, assess certain property owned or used by regulated utilities. Such property is grouped and assessed by the SBE as going concern operating units, which may cross local tax jurisdiction boundaries, rather than as individual parcels of real or personal property separately assessed. Such utility property is known as unitary property. The SBE assesses property at fair market value, determined by various methods and formulae depending on the nature of the property, except that assessed value of certain railroad property is limited to a percentage of the fair market value determined by the SBE, in conformity with federal law. The SBE assesses values as of January 1 prior to the tax year of the related tax levy. Property tax on SBE-assessed property is then levied and collected by each county in the same manner as county assessed property, but at special county-wide tax rates, and distributed to each taxing agency within that county generally according to the approximate percentages as allocated to each taxing agency in the prior year. Changes in the State electric utility industry structure and in the way in which components of that industry are regulated and owned, including the sale of electric generation assets to largely unregulated, non-utility companies, may convert the status of such assets from SBE-assessed unitary property to locally assessed property or otherwise affect how those assets are assessed in the future and which local taxing agencies are to receive the property taxes on such assets. 13

22 Assessed Valuation of Single Family Homes The table below summarizes the per parcel assessed valuation of single family homes within the District for Fiscal Year SAN FRANCISCO UNIFIED SCHOOL DISTRICT Per Parcel Assessed Valuation of Single Family Homes No. of Parcels Assessed Valuation Average Assessed Valuation Median Assessed Valuation Single Family Residential 96,298 $52,680,810,113 $547,060 $377, Assessed Valuation No. of Parcels (1) % of Total Cumulative % of Total Total Valuation % of Total Cumulative % of Total $0 - $99,999 18, % % $ 1,141,592, % 2.167% $100,000 - $199,999 10, ,553,882, $200,000 - $299,999 10, ,736,483, $300,000 - $399,999 10, ,806,569, $400,000 - $499,999 8, ,978,818, $500,000 - $599,999 7, ,993,230, $600,000 - $699,999 6, ,985,128, $700,000 - $799,999 5, ,032,885, $800,000 - $899,999 4, ,594,865, $900,000 - $999,999 3, ,859,041, $1,000,000 - $1,099,999 1, ,932,229, $1,100,000 - $1,199,999 1, ,523,231, $1,200,000 - $1,299,999 1, ,361,375, $1,300,000 - $1,399, ,269,871, $1,400,000 - $1,499, ,066,594, $1,500,000 - $1,599, ,908, $1,600,000 - $1,699, ,465, $1,700,000 - $1,799, ,955, $1,800,000 - $1,899, ,340, $1,900,000 - $1,999, ,230, $2,000,000 and greater 2, ,167,109, Total 96, % $52,680,810, % (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc. 14

23 Assessed Valuation and Parcels by Land Use of Secured Property The following table summarizes the assessed valuation and parcels by land use for secured property within the District for Fiscal Year SAN FRANCISCO UNIFIED SCHOOL DISTRICT Assessed Valuation and Parcels by Land Use of Secured Property Assessed Valuation (1) % of Total No. of Parcels % of Total Non-Residential: Commercial $13,578,625, % 8, % Office 26,239,049, , Industrial 5,628,017, , Hotel/Motel 6,033,227, Recreational 439,935, Government/Social/Institutional 469,646, , Miscellaneous 664,226, Subtotal Non-Residential $53,052,729, % 18, % Residential: Single Family Residence $52,680,810, % 96, % Condominium/Townhouse 28,606,453, , Residential Units/Apartments 33,073,058, , Timeshare Properties 256,472, , Subtotal Residential $114,616,794, % 181, % Vacant Parcels $1,332,330, % 5, % Total $169,001,854, % 204, % (1) Local Secured Assessed Valuation; excluding tax-exempt property. Source: California Municipal Statistics, Inc. Teeter Plan The City has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the Teeter Plan ), as provided for in Section 4701 et seq. of the State Revenue and Taxation Code. Under the Teeter Plan, each participating local agency, including school districts, levying property taxes in a county receives the amount of uncollected taxes credited to its fund, in the same manner as if the amount credited had been collected. In return, the county receives and retains delinquent payments, penalties and interest as collected, that would have been due the local agency. The Teeter Plan is to remain in effect unless the county board of supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year of the county, the board of supervisors receives a petition for its discontinuance from two-thirds of the participating revenue districts in the county. A board of supervisors may, after holding a public hearing on the matter, discontinue the procedures under the Teeter Plan with respect to any tax levying agency in its county when delinquencies for taxes levied by that agency exceed 3%. The Teeter Plan applies to the 1% Levy. Whether or not the Teeter Plan also is applied to other tax levies for local agencies, such as the ad valorem tax levy for general obligation bonds of a local agency, varies by county. The City currently applies the Teeter Plan to the ad valorem tax levy for the District s general obligation bonds, but no assurance can be given that the City will continue to do so while the Bonds remain outstanding. If the City were to discontinue the Teeter Plan with respect to the ad valorem tax levy for the District s general obligation bonds, it is 15

24 possible the City would incorporate an estimated tax delinquency factor when setting the tax rate in order to collect sufficient taxes to timely make debt service payments on the District s general obligation bonds. However, even if the City incorporates an estimated tax delinquency factor when setting the tax rate it is possible that tax revenue collections may not be sufficient to provide funds for the payment of principal and interest then due on the Bonds if actual delinquencies exceed the estimated delinquency factor. See Assessed Valuation of Taxable Property above for a history of property tax collections and delinquencies in the District. Largest Secured Property Taxpayers The following table shows the twenty largest local secured property taxpayers in the District for Fiscal Year SAN FRANCISCO UNIFIED SCHOOL DISTRICT Largest Local Secured Taxpayers Fiscal Year Property Owner Type of Business Assessed Valuation (1) % of Total (2) HWA 555 Owners LLC Office Building $1,164,456, % PPF Paramount One Market Plaza Office Building 774,392, Parkmerced Investors Properties LLC Apartments 735,806, Kilroy Realty LP / Kilroy Realty 303 LLC Office Building 726,713, Emporium Mall LLC Shopping Center 574,263, SHR St. Francis LLC Hotel 476,444, Union Investment Real Estate G Office Building 456,497, Post-Montgomery Associates Office Building 443,483, Teachers Insurance & Annuity Association Office Building 412,405, SHC Embarcadero LLC Office Building 400,692, Wells REIT II-333 Market St. Office Building 397,044, SF Hilton Inc. Hotel 391,507, PPF OFF One Maritime Plaza LP Office Building 382,091, Fremont Tower LLC Office Building 367,401, Stonestown Shopping Center LP Shopping Center 346,812, Block 230 Associates Office Building 345,739, Three Embarcadero Center Venture Office Building 325,207, Embarcadero Center Associates Office Building 323,816, Elm Property Venture LLC Office Building 320,637, Macy s Primary Real Estate Inc. Shopping Center 319,048, Twenty Largest Taxpayers (3) $9,685,462, % (1) (2) (3) Represents the Total Assessed Valuation ( TAV ) as of the basis of levy, which excludes assessments processed during the fiscal year. TAV includes land & improvements, personal property, and fixtures Local Secured Assessed Valuation: $169,001,854,462 Totals may not add due to rounding. Source: California Municipal Statistics, Inc. 16

25 CITY AND COUNTY INVESTMENT POOL General In accordance with Education Code Section 41001, each State public school district maintains substantially all of its operating funds in the county treasury of the county in which it is located, and each county treasurer serves as ex-officio treasurer for those school districts located within the county. Each county treasurer has the authority to implement and oversee the investment of school district funds held in the county treasury. Generally, the county treasurer pools county funds with school district funds and funds from certain other public agencies and invests the cash. These pooled funds are carried at cost. Interest earnings are accounted for on either a cash or accrual basis and apportioned to pool participants on a regular basis. Each county is required to invest funds, including those pooled funds described above, in accordance with Government Code Sections et seq. and et seq. In addition, each county is required to establish an investment policy that may impose further limitations beyond those required by the Government Code. A copy of the City investment policy and periodic reports on the City investment pool are available from the Treasurer, P.O. Box 7425, San Francisco, CA 94120, telephone: (415) See also APPENDIX F EXCERPTS FROM THE CITY AND COUNTY OF SAN FRANCISCO INVESTMENT PORTFOLIO REPORT. Investment of Bond Proceeds Series F Bonds and Series C Bonds. The net proceeds from the sale of the Series F Bonds and the Series C Bonds, to the extent of the aggregate principal amount thereof less the costs of issuance, shall be deposited in the Building Fund held by the Treasurer as required by law and shall be kept separate and distinct from all other District and City funds. The proceeds shall be used for the purposes authorized under the 2006 Proposition A Authorization or the 2011 Proposition A Authorization, as applicable. Investment of funds on deposit in the Building Fund will be subject to the City s investment policy and to Title 5, Division 2, Part 1, Chapter 4, Article 1 of the Government Code of the State. Interest earned on funds on deposit in the Building Fund shall be spent only on capital projects authorized under the 2006 Proposition A Authorization or the 2011 Proposition A Authorization. Any excess proceeds of the Series F Bonds and the Series C Bonds deposited in the Building Fund and not needed for the purpose for which the Series F Bonds and the Series C Bonds are issued shall be transferred to the Debt Service Fund and used to pay principal of and interest on the Series F Bonds and the Series C Bonds and, then, shall be transferred in accordance with State law to the District s general fund after payment in full of the Series F Bonds and the Series C Bonds. Any premium received by the District from the sale of the New Money Bonds and not deposited in the Escrow Fund shall be deposited in the Debt Service Fund for the New Money Bonds and used only for the payment of principal and interest on the New Money Bonds. Interest earned on the investment of any premium received by the District from the sale of the Series F Bonds and the Series C Bonds may be deposited in the Building Fund. Interest earned on the investment of all other monies held in the Debt Service Fund will be retained in the Debt Service Fund and used to pay principal of and interest on the Series F Bonds and the Series C Bonds when due. The Treasurer is not allowed to lend or borrow any funds from the Debt Service Fund or the Building Fund. Refunding Bonds. The net proceeds from the sale of the Refunding Bonds will be deposited in the Escrow Fund, as described under the caption REFUNDING PLAN Application and Investment of Refunding Bond Proceeds herein. Interest earned on the investment of monies held in the Refunding Bonds Debt Service Fund will be retained in the Refunding Bonds Debt Service Fund and used to pay principal of and interest on the Refunding Bonds when due. The Treasurer is not allowed to lend or borrow any funds from the Refunding Bonds Debt Service Fund. 17

26 LEGAL MATTERS AND RELATED INVESTMENT CONSIDERATIONS No Litigation. No litigation is pending concerning the validity of the Bonds. The District is not aware of any litigation pending or threatened questioning the political existence of the District or contesting the District s ability to receive ad valorem taxes or to collect other revenues or contesting the District s ability to issue the Bonds. A certificate as to the foregoing will be furnished at the time of the original delivery of the Bonds. Limitation on Remedies. The opinions of Bond Counsel as to the rights of owners and the enforceability thereof, attached hereto as Appendix B, are qualified by reference to bankruptcy, insolvency and other laws relating to or affecting creditor s rights. Bankruptcy proceedings, if initiated, could subject the owners of the Bonds 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. More specifically, enforceability of the rights and remedies of the Owners of the Bonds, and the obligations incurred by the District, are limited by applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws relating to or affecting the enforcement of creditors rights generally, now or hereafter in effect, equity principles that 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, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose, and the limitations on remedies against healthcare districts in the State. Bankruptcy proceedings, if initiated, could subject the Beneficial Owners of the Bonds 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. Bankruptcy. The City on behalf of the District is expected to be in possession of the ad valorem property taxes and certain funds to repay the Bonds and may invest these funds in the City s investment pool, as described in APPENDIX F EXCERPTS FROM THE CITY AND COUNTY OF SAN FRANCISCO INVESTMENT PORTFOLIO REPORT attached hereto. In the event the District or the City were to go into bankruptcy, a federal bankruptcy court might hold that the owners of the Bonds are unsecured creditors with respect to any funds received by the District or the City prior to the bankruptcy, which may include ad valorem property taxes that have been collected and deposited into the applicable debt service fund, where such amounts are deposited into the City s investment pool, and such amounts may not be available for payment of the principal of and interest on the Bonds unless the owners of the Bonds can trace those funds. There can be no assurance that the owners of the Bonds could successfully so trace such taxes on deposit in the applicable debt service fund where such amounts are invested in the City s investment pool. The City is required by law to annually levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates), for the payment of the principal of and interest on the Bonds. California state law provides that the ad valorem taxes levied to pay principal and interest on the Bonds must be used for that purpose and for no other purpose. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS herein. The District believes that this restriction on the expenditure of the ad valorem taxes would be respected in any bankruptcy proceeding so that the ad valorem tax revenue could not be used by the City or the District for any purpose other than to make payments on the Bonds, although a bankruptcy court could conclude otherwise. For example, a bankruptcy court could determine that the District is entitled to use ad valorem tax revenues to pay the necessary operating expenses of the District prior to paying debt service on the Bonds, regardless of the provisions of State law. SB 222. California Senate Bill 222 (2015) ( SB 222 ) added a provision to the California Government Code that provides that general obligation bonds issued and sold by a local agency such as the District will be secured by a statutory lien on the ad valorem taxes levied and collected to pay the principal and interest on such general obligation bonds. The statutory lien provides bondholders with a security interest in the ad valorem taxes that will survive a bankruptcy of the District. SB 222 takes effect on January 1, 2016 and it is unclear whether SB222 would apply to bonds issued prior to the effective date such as the Bonds. However, a court may conclude that the lien attaches to taxes levied after January 1, 2016 for bonds issued prior to January 1,2016. No assurances can be given as to how a court would rule. 18

27 CONTINUING DISCLOSURE The District has covenanted for the benefit of the holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to the District (the Annual Report ) by not later than 270 days following the end of the District s fiscal year (currently ending June 30), commencing with the report for Fiscal Year , and to provide notices of the occurrence of certain Listed Events. The District will provide the Annual Report and any notices of Listed Events to Digital Assurance Certification, L.L.C. ( DAC ), as dissemination agent, to file with the Municipal Securities Rulemaking Board s Electronic Municipal Market Access System at in the manner prescribed by the SEC. Copies of the District s previous annual reports and notices of event filings are also available at the website of Digital Assurance Certification, L.L.C., although the information presented there is not incorporated by reference in this Official Statement. The information to be contained in the Annual Report or the notices of Listed Events is set forth in APPENDIX E PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT. These covenants have been made in order to assist the Original Purchasers in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the Rule ). The District has never failed to comply in all material respects with any previous continuing disclosure undertakings pursuant to the Rule within the last five years. FINANCIAL STATEMENTS The financial statements of the District for the Fiscal Year ended June 30, 2014, certain sections of which are included in Appendix C to this Official Statement, have been audited by Vavrinek, Trine, Day & Co., LLP, independent certified public accountants, as stated in their report appearing in Appendix C. The District has not requested nor has the District obtained the consent of Vavrinek, Trine, Day & Co., LLP to the inclusion of its report in Appendix C. Vavrinek, Trine, Day & Co., LLP has not undertaken to update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by Vavrinek, Trine, Day & Co., LLP with respect to any event subsequent to the date of its report included herein. OPINION OF BOND COUNSEL Certain legal matters in connection with the authorization and issuance of the Bonds are subject to the approval of Sidley Austin LLP, Bond Counsel. Copies of the proposed forms of opinion of Bond Counsel are attached hereto as Appendix B. Sidley Austin LLP has also acted as Disclosure Counsel to the District. Certain legal matters will be passed upon for the District by the District s General Counsel. Neither Bond Counsel nor Disclosure Counsel undertake any responsibility for the accuracy, completeness or fairness of this Official Statement. The fees of Bond Counsel and Disclosure Counsel are payable contingent upon issuance of the Bonds. TAX MATTERS In the opinion of Sidley Austin LLP, San Francisco, California, Bond Counsel, under existing law and assuming compliance with certain covenants in the District Resolution, the Refunding Resolution, the Tax Certificate and other documents pertaining to the Bonds and requirements of the Internal Revenue Code of 1986, as amended (the Code ), regarding the use, expenditure and investment of proceeds of the Bonds and the timely payment of certain investment earnings to the United States, interest on the Bonds is not includable in the gross income of the owners of the Bonds for federal income tax purposes. Failure to comply with such covenants and requirements may cause interest on the Bonds to be included in gross income retroactive to the date of issuance of the Bonds. In the further opinion of Bond Counsel, interest on the Bonds is not treated as an item of tax preference in calculating the federal alternative minimum taxable income of individuals and corporations. Interest on the Bonds, however, is included as an adjustment in the calculation of federal corporate alternative minimum taxable income and may therefore affect a corporation s alternative minimum tax liability. 19

28 Ownership of, or the receipt of interest on, tax-exempt obligations may result in collateral tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with excess passive income, individual recipients of Social Security or Railroad Retirement benefits, taxpayers that may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations and taxpayers who may be eligible for the earned income tax credit. Bond Counsel expresses no opinion with respect to any collateral tax consequences and, accordingly, prospective purchasers of the Bonds should consult their tax advisors as to the applicability of any collateral tax consequences. Certain requirements and procedures contained or referred to in the District Resolution, Refunding Resolution or other documents pertaining to the Bonds may be changed, and certain actions may be taken or not taken under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of counsel nationally recognized in the area of tax-exempt obligations. Bond Counsel expresses no opinion as to the effect of any change to any document pertaining to the Bonds or of any action taken or not taken where such change is made or action is taken or not taken without the approval of Bond Counsel or in reliance upon the advice of counsel other than Bond Counsel with respect to the exclusion from gross income of the interest on the Bonds for federal income tax purposes. Original Issue Discount. The initial public offering price of certain of the Bonds (collectively, the Discount Bonds ) is less than the principal amount of the Discount Bonds. The difference between the principal amount of a Discount Bond and its initial public offering price is original issue discount. Original issue discount on a Discount Bond accrues over the term of such Discount Bond at a constant interest rate. To the extent it has accrued, original issue discount on a Discount Bond is treated as interest excludable from gross income for federal income tax purposes subject to the assumptions, conditions and limitations described above. The portion of the original issue discount that accrues in each year to an owner of a Discount Bond that is a corporation, however, will be included in the calculation of the corporation s federal alternative minimum tax liability. In addition, original issue discount that accrues in each year to an owner of a Discount Bond is included in determining the distribution requirements of certain regulated investment companies, and also may result in one or more of the collateral federal income tax consequences described above. Consequently, owners of Discount Bonds should be aware that the accrual of original issue discount in each year may result in an alternative minimum tax liability, additional distribution requirements or other collateral federal income tax consequences although the owner may not have received cash in such year. The accrual of original issue discount on a Discount Bond will increase an owner s adjusted basis in such Discount Bond. This will affect the amount of taxable gain or loss realized by the owner of the Discount Bond upon the redemption, sale or other disposition of such Discount Bond. The effect of the accrual of original issue discount on the federal income tax consequences of a redemption, sale or other disposition of a Discount Bond that is not purchased at the initial public offering price may be determined according to rules that differ from those described above. Owners of Discount Bonds should consult their tax advisors with respect to the precise determination for federal income tax purposes of the amount of original issue discount that properly accrues with respect to the Discount Bonds, other federal income tax consequences of owning and disposing of the Discount Bonds and any state and local tax consequences of owning and disposing of the Discount Bonds. Premium Bonds. Certain of the Bonds have been sold at an initial offering price in excess of their stated principal amount. The excess, if any, of the tax adjusted basis of Bonds purchased as part of the initial public offering to a purchaser (other than a purchaser who holds such Bonds as inventory, stock in trade or for sale to customers in the ordinary course of business) over the amount payable at such Bonds maturity is bond premium. Bond premium is amortized over the term of such Bonds for federal income tax purposes (or, in the case of a bond with bond premium callable prior to its stated maturity, the amortization period and yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on such bond). Owners of Bonds with bond premium are required to decrease their adjusted basis in such Bonds by the amount of amortizable bond premium attributable to each taxable year such Bonds are held. The amortizable bond premium on such Bonds attributable to a taxable year is not deductible for federal income tax purposes. Owners of such Bonds should consult their tax advisors with respect to the determination for federal income tax purposes of the treatment of bond premium upon the sale or other disposition of such Bonds and with respect to the state and local tax consequences of owning and disposing of such Bonds. 20

29 Information Reporting and Backup Withholding. Interest paid on the Bonds will be subject to information reporting in a manner similar to interest paid on taxable obligations. Although such reporting requirement does not, in and of itself, affect the excludability of such interest from gross income for federal income tax purposes, such reporting requirement causes the payment of interest on the Bonds to be subject to backup withholding if such interest is paid to beneficial owners who (a) are not exempt recipients, and (b) either fail to provide certain identifying information (such as the beneficial owner s taxpayer identification number) in the required manner or have been identified by the Internal Revenue Service as having failed to report all interest and dividends required to be shown on their income tax returns. Generally, individuals are not exempt recipients. Amounts withheld under the backup withholding rules from a payment to a beneficial owner would be allowed as a refund or a credit against such beneficial owner s federal income tax liability provided the required information is furnished to the Internal Revenue Service. State Tax Exemption. In the further opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxes imposed by the State of California. Future Developments. Future or pending legislative proposals, if enacted, regulations, rulings or court decisions may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation or to State or local income taxation, or may otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. Legislation or regulatory actions and future or pending proposals may also affect the economic value of the federal or State tax exemption or the market value of the Bonds. Prospective purchasers of the Bonds should consult their tax advisors regarding pending or proposed federal or State tax legislation, regulations, rulings or litigation, as to which Bond Counsel expresses no opinion. For example, various proposals have been made in Congress and by the President (the Proposed Legislation ), which, if enacted, would subject interest on bonds that is otherwise excludable from gross income for federal income tax purposes, including interest on the Bonds, to a tax payable by certain bondholders that are individuals, estates or trusts with adjusted gross income in excess of thresholds specified in the Proposed Legislation. It is unclear if the Proposed Legislation will be enacted, whether in its current or an amended form, or if other legislation that would subject interest on the Bonds to a tax or cause interest on the Bonds to be included in the computation of a tax, will be introduced or enacted. Prospective purchasers should consult their tax advisors as to the effect of the Proposed Legislation, if enacted, in its current form or as it may be amended, or such other legislation on their individual situations. A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix B. MUNICIPAL ADVISOR The District has retained Public Financial Management, Inc., as Municipal Advisor in connection with the execution and delivery of the Bonds and certain other financial matters. The Municipal Advisor is not obligated to undertake and has not undertaken to make an independent verification of the accuracy, completeness or fairness of the information contained in this Official Statement. The Municipal Advisor is an independent advisory firm and is not engaged in the businesses of underwriting, trading or distributing municipal securities or other negotiable instruments. The Municipal Advisor s fee is payable contingent upon issuance of the Bonds. RATINGS Moody s Investors Service, Inc. ( Moody s ) has assigned the rating of Aa2 to the Bonds. Standard & Poor s Ratings Service, a Standard & Poor s Financial Services, LLC business ( Standard & Poor s ) has assigned the rating of AA- to the Bonds. Such ratings reflect only the views of such organizations and any desired explanation of the significance of such ratings should be obtained from the rating agency furnishing the same, at the following addresses: Moody s, 7 World Trade Center, 250 Greenwich Street, New York, New York 10007; Standard & Poor s, 55 Water Street, 38 th Floor, New York, New York Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so 21

30 warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Bonds. UNDERWRITING Pursuant to the terms of a public sale held on October 6, 2015, Morgan Stanley & Co. LLC (the New Money Original Purchaser ) has agreed to purchase the New Money Bonds from the District at a purchase price of $248,059,418. In addition, the New Money Original Purchaser has represented that it intends to reoffer the New Money Bonds at an aggregate reoffering price of $248,963,091. Assuming all New Money Bonds are sold at such price, the New Money Original Purchaser s compensation for this issue will be $903, Pursuant to the terms of a public sale held on October 8, 2015, Merrill Lynch, Pierce, Fenner & Smith, Incorporated (the Refunding Original Purchaser, and together with the New Money Original Purchaser, the Original Purchasers ) has agreed to purchase the Refunding Bonds from the District at a purchase price of $73,800,119. In addition, the Refunding Original Purchaser has represented that it intends to reoffer the Refunding Bonds at an aggregate reoffering price of $73,845,741. Assuming all Refunding Bonds are sold at such price, the Refunding Original Purchaser s compensation for this issue will be $45, The respective Original Purchasers will purchase all of the New Money Bonds and Refunding Bonds, as applicable, if any of such Bonds are purchased. The Original Purchasers may offer and sell the New Money Bonds and Refunding Bonds, as applicable, to certain dealers and others at prices or yields different from the initial public offering prices or yields stated on the inside cover page of this Official Statement. The initial public offering prices or yields may be changed from time to time by the Original Purchasers, as applicable. The New Money Original Purchaser provided the following paragraph for inclusion in this Official Statement. The District does not guarantee the accuracy or completeness of the information contained therein and it should not be construed as a representation of the District. Morgan Stanley, parent company of Morgan Stanley & Co. LLC., the underwriter of the New Money Bonds, has entered into a retail distribution arrangement with Morgan Stanley Smith Barney LLC. As part of the distribution arrangement, Morgan Stanley & Co. LLC may distribute municipal securities to retail investors through the financial advisor network of Morgan Stanley Smith Barney LLC. As part of this arrangement, Morgan Stanley & Co. LLC may compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the New Money Bonds. LEGALITY FOR INVESTMENT IN CALIFORNIA Under provisions of the State Financial Code, the Bonds are legal investments for commercial banks in the State, to the extent that the Bonds, in the informed opinion of the bank, are prudent for the investment of funds of depositors, and, under provisions of the State Government Code, are eligible for security for deposits of public moneys in the State. ADDITIONAL INFORMATION The purpose of this Official Statement is to supply information to prospective buyers of the Bonds. Quotations from and summaries and explanations of the Bonds, the District Resolution providing for issuance of the Bonds, and the constitutional provisions, statutes and other documents described herein do not purport to be complete, and reference is made to said documents, constitutional provisions and statutes for full and complete statements of their provisions. Copies of the District Resolution and certain other documents relating to the issuance of the Bonds are available for inspection at the District by request to the Chief Financial Officer at (415) Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the Bonds. 22

31 The delivery of this Official Statement has been duly authorized by the District. SAN FRANCISCO UNIFIED SCHOOL DISTRICT By: /s/ Reeta Madhavan Chief Financial Officer 23

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33 APPENDIX A DISTRICT FINANCIAL AND DEMOGRAPHIC INFORMATION

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35 TABLE OF CONTENTS Page THE DISTRICT... A-1 Introduction... A-1 Enrollment History... A-1 Population... A-2 Board of Education... A-2 Superintendent and Administrative Personnel... A-2 STATE FUNDING OF EDUCATION... A-4 General... A-4 Local Control Funding Formula... A-4 Prior Revenue Limit Funding... A-8 Average Daily Attendance under Revenue Limit Funding... A-8 Average Daily Attendance... A-9 Proposition A-10 State Budget... A-10 DISTRICT FINANCIAL INFORMATION... A-13 County Office of Education... A-13 School District Budget Process... A-14 District Budgets... A-15 Comparative Financial Statements... A-19 Revenue Limit, LCFF and State Categorical Program Sources... A-20 Unique Revenue Sources... A-21 Charter Schools... A-22 Labor and Staffing... A-22 Retirement Programs... A-23 Insurance... A-30 Accounting Practices... A-31 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS... A-31 Constitutionally Required Funding of Education... A-31 Article XIIIA of the State Constitution... A-31 Legislation Implementing Article XIIIA... A-32 Article XIIIB of the State Constitution... A-32 Article XIIIC and Article XIIID of the State Constitution... A-32 Proposition A-32 Proposition A-33 Propositions 1A and A-33 Propositions 98 and A-34 Proposition A-35 Proposition A-35 Future Initiatives... A-36 DISTRICT DEBT STRUCTURE... A-36 Long-Term Debt... A-36 Capital Plan... A-36 Future Financings... A-37 Constitutional Debt Limit... A-37 DIRECT AND OVERLAPPING DEBT... A-38 A-i

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37 The Bonds are general obligations of the District, secured by and payable solely from ad valorem taxes levied upon the taxable property of the District. The Bonds are not an obligation of the City and County of San Francisco (the City ) or the General Fund of the District. Prospective investors, therefore, should base their investment decision on the property tax information relating to the District. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS in the forepart of this Official Statement. This Appendix A provides information concerning the operations, finances and demographics of the District. Investors must read the entire Official Statement, including this Appendix A to obtain information essential to making an informed investment decision. Introduction THE DISTRICT The San Francisco Unified School District has boundaries that are coterminous with the City and County of San Francisco, California (the City ). The District provides public education from Pre-Kindergarten through Grade 12. The District was established in 1851; however, the District has been a political subdivision of the State of California (the State ) since The administrative headquarters of the District are located at 555 Franklin Street, San Francisco, California. The District operates 16 transitional kindergarten schools, 72 elementary and K-8 school sites, 12 middle schools, 18 senior high schools (including two continuation schools and an independent study school), and 46 State funded preschool sites. As of June 30, 2015, the District sponsored 13 independent charter schools; however, independent charter schools receive their funding directly from the State and function like independent agencies, including having control over their staffing and budget. For these reasons, information regarding enrollment, average daily attendance, budgets and other financial information relating to independent charter schools is not included in the District s audit reports or in this Official Statement. See DISTRICT FINANCIAL INFORMATION Charter Schools. The District s estimated enrollment for Fiscal Year is approximately 53,227. The administration and faculty reflect the diversified ethnicity of the City. The District Budget (defined below) estimates a total of 7,397 full-time equivalent certificated administrators, teachers, paraprofessionals and classified personnel at the District. Enrollment History Enrollment figures for the District for Fiscal Years through are set forth below. Enrollment figures are affected by a number of factors, such as changes in enrollment in private schools and the decline of the number of families with school-age children in the City due to housing prices and the general overall cost of living in the San Francisco Bay Area, which is especially acute in the City. However, enrollment has been stable in the District in recent years, with minimal changes from each fiscal year to the next. TABLE A-1 Enrollment History Fiscal Year District Schools (1) , , , , , ,227 (2) (1) Includes elementary, middle and high school students. Excludes independent charter schools and students in County Office of Education programs. (2) Estimated. Source: The District; District Budget. A-1

38 Population The population of the City reached approximately 845,600 as of January 1, 2015, as provided by the California Department of Finance. The City comprises the service area for the District. The following table shows the recent population figures and per capita income for the City and the State for calendar years 2010 through Year City Population (1) TABLE A-2 POPULATION AND INCOME 2010 through 2015 State Population (1) City Per Capita Income (2) State Per Capita Income (3) ,235 37,253,956 58,332 44, ,768 37,427,946 62,701 44, ,538 37,678,563 68,029 43, ,003 37,984,138 69,127 48, ,620 38,357,121 (4) 50, ,602 38,714,725 (4) (4) Sources: (1) As of January 1; State Department of Finance, Demographic and Finance Research Units. (2) For : U.S. Department of Commerce Bureau of Economic Analysis; City per capita income information based on the San Francisco, Oakland, Fremont, CA Metropolitan Area. Includes revised estimates as of November (3) U.S. Department of Commerce Bureau of Economic Analysis. (4) Not yet available. Board of Education The District is governed by a seven-member elected board (the Board of Education ), whose members are elected to four-year terms. The terms are staggered in two-year intervals, thereby providing continuity of governance. TABLE A-3 SAN FRANCISCO UNIFIED SCHOOL DISTRICT Board of Education Name Office Term Expires Emily M. Murase President January 2019 Matt Haney Vice President January 2017 Sandra Lee Fewer Member January 2017 Hydra B. Mendoza-McDonnell Member January 2019 Rachel Norton Member January 2017 Shamann Walton Member January 2019 Jill Wynns Member January 2017 Superintendent and Administrative Personnel The Superintendent of Schools of the District (the Superintendent ) is appointed by and reports to the Board of Education. The Superintendent is responsible for management of the District s day-to-day operations and supervises the work of other key District administrators. Following are brief professional biographical summaries of the Superintendent and certain key administrative personnel. A-2

39 Richard A. Carranza, Superintendent. Richard A. Carranza was sworn in as superintendent of the District on June 27, Prior to that, Mr. Carranza had held the position of Deputy Superintendent for Instruction, Innovation and Social Justice for the District since 2009, in which position he led the implementation of the District s equity-focused strategic plan. Prior to his work with the District, Mr. Carranza was Northwest Region Superintendent for the Clark County School District in Las Vegas, Nevada, where he oversaw 66 schools and over 66,000 students. Under his leadership the Northwest Region made significant strides towards improving student achievement including an increase in the number of middle schools and high schools making Adequate Yearly Progress (AYP) and double digit reductions in the percentage of special education and Limited English Proficient (LEP) students performing below proficiency levels in mathematics and language arts. Prior to his work for the Clark County School District in Las Vegas, Nevada, he also served as a high school principal in Tucson, Arizona and in Las Vegas, Nevada; high school assistant principal; and a teacher of bilingual social studies and music. Mr. Carranza earned a B.A. in Secondary Education from the University of Arizona and a M.Ed., with distinction, in Educational Leadership from Northern Arizona University. He has also completed doctoral coursework through Northern Arizona University and is currently pursuing an Ed.D degree through Nova Southeastern University in Educational Leadership. Myong Leigh, Deputy Superintendent, Policy and Operations. Myong Leigh has been a District staff member since August 2000 and oversees most non-instructional operations that support District schools. Areas of responsibility under Mr. Leigh s supervision include policy development and implementation, budget, business services, facilities, information technology, student nutrition, and intergovernmental relations. His work has focused in subject areas including financial planning and resource allocation, school site-based academic decision-making and budgeting, student assignment and desegregation, collective bargaining and labor relations, capital facilities planning, and transportation. Mr. Leigh s work involves interaction and collaboration with numerous staff members in the District, all school sites and every department. Immediately prior to working for the District, Mr. Leigh served as the Budget Director for the District of Columbia Public Schools. Prior to working in urban K-12 education, he was a financial advisor to state and local governments on capital facilities financing and budgeting. His clients included the District of Columbia, the City of Philadelphia, the Virginia Public School Authority, the City of Norfolk, and Montgomery County, Maryland. Mr. Leigh holds a Master in Public Policy degree from Harvard University s John F. Kennedy School of Government and a Bachelor of Science degree in Economics from the Wharton School of the University of Pennsylvania. Danielle Houck, Esq., General Counsel. Ms. Houck began work as the General Counsel of the District on May 4, Prior to assuming the position of General Counsel, Ms. Houck was Of Counsel with the education law firm Fagen Friedman and Fulfrost since September 2013 where she represented school districts throughout the state of California. Ms. Houck served as General Counsel for the Alameda Unified School District for approximately 4 years and as Deputy General Counsel and Interim General Counsel for the Oakland Unified School District for approximately 2 years. Ms. Houck earned a Bachelor of Arts degree in Political Science-Public Service and Women s Studies, with honors, from the University of California at Davis. Ms. Houck also received her law degree from the University of California at Davis and she has been a member of the State Bar of California since Reeta Madhavan, Chief Financial Officer. Ms. Madhavan has been with the District since September 2002, and was the Executive Director of Budget Services prior to being named Chief Financial Officer. Ms. Madhavan has experience in both corporate and commercial real estate banking. She served as an Assistant Vice- President of Commercial Real Estate Lending and managed a portfolio of construction and leasehold improvement loans in excess of $300 million at a medium-sized bank in Cambridge, Massachusetts. Ms. Madhavan holds a Master of Arts degree from the State University of New York at Stony Brook, and a Master of Business Administration degree with a major in Finance and Accounting from Babson College, Massachusetts. A-3

40 Ms. Madhavan is a member of the Business Services Council of the Association of California School Administrators (ACSA), serves as the District s appointee to the City s Treasury Oversight Committee and participates in professional development related to school finance and legislation affecting the education budget and funding for schools. Paulette Terrell, Director of Fiscal Services. Ms. Terrell is the Director of Fiscal Services and graduated from the University of Arkansas AM&N College with a Bachelor of Science degree in Business Administration with a minor in Accounting. Ms. Terrell became Director of Fiscal Services for the District in March She has earned several certificates for additional educational course work in income tax accounting, cost accounting, real estate management, government accounting and school business training and management. Before joining the District, Ms. Terrell held other positions in the private sector and federal government. During her tenure with these organizations, she served as an auditor and fiscal manager between 1971 and General STATE FUNDING OF EDUCATION Public school district revenues consist primarily of State moneys, ad valorem property taxes and funds received from the State and federal government in the form of categorical aid, which are amounts restricted to specific categories of use, under various ongoing programs. All State apportionment of funds pursuant to the Local Control Funding Formula (collectively, State Aid ) is subject to the appropriation of funds in the State s annual budget. Decreases in State revenues may affect appropriations made by the State Legislature to the District. See DISTRICT FINANCIAL INFORMATION herein. Beginning with the Fiscal Year starting July 1, 2013, the State has replaced the former revenue limit formula for school district funding with the Local Control Funding Formula (the Local Control Funding Formula ). The Local Control Funding Formula consists of local property taxes from the general tax levy, payments from the Education Protection Account ( EPA ) and, if necessary to meet LCFF funding for a given year, additional State Aid funding from the State. See STATE FUNDING OF EDUCATION Local Control Funding Formula herein. The State expects the Local Control Funding Formula to be fully phased in by Fiscal Year Historically, approximately 80% of the annual District General Fund revenues have consisted of payments from or under the control of the State. Payments made to K-12 public schools and public colleges and universities are priority payments for State funds and are expected to be made prior to other State payment obligations. Although the State Constitution protects the priority of payments to K-12 schools, college and universities, it does not protect the timing of such payments and other obligations may be scheduled and have been scheduled to be paid in advance of those dates on which payments to school districts are scheduled to be made. A significant percentage of a school district s budgeted revenues may come from categorical funds provided exclusively by the State and federal government. These funds are to be used for specific programs and typically cannot be used for any other purpose. The State lottery is another source of funding for school districts, providing approximately 1.7% of a school district s general fund budget. Every school district receives the same amount of lottery funds per pupil from the State. The initiative authorizing the State lottery mandates the funds be used for instructional purposes and prohibits their use for land acquisition, construction or research and development. A small part of a school district s budget is from local sources other than property taxes, such as interest income, donations and sales of property. Some school districts derive a significant portion of their operating funds from voter-approved parcel taxes. Local Control Funding Formula General. The Local Control Funding Formula allocates State Aid to school districts through base grants (the Base Grant ), supplemental grants (the Supplemental Grant ) and concentration grants (the Concentration Grant ). In connection with the Local Control Funding Formula, funding for most State categorical programs has A-4

41 been eliminated. However, transportation funding is a categorical program that continues to benefit certain school districts such as the District. For Fiscal Year , the Local Control Funding Formula proposes to provide to school districts and charter schools: (a) a Target Base Grant for each local educational agency ( LEA ) equivalent to $7,083 per ADA for kindergarten through grade 3; (b) a Target Base Grant for each LEA equivalent to $7,189 per ADA for grades 4 through 6; (c) a Target Base Grant for each LEA equivalent to $7,403 per ADA for grades 7 and 8; (d) a Target Base Grant for each LEA equivalent to $8,578 per ADA for grades 9 through 12; (e) a grade span adjustment of 10.4% for K-3 Base Grant; (f) a grade span adjustment of 2.6% for grades 9 through 12 Base Grant; (g) a Supplemental Grant equal to 20% of the adjusted Base Grant for students classified as English learners ( EL Students ), students eligible to receive a free or reduced-price meal ( FRPM Students ), foster youth ( Foster Youth ) or any combination of these factors (collectively, Targeted Disadvantaged Students ); (f) a Concentration Grant equal to 50% of the adjusted Base Grant for Targeted Disadvantaged Students exceeding 55% of an LEA s enrollment; (h) for certain districts, an additional funding amount based on an economic recovery target to ensure that virtually all districts are at least restored to their State funding levels for Fiscal Year (adjusted for inflation) and (i) a minimum amount of State Aid to LEAs. However, actual funding pursuant to the Local Control Funding Formula is not expected to equal the Target Base Grant for several years. The Local Control Funding Formula is expected to be fully funded in the seventh year of its implementation. Pursuant to the Local Control Funding Formula, LEAs are required to progress toward an average class enrollment of no more than 24 pupils in kindergarten through grade 3 unless the LEA has collectively bargained an annual alternative average class enrollment in those grades for each school site. During Fiscal Year , approximately 63.8% of the District s General Fund revenues were derived from the Local Control Funding Formula. During Fiscal Year , approximately 64.9% of the District s General Fund revenues are budgeted to come from the Local Control Funding Formula. See DISTRICT FINANCIAL INFORMATION State Budget Act and Prior Revenue Limit Funding herein. The Local Control Funding Formula uses an unduplicated students count for Supplemental and Concentration Grants. Accordingly, a school district will receive Supplemental Grant for a single Targeted Disadvantaged Student regardless of whether such student falls into one or more of the EL Student, FRPM Student or Foster Youth categories. Because the District s demographic profile includes a significant number of Targeted Disadvantaged Students, the District expects to receive relatively more State Aid money than other school districts in the State. For Fiscal Year , the District has approximately 36,000 Targeted Disadvantaged Students on an unduplicated count basis. The Local Control Funding Formula is expected to be fully funded by Fiscal Year The table below provides a summary of the target LCFF funding amounts at full implementation for California school districts and charter schools based on grade levels and Targeted Disadvantaged Students. A-5

42 Grade Span Base Grant TABLE A-4 California School Districts and Charter Schools Grade Span Funding at Full LCFF Implementation K 3 Class Size Reduction and Grades 9-12 Adjustments Average Assuming 0% Unduplicated FRPM Students, EL Students, Foster Youth Average Assuming 25% Unduplicated FRPM Students, EL Students, Foster Youth Average Assuming 50% Unduplicated FRPM Students, EL Students, Foster Youth Average Assuming 100% Unduplicated FRPM Students, EL Students, Foster Youth K-3 $6,845 $712 $7,557 $7,935 $8,313 $10, ,947-6,947 7,294 7,642 9, ,154-7,154 7,512 7,869 10, , ,505 8,930 9,355 12,119 Source: The District. The following table sets forth the estimated funding for the District pursuant to the Local Control Funding Formula for Fiscal Year (1) Grade Span ADA Base Grant TABLE A-5 SAN FRANCISCO UNIFIED SCHOOL DISTRICT Target Local Control Funding Formula Entitlement (1) Fiscal Year Target Base Funding under LCFF K-3 Class Size Reduction (2) and Grades 9-12 Adjustments (3) Supplemental Grant (4) Concentration Grant (5) K-3 17, $7,083 $122,500,414 $12,746,408 $18,228,919 $8,405, , ,189 84,675, ,413,289 5,253, , ,403 50,572, ,817,747 3,142, , , ,951,897 3,378,325 17,982,385 8,286,744 Information based on the District Budget. Assumes a 67.42% unduplicated count for Targeted Disadvantaged Youth. (2) Equivalent to approximately 10.4% x K-3 Base Funding ($737). (3) Equivalent to approximately 2.6% x 9-12 Base Funding ($223). (4) Equivalent to 20 x 100% of Adjusted Base Funding. (5) Equivalent to (100% - 55%) x 50% of Adjusted Base Funding. Source: District Budget. Economic Recovery Target. During the period in which Local Control Funding Formula is phased in, the State will provide additional funding to certain LEAs (this additional funding is known as the Economic Recovery Target ). To the extent that the former revenue limit allocation would have been greater than the allocation pursuant to the Local Control Funding Formula, the State will provide the additional allocation to the LEA. The Economic Recovery Target is expected to ensure that funding to most LEAs is restored to the levels allocated by the State in Fiscal Year adjusted for inflation. School districts and charter schools that were above the 90th percentile of per-pupil funding rates under the revenue limit formula for State Aid will not be eligible for payments of the Economic Recovery Target. The District does not expect to receive an allocation towards the Economic Recovery Target in Fiscal Year A-6

43 Local Control Funding Formula Gap Funding. The Local Control Funding Formula funds a portion of the gap between the funding received and the target amount under the Local Control Funding Formula (the LCFF Gap Funding ) during any one year. During Fiscal Year fiscal year, the State provided to LEAs their Fiscal Year funding plus a portion of the LCFF Gap Funding. For Fiscal Year and each fiscal year thereafter, an LEA s funding amount will be based on recalculation of its target amount under the Local Control Funding Formula and its prior year s funding including any prior fiscal year s transition funding converted to a per- ADA value and then adjusted for current year ADA. The State Budget allocated an additional $2.1 billion of Proposition 98 General Fund money to address the projected deficit in funding for implementation of the Local Control Funding Formula. On June 19, 2015, the Department of Finance released revised out year estimates for closing the LCFF funding gap to reflect the impact of the State Budget on LCFF implementation. The revised figures apply to all school districts and are provided below. Fiscal Year Source: Department of Finance. TABLE A-6 California School Districts LCFF Funding Gap and Annual Cost of Living Adjustments Fiscal Years through Budgeted Gap Percentage (1) Revised From Gap Percentage COLA % 53.08% 1.02% Local Control and Accountability Plan. Pursuant to the Local Control Funding Formula, school districts, county offices of education and charter schools are required to develop, adopt and annually update a three-year local control and accountability plan ( LCAP ). The LCAP is required to identify goals and measure progress for student subgroups across multiple performance indicators. The State s priorities include, among other things, compliance with the Williams settlement with respect to appropriateness of teacher assignments, ensuring that teachers are fully credentialed in the subject areas and for the pupils they are teaching, and ensuring that every pupil in the school district has sufficient access to the standardsaligned instructional materials as determined in accordance with the Education Code. In addition, school facilities are to be maintained in good repair. The State requires proper implementation of the academic content and performance standards adopted by the State Board of Education and will measure parental involvement (e.g., efforts to seek input from parents or guardians regarding decisions for the district and the school site), pupil achievement (e.g., performance on Statewide assessments, the Academic Performance Index, readiness for college or career technical education, progress towards English proficiency, performance on advance placement examinations), pupil engagement (e.g., school attendance rates, chronic absenteeism rates, middle school dropout rates, high school dropout and graduation rates, pupil suspension and expulsion rates, etc.), access and enrollment in a broad course of study including the core subject areas and programs and services developed and provided to Targeted Disadvantaged Students, and pupil outcomes in the subject areas comprising a broad course of study. The State Board of Education is required to adopt regulations that govern the expenditure of the Supplemental Grant and Concentration Grant funding. These regulations will require school districts, county offices of education, and charter schools to increase and improve services for Targeted Disadvantaged Students and will provide authority for school districts to spend funds school-wide in its LCAP when significant populations of Targeted Disadvantaged Students attend a school. LEAs will be required to obtain input from parents of students and the general public in connection with the development, revision and updates of LCAPs. In addition, County superintendents will review school district LCAPs and county offices of education will be required to provide technical assistance if they disapprove an LCAP. The Education Code grants the State Superintendent of Public A-7

44 Instruction authority to intervene if a school district or charter school fails to show improvement across multiple subgroups in three out of four consecutive years. On June 23, 2015, the District Board adopted the LCAP for the District. Prior Revenue Limit Funding Prior to LCFF, school districts in the State received most of their revenues under a formula known as the revenue limit. Each school district s revenue limit, which was funded by State moneys and local ad valorem property taxes from the general 1% ad valorem property tax levy, was allocated based on the ADA of each school district for either the current or preceding school year. Each school district received a portion of the local ad valorem property taxes that was collected from the general 1% ad valorem property tax levy within its district boundaries. Generally, State Aid to a school district would amount to the difference between the school district s revenue limit and the school district s local property tax allocation from the general 1% ad valorem property tax levy. During Fiscal Year , approximately 46.7% of the District s General Fund revenues were derived from the revenue limit. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS herein. The revenue limit calculation formula was first instituted in Fiscal Year to provide a mechanism to calculate the amount of general purpose revenue a school district is entitled to receive from the State and local allocations of the general 1% ad valorem property tax levy. Prior to Fiscal Year , taxpayers in school districts with low property values per pupil paid higher tax rates than taxpayers in school districts with high property values per pupil. However, despite higher tax rates, less was spent per pupil in school districts with low property values per pupil than school districts with high property values per pupil. Thus, the State revenue limit funding was designed to alleviate the inequities between the two types of school districts. Revenue limit calculations were adjusted annually in accordance with a number of factors designed primarily to provide cost of living increases and to equalize revenues among school districts in the State of similar type (i.e., unified school districts, high school districts or elementary school districts) and size (e.g., large or small). Average Daily Attendance under Revenue Limit Funding ADA is reported by school districts each year in April, July and December. The calculation of the amount of State Aid a school district is entitled to receive each year is basically a five-step process. First, the prior year school district revenue limit per ADA was established, with recalculations as are necessary for adjustments for equalization or other factors. Second, the adjusted prior year revenue limit per ADA was inflated according to formulas based on the implicit price deflator for government goods and services and the statewide average revenue limit per ADA for school districts. During this phase, a deficit factor could be applied to the base revenue limit if so provided in the State Budget Act (as defined herein) for a given fiscal year (when appropriation of funds in the State s annual budget for revenue limits or for any categorical program is not sufficient to pay all claims for State Aid, a deficit factor was applied to reduce the allocation of State Aid to the amount appropriated). Third, the current year s revenue limit per ADA for each school district was multiplied by such school district s ADA for the current or prior year. For a school district with declining enrollment, the current year s revenue limit per ADA was multiplied by the school district s ADA for the prior year. Fourth, revenue limit add-ons were calculated for each school district if such school district qualified for the add-ons. Add-ons include the necessary small school district adjustments, meals for needy pupils and small school district transportation, and are added to the revenue limit for each qualifying school district. Fifth, local ad valorem property taxes allocated from the general 1% ad valorem property tax levy were deducted from the revenue limit to arrive at the amount of State Aid to which each school district is entitled for the current year. The following table sets forth the District s revenue limit per unit of ADA from Fiscal Years through Beginning in Fiscal Year , the method by which State Aid is allocated to school districts was changed and the Base Revenue Limit was replaced by the Local Control Funding Formula. See STATE FUNDING OF EDUCATION Local Control Funding Formula herein. A-8

45 (1) TABLE A-7 SAN FRANCISCO UNIFIED SCHOOL DISTRICT K-12 Base Revenue Limit Per Unit of Average Daily Attendance Fiscal Years through Fiscal Year K-12 Base Revenue Limit (1) , , ,331 The K-12 Base Revenue Limit figures represent the funded revenue limits. Sources: The District s Annual Financial Reports for Fiscal Years through Average Daily Attendance The District Budget uses Fiscal Year ADA to project funding under LCFF. The following table sets forth the District s annual ADA record for Fiscal Year through and the estimated ADA at Period 2 ( P-2 ) for Fiscal Year TABLE A-8 SAN FRANCISCO UNIFIED SCHOOL DISTRICT Annual Average Daily Attendance Fiscal Years through Fiscal Year District Schools (1) , , , , , ,858 (2) (1) Includes elementary, middle and high school students and students in opportunity classes, home and hospital, special day class, and continuation education.. Excludes independent charter schools. These figures represent P-2 ADA for both District and County Office programs combined. (2) Estimated. Sources: The District s Annual Financial Reports for Fiscal Years through and the District Budget. Education Revenue Augmentation Fund. As part of the Fiscal Year State budget resolution, the State required counties, cities and special districts to shift ad valorem property tax revenues to school districts by contributing to the Education Revenue Augmentation Fund ( ERAF ) in lieu of direct payments to school districts from the general fund of the State (the State General Fund ). This transfer is commonly referred to as the ERAF shift. The Fiscal Year State Budget Act required a similar shift of ad valorem property taxes to school districts from local government entities, which shift of ad valorem property taxes has continued. The manner in which the shift of ad valorem property taxes has occurred has varied year by year. As a result of the various shifts of ad valorem taxes, school districts no longer receive ERAF funds. Proposition 1A (defined herein) generally prohibited the State from shifting to schools or community colleges any share of ad valorem property tax revenues allocated from the 1% levy to local governments for any fiscal year, as set forth under the laws in effect as of November 3, However, Proposition 1A provided that beginning in Fiscal Year , the State could shift to schools and community colleges up to 8% of local government property tax revenues from the general 1% ad valorem property tax levy, which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe State financial hardship, the shift is approved by two-thirds of both houses and certain other conditions are met. Notwithstanding the aforementioned shifts in property tax revenues in prior fiscal years, certain levels of funding are guaranteed as A-9

46 described in Propositions 98 and 111 below. Ad valorem property taxes levied to pay debt service on the District s general obligation bonds, are not subject to the shifts described above for ad valorem property taxes provided from the 1% levy. Further, the State s ability to initiate future exchanges and shifts of funds will be limited by Proposition 22. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Propositions 1A and 22 herein. Proposition 98 On November 8, 1988, voters of the State approved Proposition 98, a combined initiative constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act. Proposition 98 changed State funding of public education below the university level and the operation of the State s appropriation limit as described in Article XIIIB of the State Constitution, primarily by guaranteeing K-14 schools a minimum share of State General Fund revenues. Under Proposition 98 (as modified by Proposition 111, which was enacted on June 5, 1990), there are currently three tests which determine the minimum level of K-14 funding. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS herein. Proposition 98 also contains provisions transferring certain State tax revenues in excess of the revenue limit to K-14 schools under Article XIIIB of the State Constitution. Proposition 98 permits the State Legislature, by two-thirds vote of both houses and with the Governor s concurrence, to suspend the K-14 schools minimum funding formula for a one-year period. The amount of suspension is eventually repaid according to a specified State Constitutional formula, thereby restoring Proposition 98 funding to the level that would have been required in the absence of such suspension. The Fiscal Year State Budget Act suspended the Proposition 98 minimum guarantee for Fiscal Year ; however, the suspended amount was fully paid in Fiscal Year The Proposition 98 minimum guarantee was fully funded for Fiscal Years through Fiscal Year The State Budget Act for Fiscal Year suspended the Proposition 98 minimum guarantee in Fiscal Year The Fiscal Year State Budget Act and Fiscal Year State Budget Act fully funded the Proposition 98 minimum guarantee. Assembly Bill No. 6 ( ABx8 6 ), which was adopted in March 2010, authorized the State to eliminate the sales tax on gasoline and replace it with an excise tax. The elimination of the sale tax on gasoline would reduce the State General Fund. Under current law, any reduction in the State General Fund could reduce the minimum guarantee under Proposition 98. Pursuant to ABx8 6, the State Director of Finance is directed to adjust the percentage of State General Fund revenues appropriated for school districts and community college districts such that the provisions of ABx8 6 will have no net fiscal impact upon the amounts that are otherwise required to be applied by the State for the support of school districts and community college districts pursuant to Proposition 98. However, there can be no assurances that any action taken by the State Director of Finance will not adversely affect Proposition 98 revenues. See State Budget State Budget Act and CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Propositions 98 and 111, and Propositions 1A and 22 herein. State Budget General. The District s operating income consists primarily of two components, which include the State Aid portion funded from the State General Fund and a locally generated portion derived from the District s share of the general 1% ad valorem property tax levy authorized by the State Constitution. In addition, school districts, such as the District, may be eligible for other special categorical funding, including funding for certain State and federal programs. Currently, the District receives approximately 12% of District General Fund revenues from funds of or controlled by the State. As a result, decreases in State revenues, or in State legislative appropriations made to fund education, may have a moderate impact on District operations. The following description of the State s budget has been obtained from publicly available information which the District believes to be reliable; however, none of the District, its counsel (including Disclosure Counsel) or the Financial Advisor guarantees the accuracy or completeness of this information and have not independently verified such information. Additional information regarding State budgets is available at various State-maintained websites, including These websites are not incorporated herein by reference and none of the A-10

47 District, its counsel (including Disclosure Counsel), or the Financial Advisor make any representation as to the accuracy of the information provided therein. The State Budget Process. The State s fiscal year begins on July 1 and ends on June 30. According to the State Constitution, the Governor of the State (the Governor ) is required to propose a budget for the next fiscal year (the Governor s Budget ) to the State Legislature no later than January 10 of each year. State law requires the Governor to update the Governor s Budget projections and budgetary proposals by May 14 of each year (the May Revision ). Proposition 25, which was adopted by voters in the State at an election held on November 2, 2010, amended the State Constitution such that a final budget must be adopted by a simple majority vote of each house of the State Legislature by no later than June 15 and the Governor must sign the adopted budget by no later than June 30. The budget becomes law upon the signature of the Governor (the Budget Act ). Under State law, the annual proposed Governor s Budget cannot provide for projected expenditures in excess of projected revenues and balances available from prior fiscal years. Following the submission of the Governor s Budget, the State Legislature takes up the proposal. Under the State Constitution, money may be drawn from the State Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act, as approved by the State Legislature and signed by the Governor. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line-item vetoes are subject to override by a two-thirds majority vote of each House of the State Legislature. Appropriations also may be included in legislation other than the Budget Act. Bills containing appropriations (except for K-14 education) must be approved by a two-thirds majority vote in each House of the State Legislature and be signed by the Governor. Bills containing K-14 education appropriations require only a simple majority vote. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution. Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt. However, delays in the adoption of a final State budget in any fiscal year may affect payments of State funds during such budget impasse. See State Funding of Schools Without a State Budget herein for a description of payments of appropriations during a budget impasse. Limitations on School District Reserves. As part of the State Budget, the Governor signed Senate Bill 858 ( SB 858 ) which includes provisions which could limit the amount of reserves that may be maintained by a school district in certain circumstances. Such provisions became effective when the State voters approved the constitutional amendments establishing a Rainy Day Fund into which 1.5 percent of general fund revenues are to be deposited annually and into which deposits are required whenever capital gains revenues rise to more than 8 percent of General Fund tax revenues, such deposits being made until the Rainy Day Fund balance reaches an amount equal to 10 percent of General Fund revenues. Under SB 858, in any fiscal year immediately following a fiscal year in which the State has made a transfer into the Public School System Stabilization Account, any adopted or revised budget by a school district would need to contain a combined unassigned and assigned ending fund balance that (a) for school districts with an ADA of less than 400,000, is not more than two times the amount of the reserve for economic uncertainties mandated by the Education Code, or (b) for school districts with an ADA that is more than 400,000, is not more than three times the amount of the reserve for economic uncertainties mandated by the Education Code. In certain cases, the county superintendent of schools may grant a school district a waiver from this limitation on reserves for up to two consecutive years within a three-year period if there are certain extraordinary fiscal circumstances. The District, which has an ADA of less than 400,000, is required to maintain a reserve for economic uncertainty in an amount equal to 2% of its general fund expenditures and other financing uses. The District s estimated actual financial results for fiscal year projected total expenditures and other financing uses of approximately $659.5 million, 2% of which is approximately $13.2 million. The estimated maximum amount permitted under SB 858 in fiscal year , if SB 858 were in effect for such fiscal year, would be approximately $26.4 million. The District s estimated actual financial results for fiscal year projected a combined assigned and unassigned ending fund balance of approximately $58.7 million, which is approximately $32.3 million more than the maximum that would be permitted under SB 858 if SB 858 were in effect. SB 858 would not adversely affect the payment of principal of and interest on the Bonds as and when due. See DISTRICT FINANCIAL INFORMATION District s General Fund Budget for Fiscal Year below for information relating to the District s adopted budget. A-11

48 State Budget Act. On June 24, 2015, Governor Brown signed the fiscal year budget for the State (the State Budget ). The State Budget includes general fund revenues and transfers of $113 billion in and $115 billion in Total general fund expenditures under the State Budget are $114.4 billion in and $115.3 billion in As of the close of , the Rainy Day Fund will have a balance of approximately $3.5 billion. The State Budget includes certain provisions to address poverty in the State including an Earned Income Tax Credit for the poorest residents as well as Medi-Cal coverage for all financially eligible children without regard to immigration status. In addition, $1.8 billion in one time resources are included for various State-wide drought-related activities. $1 billion in deferrals of apportionments to schools and community colleges will be repaid, the final $15 billion payment on the Economic Recovery Bonds will be made and local governments will be paid $533 million in mandated reimbursements. Total K-12 funding under the State Budget is $83.2 billion ($49.7 general fund and $33.5 billion other funds). Proposition 98 funding is increased by $7.6 billion over levels in with $68.4 billion in Significant features of the State Budget pertaining to K-12 education are as follows: Local Control Funding Formula An increase of almost $6 billion in Proposition 98 funding to continue the State s transition to the Local Control Funding Formula. This increase will close the remaining funding implementation gap by more than 51 percent. Career Technical Education Career Technical Education (CTE) Incentive Grant Program provides $400 million, $300 million, and $200 million Proposition 98 funding in , , and , respectively, for local education agencies to establish new or expand high-quality CTE programs. Educator Support $500 million one-time Proposition 98 funding for educator support. $490 million of this amount is for activities that promote educator quality and effectiveness, including beginning teacher and administrator support and mentoring, support for teachers who have been identified as needing improvement, and professional development that is aligned to the state academic content standards. Additionally, $10 million is provided for the K-12 High Speed Network to provide professional development and technical assistance to local educational agencies related to network management. Special Education $60.1 million Proposition 98 funding ($50.1 million ongoing and $10 million onetime) to implement selected program changes recommended by the California Statewide Special Education Task Force, making targeted investments that improve service delivery and outcomes for all disabled students, with a particular emphasis on early education. K-12 High Speed Internet Access $50 million in one-time Proposition 98 funding to support additional investments in internet connectivity and infrastructure to further upgrade internet infrastructure to reflect the increasing role that technology plays in classroom operations to support teaching and learning. K-12 Mandates An increase of $3.2 billion in one-time Proposition 98 funding to reimburse K-12 local educational agencies for the costs of state-mandated programs. These funds will make a significant down payment on outstanding mandate debt, while providing school districts, county offices of education, and charter schools with discretionary resources to support critical investments such as Common Core implementation. K-12 Deferrals $897 million Proposition 98 General Fund to eliminate deferrals consistent with the revenue trigger included in the State Budget. Early Education An increase of $34.3 million ($30.9 million Proposition 98, $3.5 million General Fund) to provide access to full-day State Preschool for an additional 7,030 children from low-income working families. In addition, $145 million will shift from General Child Care to State Preschool to A-12

49 allow full-day State Preschool providers that are local educational agencies to access a single funding stream (Proposition 98) in their full-day State Preschool contracts. Additional Information. Information about the State budget and State spending for education is regularly available at various State-maintained websites. Text of the State budget may be found at the website of the Department of Finance, under the heading California Budget. Various analyses of the budget may be found at the website of the LAO at In addition, various State official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on school districts in the State, may be found via the website of the State Treasurer, The information presented in these websites is not incorporated by reference in this Official Statement. Future State Budgets. The District cannot predict what actions will be taken in the future by the State Legislature and the Governor to address the State s current or future budget deficits and cash management practices. Future State budgets will be affected by national and State economic conditions, including the current economic downturn, over which the District has no control, and other factors over which the District will have no control. To the extent that the State budget process results in reduced revenues deferred revenues or increased expenses for the District, the District will be required to make adjustments to its budget and cash management practices. In the event current or future State Budgets decrease the District s revenues or increase required expenditures by the District from the levels assumed by the District, the District will be required to generate additional revenues, curtail programs or services, or use its reserve funds to ensure a balanced budget. DISTRICT FINANCIAL INFORMATION Certain statements included or incorporated by reference in this Appendix A constitute forward-looking statements. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, budget, project, projection or other similar words. Such statements are subject to risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different 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. County Office of Education In each county there is a county superintendent of schools (the County Superintendent ) and a county board of education. The office of the county superintendent of schools, frequently known as the County Office of Education (the County Office ) provides the staff and organization that carries out the activities of the county superintendent and county board of education. Because the District is coterminous with the City, the District s Superintendent performs the duties of the County Superintendent and the District administers the local County Office of Education. County Offices provide instructional and support services to school districts within their counties, and various State mandated services county-wide, particularly in special education and juvenile court education services. County Office business services departments act as a control point for a variety of information, including pupil data collection, attendance accounting, teacher credential registration, payroll accounting, retirement and tax information and school district budgets, and also report such information to the State Department of Education. Generally, all school district budgets must be approved by their County Office and each district must provide its County Office with scheduled interim reports throughout the fiscal year. County Offices also act as enforcement entities which intervene in district fiscal matters should a district fail to meet State budget and reporting criteria. However, since the District is conterminous with the City and the District s Superintendent performs the duties of the County Superintendent and the District administers the local County Office of Education, the District s budgets and the County of Education s budgets are submitted to and approved by the State Superintendent of Schools (the State Superintendent ). A-13

50 School District Budget Process School districts are required by provisions of the 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 minimum reserves which can be drawn upon in the event of a resulting excess of expenditures over revenues for a given fiscal year. The State Department of Education imposes a uniform budgeting and accounting format for school districts. School districts must adopt a budget no later than June 30 of each year. The District submits its budget to the State Superintendent within five days of adoption or by July 1, whichever occurs first. A district may be on either a dual or single budget cycle. The dual budget option requires a revised and readopted budget by September 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 or as needed. The District follows a single budget adoption cycle. The District s Adopted Budget for Fiscal Year was adopted by the Board of Education on June 23, With respect to the District, the State Superintendent will examine the adopted budget submitted on or prior to July 1 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 State Superintendent will approve or disapprove the adopted budget for the District. Pursuant to State law, the State Superintendent has available various remedies by which to impose and enforce a budget that complies with State criteria, depending on the circumstances, if a budget is disapproved. Subsequent to approval, the State Superintendent throughout the fiscal year will monitor the District pursuant to its adopted budget to determine on an ongoing basis if the District can meet its current or subsequent year financial obligations. If the State Superintendent determines that the District cannot meet its current or subsequent year obligations, the State Superintendent will notify the District s Board of Education of the determination and the State Superintendent may do either or both of the following: (a) assign a fiscal advisor to enable the District to meet those obligations or (b) if a study and recommendations are made and the District fails to take appropriate action to meet its financial obligations, the State Superintendent may then do any or all of the following for the remainder of the fiscal year: (i) request additional information regarding the District s budget and operations; (ii) develop and impose, after also consulting with the District s Board of Education, revisions to the budget that will enable the District to meet its financial obligations; and (iii) stay or rescind any action inconsistent with such revisions. However, the State Superintendent may not abrogate any provision of collective bargaining agreement that was entered into prior to the date upon which the State Superintendent assumed authority. At a minimum, the District will file with the State Department of Education a First Period Interim Financial Report (the First Interim Report ) by December 15 covering financial operations from July 1 through October 30, and a Second Period Interim Financial Report (the Second Interim Report ) by March 15 covering financial operations from July 1 through January 31. Section of the Education Code requires that each interim report be certified by the school board as either (a) positive, certifying that the district, based upon current projections, will meet its financial obligations for the current fiscal year and subsequent two fiscal years, (b) qualified, certifying that the district, based upon current projections, may not meet its financial obligations for the current fiscal year or two subsequent fiscal years, or (c) negative, certifying that the district, based upon current projections, will be unable to meet its financial obligations for the remainder of the fiscal year or the subsequent fiscal year. A certification by the District s Board of Education may by revised by the State Superintendent. If either the First Interim Report or Second Interim Report is not positive, the State Superintendent may require the District to provide an additional financial report (the June Report ) covering financial operations from February 1 through April 30 by June 1, although the certification of the District cannot be changed on the basis of the June Report. If not required, a June Report is not prepared. Each interim report shows fiscal year-to-date financial A-14

51 operations and the current budget, with any budget amendments made in light of operations and conditions to that point. For a summary of balances, revenues and expenditures for Fiscal Year at the time of the District s adopted budget for Fiscal Year , the First Interim Report, the Second Interim Report and the Fiscal Year June Report, see District Budgets Budget Outcomes for Fiscal Year After the close of the fiscal year on June 30, an unaudited financial report for the fiscal year is prepared and filed without certification with the State Department of Education. The District currently has received a positive certification on the basis of its Second Interim Report for Fiscal Year The District has not filed a qualified or negative certification in the last five years. The District timely filed its Unaudited Actuals and Annual Audit to the State Department of Education for Fiscal Year and expects to timely file its Unaudited Actuals by October 15, 2015 and Annual Audit for Fiscal Year by December 15, District Budgets In Fiscal Year , the District began allocating local funds to schools through a weighted student formula ( WSF ), as opposed to the alternative method of full-time equivalent staffing allocations. The WSF method focuses on allocating and distributing dollars and permits budgetary decisions to be made at the school site by the site administrator and local school site councils. A basic funding amount by grade level is provided for each student and supplemented by an additional amount if the student requires English language learner services or is from a low socioeconomic household. The school principal and local school site councils prepare and submit preliminary budgets using initial allocations that are based on enrollment projections. These preliminary budgets are subject to change as a result of changes in each school s actual enrollment and/or overall District funding levels. As budget allocations change, the school principal and local school site councils prepare revised spending plans. Budget Outcomes for Fiscal Year The following table summarizes budgeted revenues and expenditures and projected year-end amounts, including projected year-end General Fund balances, as reported in the District Budget, the Fiscal Year First Interim Report and the Fiscal Year Second Interim Report as well as the actual results for Fiscal Year See School District Budget Process herein. A-15

52 TABLE A-9 SAN FRANCISCO UNIFIED SCHOOL DISTRICT District General Fund Summary of Balances, Revenues and Expenditures Fiscal Year ($ in Thousands) (1) District Budget First Interim Report (December 2013) Second Interim Report (March 2014) Actual Results (June 2014) Beginning Balance $ 77,893 $ 60,405 $ 60,405 $ 60,405 Revenues/Other Sources $ 588,226 $ 605,817 $ 605,586 $ 619,619 Expenditures/Other Uses $ 597,841 $ 623,527 $ 632,899 $ 608,461 Operating Surplus (Deficit) $ (9,615) $ (17,711) $ (27,313) $ 2,333 Ending Balance $ 68,277 $ 42,694 $ 33,092 $ 62,738 (1) Totals may not equal sum of component parts due to rounding. Sources: District Budget, Fiscal Year First Interim Report, Fiscal Year Second Interim Report, Annual Financial Report for Fiscal Year Budget Outcomes for Fiscal Year The following table summarizes budgeted revenues and expenditures and projected year-end amounts, including projected year-end General Fund balances, as reported in the District Budget, the Fiscal Year First Interim Report, the Fiscal Year Second Interim Report and the Fiscal Year Estimated Actual Results. The District has timely prepared each of these estimates of its Fiscal Year financial results and provided this information to the District Board and the County. See School District Budget Process herein. A-16

53 TABLE A-10 SAN FRANCISCO UNIFIED SCHOOL DISTRICT District General Fund Summary of Balances, Revenues and Expenditures Fiscal Year ($ in Thousands) (1) District Budget First Interim Report (December 2014) Second Interim Report (March 2015) Estimated Actual Results (June 2015) Beginning Balance $ 47,777 $ 62,738 $ 62,738 $ 62,738 Revenues/Other Sources $ 627,946 $ 653,427 $ 656,688 $ 655,517 Expenditures/Other Uses $ (640,505) $ (674,159) $ (661,150) $ (659,512) Operating Surplus (Deficit) $ (12,559) $ (20,732) $ (4,462) $ (3,995) Ending Balance $ 35,219 $ 42,006 $ 58,276 $ 58,742 (1) Totals may not equal sum of component parts due to rounding. Sources: District Budget, Fiscal Year First Interim Report, Fiscal Year Second Interim Report, Estimated Actual Results. District s General Fund Budget for Fiscal Year At the time the District s General Fund Budget for Fiscal Year was adopted on June 23, 2015, the District estimated an ending fund balance of $33.5 million at June 30, 2015 for the unrestricted portion of the General Fund. In the District s General Fund Budget for Fiscal Year , the revenue projections for Fiscal Year reflect the State Department of Finance s recommended growth factors of the Local Control Funding Formula (LCFF). For Fiscal Year , the funding formula per LCFF is expected to provide $465.1 million. This represents an additional $46.7 million for the District s General Fund compared to the estimated actual LCFF funding from Fiscal Year In addition to funds from the LCFF, the District s projected unrestricted sources of revenue for Fiscal Year reflect an assumed receipt of $44.8 million from State funds, including approximately $7.3 million of lottery revenue (unrestricted), approximately $5.6 million from pass-through revenues to charter schools approximately $1.8 million from the mandated block grant, and $29.7 million in one-time funds as reimbursement against prior year mandate claims The projected unreserved fund balance in the General Fund is expected to be $54.0 million at June 30, A-17

54 The following table contains the District s Adopted General Fund Budgets for Fiscal Years and , the District s actual results for Fiscal Year and the District s estimated or projected figures for Fiscal Years and Amounts include both restricted and unrestricted income and expenditures. TABLE A-11 SAN FRANCISCO UNIFIED SCHOOL DISTRICT General Fund Budget Fiscal Years , and (Dollars in Thousands) Adopted Budget Actual Results Adopted Budget Estimated Results Adopted Budget Beginning Balance $ 60,405 $60,405 $ 47,777 $62,738 $58,742 Income: Revenue Limit/LCFF Sources (1) $282,761 $375,832 $402,908 $418,438 $465,117 Federal Revenue 32,475 37,407 30,075 34,962 29,560 Other State Revenue 128,613 44,138 37,374 35,779 58,346 Other Local Revenue 144, , , , ,805 Total Income (2) $588,226 $607,047 $627,946 $655,517 $722,828 Total Beginning Balance and Income $648,631 $667,452 $675,723 $718,255 $781,570 Expenditures: Certificated Salaries $245,140 $245,974 $261,188 $261,972 $277,417 Classified Salaries 73,068 70,231 77,823 77,983 89,181 Employee Benefits 125, , , , ,069 Books and Supplies 19,296 23,389 24,600 25,937 23,700 Services & Other Operating Expenses 52,401 58,421 54,926 60,376 60,917 Capital Outlay 708 1,535 1,072 1, Other Outgo/Indirect/Transfers 82,183 76,188 95, , ,236 Debt Service Principal - 1,100 Debt Service Interest - 1,699 Total Expenditures (2) $597,842 $595,889 $640,504 $659,513 $697,837 Net Ending Balance (2) $ 50,789 $ 71,563 $ 35,219 $58,742 $83,733 (1) The beginning balance shown in the Adopted Budget columns for Fiscal Years and have been revised to be consistent with Fiscal Years and actual results. Figures include LCFF revenues. (2) Totals may not add due to rounding. Sources: Fiscal Year District Budget; Fiscal Year District Budget; Fiscal Year District Budget; Annual Financial Report for Fiscal Year A-18

55 Comparative Financial Statements The table below summarizes the District s Statement of General Fund Revenues, Expenditures and Changes in Fund Balance for the Fiscal Years through See also Appendix C FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2014 for further detail on the District s most recent audited financial performance. TABLE A-12 SAN FRANCISCO UNIFIED SCHOOL DISTRICT Summary of Audited General Fund Revenues and Expenditures (1)(2) Fiscal Years to (Dollars in Thousands) REVENUES: Revenue limit/lcff (2) sources $244,154 $259,586 $260,470 $262,490 $375,832 Federal sources 48,898 50,697 62,599 51,812 37,407 Other State sources 129, , , ,119 56,710 Other local sources 124, , , , ,669 Total Revenues $546,770 $548,193 $575,878 $572,838 $619,619 EXPENDITURES: Current Instruction 265, , , , ,969 Instruction related activities: Supervision of instruction 77,056 71,233 79,282 79,132 90,556 Instructional library, media and technology 7,569 7,196 7,304 8,632 8,295 School site administration 33,600 33,616 32,983 33,491 33,933 Pupil Services: Home-to-school transportation 9,254 8,034 8,556 9,660 8,411 Food services 6,538 11,230 8, All other pupil services 31,903 30,777 31,363 31,853 36,715 General Administration: Data processing 7,247 7,346 7,550 7,737 6,534 All other general administration 19,941 19,127 19,816 19,631 21,383 Plant services 50,897 50,915 51,020 52,086 50,899 Facility acquisition and construction 3,055 3,416 3,495 3,171 4,273 Ancillary services 3,113 3,286 3,403 3,663 2,207 Other (outgo) 42,453 48,555 65,834 69,407 80,283 Enterprise Services Debt service Principal 1,204 1,100 1,100 1,100 1,100 Interest and other 1,125 2,124 1,754 1,539 1,699 Total Expenditures $554,327 $534,227 $569,392 $578,607 $608,461 Excess of revenues over (under) expenditures (7,556) 13,966 6,486 (5,770) 11,158 OTHER FINANCING SOURCES (USES): Transfers in 219 Other sources Transfers out (13,494) (12,481) (6,882) (11,718) (9,044) Net Financing Sources (Uses) (13,494) (12,481) (6,882) (11,718) (8,825) NET CHANGE IN FUND BALANCES (21,050) 1,486 (396) 17,488 2,333 Fund Balance Beginning 97,853 76,803 78,289 77,893 60,405 Fund Balance Ending $ 76,803 $ 78,289 $ 77,893 $ 60,405 $ 62,738 (1) (2) Totals may not add due to rounding. Figures for Fiscal Years through include Charter Schools Pass-through Revenue Limit and Categorical Block Grant Pass-through. Sources: The District s Annual Financial Reports for Fiscal Years through A-19

56 Revenue Limit, LCFF and State Categorical Program Sources From Fiscal Year through Fiscal Year California public school districts operated under general purpose revenue limits established by the State Legislature. In general, the revenue limits were calculated for each school district by multiplying (1) the ADA for each such district by (2) a base revenue limit per unit of ADA The revenue limit calculations were adjusted annually in accordance with a number of factors designed primarily to provide cost of living increases and to equalize revenues among all school districts in the State of the same type. See STATE FUNDING OF EDUCATION in this Appendix A. The State Budget established a new funding formula for school districts and county offices of education, the LCFF, to increase local control and flexibility, reduce State bureaucracy and to ensure that student needs drive the allocation of resources. The LCFF replaced the prior revenue limit funding system and most categorical programs, and distributes combined resources to school districts through a Base Grant per unit of ADA with additional supplemental funding allocated to local educational agencies that serve English language learners and economically disadvantaged students, provide lower class sizes in grades K-3, or offer career technical education classes in high school. See STATE FUNDING OF EDUCATION Local Control Funding Formula and Prior Revenue Limit Funding in this Appendix A for additional information regarding the LCFF. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] A-20

57 Unique Revenue Sources In addition to LCFF revenues (or previously, revenue limit) and State categorical program revenues, the District has several unique revenue sources that accounted for approximately 21% of General Fund Revenues in Fiscal Year and are expected to account for approximately 19.2% of General Fund Revenues in Fiscal Year , as described below. Revenue Source (1) District s Estimated Amounts for Fiscal Year ($ in millions) District s Budgeted and Estimated Amounts for Fiscal Year ($ in millions) 1. Proposition A, Quality Teacher and Education Act (2008), $37.3 $37.9 approved by 69.75% of the voters, is a $198 annual tax per parcel that escalates annually at the rate of change in the CPI and sunsets in A major portion of the annual revenue (71.3%) is applied toward teacher compensation, training and support to make salaries competitive with surrounding school districts, with the remainder going to technology and infrastructure improvements, innovation, research and development, and additional teacher professional development. 2. A special sales tax (0.25%) was approved by voters in 1993 and $30.0 $31.4 continues into perpetuity. Portions of the sales tax revenue are allocated to the District and to San Francisco Community College District. 3. Proposition H (2004) created a Public Education Enrichment $50.7 $59.2 Fund ( PEEF ) which is funded by the City until The annual amount can be funded from either in-kind services or dollars or both. A portion of the PEEF is to be allocated to pre- Kindergarten education throughout the City. The remaining PEEF can be used for General Fund purposes, as well as to meet academic program needs. Proposition C (2014) was approved by voters in November 2014, which extends PEEF through The School Rainy Day Reserve (the School Rainy Day $11.1 $0 Reserve ) was originally established in the City Charter by voter approval of Proposition G in November 2003 and amended by Proposition C in November 2014 and provides unrestricted funds to the District in times of fiscal stress. (2) 5. The District receives annual revenues from facility permits and $8.6 $10.1 ground leases. Totals $137.7 $138.6 (1) With respect to unique revenue sources outside the General Fund, Proposition B, a parcel tax approved by the voters in 1993 and renewed in 2010, provides $6.5 million for facilities, life safety and fire repairs. (2) Whenever growth in the City s General Fund revenues exceeds five percent, 12.5 percent of the amount above the five percent threshold is deposited in the School Rainy Day Reserve. If the District projects that inflation-adjusted per-pupil discretionary revenues for the upcoming fiscal year will be reduced and that a significant number of layoffs would be required to balance its budget, the District Board may approve, by majority vote, a draw from the School Rainy Day Reserve of up to 50 percent of the current balance in the School Rainy Day Reserve but no more than the shortfall in inflationadjusted per-pupil discretionary revenues, as determined by the District Board. Given the possible changes in State school funding formulae, changes in local demographic or economic conditions, or other factors, the District may for a given fiscal year draw from the School Rainy Day Reserve amounts in excess of the limitations in the prior sentence or to offset revenue losses that are less than those that would otherwise permit a draw from the School Rainy Day Reserve if approved by a twothirds vote of the District Board. Source: The District. A-21

58 Charter Schools Charter schools are largely independent schools operating as part of the public school system created pursuant to Part 26.8 (beginning with Section 47600) of Division 4 of Title 2 of the California Education Code (the Charter School Law ). A charter school is usually created or organized by a group of teachers, parents and community leaders, or a community-based organization, and may be approved by an existing local public school district, a county board of education or the State Board of Education. A charter school is generally exempt from the laws governing school districts, except where specifically noted in the law. The Charter School Law acknowledges that among its intended purposes are to (a) provide parents and students with expanded choices in the types of educational opportunities that are available within the public school system, (b) hold schools accountable for meeting measurable pupil outcomes and provide schools a way to shift from a rule-based to a performance-based system of accountability, and (iii) provide competition within the public school system to stimulate improvements in all public schools. The District is the authorizer of the charter schools operating within the District. Although the District, as the authorizer, has certain fiscal oversight and other responsibilities with respect to such charter schools, such charter schools are governed by an independent board of directors and are not included in the District s financial statements. The District can make no representation as to whether enrollment at such charter schools may increase at the expense of District enrollment, whether additional charter schools will be established within the District, or as to the impact these or other charter school developments may have on the District s ADA or finances in future years. Labor and Staffing The District s employees are grouped into two general employee classifications: certificated and classified. In 1974, the State Legislature enacted a public school employee collective bargaining law known as the Rodda Act, which outlines the parameters for collective bargaining. The law provides that employees are to be divided into appropriate bargaining units that are to be represented by an exclusive bargaining agent. The approximately 3,660 certificated staff of the District are represented by the United Educators of San Francisco ( UESF ), which is affiliated with the California Teachers Association, National Education Association, California Federation of Teachers and American Federation of Teachers. UESF also represents approximately 1,346 paraprofessional employees who support and assist teachers and other certificated staff. The District and UESF have entered into a three year contract effective July 1, 2014 and terminating on June 30, See DISTRICT FINANCIAL INFORMATION District Budgets. Classified employees of the District are represented by several unions, the largest of which is the Service Employees International Union, Local 1021 ( SEIU ). The District and the SEIU entered into a 3-year agreement effective July 1, Approximately 254 of the District s site administrators, program administrators and supervisors are represented by the United Administrators of San Francisco ( UASF ), which is affiliated with American Federation of School Administrators. Their most recent collective bargaining agreement expires on June 30, Under State law, non-certificated employees of the District, except for certain paraprofessionals, are employed pursuant to the provisions of the City s charter that relate to the City s Civil Service Commission. The Civil Service Commission generally governs non-compensation related processes and oversees the City s civil service merit system. The Civil Service Commission specifically is charged with the responsibility of developing rules and policies regarding employment eligibility and certification; appointments, promotions, transfers, resignations, lay-offs or reduction in work force, both permanent and temporary; and the designation and filling of positions as exempt, temporary, provisional, part-time, seasonal or permanent. A-22

59 Retirement Programs Retirement Plans. Qualified employees are covered under multiple-employer retirement plans. All eligible employees are eligible to participate under defined benefit retirement plans maintained by agencies of the City and County of San Francisco and the State of California. Certificated employees hired as of or after July 1, 1972, are eligible to participate in the cost-sharing multiple-employer, contributory California State Teachers Retirement System ( STRS ). Classified employees and certain certificated employees hired prior to July 1, 1972, are eligible to participate in the single-employer San Francisco Employees Retirement System ( SFERS ). The District also provides pension benefits to employees not eligible for the STRS or SFERS systems. GASB 68. In June 2012, the Governmental Accounting Standards Board issued Statement No. 68, Accounting and Financial Reporting for Pensions ( GASB 68 ), which revises and establishes new financial reporting requirements for most public employers, such as the District, that provide their employees with pension benefits and cost-sharing, multiple-employer plans, including STRS. GASB 68, among other things, requires public employers providing defined benefit pensions to recognize their long-term obligation for pension benefits as a liability and provides greater guidance on measuring the annual costs of pension benefits, including through guidelines on projecting benefit payments and using discount rates and the entry age actuarial cost allocation method. GASB 68 also enhances accountability and transparency through revised and new note disclosures and required supplementary information. GASB 68 became effective for the financial statements of plan employers, including the District s financial statements, commencing in Fiscal Year Pursuant to GASB 68, STRS will use a new blended rate that reflects a long-term rate of return on plan assets, which reflects a pension fund s long-term investment strategy, and a high-quality, non-taxable municipal bond index rate, to account for the potential need to borrow funds to pay pension benefits after net assets have been fully depleted. STRS has cautioned that use of the new, blended discount rate may cause the financial statements of plans, such as STRS, to reflect an increased unfunded liability. STRS. STRS is a defined benefit plan that covers all full-time certificated District employees and some classified District employees, which are District employees employed in a position that does not require a teaching credential from the State. STRS is operated on a Statewide basis and, based on publicly available information, has substantial unfunded liabilities. Additional funding of STRS by the State and the inclusion of adjustments to such State contributions based on consumer price changes were provided for in 1979 Statutes, Chapter 282. The District is unable to predict what the amount of State pension liabilities will be in the future, or the amount of the contributions which the District may be required to make to STRS. Accordingly, there can be no assurances that the District s required contributions to STRS will not significantly increase in the future above current levels. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] A-23

60 A history of the District s and the San Francisco County Office of Education s (the County Office of Education ) combined annual contributions to STRS is set forth below. The District s portion of such historical contributions has equaled 100% of the required contribution for the relevant fiscal year. TABLE A-13 SAN FRANCISCO UNIFIED SCHOOL DISTRICT AND COUNTY OFFICE OF EDUCATION Annual STRS Contributions Fiscal Years through Fiscal Year Amount $22,990, ,290, ,740, ,777, (1) 23,106, (1) 30,004,738 (1) Estimated. Source: The District. Beginning in Fiscal Year , employer, employee and State contributions to STRS increased pursuant to AB 1469 (defined herein), which was enacted in June The District s employer contribution rate for Fiscal Year increased from 8.25% of covered payroll to 8.88% of covered payroll. Beginning in Fiscal Year , the District s employer contribution rate will increase by 1.85% of covered payroll annually until the employer contribution rate reaches 19.10% in Pursuant to AB 1469, employee contributions will increase from 8.00% to 10.25% of covered payroll from Fiscal Year to Fiscal Year for employees who joined STRS prior to PEPRA and will increase from 8.00% to 9.205% of covered payroll from Fiscal Year to Fiscal Year for employees who joined STRS after PEPRA. The State Teachers Retirement Board is authorized to modify the percentages paid by employers and employees for Fiscal Year and each fiscal year thereafter in order to eliminate STRS unfunded liability by June 30, 2046 based upon actuarial recommendations. See AB 1469 below. The following table sets forth the employer contribution rates for STRS approved pursuant to AB 1469, the District total creditable compensation and the estimated total cost of these contributions to the District for the General Fund. The District is unable to predict what the amount of pension liabilities will be beyond the fiscal years set forth in AB 1469 or the amount the District will be required to pay for pension related costs, as these amounts are subject to future rate actions taken by STRS. Accordingly, there can be no assurances that the District s required contributions to STRS will not significantly increase in the future above levels currently approved under State law. A-24

61 Fiscal Year (1) CalSTRS Employer Rate TABLE A-14 SAN FRANCISCO UNIFIED SCHOOL DISTRICT STRS Employer Rates, Estimated Total Creditable Compensations, and Estimated General Fund Costs (1)(2) Fiscal Years through ($ in millions) Unrestricted General Fund Restricted General Fund Total General Fund Certificated Salaries Estimated CalSTRS Cost Certificated Salaries Estimated CalSTRS Cost Estimated Increased CalSTRS Cost Cumulative Change due to CalSTRS Rate Change Estimates presented herein do not reflect certain key parameters and variables that are expected to impact actual costs including, among other things, additional salary increases, changes in enrollment, the number of teachers that are pre- PEPRA and the number of teachers that are PEPRA employees. (2) Reflects only the District s General Fund. Source: The District. The unfunded actuarial accrued liabilities and funded status of the STRS pension fund as of June 30 of Fiscal Years June 30, 2010 through June 30, 2014 are set forth in the following table. The individual funding progress for the District is expected to be provided in its actuarial report from STRS beginning in Fiscal Year (1) Actuarial Valuation Date as of June 30 TABLE A-15 CALIFORNIA STATE TEACHERS RETIREMENT SYSTEM Defined Benefit Program Schedule of Funding Progress (Dollars in Millions) Fiscal Years through Actuarial Value of Assets (1) (a) Actuarial Accrued Liability (AAL) (b) Unfunded AAL (Funding Excess) (UAAL) (b-a) Funded Ratio (a/b) Covered Payroll (c) UAAL as a % of Covered Payroll ((b-a)/c) , ,315 56,024 71% 26, % , ,405 64, , , ,189 70, , , ,281 73, , , ,213 72, , Actuarial Value of Assets does not include amounts allocable to STRS Supplemental Benefits Maintenance Account. Source: California State Teachers Retirement System, Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2014; California State Teachers Retirement System Defined Benefit Program Actuarial Evaluation for Fiscal Year Ended June 30, A-25

62 The actuarial assumptions set forth in the California State Teachers Retirement System Defined Benefit Program Actuarial Valuation as of June 30, 2014 (the 2014 STRS Actuarial Valuation ) use the Entry Age Normal Cost Method and, among other things, an assumed 7.50% investment rate of return, and 4.50% interest on accounts, projected 3.75% wage growth, projected 3.00% inflation and demographic assumptions relating to mortality rates, length of service, rates of disability, rates of withdrawal, probability of refund, and merit salary increases. Law. Benefit provisions are established by State legislation in accordance with the State Teachers Retirement The market value of the STRS pension fund as of June 30, 2013 and June 30, 2014 was $157.2 billion and $179.7 billion, respectively. STRS produces a comprehensive annual financial report which includes financial statements and required supplementary information. Copies of the STRS comprehensive annual financial report may be obtained from California State Teachers Retirement System, P.O. Box 15275, Sacramento, California The information presented in these reports is not incorporated by reference in this Official Statement. SFERS. SFERS is charged with administering a defined benefit pension plan that covers substantially all City employees and certain other employees. At its January 2015 meeting, after review of the analysis and recommendation prepared by the consulting actuarial firm, the Retirement Board of SFERS (the SFERS Retirement Board ) voted to change SFER s long-term investment earnings assumption from 7.50% to 7.58%, long-term wage/inflation assumption from 3.83% to 3.75% and long-term consumer prices index assumption from 3.33% to 3.25%. These economic assumptions together with demographic assumptions based on periodic demographic studies are utilized to prepare the actuarial valuation of SFERS each year. Upon receipt of the consulting actuarial firm s valuation report, SFERS staff provides a recommendation to the SFERS Retirement Board for their acceptance of the consulting actuary s valuation report. In connection with such acceptance, the SFERS Retirement Board acts to set the annual employer contribution rates required by SFERS as determined by the consulting actuarial firm and approved by the SFERS Retirement Board. In accordance with the Charter of the City, District participants contribute 7.5 percent to 13.5 percent of their salaries to SFERS. The funding policy of SFERS provides for actuarially determined periodic contributions by the District at rates such that sufficient assets will be available to SFERS to pay District participants benefits when due. The employer contribution rate for Fiscal Year was 26.76% of covered payroll and is estimated to be 22.80% for Fiscal Year A history of the system-wide annual required contributions as well as the District s and the County Office of Education s combined annual contributions to SFERS are set forth below. The District s portion of historical contributions have equaled 100% of the required contribution for each of the relevant fiscal years. A-26

63 (1) Year Ended June 30 TABLE A-16 SAN FRANCISCO CITY AND COUNTY EMPLOYEES RETIREMENT SYSTEM Schedule of Employer Contributions (Dollar amounts in thousands) System-Wide Annual Required Contribution Percentage Contributed District and County Office of Education Annual Required Contribution (1) Percentage Contributed 2010 $223, % $10, % , , , , , , , , The District estimates its and the County Office of Education s annual required contribution for Fiscal Years and equals approximately $18.3 million and $18.8 million, respectively, representing 100.0% of its annual required contributions for such fiscal years. Source: The District. The following table provides the maximum employer contribution rates for Fiscal Years through (1) TABLE A-17 CITY AND COUNTY OF SAN FRANCISCO Employment Retirement System (Dollars in Thousands) Fiscal Years through Fiscal Year ended June 30 Maximum Employer Contribution Rates (1) % Maximum employer contribution rate for Fiscal Year is 22.80%. Source: SFERS Actuarial Valuation reports as of July 1, 2014, July 1, 2013, July 1, 2012, July 1, 2011 and July 1, The District. A-27

64 The following table shows SFERS schedule of funding progress for Fiscal Years through Actuarial Valuation Date (July 1) Actuarial Value of Assets TABLE A-18 CITY AND COUNTY OF SAN FRANCISCO Employee Retirement System (Dollars in Thousands) Fiscal Years through Actuarial Accrued Liability (AAL) Unfunded Actuarial Accrued Liability (UAAL) Funded Ratio Covered Payroll UAAL as a % of Covered Payroll 2009 $16,004,730 $16,498,649 $493,919 97% $2,544,939 19% ,069,058 17,643,394 1,574, ,398, ,313,120 18,598,728 2,285, ,360, ,027,683 19,393,854 3,366, ,393, ,303,397 20,224,776 3,921, ,535, ,012,088 21,122,567 3,110, ,640, Sources: SFERS audited financial statements and supplemental schedules for Fiscal Years ended June 30, 2014, June 30, 2013, June 30, 2012, June 30, 2011 and June 30, 2010; SFERS Actuarial Valuation reports as of July 1, 2014, July 1, 2013, July 1, 2012, July 1, 2011 and July 1, Actuarial Value of Assets refers to the value of assets held in trust adjusted according to SFERS s actuarial methods as summarized above. Actuarial Accrued Liability means the accrued actuarial liability of SFERS. The above table reflects that the Funded Ratio (that is, the Actuarial Value of Assets divided by the Actuarial Accrued Liability) increased to 85%, corresponding to an unfunded actuarial liability ( UAAL ) of approximately $3.1 billion. The UAAL is the difference between the Actuarial Value of Assets and the total Actuarial Liability. Other District Retirement Plans. The District previously participated in three retirement plans administered by the Public Agency Retirement System ( PARS ): (i) the Alternative Retirement System ( ARS ); (ii) the Target Benefit Plan ( TBP ); and (iii) the Supplementary Retirement Plan ( SRP ). PARS plans were defined contribution plans that covered employees who were not eligible to participate under STRS or SFERS. The District s contributions to these three retirement plans totaled $2.2 million in Fiscal Year The District terminated the ARS and TBP retirement plans on October 12, 2011 and replaced them with either Social Security or a 403(b) plan. SRP was a defined benefit retirement plan that is available to eligible certificated bargaining unit members that elected to participate during the enrollment period ending in fiscal 1994 and 1998 as part of an early retirement program. Benefits available to participants under SRP include a life annuity equal to 7 percent of final annual salary or other actuarially equivalent benefits. The District funds these benefits on a pay-as-you-go basis. See Note 14 in the Notes to the Financial Statements set forth in Appendix B hereto. Public Employees Pension Reform Act of On August 28, 2012, Governor Brown and the State Legislature reached agreement on a new law that will reform pensions for State and local government employees. AB 340, which was signed into law on September 12, 2012, established the California Public Employees Pension Reform Act of 2012 ( PEPRA ) which governs pensions for public employers and public pension plans on and after January 1, For new employees, PEPRA, among other things, caps pensionable salaries at the Social Security contribution and wage base, which is $110,100 for 2012, or 120% of that amount for employees not covered by Social Security, increases the retirement age by two years or more for all new public employees while adjusting the retirement formulas, requires state employees to pay at least half of their pension costs, and also requires the calculation of benefits on regular, recurring pay to stop income spiking. For all employees, changes required by PEPRA include the prohibition of retroactive pension increases, pension holidays and purchases of service credit. A-28

65 Pursuant to AB 1469, the STRS employee contribution rate for post-pepra employees will increase from 8.00% in Fiscal Year to 9.205% in Fiscal Year PEPRA applies to all State and local public retirement systems, including county and district retirement systems. PEPRA only exempts the University of California system and charter cities and counties whose pension plans are not governed by State law. The District is unable to determine the extent of any impact PEPRA would have on the District s pension obligations at this time. Additionally, the District cannot predict if PEPRA will be challenged in court and, if so, whether any challenge would be successful. The STRS employer rates of contribution are described above under Retirement Programs STRS. The District is unable to predict what the amount of State pension liabilities will be in the future, or the amount of the contributions which the District may be required to make. STRS is more fully described in APPENDIX C FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2014, Note 14. AB While PEPRA lowered long-term STRS costs by reducing benefit levels and extending retirement ages for new teachers, STRS has nonetheless required significant funding on an annual basis. To address the shortfall, Assembly Bill 1469 ( AB 1469 ), signed into law by the Governor as part of the State Budget, included a comprehensive funding solution based on shared responsibility among the State, schools, and teachers, designed to put STRS on a sustainable path and eliminate the unfunded liability in approximately 30 years. AB 1469 increases member, employer and State contributions over the next several years as part of a plan to eliminate STRS s $74 billion unfunded liability. Under AB 1469, employees were required to contribute 8.15% of eligible salary commencing July 1, 2014, increasing from 8.00% with further annual increases to 9.20% effective July 1, 2015 and 10.25% effective July 1, Effective July 1, 2014, the required employer contribution rate increased from 8.25% of annual payroll to 8.88%, with further annual increases culminating in an annual contribution of 19.1% effective July 1, These school district contributions will be paid from existing revenue sources. The State s total contribution to the Defined Benefit plan increased from approximately 3% in Fiscal Year to 6.3% of payroll in Fiscal Year and ongoing. In addition, the State will continue to pay 2.5% of payroll annually for a supplemental inflation protection program, for a total of 8.8%. The plan also provides the STRS board with limited authority to increase the school district and State contributions based on changing conditions. The authority also allows the STRS board to reduce school district and State contributions if they are no longer necessary. Other Post-Employment Benefits. The District provides retiree health benefits to (i) all certificated employees hired before July 1, 2004 who were employed full-time for 9 to 12 (depending on retirement date) final years of consecutive service with the District prior to retirement, (ii) all certificated employees hired after July 1, 2004 who were employed full-time with the District for 20 final consecutive years of service, (iii) paraprofessionals hired before July 1, 2006 employed full-time with the District for 7 to 10 (depending on retirement date) final years of consecutive service, (iv) paraprofessionals hired after July 1, 2006 employed full-time with the District for 10 final consecutive years of service, (v) all classified employees hired on or before January 9, 2009 with at least 5 years of service and (vi) pursuant to Proposition B ( Proposition B ), which was approved by voters in June, 2008, to all classified employees hired on or after January 10, 2009 with at least 20 years of service with the District; retirees with at least 10 but less than 15 years of service with the District will qualify for a 50% retiree health subsidy and retirees with at least 15 but less than 20 years of service with the District will qualify for a 75% retiree health subsidy. On June 21, 2004, the Governmental Accounting Standards Board ( GASB ) released its Governmental Accounting Standards Board Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. Statement No. 45 establishes standards for the measurement, recognition and display of post-employment healthcare as well as other forms of post-employment benefits, such as life insurance, when provided separately from a pension plan expense or expenditures and related liabilities in the financial reports of state and local governments. Under Statement No. 45, governments will be required to: (i) measure the cost of benefits, and recognize other post-employment benefits expense, on the accrual basis of accounting in periods that approximate employees years of service; (ii) provide information about the actuarial liabilities for promised benefits associated with past services and whether, or to what extent, those benefits have A-29

66 been funded; and provide information useful in assessing potential demands on the employer s future cash flows. The District s post-employment health benefits fall under Statement No. 45. The effective date of the Statement No. 45 reporting requirements for the District was Fiscal Year (the first fiscal year period beginning after December 15, 2006). The District received an actuarial study of retiree health liabilities, dated November 21, 2013 (the Study ) that includes estimated post-retirement liabilities as of December 1, The Study assumed an inflation rate of 3.1% per year, an investment return/discount rate of 5.0% per year, a long-term trend assumption of 4.0% per year, and a payroll increase of 3.1% per year. The Study estimates that the pay-as-you-go cost of providing retiree health benefits for current retirees in the year beginning December 1, 2013 to be $32,103,059. For current employees, the Study estimates that the value of benefits accrued in the year beginning December 1, 2013 (the normal cost ) is $29,778,979 and that the actuarial accrued liability ( AAL ) of post-employment health benefits is $680,924,643. The Study estimates that the value of the remaining unamortized initial unfunded AAL is $701,396,356 and that the residual AAL, therefore, is negative $20,471,713. The Study estimates that the current year cost to amortize the residual unfunded AAL over 30 years is negative $894,430. The Study also estimates that the annual required contribution, to be used as a basis for determining retiree health plan expenses in accordance with Statement No. 45, is $64,141,676 (derived by combining the normal cost and the initial and residual unamortized AAL amortization costs). The District has been and is expected to continue to review the Study in conjunction with the District s obligations under its post-employment benefit plan to determine its course of action with respect to its contributions for post-employment benefits. The table below sets forth the District s and the County Office of Education s combined annual payments on post-employment benefits for Fiscal Years through TABLE A-19 SAN FRANCISCO UNIFIED SCHOOL DISTRICT AND COUNTY OFFICE OF EDUCATION Annual OPEB Payments Fiscal Years through Fiscal Year Payment Amount (1) (Dollars in Millions) $ (2) 38.5 (1) Includes $2.0 million of funds that were deposited in each respective year through and estimated to be deposited in in a separate fund to offset a portion of the District s OPEB liability. (2) Estimated. Source: The District. Insurance The District has a risk management department that is responsible for all insurance and risk management activities. The current structure combines self-insurance with excess, or reinsurance, protection beyond retained levels. The risk management staff works with other departments within the District on prevention strategies to minimize the risk of loss to people and property. The current financial strategy for the risk management program includes an actuarial study each year for the workers compensation program. The property, liability and benefits programs are studied one time per year during marketing or prior to renewals. A-30

67 The District maintains property coverage through Axis Insurance and RSUI Indemnity Company in the amount of $300 million per occurrence, with a $100,000 deductible. Liability insurance is purchased in various layers through Genesis, Lloyds and Schools Excess Liability Fund. Coverage is $50 million per occurrence, with a self-insured retention of $250,000. For workers compensation coverage, the District maintains a $500,000 selfinsured retention, with statutory limits per occurrence through Arch Insurance Co. The District does not maintain insurance for earthquake risks, relying on its general reserves and the expectation that funds will be available from the Federal Emergency Management Agency ( FEMA ). There is no guarantee that sufficient reserves or FEMA assistance would be available in the event of a major seismic event in the San Francisco Bay Area. The District will carry earthquake insurance when it deems it cost-effective. The District offers its employees dental insurance through a self-insured program, life and long-term disability insurance that is purchased through commercial carriers, and health insurance that is purchased through the City Health Service System. While the District considers its insurance coverage to be adequate, the District is unable to predict the availability or cost of such insurance in the future. Accounting Practices The accounting policies of California school districts, including 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 Education Code, is to be followed by all California school districts. Revenues are recognized in the period in which they become both measurable and available to finance expenditures of the current fiscal period. Expenditures are recognized in the period in which the liability is incurred. CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Constitutionally Required Funding of Education The State Constitution requires that from all State revenues there shall first be set apart the moneys to be applied by the State for the support of the public school system and public institutions of higher education. School districts receive a significant portion of their funding from State appropriations. As a result, decreases as well as increases in State revenues can significantly affect appropriations made by the State Legislature to school districts. Article XIIIA of the State Constitution On June 6, 1978, State voters approved Proposition 13 ( Proposition 13 ), which added Article XIIIA to the State Constitution ( Article XIIIA ). Article XIIIA, as amended, limits the amount of any ad valorem property tax on real property to one percent (1%) of the full cash value thereof, i.e., the 1% Levy, except that additional ad valorem property taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978 or bonded indebtedness approved by a two-thirds vote on or after July 1, 1978, for the acquisition or improvement of real property. Proposition 39, approved by State voters on November 7, 2000, provides an alternative method of seeking voter approval for bonded indebtedness (see Proposition 39 below). Article XIIIA defines full cash value to mean the county assessor s valuation of real property as shown on the tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment. This full cash value may be increased at a rate not to exceed two percent (2%) per year to account for inflation. Article XIIIA has subsequently been amended to permit reduction of the full cash value base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the full cash value base in the event of reconstruction of property damaged or destroyed in a disaster, and in other minor or technical ways. A-31

68 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 ad valorem property tax (except to pay voter-approved indebtedness). The 1% Levy is automatically levied by the City and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the two percent annual adjustment are allocated among the various jurisdictions in the taxing area based upon their respective situs. Any such allocation made to a local agency continues as part of its allocation in future years. All taxable property is shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100 percent of market value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value. Article XIIIB of the State Constitution An initiative to amend the State Constitution entitled Limitation of Government Appropriations was approved on September 6, 1979 thereby adding Article XIIIB to the State Constitution ( Article XIIIB ). In June 1990, Article XIIIB was amended by the voters through their approval of Proposition 111. Under Article XIIIB, the State and each local governmental entity has an annual appropriations limit and is not permitted to spend certain moneys that are called appropriations subject to limitation (consisting of tax revenues, State subventions and certain other funds) in an amount higher than the appropriations limit. Article XIIIB does not affect the appropriations of moneys that are excluded from the definition of appropriations subject to limitation, including debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the appropriations limit is to be based on certain Fiscal Year expenditures, and is to be adjusted annually to reflect changes in consumer prices, populations, and services provided by these entities. Among other provisions of Article XIIIB, if these entities revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. However, in the event that a school district s revenues exceed its spending limit, the district may, in any fiscal year, increase its appropriations limit to equal its spending by borrowing appropriations limit from the State, provided the State has sufficient excess appropriations limit in such year. Article XIIIC and Article XIIID of the State Constitution On November 5, 1996, the voters of the State approved Proposition 218, the so-called Right to Vote on Taxes Act. Proposition 218 added Articles XIIIC and XIIID to the State Constitution, 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. Article XIIID deals with assessments and property-related fees and charges. Article XIIID explicitly provides that nothing in Article XIIIC or XIIID shall be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development; however it is not clear whether the initiative power is therefore unavailable to repeal or reduce developer and mitigation fees imposed by the District in accordance with State allowances. Proposition 26 On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution to expand the definition of tax to include any levy, charge, or exaction of any kind imposed by a local government except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for A-32

69 a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor s burdens on, or benefits received from, the governmental activity. Proposition 62 On November 4, 1986, State voters adopted Proposition 62, a statutory initiative which amended the State Government Code by the addition of Sections Proposition 62 requires that (i) any local tax for general governmental purposes (a general tax ) must be approved by a majority vote of the electorate; (ii) any local tax for specific purposes (a special tax ) must be approved by a two-thirds vote of the electorate; (iii) any general tax must be proposed for a vote by two-thirds of the legislative body; and (iv) proceeds of any tax imposed in violation of the vote requirements must be deducted from the local agency s property tax allocation. Provisions applying Proposition 62 retroactively from its effective date to 1985 are unlikely to be of any continuing importance; certain other restrictions were already contained in the Constitution. Most of the provisions of Proposition 62 were affirmed by the 1995 California Supreme Court decision in Santa Clara County Local Transportation Authority v. Guardino, which invalidated a special sales tax for transportation purposes because fewer than two-thirds of the voters voting on the measure had approved the tax. Following the State Supreme Court s decision upholding Proposition 62, several actions were filed challenging taxes imposed by public agencies since the adoption of Proposition 62, which was passed in November On June 4, 2001, the State Supreme Court released its decision in one of these cases, Howard Jarvis Taxpayers Association v. City of La Habra, et al. ( La Habra ). In this case, the court held that public agency s continued imposition and collection of a tax is an ongoing violation, upon which the statute of limitations period begins anew with each collection. The court also held that, unless another statute or constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received within three years of the date the action is brought. Although by its terms Proposition 62 applies to school districts, the District has not experienced any substantive adverse financial impact as a result of the passage of this initiative or the Santa Clara or La Habra decisions. Propositions 1A and 22 Proposition 1A (SCA 4) provides that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition 1A generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year, as set forth under the laws in effect as of November 3, Any change in the allocation of property tax revenues among local governments within a county must be approved by two-thirds of both houses of the State Legislature. Proposition la provides, however, that beginning in Fiscal Year , the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe state financial hardship, the shift is approved by two-thirds of both houses of the State Legislature and certain other conditions are met. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition la also provides that if the State reduces the Vehicle License Fee rate from 0.65% of vehicle value, the State must provide local governments with equal replacement revenues. Further, Proposition 1A requires the State, beginning June 1, 2009, to suspend State mandates affecting cities, counties and special districts, schools or community A-33

70 colleges, excepting mandates relating to employee rights, in any year that the State does not fully reimburse local governments for their costs of compliance with such mandates. Under Proposition 1A, the State no longer has the authority to permanently shift city, county, and special district property tax revenues to schools, or take certain other actions that affect local governments. In addition, Proposition 1A restricts the State s ability to borrow state gasoline sales tax revenues. These provisions in the Constitution, however, do not eliminate the State s authority to temporarily borrow or redirect some city, county, and special district funds or the State s authority to redirect local redevelopment agency revenues. However, Proposition 22, The Local Taxpayer, Public Safety, and Transportation Protection Act, approved by the voters of the State on November 2, 2010, reduces or eliminates the State s authority: (1) to use State fuel tax revenues to pay debt service on state transportation bonds; (2) to borrow or change the distribution of state fuel tax revenues; (3) to direct redevelopment agency property taxes to any other local government; (4) to temporarily shift property taxes from cities, counties, and special districts to schools; (5) and to use vehicle license fee revenues to reimburse local governments for state mandated costs. As a result, 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 the LAO analysis of Proposition 22 submitted by 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 would be approximately $1.0 billion in Fiscal Year , with an estimated immediate fiscal effect equal to approximately 1 percent of the State s total General Fund spending. The longer-term effect of Proposition 22, according to the LAO analysis, will be an increase in the State s General Fund costs by approximately $1.0 billion annually for several decades. On December 30, 2011, the California Supreme Court issued its decision in the case of California Redevelopment Association v. Matosantos, finding California Assembly Bill x1 26 to be constitutional and California Assembly Bill x1 27 to be unconstitutional. As a result, all redevelopment agencies in California were dissolved on February 1, 2012, and the property tax revenue which previously flowed to the redevelopment agencies is now instead going to other local governments, including school districts. It is likely that the dissolution of redevelopment agencies has mooted some of the effects of Proposition 22. Propositions 98 and 111 On November 8, 1988, State voters approved Proposition 98, a combined initiative, constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act (the Accountability Act ). The Accountability Act changed State funding of public education below the university level, and the operation of the State s Appropriations Limit, primarily by guaranteeing State funding for K-12 school districts and community college districts (collectively, K-14 districts ). Under Proposition 98 (as modified by Proposition 111, which was enacted on June 5, 1990), K-14 districts are guaranteed the greater of (a) in general, a fixed percent of the State General Fund revenues ( Test 1 ), (b) the amount appropriated to K-14 schools in the prior year, adjusted for changes in the cost-of-living (measured as in Article XIIIB by reference to State per capita personal income) and enrollment ( Test 2 ), or (c) a third test, which would replace Test 2 in any year when the percentage growth in per capita State General Fund revenues from the prior year plus one-half of one percent is less than the percentage growth in State per capita personal income ( Test 3 ). Under Test 3, schools would receive the amount appropriated in the prior year adjusted for changes in enrollment and per capita State General Fund revenues, plus an additional small adjustment factor. If Test 3 is used in any year, the difference between Test 3 and Test 2 would become a credit to schools which would be the basis of payments in future years when per capita State General Fund revenue growth exceeds per capita personal income growth. Legislation adopted prior to the end of Fiscal Year , implementing Proposition 98, determined the K-14 districts funding guarantee under Test 1 to be 40.3% of the State General Fund tax revenues, based on appropriations. However, that percentage has been adjusted to 35% to account for a subsequent redirection of local property taxes whereby a greater proportion of education funding now comes from local property taxes. Proposition 98 permits the State Legislature by a two-thirds vote of both houses, with the Governor s concurrence, to suspend the K-14 districts minimum funding formula for a one-year period. In the fall of 1989, the Legislature and the Governor utilized this provision to avoid having 40.3% of revenues generated by a special A-34

71 supplemental sales tax enacted for earthquake relief go to K-14 districts. Proposition 98 also contains provisions transferring certain State tax revenues in excess of the Article XIIIB limit to K-14 districts. The State Budget increases Proposition 98 expenditures for Fiscal Year to $68.4 billion, increasing the Proposition 98 base by approximately $2.1 billion compared to the Proposition 98 expenditures for Fiscal Year See DISTRICT FINANCIAL INFORMATION STATE FUNDING OF EDUCATION State Budget for further information concerning the State budget. Proposition 39 Proposition 39 which was approved by State voters in November, 2000, and provides an alternative method for passage of school facilities bond measures by lowering the constitutional voting requirement from two-thirds to 55 percent of voters and allows property taxes to exceed the current 1 percent limit in order to repay such bonds. The lower 55 percent vote requirement would apply only for bond issues to be used for construction, rehabilitation, equipping of school facilities or the acquisition of real property for school facilities. The Legislature enacted additional legislation which placed certain limitations on this lowered threshold, requiring that (i) two-thirds of the governing board of a school district approve placing a bond issue on the ballot, (ii) the bond proposal be included on the ballot of a statewide or primary election, a regularly scheduled local election, or a statewide special election (rather than a school board election held at any time during the year), (iii) the tax rate levied as a result of any single election not exceed $25 for a community college district, $60 for a unified school district, or $30 for an elementary school or high school district per $100,000 of taxable property value, and (iv) the governing board of the school district appoint a citizen s oversight committee to inform the public concerning the spending of the bond proceeds. In addition, the school board of the applicable district is required to perform an annual, independent financial and performance audit until all bond funds have been spent to ensure that the funds have been used only for the projects listed in the measure. The District s Election of 2003, Proposition A bond program, the Election of 2006, Proposition A bond program and the Election of 2011, Proposition A bond program were all authorized pursuant to Proposition 39. The District is in compliance with the Proposition 39 requirements applicable to such bond programs. Proposition 30 On November 6, 2012, voters approved the Temporary Taxes to Fund Education, Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment (also known as Proposition 30 and the Governor s Tax Initiative), 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 will be levied at a rate of 0.25% of the sales price of the property so purchased. For personal income taxes imposed beginning in the taxable year commencing January 1, 2012 and ending January 1, 2019, Proposition 30 increases the marginal personal income tax rate by: (i) 1% for taxable income over $250,000 but less than $300,000 for single filers (over $340,000 but less than $408,000 for joint filers), (ii) 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 (iii) 3% for taxable income over $500,000 for single filers (over $608,000 for joint filers). The revenues generated from the temporary tax increases will be included in the calculation of the Proposition 98 minimum funding guarantee for school districts and community college districts. See Propositions 98 and 111. From an accounting perspective, the revenues generated from the temporary tax increases will be 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 will be allocated quarterly, with 89% of such funds provided to schools 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 A-35

72 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. The District has implemented procedures to assure compliance with Proposition 30 s requirements. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC, Article XIIID and Propositions 26, 62, 98, 39 and 30 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. Long-Term Debt DISTRICT DEBT STRUCTURE As of July 1, 2015, the District had outstanding general obligation bonds and general obligation refunding bonds in the aggregate principal amount of $ million (which amount excludes bonds issued by the City on behalf of the District). The District had $18.2 million, including scheduled interest, of non-marketable capital leases for which approximately $2.6 million of lease payments are due in Fiscal Year For additional details on the District s long-term liabilities, see Note 9 to the audited financial report in Appendix C hereto and DIRECT AND OVERLAPPING DEBT. General Obligation Bonds. The District has issued $280,000,000 of general obligation bonds authorized at an election of the registered voters held on November 4, 2003, at which more than the minimum requisite 55% of the persons voting on the measure voted to authorize the issuance and sale of up to $295,000,000 principal amount of general obligation bonds of the District. The amount of authorized but unissued bonds pursuant to this authorization is $15,000,000. The District has issued $435,000,000 of general obligation bonds authorized at an election of the registered voters held on November 7, 2006 (the 2006 Authorization ), at which more than the minimum requisite 55% of the persons voting on the measure voted to authorize the issuance and sale of up to $450,000,000 principal amount of general obligation bonds of the District. The amount of authorized but unissued bonds pursuant to this authorization is $15,000,000. The District has issued $320,000,000 of general obligation bonds authorized at an election of the registered voters held on November 8, 2011 (the 2011 Authorization ), at which more than the minimum requisite 55% of the persons voting on the measure voted to authorize the issuance and sale of up to $531,000,000 principal amount of general obligation bonds of the District. The amount of authorized but unissued bonds pursuant to this authorization is $211,000,000. Capital Plan The District has a 10-year Capital Plan that is updated periodically to take into account an annual review of changing capital needs and improved information regarding project requirements and projected costs. Because of the need for reconstruction and repair of existing facilities, including structural changes to comply with disability access standards, the District s current 10-year Capital Plan anticipates a total capital facilities need of almost $900 million. In addition, pertinent District needs are reflected in the City s annual Capital Plan. As part of the District s ongoing review of the 10-year Capital Plan, the District is analyzing the needs of District properties, in order to define the scope and projected costs of required new construction, replacement, modernization and deferred maintenance for such properties. The District anticipates funding its capital needs from a combination of proceeds from the sale of general obligation bonds, State-matching funds, developer fees, a facilities parcel tax, donations/capital funding campaigns, deferred maintenance allocations and other sources. A-36

73 Future Financings The District presently expects to issue the remaining $15 million of general obligation bonds available under the 2006 Authorization and the remaining $211 million of general obligation bonds available under the 2011 Authorization by the end of The District also monitors market conditions for refunding opportunities for outstanding general obligation bonds. Constitutional Debt Limit The District s constitutional debt limit is 2.5% of the value of taxable property in the District and is currently equal to approximately $4.862 billion, based upon Fiscal Year assessed valuation. The amount of outstanding general obligation bonds and refunding general obligation bonds as of July 1, 2015, was $ million (which amount excludes bonds issued by the City for the benefit of the District), resulting in available bonding capacity of $4.079 billion. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] A-37

74 DIRECT AND OVERLAPPING DEBT Contained within the District are numerous overlapping local agencies providing public services. These local agencies have outstanding debt issued in the form of general obligation, lease revenue and special tax and assessment bonds. The direct and overlapping debt of the District as of July 1, 2015 is shown in the following table (the Debt Statement ). Self-supporting revenue bonds, tax allocation bonds and non-bonded capital lease obligations are excluded from the Debt Statement. TABLE A-20 SAN FRANCISCO UNIFIED SCHOOL DISTRICT STATEMENT OF DIRECT AND OVERLAPPING DEBT AND LONG-TERM OBLIGATIONS (as of July 1, 2015) Assessed Valuation: $182,457,833,666 (includes unitary utility valuation) GENERAL OBLIGATION BONDED DEBT: Debt 7/1/15 San Francisco City and County General and School Purposes $1,949,298,783 San Francisco Unified School District Bonds 782,645,000 (1) San Francisco Community College District 278,350,000 TOTAL GENERAL OBLIGATION BONDED DEBT $3,010,293,783 LEASE OBLIGATION BONDS: San Francisco City and County $986,345,000 TOTAL LEASE OBLIGATION BONDED DEBT $986,345,000 TOTAL COMBINED DIRECT DEBT $3,996,638,783 OVERLAPPING TAX AND ASSESSMENT DEBT: Bay Area Rapid Transit District General Obligation Bonds (32.061%) $201,056,134 San Francisco Community Facilities District No. 4 19,565,000 San Francisco Community Facilities District No ,497,271 San Francisco Community Facilities District No. 7 36,360,000 City of San Francisco Assessment District No ,000 ABAG Community Facilities District No Seismic Safety Improvements 10,290,000 ABAG Community Facilities District No San Francisco Rincon Hill 5,580,000 ABAG Community Facilities District No San Francisco Mint Plaza 3,135,000 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $412,108,405 OVERLAPPING TAX INCREMENT DEBT (Successor Agency): $797,142,852 TOTAL DIRECT AND OVERLAPPING BONDED DEBT $5,205,890,040 (2) (1) Excludes bonds to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue bonds and airport improvement corporation bonds. Ratios to Assessed Valuation ($182,457,833,666): Direct General Obligation Bonded Debt ($3,010,293,783) % Combined Direct Debt ($3,996,638,783) % Total Direct and Overlapping Bonded Debt % Ratio to Redevelopment Incremental Valuation ($18,258,554,703): Total Overlapping Tax Increment Debt % Source: California Municipal Statistics, Inc. A-38

75 APPENDIX B PROPOSED FORMS OF OPINION OF BOND COUNSEL APPENDIX B-1 Upon delivery of the Bonds, Bond Counsel proposes to render its final approving opinion with respect to the New Money Bonds in substantially the following form: [Closing Date] Board of Education San Francisco Unified School District San Francisco, California $226,000,000 SAN FRANCISCO UNIFIED SCHOOL DISTRICT (CITY AND COUNTY OF SAN FRANCISCO, CALIFORNIA) General Obligation Bonds (Proposition A, Election of 2006), Series F (2015) (Proposition A, Election of 2011), Series C (2015) Members of the Board of Education: We have acted as bond counsel to the San Francisco Unified School District (the District ) and in such capacity have examined a record of proceedings related to the issuance of the San Francisco Unified School District (City and County of San Francisco, California) General Obligation Bonds (Proposition A, Election of 2006), Series F (2015) and (Proposition A, Election of 2011), Series C (2015) (collectively, the Bonds ). The Bonds are being issued under the provisions of Article XIIIA of the Constitution of the State of California ( Article XIIIA ) and Title 1, Division 1, Part 10, Chapters 1 and 1.5 of the Education Code of the State of California (commencing at Section 15100). At an election held on November 7, 2006, more than the minimum requisite 55% of the votes cast by eligible voters within the District authorized the District to issue up to $450,000,000 of general obligation bonds (the 2006 Proposition A Authorization ). Bonds representing the 2006 Proposition A Authorization are being issued pursuant to a resolution of the Board of Education of the District adopted on August 11, 2015 (the District Resolution ) and a resolution of the Board of Supervisors of the City and County of San Francisco (the City ) adopted on December 12, A portion of the Bonds represents the sixth series of bonds issued under the 2006 Proposition A Authorization. Following the issuance of the Bonds, the District will not have any remaining authorized and unissued bonds under the 2006 Proposition A Authorization. At an election held on November 8, 2011, more than the minimum requisite 55% of the votes cast by eligible voters within the District authorized the District to issue up to $531,000,000 of general obligation bonds (the 2011 Proposition A Authorization ). Bonds representing the 2011 Proposition A Authorization are being issued pursuant to the District Resolution and a resolution of the Board of Supervisors of the City adopted on January 24, A portion of the Bonds represents the third series of bonds issued under the 2011 Proposition A Authorization. Following the issuance of the Bonds, the District will not have any remaining authorized and unissued bonds under the 2011 Proposition A Authorization. In our capacity as bond counsel, we have reviewed originals or copies certified or otherwise identified to our satisfaction as being true copies of the District Resolution, the City Resolution, the Tax Certificate executed and delivered by the District in connection with the issuance of the Bonds (the Tax Certificate ), certificates of the District, and such other documents, certificates, opinions and matters we have considered necessary or appropriate under the circumstances to render the opinions set forth herein. We have assumed the genuineness of all documents and signatures proposed to us. We have not undertaken to verify independently, and have assumed, the accuracy of the factual matters represented, warranted or B-1-1

76 certified in the documents we reviewed. We have also assumed the accuracy of all representations and compliance with all covenants and agreements contained in the District Resolution, the City Resolution and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions or omissions will not cause the interest on the Bonds to be included in gross income for federal income tax purposes. Based on the foregoing and subject to the limitations and qualifications herein specified, as of the date hereof, under existing law, we are of the opinion that: 1. The District Resolution has been duly adopted by the Board of Education of the District and constitutes a valid and binding obligation of the District enforceable against the District in accordance with its terms. 2. The Bonds constitute valid and binding general obligations of the District, payable from the proceeds of a levy of ad valorem taxes on all property subject to such taxes in the District, which taxes are unlimited as to rate or amount. 3. Assuming continuing compliance by the District with certain covenants in the District Resolution, the Tax Certificate and other documents pertaining to the Bonds and requirements of the Internal Revenue Code of 1986, as amended (the Code ), regarding the use, expenditure and investment of the proceeds of the Bonds and the timely payment of certain investment earnings to the United States, interest on the Bonds is not includable in gross income for federal income tax purposes. Failure to comply with such covenants and requirements may cause interest on the Bonds to be included in federal gross income retroactive to the date of issuance of the Bonds. 4. Interest on the Bonds is not treated as an item of tax preference in calculating the federal alternative minimum taxable income of individuals and corporations. Interest on the Bonds, however, is included as an adjustment in the calculation of federal corporate alternative minimum taxable income and may therefore affect a corporation s alternative minimum tax liability. 5. Interest on the Bonds is exempt from personal income taxes imposed by the State of California. The Code contains other provisions that could result in tax consequences as a result of the ownership of, or the receipt or accrual of interest on, the Bonds, as to which we express no opinion. Further, certain requirements and procedures contained or referred to in the District Resolution, the Tax Certificate or other documents pertaining to the Bonds may be changed, and certain actions may be taken or not taken, under the circumstances and subject to the terms and conditions set forth in such documents with the approval of counsel nationally recognized in the area of state and local obligations. No opinion is expressed herein as to the effect on the exclusion from gross income of interest on the Bonds for federal income tax purposes of any change to the aforementioned requirements and procedures or of any action taken or not taken after the date of this opinion without our approval. Other than as described herein, we have not addressed and we are not opining on the tax consequences to any person of the investment in, or the accrual of or receipt of interest on, the Bonds. With respect to the opinions expressed herein, the rights of the owners of the Bonds and the enforceability thereof are subject to bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws affecting the enforcement of creditors rights, to the application of equitable principles (regardless of whether such enforceability is considered in equity or at law), to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against school districts in the State of California. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions. Such opinions may be adversely affected by actions taken or events occurring, including a change in law, regulation or ruling (or in the application or official interpretation of any law, regulation or ruling) after the date hereof. We have not undertaken to determine, or to inform any person, whether such actions are taken or such events occur, and we have no obligation to update this opinion in light of any such actions or events. Respectfully submitted, B-1-2

77 APPENDIX B-2 Upon delivery of the Bonds, Bond Counsel proposes to render its final approving opinion with respect to the Refunding Bonds in substantially the following form: [Closing Date] Board of Education San Francisco Unified School District San Francisco, California Members of the Board of Education: $63,655,000 SAN FRANCISCO UNIFIED SCHOOL DISTRICT (CITY AND COUNTY OF SAN FRANCISCO, CALIFORNIA) 2015 GENERAL OBLIGATION REFUNDING BONDS We have acted as bond counsel to the San Francisco Unified School District (the District ) and in such capacity have examined a record of proceedings related to the issuance of the District s (City and County of San Francisco, California) 2015 General Obligation Refunding Bonds (the Bonds ). The Bonds are issued under and pursuant to Title 5, Division 2, Part 1, Chapter 3, Articles 9 and 11 of the California Government Code and a resolution adopted by the Board of Education of the District on August 11, 2015 (the Resolution ). In our capacity as bond counsel, we have reviewed originals or copies certified or otherwise identified to our satisfaction as being true copies of the Resolution, the Tax Certificate executed and delivered by the District in connection with the issuance of the Bonds (the Tax Certificate ), certificates of the District, and such other documents, certificates, opinions and matters we have considered necessary or appropriate under the circumstances to render the opinions set forth herein. We have assumed the genuineness of all documents and signatures proposed to us. We have not undertaken to verify independently, and have assumed, the accuracy of the factual matters represented, warranted or certified in the documents we reviewed. We have also assumed the accuracy of all representations and compliance with all covenants and agreements contained in the Resolution and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions or omissions will not cause the interest on the Bonds to be included in gross income for federal income tax purposes. Based on the foregoing and subject to the limitations and qualifications herein specified, as of the date hereof, under existing law, we are of the opinion that: 1. The Resolution has been duly adopted by the Board of Education of the District and constitutes a valid and binding obligation of the District enforceable against the District in accordance with its terms. 2. The Bonds constitute valid and binding general obligations of the District, payable from the proceeds of a levy of ad valorem taxes on all property subject to such taxes in the District, which taxes are unlimited as to rate or amount. 3. Assuming continuing compliance by the District with certain covenants in the District Resolution, and the Tax Certificate and the requirements of the Internal Revenue Code of 1986, as amended (the Code ), regarding the use, expenditure and investment of the proceeds of the Bonds and the timely payment of certain investment earnings to the United States, interest on the Bonds is not includable in gross income for federal income B-2-1

78 tax purposes. Failure to comply with such covenants and requirements may cause interest on the Bonds to be included in federal gross income retroactive to the date of issuance of the Bonds. 4. Interest on the Bonds is not treated as an item of tax preference in calculating the federal alternative minimum taxable income of individuals and corporations. Interest on the Bonds, however, is included as an adjustment in calculating federal corporate alternative minimum taxable income and therefore may affect a corporation s alternative minimum tax liability. 5. Interest on the Bonds is exempt from personal income taxes imposed by the State of California. In rendering the opinions set forth above, we have relied upon certifications and representations of the District with respect to certain material facts solely within the knowledge of the District, without undertaking to verify the same by independent investigation. The Code contains other provisions that could result in tax consequences as a result of the ownership of, or the receipt or accrual of interest on, the Bonds, as to which we express no opinion. Further, certain requirements and procedures contained or referred to in the Resolution, the Tax Certificate or other documents pertaining to the Bonds may be changed, and certain actions may be taken or not taken under the circumstances and subject to the terms and conditions set forth in such documents with the approval of counsel nationally recognized in the area of state and local obligations. No opinion is expressed herein as to the effect on the exclusion from gross income of interest on the Bonds of any change to the aforementioned requirements and procedures or of any action taken or not taken after the date of this opinion without our approval. Other than as described herein, we have not addressed and we are not opining on the tax consequences to any person of the investment in, or receipt of interest on, the Bonds. With respect to the opinions expressed herein, the rights of the owners of the Bonds and the enforceability thereof are subject to bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws affecting the enforcement of creditors rights, to the application of equitable principles (regardless of whether such enforceability is considered in equity or at law), to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against school districts in the State of California. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions. Such opinions may be adversely affected by actions taken or events occurring, including a change in law, regulation or ruling (or in the application or official interpretation of any law, regulation or ruling) after the date hereof. We have not undertaken to determine, or to inform any person, whether such actions are taken or such events occur, and we have no obligation to update this opinion in light of any such actions or events. Respectfully submitted, B-2-2

79 APPENDIX C FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2014

80 [THIS PAGE INTENTIONALLY LEFT BLANK]

81 SAN FRANCISCO UNIFIED SCHOOL DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2014 C-1

82 SAN FRANCISCO UNIFIED SCHOOL DISTRICT TABLE OF CONTENTS JUNE 30, 2014 FINANCIAL SECTION Independent Auditor s Report 2 Management s Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 13 Statement of Activities 14 Fund Financial Statements Governmental Funds - Balance Sheet 15 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 16 Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances 17 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 18 Proprietary Fund - Statement of Net Position 20 Proprietary Fund - Statement of Revenues, Expenses, and Changes in Fund Net Position 21 Proprietary Fund - Statement of Cash Flows 22 Fiduciary Funds - Statement of Fiduciary Net Position 23 Notes to Financial Statements 24 REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 54 County School Service Fund Budgetary Comparison Schedule 55 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 56 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 58 Local Education Agency Organization Structure 61 Schedule of Average Daily Attendance 62 Schedule of Instructional Time 63 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements 64 Schedule of Financial Trends and Analysis 65 Schedule of Charter Schools 66 Combining Statements Nonmajor Governmental Funds Combining Balance Sheet 67 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 69 Combining Statements General Unrestricted and Restricted Funds Combining Balance Sheet 71 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 72 Note to Supplementary Information 73 C-2

83 SAN FRANCISCO UNIFIED SCHOOL DISTRICT TABLE OF CONTENTS JUNE 30, 2014 INDEPENDENT AUDITOR S REPORTS Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 76 Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by OMB Circular A Report on State Compliance 80 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditor s Results 83 Financial Statement Findings 84 Federal Awards Findings and Questioned Costs 85 State Awards Findings and Questioned Costs 86 Summary Schedule of Prior Audit Findings 87 C-3

84 FINANCIAL SECTION 1 C-4

85 INDEPENDENT AUDITOR'S REPORT Governing Board San Francisco Unified School District San Francisco, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the San Francisco Unified School District (the 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 financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Standards and Procedures for Audits of California K-12 Local Education Agencies , issued by the California Education Audit Appeals Panel as regulations. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 2 C-5

86 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the District, as of June 30, 2014, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter The District has adopted GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, which required de-recognition of deferred cost of issuance. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the required supplementary information, as listed in the table of contents, including Management's Discussion and Analysis, 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, including Management's Discussion and Analysis, in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District's financial statements. The supplementary information, including the Schedule of Expenditures of Federal Awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and the other supplementary information as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 3 C-6

87 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 12, 2014, on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control over financial reporting and compliance. Palo Alto, California December 12, C-7

88 SAN FRANCISCO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2014 MANAGEMENT'S DISCUSSION AND ANALYSIS PROFILE OF THE DISTRICT The San Francisco Unified School District ( SFUSD or the District ) is the sixth largest school district in California, and currently educates approximately 56,000 students, including charter school pupils, who live in the 49 square mile area of the City and County of San Francisco. The San Francisco Unified School District was established in The District is governed by an elected Board of seven members. The District also administers the County Office of Education. The District and County Office of Education provide pre-kindergarten, elementary, and secondary education in the City and County of San Francisco throughout multiple campuses, as follows: 72 elementary schools and K-8 schools 13 middle schools 18 senior high schools (including two continuation schools and an independent study school) 34 state-funded preschool sites 8 transitional kindergarten schools The majority of the District s schools have designated attendance areas giving priority to students living within those attendance boundaries. The remaining schools are alternative schools with no designated attendance area. All SFUSD schools enroll students based on parent/guardian request and provide significant opportunities for parental choice in enrollment. The District is also the chartering entity and has oversight responsibility for thirteen charter schools: City Arts and Technology High School, Creative Arts Charter School, Five Keys Charter School, Five Keys Adult School, Five Keys Independent High School, Gateway High School, Gateway Middle School, KIPP Bay View Academy, KIPP Bay Academy, KIPP San Francisco College Preparatory, Leadership High School, Life Learning Academy, and Thomas Edison Charter Academy. SFUSD is California s highest performing large urban school district. Despite continued years of significant deficits at the State level and related shortfalls in funding of school districts resources, the District s students have achieved eleven consecutive years of growth in academic performance, including significant gains by all groups of students. At the same time, however, wide gaps in achievement between groups of students persist. The Board of Education adopted in May 2008 the District s strategic plan, Beyond the Talk: Taking Action to Educate Every Child Now. As identified in the plan, SFUSD is focused on the following goals: Access & Equity Make social justice a reality Student Achievement Engage high achieving and joyful learners Accountability Keep our promises to students and families Five years later and with a new leadership team at the helm, SFUSD refreshed and deepened this plan in its recently published strategic plan document: Impact Learning. Impact Lives. 5 C-8

89 SAN FRANCISCO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2014 A great deal of information about the strategic plan, including the full text of the plan and related objectives, initiatives, and resources can be found at Richard A. Carranza assumed the role of Superintendent for SFUSD on June 26, Mr. Carranza, who previously served as SFUSD s Deputy Superintendent for Instruction, Innovation and Social Justice, has led the District in building a rigorous Common Core-based curriculum, investing in the professional learning of teachers, leaders and school staff, enlisting partners and engaging families in a community schools strategy, and building an accountability system that includes a comprehensive assessment of student learning. The District's staff members share a commitment to deliver programs that will create the foundation for all students to achieve success. Each year, the SFUSD s educators and administrators assess each school s progress against established priorities, goals and objectives. Through the ongoing and expanding use of evaluation data, SFUSD continually reassesses its strategies, practices and allocation of resources. The District has been successful in introducing strategies that have helped in closing gaps in academic achievement outcomes among groups of students. Parents are also becoming more aware of high instructional quality and appealing programs at public schools across San Francisco, and more of the District s schools are continuing to gain state and federal recognition. The State of California s fiscal challenges, particularly over the past decade, have had a significant impact on the funds available for school budgets. However, throughout this significant, protracted downturn in state funding, the District has stretched its resources to deliver high-quality educational services. As financial resources gradually stabilize, the District s teachers, principals, and other staff members are continuing their efforts to raise academic achievement of already high performing students and dramatically accelerate the achievement of those who need the most support to achieve SFUSD s vision for student success. SFUSD s aim is to make sure all students are on a path to success in college, career, and life. To continue following through on our strategic plan s commitments, areas of focus (SFUSD s Six Strategies for Success ) include: Implementing the SFUSD Core Curriculum and using student data to make informed decisions and monitor our progress toward goals. Providing tiered levels of academic and behavior support to all students using a Response to Instruction and Intervention (RTI 2 ) model. Building a clear vision, culture and conditions for college and career readiness at all school levels. Differentiating central office supports to schools through a Multi-Tiered System of Supports (MTSS). Recruiting, developing and retaining highly qualified teachers, leaders, and staff. Increasing awareness and building the supports necessary to fully implement SFUSD s Family Engagement Standards. District staff members also continue to improve practices in financial planning and monitoring spending levels. SFUSD s ability to analyze and estimate revenues and expenses is essential due to the historical unpredictability of financial resources and the State-wide economic trends that may continue to affect the District s financial condition over the next several years, even as the State implements the new Local Control Funding Formula. 6 C-9

90 SAN FRANCISCO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2014 RESULTS OF OPERATION Unrestricted General Fund Results of Operations FINANCIAL HIGHLIGHTS During fiscal year , the District s unrestricted General Fund ending balance, which includes nonspendable, assigned, and unassigned balances, decreased from $36.1 million to $24.4 million, a $11.7 million or 34.4% decrease. Total unrestricted General Fund revenues in the current year were $435.5 million, an increase of $40 million, or 10% compared to Total expenditures of $425 million represent an increase of $24 million or 6% over Larger individual increases over include supervision of instruction, which increased by $4.7 million or 33%; all other pupil services, which increased by $3 million or 20%; and all other general administration which increased $2.6 million or 18%. Transfers to the County School Service Fund of $62.5 million, is an increase of $4.3 million or 7% from The unrestricted General Fund balance was required to contribute to other funds, primarily for special education, transportation, child development, and student nutrition. Transfers to other funds in the amount of $9.6 million are $0.3 million or 3% less than General Fund Ending Balance and Reserves The District s combined General Fund ending balance at June 30, 2014 (restricted plus unrestricted) is $62.7 million. The restricted fund balance portion of $38.4 million, will largely be used for instructional activities, but its use is restricted for specific program activities and cannot be counted as available, i.e., unrestricted reserves. The District s available reserves, consisting of reserves for economic uncertainty, and other unassigned reserves, are $20.1 million. The following comparison of revenue and expenditures focuses solely on General Fund operations. Table 1 shows the year to year revenue and Table 2 below shows the same comparison of expenditures. Table Variance Local control funding formula/revenue limit $ 262,489,868 $ 375,832,260 $ 113,342,392 Federal sources 51,811,711 37,406,980 (14,404,731) Other state sources 133,119,329 56,710,288 (76,409,041) Other local sources 125,416, ,669,365 24,252,705 Transfers in / Other sources - 218, ,721 $ 572,837,568 $ 619,837,614 $ 47,000,046 7 C-10

91 SAN FRANCISCO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2014 Table Variance Instruction $ 257,372,978 $ 261,969,218 $ (4,596,240) Instruction related activities 121,255, ,783,414 (11,528,246) Pupil services 41,640,007 45,325,938 (3,685,931) General administration 27,367,240 27,916,858 (549,618) Plant services 52,086,385 50,899,260 1,187,125 Facility acquisition and construction 3,171,096 4,272,987 (1,101,891) Ancilliary services 3,663,964 2,207,263 1,456,701 Enterprise 3,991 4,264 (273) Other (outgo) 69,407,493 80,283,017 (10,875,524) Debt service 2,638,820 2,798,878 (160,058) Transfers out 11,718,037 9,043,610 2,674,427 $ 590,325,179 $ 617,504,707 $ (27,179,528) Budgeting The SFUSD adopted budget is developed based on the latest information on revenue projections received from the Governor s May revision to the State budget, which is typically released a few months before the final State budget is passed. The District held budget hearings and adopted the budget in accordance with provisions of the California Education Code. The budget reflects the District s goals to emphasize the achievement of all students and to narrow the achievement gap for the neediest students. Throughout the budget development process, staff is encouraged to work with the community to develop sound decisions that support the needs of all students. Only grants that the District is certain of receiving are included in the adopted budget. Additional programs are budgeted as grant awards, and are received during the course of the year. Grants are budgeted to be fully expended. Carryover funds are budgeted when carryover balances are determined and per instructions from program managers. As program needs change during the year, changes and revisions to the adopted budget are made throughout the year to reflect these changes. Budget transfers and budget revisions are made on an ongoing basis, and new programs are budgeted throughout the fiscal year. We have included a budgetary comparison schedule on page 54 providing the adopted and final budgets compared with actual revenues and expenditures. 8 C-11

92 SAN FRANCISCO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2014 OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of three parts management s discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements that present different views of the District: o o o o o The first two statements are government-wide financial statements that provide both short-term and long-term information about the District s overall financial status. The remaining statements are fund financial statements that focus on individual parts of the District, reporting the District s operations in more detail than the government-wide statements. The governmental funds statements tell how basic services like regular and special education were financed in the short term as well as what remains for future spending. Proprietary fund statements offer financial information about the activities the District operates on a cost reimbursement basis, such as the self-insurance fund. Fiduciary funds statements provide information about the financial relationships in which the District acts solely as a trustee or agent for the benefit of others to whom the resources belong. Fiduciary fund activity is excluded from the government-wide financial statements. The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements with comparisons of the District s General and County School Service Fund budgets, both the adopted and final version, with year-end actuals. Government-Wide Statements The government-wide statements report information about the District as a whole using accounting methods similar to those used by private-sector companies. The statement of net position includes all of the District s assets and liabilities. All of the current year s revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two government-wide statements report the District s net position and how they have changed. Net position the difference between assets and liabilities is one way to measure the District s financial health. o o Over time, increases or decreases in the District s net position may be an indicator of whether its financial position is improving or deteriorating, respectively. To assess the overall health of the District one needs to consider additional non-financial factors such as changes in the District s property tax base, its student enrollment data, the State s fiscal health and the condition of school buildings and other facilities. 9 C-12

93 SAN FRANCISCO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2014 Fund Financial Statements The fund financial statements provide more detailed information about the District s most significant funds not the District as a whole. Funds are accounting devices the District uses to keep track of specific sources of funding and spending on particular programs: o o Some funds are required by State law and by bond covenants. The District establishes other funds to control and manage money for particular purposes (such as payment of long-term debt) or to show that it is properly using certain revenues (such as Federal grants). The District has three kinds of funds: o o o Governmental funds Most of the District s basic services are included in governmental funds, which generally focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed short-term view that helps one determine whether there are more or fewer financial resources that can be spent in the near future to finance the District s programs. Because this information does not encompass the additional long-term focus of the district-wide statements, reconciliations between the district-wide statements and the fund financial statements are provided. Proprietary funds Services for which the District charges a fee are generally reported in proprietary funds. Proprietary funds are reported in the same way as the district-wide statements. Internal service funds (one kind of proprietary fund) are used to report activities that provide supplies and services for the District s other programs and activities. The District currently has one internal service fund the self-insurance fund. Fiduciary funds The District is the trustee, or fiduciary, for assets that belong to others, such as the scholarship fund and the student activities funds. The District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. All of the District s fiduciary activities are reported in a separate statement of fiduciary net position. These activities are excluded from the district-wide financial statements because the District cannot use these assets to finance its operations. 10 C-13

94 SAN FRANCISCO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2014 Net Position FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE The District s government-wide net position at June 30, 2014 totaled $503 million. Of this amount, $551 million represents net investment in capital assets, while $120 million is restricted for various purposes. The deficit in unrestricted net position of $167 million is primarily due to the District s postemployment benefits obligation, which totals $188 million at June 30, 2014, an increase of $31 million over the prior year. Capital Assets CAPITAL ASSET AND DEBT ADMINISTRATION At the close of the year ended June 30, 2014, the District s capital assets totaled $1,553 million. Accumulated depreciation was $375 million at year end. Depreciation expense for the year totaled $40 million. Net book value (the amount of total assets after applying depreciation) increased by $65 million to $1,178 million. The District excludes from its capital assets any individual capital acquisitions less than $25,000. The majority of the recorded historical cost of assets relates to the buildings and improvements of physical school sites. The historical cost of land owned by the District is not considered significant and is excluded from total capital assets. Likewise, the original historical construction cost of most school sites dating back to the date the school was first opened have not been included as such costs would have been fully depreciated by the beginning year date of July 1, See Note 4 to the accompanying financial statements for a complete summary of the District s capital assets. Long-Term Obligations The District began the fiscal year with long-term debt obligations of $873 million. Additions were $289 million, consisting primarily of general obligation bond issuance of $220 million - inclusive of premiums - and increases to the post employment benefits liability of $65 million. Reductions consisted primarily of debt service payments of $38 million and payments of current premiums on the post employment benefits liability of $34 million. At June 30, 2014, the ending balance was $1,089 million. The significant items comprising the District s long-term obligations are as follows: $874 million of general obligation bonds, $188 million of postemployment benefits, and $16 million of capital leases. The annual debt service requirement on the capital leases obligations approximates $2.5 million and is funded from the General Fund. General obligation bonds are funded by a separate property tax override and do not require the use of District resources. Other general long term obligations consist of the revenue limit deficit loan (of which $1 million is outstanding as of June 30, 2014). Repayments extend over a ten-year window, concluding in fiscal year by offsetting to the District s second principal apportionment revenue limit. See Note 9 to the accompanying financial statements for a complete summary of long-term liabilities. 11 C-14

95 SAN FRANCISCO UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2014 FACTORS BEARING ON THE DISTRICT S FUTURE The District s staff continues to use assessments to measure and re-evaluate ways to invest in sound, educational, and programmatic activities while ensuring financial solvency. The District achieved its required reserve target of 2% for FY and currently projects that it will maintain its minimum reserve in both FY and FY In addition to the Local Control Funding Formula income source, the District also received approximately $243.8 million of other program funding from Federal, State, and local sources. In June 2008, Proposition A, the Quality Teacher & Education Act was passed by the voters of San Francisco, bringing $30+ million per year for the next twenty years to the District beginning in fiscal year These resources assist in recruiting and retaining effective teachers, increasing accountability, and improving the District s technology infrastructure. Another local revenue source that has been greatly beneficial to SFUSD is the City and County s Rainy Day Reserve (the Reserve), also known as an Economic Stabilization Reserve, pursuant to the San Francisco Administrative Code Charter Section , San Francisco Unified School District is entitled to receive appropriations from the Reserve under certain conditions. The amount that the District is eligible for in is projected to be $11.1 million. As it relates to future State Budgets, the District s ability to predict what actions will be taken in the future by the State Legislature and Governor to address the State s current or future budget and cash management practices is limited. Future State budgets will be affected by national and State economic conditions and other factors over which the District has no control. However, in a welcome departure from the past several years, prospects for State funding are brighter due to recent improvement in California s economy and the implementation of the Local Control Funding Formula. The District s Superintendent and senior staff members will continue to work very closely with the Board of Education to monitor revenues and manage expenditures. SFUSD is totally committed to take whatever measures are necessary to maintain a stable financial position. At the same time, the District will also continue its dedicated mission to ensure improvement in academic achievement, closing achievement gaps, improving its facilities, and meeting the priorities of the Board of Education and the San Francisco community. It is the District s goal to ensure that all children receive a quality education and a positive foundation necessary for them to achieve academic success. CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, and creditors with a general overview of the District s finances and to assist interested parties in understanding the District s sources and uses of resources. If you have questions about this report or need additional financial information, please contact Joseph Grazioli, Chief Financial Officer of the San Francisco Unified School District, 135 Van Ness Avenue, San Francisco, California or (415) C-15

96 SAN FRANCISCO UNIFIED SCHOOL DISTRICT STATEMENT OF NET POSITION JUNE 30, 2014 Governmental Assets Activities Cash and cash equivalents $ 882,086 Investments 528,376,978 Receivables 89,814,075 Prepaid expenses 2,620,660 Stores inventories 680,467 Capital assets, net of accumulated depreciation 1,177,682,488 Total Assets 1,800,056,754 Liabilities Liabilities 5,895,101 Accounts payable 58,216,492 Interest payable 13,209,407 Unearned revenue 6,912,101 Claim liabilities 33,078,167 Current loans 90,000,000 Current portion of long-term obligations 43,135,082 Noncurrent portion of long-term obligations 1,046,284,259 Total liabilities 1,296,730,609 Net Position Net investment in capital assets 550,676,277 Restricted Legally restricted 43,406,444 Debt service 20,152,198 Capital Projects 43,164,321 Self insurance 13,259,773 Unrestricted (167,332,868) Total Net Position $ 503,326,145 The accompanying notes are an integral part of these financial statements. 13 C-16

97 SAN FRANCISCO UNIFIED SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2014 Net Revenues (Expenses) and Changes Program Revenues in Net Position Charges for Operating Capital Services and Grants and Grants and Governmental Functions/Programs Expenses Sales Contributions Contributions Activities Governmental Activities: Instruction $ 414,268,591 $ 782,686 $ 80,178,316 $ 1,927,561 $ (331,380,028) Instruction related activities: Supervision of instruction 119,770, ,306 62,176,728 - (56,810,842) Instructional library and technology 9,171, ,152 2,934,560 - (6,058,884) School site administration 42,970,896 18,663 3,298,839 - (39,653,394) Pupil services: Home-to-school transportation 26,016,248 6, ,747 - (25,909,330) Food services 24,643,833 1,126,863 17,143,400 - (6,373,570) All other pupil services 59,508, ,484 16,459,938 - (42,724,135) General administration: Data processing 7,202,354 2,746 44,835 - (7,154,773) All other general administration 28,206,243 89,260 4,724,287 - (23,392,696) Plant services 60,378,874 69,119 1,845,924 - (58,463,831) Anciliary services 2,433,055 42, ,922 - (1,688,139) Interest on long-term obligations 48,498, (48,498,225) Other outgo Total Governmental 8,980,220 97,016 6,604,401 - (2,278,803) Activities $ 852,049,568 $ 3,521,460 $ 196,213,897 $ 1,927,561 (650,386,650) General revenues and subventions: Property taxes, levied for general purposes 271,452,475 Property taxes, levied for debt service 74,446,793 Taxes levied for other specific purposes 72,448,817 Federal and state aid not restricted to specific purposes 130,483,014 Interest and investment earnings 2,890,758 Miscellaneous 83,168,448 Subtotal, general revenues 634,890,305 Change in net position (15,496,345) Net Position - Beginning 518,822,490 Net Position - Ending $ 503,326,145 The accompanying notes are an integral part of these financial statements. 14 C-17

98 SAN FRANCISCO UNIFIED SCHOOL DISTRICT GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2014 County School Non-Major Total General Service Building Governmental Governmental Fund Fund Fund Funds Funds ASSETS Cash $ 500 $ - $ - $ 18,578 $ 19,078 Investments 110,771,055 7,749, ,903,010 81,944, ,368,836 Receivables 60,964,795 14,634, ,287 13,799,941 89,747,169 Prepaid expenditures 2,620, ,620,660 Stores inventories 667, , ,467 Total Assets $ 175,024,407 $ 22,383,997 $ 282,251,297 $ 95,776,509 $ 575,436,210 LIABILITIES AND FUND BALANCES Liabilities Overdrafts $ - $ - $ - $ 5,895,101 $ 5,895,101 Accounts payable 19,527,913 14,100,089 18,417,502 7,144,571 59,190,075 Current loans 90,000, ,000,000 Unearned revenue 2,758, ,445-3,759,002 6,912,101 Total Liabilities 112,286,567 14,494,534 18,417,502 16,798, ,997,277 Fund Balances Nonspendable 3,288, ,061 3,312,618 Restricted 38,359,629 3,467, ,833,795 76,507, ,168,405 Committed ,402,788 1,402,788 Assigned 982, ,043,178 2,025,504 Unassigned 20,107,328 4,422, ,529,618 Total Fund Balances 62,737,840 7,889, ,833,795 78,977, ,438,933 Total Liabilities and Fund Balances $ 175,024,407 $ 22,383,997 $ 282,251,297 $ 95,776,509 $ 575,436,210 The accompanying notes are an integral part of these financial statements. 15 C-18

99 SAN FRANCISCO UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2014 Amounts reported for governmental funds in the statement of net position are different from the amounts reported in the fund level statements because of these items: Total fund balance - governmental funds $ 413,438,933 Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. The cost of capital assets is $ 1,553,153,898 Accumulated depreciation is (375,471,410) Net capital assets 1,177,682,488 In governmental funds, unmatured interest on long-term obligations is recognized in the period when it is due. In the government-wide statements, unmatured interest on long-term obligations is recognized when it is incurred. (11,635,708) An internal service fund is used by the District's management to charge the costs of the workers' compensation insurance program to the individual funds. The assets and liabilities of the internal service fund are included with governmental activities. 13,259,773 Long-term liabilities are not due and payable in the current period and therefore, are not reported as liabilities in the governmental funds. Long-term liabilities at year end consist of the following items: General obligation bonds and premium (874,657,967) Capital leases payable (16,182,039) Compensated absences (vacations) (9,854,347) Excess revenue limit transfers (1,100,180) Post employment liability (187,624,808) Long-term liabilities (1,089,419,341) Total net position - governmental activities $ 503,326,145 The accompanying notes are an integral part of these financial statements. 16 C-19

100 SAN FRANCISCO UNIFIED SCHOOL DISTRICT GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2014 County Non-Major Total General School Service Building Governmental Governmental Fund Fund Fund Funds Funds REVENUES Local Control Funding Formula $ 375,832,260 $ 10,689,008 $ - $ - $ 386,521,268 Federal sources 37,406,980 13,112,037-31,236,356 81,755,373 Other state sources 56,710,288 43,007,270-12,644, ,362,216 Other local sources 149,669,365 71,402,767 8,884,647 96,922, ,879,672 Total Revenues 619,618, ,211,082 8,884, ,803, ,518,529 EXPENDITURES Current Instruction 261,969,218 91,783,256-23,522, ,275,043 Instruction related activities Supervision of instruction 90,555,830 12,515,803-5,584, ,655,910 Instructional library and technology 8,295, ,421 8,320,454 School site administration 33,932,551 1,370,181-3,680,383 38,983,115 Pupil Services: Home-to-school transportation 8,410,952 15,190, ,601,890 Food services 200, ,156,413 22,356,838 All other pupil services 36,714,561 17,098, ,063 53,986,049 General administration: Data processing 6,533, ,533,962 All other general administration 21,382,896 1,809,899-2,395,855 25,588,650 Plant services 50,899, ,980-2,392,898 53,460,138 Facility acquisition and construction 4,272,987-93,020,137 6,941, ,235,055 Ancilliary services 2,207, ,207,263 Other outgo 80,283, ,283,017 Enterprise services 4, ,264 Debt service Principal 1,100, ,579,140 36,679,319 Interest and other 1,698, ,677,577 37,376,276 Total Expenditures 608,461, ,936,482 93,020, ,129, ,547,243 Excess (deficiency) of revenues over expenditures 11,157,796 (1,725,400) (84,135,490) 2,674,380 (72,028,714) OTHER SOURCES (USES): Transfers in 218,721-1,286,576 9,043,610 10,548,907 Other sources ,000,000 15,310, ,310,751 Transfers out (9,043,610) - - (1,505,297) (10,548,907) Net Financing Sources (Uses) (8,824,889) - 206,286,576 22,849, ,310,751 NET CHANGE IN FUND BALANCES 2,332,907 (1,725,400) 122,151,086 25,523, ,282,037 Fund Balance - Beginning 60,404,933 9,614, ,682,709 53,454, ,156,896 Fund Balance - Ending $ 62,737,840 $ 7,889,463 $ 263,833,795 $ 78,977,835 $ 413,438,933 The accompanying notes are an integral part of these financial statements. 17 C-20

101 SAN FRANCISCO UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2014 Amounts reported for governmental activities in the statement of activities are different because of the following items: Total net change in fund balances - governmental funds $ 148,282,037 Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures, however, for governmental activities those costs are capitalized in the statement of net position as property and equipment. The cost is allocated over the estimated useful life of the asset as depreciation expense in the statement of activities. This is the amount by which capitalized capital outlays exceed depreciation in the current period. Capitalized capital outlays $ 104,235,054 Depreciation expense (39,580,575) 64,654,479 Repayment of capital leases is an expenditure in the governmental funds, but it reduces long-term liabilities in the statement of net position and does not affect the statement of activities. 1,349,140 Proceeds received from sale of bonds is a revenue source in the governmental funds, but it increases long-term liabilities in the statement of net position and does not affect the statement of activities. (205,000,000) Premium received from sales of general obligation bonds are revenues in the governmental funds, but they increase long-term liabilities in the statement of net position and does not affect the statement of activities. (15,310,751) Repayment of general obligation bond principal is an expenditure in the governmental funds, but it reduces long-term liabilities in the statement of net position and do not affect the statement of activities. 34,230,000 In the statement of activities, compensated absences are measured by the amounts earned during the year. In the governmental funds, compensated absences are measured by the amount of financial resources used (essentially, the amounts actually paid). (4,051,294) The accompanying notes are an integral part of these financial statements. 18 C-21

102 SAN FRANCISCO UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES (Continued) FOR THE YEAR ENDED JUNE 30, 2014 Amortization of bond premium is a revenue source in the statement of activities, but is not recognized in the governmental funds. 4,056,904 Interest on long-term debt in the statement of activities differs from the amount reported in the governmental funds because interest is recorded as an expenditure in the funds when it is paid, and thus requires the use of current financial resources. In the statement of activities, however, interest expense is recognized as the interest accrues, regardless of when it is paid. The interest expense reported in the statement of activities is the result of this difference. (9,829,695) Due to the implementation of GASB Statement No. 65, de-recognition of the deferred cost of issuance is reflected as an expense on the statement of activities, but does not affect the governmental funds. (3,438,367) De-recognition of defeasance costs is an expense in the statement of activities, but is not recognized in the governmental funds. (1,910,791) In the statement of activities, the unfunded Annual Required Contribution (ARC) for other post employment benefits is recognized as an expense, but is not recognized in the governmental funds. (30,675,398) The excess revenue limit received during was recorded as revenue in the governmental funds and a long term liability in the statement of net position. The negotiated installment payments to repay the Stateare expenditures in the governmental funds, but reduce long-term liabilities in the statement of net position and do not affect the statement of activities. 1,100,179 An internal service fund is used by the District's management to charge the costs of the employment insurance program to the individual funds. The increase in net position of the internal service fund is not reported in the governmental funds, but is reported in the statement of activities. 1,047,212 Decrease in net position of governmental activities $ (15,496,345) The accompanying notes are an integral part of these financial statements. 19 C-22

103 SAN FRANCISCO UNIFIED SCHOOL DISTRICT PROPRIETARY FUND STATEMENT OF NET POSITION JUNE 30, 2014 ASSETS Current assets Cash and cash equivalents $ 863,008 Investments 46,008,142 Governmental Activities: Internal Service Fund Total cash and investments $ 46,871,150 Receivables 66,906 Total Current Assets 46,938,056 LIABILITIES Current liabilities Accounts payable 600,116 Claim liability - workers' compensation 32,600,000 Claim liability - dental 478,167 Total Current Liabilities 33,678,283 NET POSITION Restricted for insurance programs 13,259,773 Total Net Position $ 13,259,773 The accompanying notes are an integral part of these financial statements. 20 C-23

104 SAN FRANCISCO UNIFIED SCHOOL DISTRICT PROPRIETARY FUND STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION FOR THE YEAR ENDED JUNE 30, 2014 Governmental Activities Internal Service Fund OPERATING REVENUES In-district premiums $ 21,776,670 Total operating revenues 21,776,670 OPERATING EXPENSES Payroll costs 1,056,140 Claims expense 20,010,810 Total operating expenses 21,066,950 Operating profit 709,720 NONOPERATING REVENUES Interest income 337,492 Change in Net Position 1,047,212 Net Position - Beginning 12,212,561 Net Position - Ending $ 13,259,773 The accompanying notes are an integral part of these financial statements. 21 C-24

105 SAN FRANCISCO UNIFIED SCHOOL DISTRICT PROPRIETARY FUND STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2014 Governmental Activities Internal Service Fund CASH FLOWS FROM OPERATING ACTIVITIES Cash received from user charges $ 21,776,670 Cash payments for insurance claims (17,415,544) Cash payments for payroll expense (1,180,876) Net cash provided by operating activities 3,180,250 CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments 290,320 Net increase in cash and cash equivalents 3,470,570 Cash and cash equivalents - Beginning of year 43,400,580 Cash and cash equivalents - End of year $ 46,871,150 RECONCILIATION OF OPERATING PROFIT TO NET CASH USED FOR OPERATING ACTIVITIES Operating profit $ 709,720 Increase in accrued liabilities 2,470,530 Net cash provided by operating activities $ 3,180,250 The accompanying notes are an integral part of these financial statements. 22 C-25

106 SAN FRANCISCO UNIFIED SCHOOL DISTRICT FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2014 Payroll Revolving Student Body Agency Fund Agency Fund Total ASSETS Cash and cash equivalents $ - $ 2,604,801 $ 2,604,801 Investments 8,216,827-8,216,827 Total Assets $ 8,216,827 $ 2,604,801 $ 10,821,628 LIABILITIES Salaries and benefits payable $ 8,216,827 $ - $ 8,216,827 Due to student groups - 2,604,801 2,604,801 Total Liabilities $ 8,216,827 $ 2,604,801 $ 10,821,628 The accompanying notes are an integral part of these financial statements. 23 C-26

107 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Reporting Entity The San Francisco Unified School District (the District) was established as the San Francisco School System in 1851 under the laws of the State of California. The District and County Office of Education (COE) operate under a locally-elected seven-member Board form of government and provides educational services to grades K - 12 as mandated by State and Federal agencies. The District and COE provide child care and elementary and secondary education in the City and County of San Francisco, California. The District also administers the COE fund (County School Service Fund). For financial reporting purposes, the District includes all funds, account groups, agencies, and authorities that are controlled by or are dependent on the District s executive or legislative branches. Control by or dependence on the District was determined on the basis of budget adoption, taxing authority, outstanding debt secured by revenues or general obligations of the District, obligations of the District to finance any deficits that may occur, or receipt of significant subsidies from the District. The District operates 8 transitional kindergartens, 72 elementary schools, 13 middle schools, 18 high schools, including 2 continuation schools, and an independent study alternative school. The District sponsors 13 Charter Schools. The District also maintains 34 early childhood education centers. A reporting entity is comprised of the primary government, component units, and other organizations that are included to ensure the financial statements are not misleading. The primary government of the District consists of all funds, departments, boards, and agencies that are not legally separate from the District. This includes general operations, food service and student related activities of the District and the COE. Component Units Component units are legally separate organizations for which the District is financially accountable. Component units may include organizations that are fiscally dependent on the District in that the District approves their budget, the issuance of their debt or the levying of their taxes. In addition, component units are other legally separate organizations for which the District is not financially accountable but the nature and significance of the organization s relationship with the District is such that exclusion would cause the District s financial statements to be misleading or incomplete. For financial reporting purposes, the component unit has a financial and operational relationship which meets the reporting entity definition criteria of the Governmental Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting Entity, and thus is included in the financial statements using the blended presentation method as if it were part of the District s operations because the governing board of the component unit is the same as the governing board of the District and because its purpose is to finance the acquisition and improvement of a new administration building to be used for the direct benefit of the District. The San Francisco Unified School District Financing Corporation s (the Corporation) financial activity is presented in the financial statements as a fund of the Special Reserve Fund - Capital Outlay. Certificates of participation issued by the Corporation are included as long-term liabilities in the government-wide financial statements. Individual financial statements are not prepared for the Corporation. 24 C-27

108 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Other Related Entities Charter Schools The District has approved Charters for City Arts and Technology High School, Creative Arts Charter School, Five Keys Charter School, Five Keys Adult School, Five Keys Independent High School, Gateway High School, Gateway Middle School, KIPP Bay View Academy, KIPP San Francisco Bay Academy, KIPP San Francisco College Preparatory, Leadership High School, Life Learning Academy, and Thomas Edison Charter Academy pursuant to Education Code Section The Charter Schools are sponsored by the District but operate independently. Their financial activity is not presented in the District's financial statements except for the pass-through of State aid and property tax revenues. Basis of Presentation - Fund Accounting The accounting system is organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. The District s funds are grouped into three broad fund categories: governmental, proprietary and fiduciary. Major Governmental Funds Governmental funds are those through which most governmental functions typically are financed. Governmental fund reporting focuses on the sources, uses and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the District s major governmental funds: General Fund The General Fund is the chief operating fund for all districts. It is used to account for the ordinary operations of the District. All transactions except those accounted for in another fund are accounted for in this fund. County School Service Special Revenue Fund The County School Service Special Revenue fund is used to account for resources committed to Special Education, other County schools, and the Regional Occupation Program maintained by the District. Building Fund The Building Fund exists primarily to account separately for proceeds from the sale of bonds (Education Code Section 15146) and may not be used for any purposes other than those for which the bonds were issued. Non-Major Governmental Funds Special Revenue Funds The Special Revenue funds are used to account for the proceeds from specific revenue sources (other than trusts, major capital projects, or debt service) that are restricted or committed to expenditures for specified purposes and that compose a substantial portion of the inflows of the fund. Additional resources that are restricted, committed, or assigned to the purpose of the fund may also be reported in the fund. Cafeteria Fund The Cafeteria Fund is used to account separately for Federal, State, and local resources to operate the food service program (Education Code Sections ) and is used only for those expenditures authorized by the governing board as necessary for the operation of the District's food service program (Education Code Sections and 38100). 25 C-28

109 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Child Development Fund The Child Development Fund is used to account separately for Federal, State, and local revenues to operate child development programs and is to be used only for expenditures for the operation of child development programs. Deferred Maintenance Fund The Deferred Maintenance Fund is used to account separately for State apportionments and the District's contributions for deferred maintenance purposes (Education Code Sections ) and for items of maintenance approved by the State Allocation Board. Debt Service Funds The Debt Service Funds are used to account for the accumulation of restricted, committed, or assigned resources for and the payment of principal and interest on general long-term debt. Bond Interest and Redemption Fund The Bond Interest and Redemption Fund is used for the repayment of bonds issued for a district (Education Code Sections ). Tax Override Fund The Tax Override Fund is used for the repayment of voted indebtedness (other than Bond Interest and Redemption Fund repayments) to be financed from ad valorem tax levies. Capital Projects Funds The Capital Project Funds are used to account for financial resources that are restricted, committed, or assigned to the acquisition or construction of major capital facilities and other capital assets (other than those financed by proprietary funds and trust funds). Capital Facilities Fund The Capital Facilities Fund is used primarily to account separately for monies received from fees levied on developers or other agencies as a condition of approving a development (Education Code Sections ). Expenditures are restricted to the purposes specified in Government Code Sections or to the items specified in agreements with the developer (Government Code Section 66006). State School Building Lease-Purchase Fund The State School Building Lease Purchase Fund is used primarily to account separately for State apportionments for the reconstruction, remodeling, or replacing of existing school buildings or the acquisition of new school sites and buildings, as provided in the Leroy F. Greene State School Building Lease-Purchase Law of 1976 (Education Code Section et seq.). County School Facilities Fund The County School Facilities Fund is established pursuant to Education Code Section to receive apportionments from the 1998 State School Facilities Fund (Proposition la), the 2002 State School Facilities Fund (Proposition 47), the 2004 State School Facilities Fund (Proposition 55) or the 2006 State Schools Facilities Fund (Proposition 1D) authorized by the State Allocation Board for new school facility construction, modernization projects, and facility hardship grants, as provided in the Leroy F. Greene School Facilities Act of 1998 (Education Code Section et seq.). Special Reserve Fund for Capital Outlay Projects The Special Reserve Fund for Capital Outlay Projects exists primarily to provide for the accumulation of General Fund monies for capital outlay purposes (Education Code Section 42840). Proprietary Funds Proprietary funds are used to account for activities that are more business-like than government-like in nature. Business-type activities include those for which a fee is charged to external users or to other organizational units of the local education agency, normally on a full cost-recovery basis. Proprietary funds are generally intended to be self-supporting and are classified as enterprise or internal service. The District has the following proprietary fund: 26 C-29

110 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Internal Service Fund Internal Service funds may be used to account for goods or services provided to other funds of the District on a cost-reimbursement basis. The District operates a self insurance fund for its workers compensation, dental, and other post employment retiree benefits self insurance program that is accounted for as an internal service fund. Fiduciary Funds Fiduciary Funds are used to account for assets held in trustee or agent capacity for others that cannot be used to support the District's own programs. The fiduciary fund category is split into four classifications: pension trust funds, investment trust funds, private-purpose trust funds, and agency funds. The key distinction between trust and agency funds is that trust funds are subject to a trust agreement that affects the degree of management involvement and the length of time that the resources are held. Trust funds are used to account for the assets held by the District under a trust agreement for individuals, private organizations, or other governments and are therefore not available to support the District s own programs. Private-purpose trust funds are accounted for as a restricted component of the General Fund. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Such funds have no equity accounts since all assets are due to individuals or entities at some future time. The District maintains the following two Agency funds: Payroll Revolving Agency Fund The Payroll Revolving Fund is used to account for assets held for employees for payroll withholding. Student Body Agency Fund The Student Body Agency Fund is used to account for assets held for student organizations of schools in the District. Basis of Accounting - Measurement Focus Government-Wide Financial Statements The government-wide statements are prepared using the economic resources measurement focus and the accrual basis of accounting. This is the same approach used in the preparation of the proprietary fund financial statements but differs from the manner in which governmental fund financial statements are prepared. The government-wide statement of activities presents a comparison between expenses, both direct and indirect, and program revenues for each governmental function, and excludes fiduciary activity. Direct expenses are those that are specifically associated with a service, program or department and are therefore clearly identifiable to a particular function. Indirect expenses for centralized services and administrative overhead are allocated among the programs, functions and segments using a full cost allocation approach and are presented separately to enhance comparability of direct expenses between governments that allocate direct expenses and those that do not. Program revenues include charges paid by the recipients of the goods or services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each governmental function is self-financing or draws from the general revenues of the District. Eliminations have been made to minimize the double counting of internal activities. Net position should be reported as restricted when constraints are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. 27 C-30

111 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Fund Financial Statements Fund financial statements report detailed information about the District. The focus of governmental fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Nonmajor funds are aggregated and presented in a single column. The internal service fund is presented in a single column on the face of the proprietary fund statements. Governmental Funds All governmental funds are accounted for using a flow of current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. The Statement of Revenues, Expenditures, and Changes in Fund Balances reports on the sources (revenues and other financing sources) and uses (expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the governmental activities of the government-wide statements are prepared. Governmental fund financial statements therefore include reconciliations with brief explanations to better identify the relationship between the government-wide statements, prepared on the accrual basis of accounting using the economic resources measurement focus, and the governmental fund statements, prepared on the modified accrual basis of accounting and using the flow of current financial resources measurement focus. Proprietary Funds Proprietary funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. All assets and all liabilities associated with the operation of this fund are included in the Statement of Net Position. The Statement of Revenues, Expenses and Changes in Fund Net Position presents increases (revenues) and decreases (expenses) in net total position. The statement of cash flows provides information about how the District finances and meets the cash flow needs of its proprietary fund. Fiduciary Funds Fiduciary funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. Revenues Exchange and Non-exchange Transactions Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On the modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. Generally, available is defined as collectible within ninety days. However, to achieve comparability of reporting among California districts and so as not to distort normal revenue patterns, with specific respect to reimbursement grants and corrections to state-aid apportionments, the California Department of Education has defined available for districts as collectible within one year. The following revenue sources are considered to be both measurable and available at fiscal year-end: State apportionments, interest, certain grants, and other local sources. Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, certain grants, entitlements and donations. Revenue from property taxes is recognized in the fiscal year in which the taxes are received. Revenue from certain grants, entitlements and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include time and purpose requirements. On the modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. 28 C-31

112 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Unearned Revenue Unearned revenue arises when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period or when resources are received by the District prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for unearned revenue is removed from the balance sheet and revenue is recognized. Certain grants received before the eligibility requirements are met are recorded as unearned revenue. On the governmental fund financial statements, receivables that will not be collected within the available period are also recorded as unearned revenue. Expenses/Expenditures On the accrual basis of accounting, expenses are recognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable, and typically paid within ninety days. Principal and interest on general long-term obligations are recognized when paid in the governmental funds. Allocations of costs, such as depreciation and amortization, are not recognized in the governmental funds but are recognized in the entity-wide statements. Cash and Cash Equivalents The District's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Cash equivalents also include cash with county treasury balances for purposes of the statement of cash flows. Investments Investments held at June 30, 2014 consist of deposits with the County Treasurer and are stated at amortized cost which approximates fair value. Fair value is provided by the County Treasurer. Prepaid Expenditures Prepaid expenditures (expenses) represent amounts paid in advance of receiving goods or services. The District has the option of reporting expenditure in governmental funds for prepaid items either when purchased or during the benefiting period. The District has chosen to report the expenditures during the period benefited. Stores Inventories Inventories consist of expendable food and supplies held for consumption and unused donated commodities. Inventories are stated at cost, on the weighted average basis. The costs of inventory items are recorded as expenditures in the governmental type funds and expenses in the proprietary type funds when used. Capital Assets and Depreciation The accounting and reporting treatment applied to the capital assets associated with a fund are determined by its measurement focus. Capital assets are long-lived assets of the District as a whole. The District maintains a capitalization threshold of $25,000. The District does not possess any infrastructure. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are not. 29 C-32

113 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 When purchased, such assets are recorded as expenditures in the governmental funds but are capitalized and depreciated over their estimated service lives in the government-wide financial statements. The valuation bases for general capital assets are historical cost, or where historical cost is not available, estimated historical cost based on replacement cost. Donated capital assets are capitalized at estimated fair market value on the date donated. Depreciation is computed using the straight-line method. Estimated useful lives of the various classes of depreciable capital assets are as follows: buildings and improvements, 20 to 50 years; equipment, 2 to 15 years. Compensated Absences Compensated absences are accrued as a liability as the benefits are earned. The entire compensated absence liability is reported on the government-wide Statement of Net Position. For governmental funds, the current portion of unpaid compensated absences is recognized upon the occurrence of relevant events such as employee resignations and retirements that occur prior to year end that have not yet been paid with expendable available financial resources. The amounts are reported in the fund from which the employees who have accumulated leave are paid. Certificated Sick leave is accumulated without limit for each eligible employee at the rate of one unit for each month worked. Leave with pay is provided when employees are absent from reasons as stated in the various contracts. Employees who are retiring receive service credit for unused sick leave and employees transferring to other public school Districts can have their sick leave accrual forwarded to the new District. Employees who resign or are terminated do not get paid for unused sick leave accruals. Instructional Aids Sick leave is accumulated at a rate of 0.05 times the number of regularly scheduled worked hours. Leave with pay is provided when employees are absent for reasons stated in the contract. Employees who are retiring receive payment for unused sick hours with a value of over $200 and those hours are transferred to the school District s third party vendor for payment into a 403(b) account in compliance with all applicable rules and regulations. Employees may accumulate unused sick leave up to a maximum of 1,040 hours. Classified Sick leave is accumulated at a rate of 0.05 times the number of regularly scheduled worked hours. Leave with pay is provided when employees are absent for reasons as stated in the various contracts. Employees may accumulate unused sick leave up to the maximum of 1,040 hours. Accrued Liabilities and Long-term Obligations All payables, accrued liabilities and long-term obligations are reported in the government-wide financial statements. In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources are reported as obligations of the funds. However, claims and judgments compensated absences, special termination benefits and contractually required pension contributions that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they are due for payment during the current year. Long-term obligations are not recognized as liabilities in governmental funds but are disclosed in the notes to financial statements. Debt service expenditures, including principal and interest on bonds and capital leases, are recognized as expenditures in governmental funds when paid. 30 C-33

114 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Fund Balances - Governmental Funds As of June 30, 2014, fund balances of the governmental funds are classified as follows: Nonspendable - amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact. Restricted - amounts that can be spent only for specific purposes because of constitutional provisions or enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments. Committed - amounts that can be used only for specific purposes determined by a formal action of the governing board. The governing board is the highest level of decision-making authority for the District. Commitments may be established, modified, or rescinded only through resolutions or other action as approved by the governing board. Assigned - amounts that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes. Unassigned - all other spendable amounts. Spending Order Policy When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless the governing board has provided otherwise in its commitment or assignment actions. Minimum Fund Balance Policy In fiscal year , the governing board adopted a minimum fund balance policy for the General Fund in order to protect the district against revenue shortfalls or unpredicted on-time expenditures. The policy requires a Reserve for Economic Uncertainties consisting of unassigned amounts equal to no less than two percent of General Fund expenditures and other financing uses. Net Position Net position represents the difference between assets and liabilities. The net investment in capital assets portion of net position consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction, or improvement of those assets. The District has $503 million in net position as of June 30, Of that amount $551 million represents capital assets net of related debt. The District applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available. 31 C-34

115 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Operating Revenues and Expenses Operating revenues are those revenues that are generated directly from the primary activity of the proprietary funds. For the District, these revenues are interfund insurance premiums. Operating expenses are necessary costs incurred to provide the good or service that are the primary activity of the fund. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. lnterfund Activity Exchange transactions between funds are reported as revenues in the seller funds and as expenditures/expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in governmental funds and after non-operating revenues/expenses in proprietary funds. Repayments from funds responsible for particular expenditures/expenses to the funds that initially paid for them are not presented on the financial statements. Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. Budgetary Data The budgetary process is prescribed by provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an operating budget no later than July 1 of each year. The District governing board satisfied these requirements. The adopted budget is subject to amendment throughout the year to give consideration to unanticipated revenue and expenditures primarily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriations by major object account. The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all budget amendments have been accounted for. Property Taxes Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are payable in two installments on November 1 and February 1 and become delinquent on December 10 and April 10, respectively. Unsecured property taxes are payable in one installment on or before August 31. The County of San Francisco bills and collects the taxes in behalf of the District. Local property tax revenues are recorded when received. New Accounting Pronouncements In June 2012, the GASB issued Statement No. 68, Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and 32 C-35

116 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 financial reporting for pensions with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This Statement replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of Statement No. 50, Pension Disclosures, as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. The requirements of Statements 27 and 50 remain applicable for pensions that are not covered by the scope of this Statement. The scope of this Statement addresses accounting and financial reporting for pensions that are provided to the employees of state and local governmental employers through pension plans that are administered through trusts that have the following characteristics: Contributions from employers and non-employer contributing entities to the pension plan and earnings on those contributions are irrevocable. Pension plan assets are dedicated to providing pensions to plan members in accordance with the benefit terms. Pension plan assets are legally protected from the creditors of employers, non-employer contributing entities, and the pension plan administrator. If the plan is a defined benefit pension plan, plan assets also are legally protected from creditors of the plan members. This Statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expense/expenditures. For defined benefit pensions, this Statement identifies the methods and assumptions that should be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. Note disclosure and required supplementary information requirements about pensions also are addressed. Distinctions are made regarding the particular requirements for employers based on the number of employers whose employees are provided with pensions through the pension plan and whether pension obligations and pension plan assets are shared. Employers are classified in one of the following categories for purposes of this Statement: Single employers are those whose employees are provided with defined benefit pensions through singleemployer pension plans pension plans in which pensions are provided to the employees of only one employer (as defined in this Statement). Agent employers are those whose employees are provided with defined benefit pensions through agent multiple-employer pension plans pension plans in which plan assets are pooled for investment purposes but separate accounts are maintained for each individual employer so that each employer s share of the pooled assets is legally available to pay the benefits of only its employees. Cost-sharing employers are those whose employees are provided with defined benefit pensions through cost-sharing multiple-employer pension plans pension plans in which the pension obligations to the employees of more than one employer are pooled and plan assets can be used to pay the benefits of the employees of any employer that provides pensions through the pension plan. 33 C-36

117 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 In addition, this Statement details the recognition and disclosure requirements for employers with liabilities (payables) to a defined benefit pension plan and for employers whose employees are provided with defined contribution pensions. This Statement also addresses circumstances in which a non-employer entity has a legal requirement to make contributions directly to a pension plan. This Statement is effective for fiscal years beginning after June 15, Early implementation is encouraged. In November 2013, the GASB issued Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date An Amendment of GASB Statement No.68. The objective of this Statement is to address an issue regarding application of the transition provisions of Statement No. 68, Accounting and Financial Reporting for Pensions. The issue relates to amounts associated with contributions, if any, made by a state or local government employer or nonemployer contributing entity to a defined benefit pension plan after the measurement date of the government's beginning net pension liability. Statement 68 requires a state or local government employer (or nonemployer contributing entity in a special funding situation) to recognize a net pension liability measured as of a date (the measurement date) no earlier than the end of its prior fiscal year. If a state or local government employer or nonemployer contributing entity makes a contribution to a defined benefit pension plan between the measurement date of the reported net pension liability and the end of the government's reporting period, Statement 68 requires that the government recognize its contribution as a deferred outflow of resources. In addition, Statement 68 requires recognition of deferred outflows of resources and deferred inflows of resources for changes in the net pension liability of a state or local government employer or nonemployer contributing entity that arise from other types of events. At transition to Statement 68, if it is not practical for an employer or nonemployer contributing entity to determine the amounts of all deferred outflows of resources and deferred inflows of resources related to pensions, paragraph 137 of Statement 68 required that beginning balances for deferred outflows of resources and deferred inflows of resources not be reported. Consequently, if it is not practical to determine the amounts of all deferred outflows of resources and deferred inflows of resources related to pensions, contributions made after the measurement date of the beginning net pension liability could not have been reported as deferred outflows of resources at transition. This could have resulted in a significant understatement of an employer or nonemployer contributing entity's beginning net position and expense in the initial period of implementation. This Statement amends paragraph 137 of Statement 68 to require that, at transition, a government recognize a beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability. Statement 68, as amended, continues to require that beginning balances for other deferred outflows of resources and deferred inflows of resources related to pensions be reported at transition only if it is practical to determine all such amounts. The provisions of this Statement are required to be applied simultaneously with the provisions of Statement C-37

118 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 2 - DEPOSITS AND INVESTMENTS Summary of Deposits and Investments Deposits and investments as of June 30, 2014, are classified in the accompanying financial statements as follows: Governmental funds $ 482,387,914 Less: deficit cash (overdraft) (5,895,101) Total governmental funds $ 476,492,813 Self insurance fund 46,871,150 Fiduciary funds 10,821,628 Total Deposits and Investments $ 534,185,591 Deposits and investments as of June 30, 2014, consist of the following: Cash on hand and in banks $ 3,486,887 Deposits with county treasurer 536,593,805 Less: deficit cash (overdraft) (5,895,101) Total deposits with county treasurer 530,698,704 Total Deposits and Investments $ 534,185,591 Policies and Practices The District is authorized under California Government Code to make direct investments in local agency bonds, notes, or warrants within the State; U.S. Treasury instruments; registered State warrants or treasury notes; securities of the U.S. Government, or its agencies; bankers acceptances; commercial paper; certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companies, certificates of participation, obligations with first priority security; and collateralized mortgage obligations. Investment in County Treasury - The District is considered to be an involuntary participant in an external investment pool as the District is required to deposit all receipts and collections of monies with their County Treasurer (Education Code Section 41001). The fair value of the District's investment in the pool is reported in the accounting financial statements at amounts based upon the District's pro-rata share of amortized cost which approximately fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis. 35 C-38

119 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 General Authorizations Limitations as they relate to interest rate risk and concentration of credit risk are indicated in the schedules below: Maximum Maximum Maximum Authorized Remaining Percentage Investment Investment Type Maturity of Portfolio In One Issuer Local Agency Bonds, Notes, Warrants 5 years None None Registered State Bonds, Notes, Warrants 5 years None None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None Banker's Acceptance 180 days 40% 30% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days 20% of base None Medium-Term Corporate Notes 5 years 30% None Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 10% Mortgage Pass-Through Securities 5 years 20% None County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAIF) N/A None None Joint Powers Authority Pools N/A None None Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment the greater the sensitivity of its fair value to changes in market interest rates. The District manages its exposure to interest rate risk by investing in the San Francisco County Pool. The book value of these investments at June 30, 2014 is $534,185,591 and the fair value is $534,548,579. Information about the sensitivity of the fair values of the District's investments to market interest rate fluctuation is provided by the following schedule that shows the distribution of the District's investment by maturity: Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The District's investment in the County Pool is not required to be rated, nor has been rated as of June 30, C-39

120 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Custodial Credit Risk Deposits This is the risk that in the event of a bank failure, the District's deposits may not be returned to it. The District does not have a policy for custodial credit risk for deposits. However, the California Government Code requires that a financial institution secure deposits made by State or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited by the public agency. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105 percent of the secured deposits. As of June 30, 2014, the District's bank balance of $3,107,634 was exposed to custodial credit risk because it was uninsured and collateralized with securities held by the pledging financial institution's trust department or agent, but not in the name of the District. NOTE 3 - RECEIVABLES Receivables at June 30, 2014, consisted of intergovernmental grants, entitlements, interest and other local sources. All receivables are considered collectible in full. County Non-Major Total General School Service Building Governmental Governmental Proprietary Fund Fund Fund Funds Funds Fund Federal Government Categorical aid $ 16,234,331 $ 4,679,118 $ - $ 8,648,757 $ 29,562,206 $ - State Government Apportionment 24,131,082 8,839, ,970,931 - Categorical aid 628, , ,730 1,775,703 - Lottery 4,350, , ,539,294 - Local Government Interest 183, , , ,264 - Local Sources 15,436, ,798,283 20,234,771 66,906 Total Accounts Receivable $ 60,964,795 $ 14,634,146 $ 348,287 $ 13,799,941 $ 89,747,169 $ 66, C-40

121 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 4 - CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2014, was as follows: Balance Balance June 30, 2013 Additions June 30, 2014 Governmental Activities * Capital assets being depreciated Buildings and improvements $ 1,399,198,937 $ 104,105,616 $ 1,503,304,553 Furniture and equipment 49,719, ,438 49,849,345 Total capital assets being depreciated 1,448,918, ,235,054 1,553,153,898 Less accumulated depreciation Buildings and improvements 303,086,012 37,900, ,986,353 Furniture and equipment 32,804,823 1,680,234 34,485,057 Total accumulated depreciation 335,890,835 39,580, ,471,410 Governmental activities - capital assets, net $ 1,113,028,009 $ 64,654,479 $ 1,177,682,488 * Costs of land and old buildings are not included as the majority of them were acquired more than 100 years ago. The acquisition costs are not material to the financial statements. Depreciation expense was charged as a direct expense to governmental functions as follows: Governmental Activities Instruction $ 20,293,566 Supervision of instruction 6,097,342 Instructional library and technology 466,911 School site administration 2,187,579 Home to school transporation 1,324,445 Food services 1,254,578 All other pupil services 3,029,485 Anciliary services 123,863 Enterprise activities 239 All general administration 1,435,934 Data processing services 366,660 Plant services 2,999,973 Total depreciation expense, governmental activities $ 39,580, C-41

122 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 5 INTERFUND TRANSACTIONS Operating Transfers Interfund transfers are used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the debt fund as debt service payments become due, and (3) use unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. Interfund transfers for the year ended June 30, 2014, consisted of the following: Transfers In Non-Major General Building Governmental Transfer Out Fund Fund Funds Total General Fund $ - $ - $ 9,043,610 $ 9,043,610 County School Facilities Fund - 1,286,576-1,286,576 Special Reserve, Capital Outlay Fund 218, ,721 Total interfund transfers $ 218,721 $ 1,286,576 $ 9,043,610 $ 10,548,907 The Restricted General Fund transferred to the Child Development Fund to cover the operating deficit. The Unrestricted General Fund transferred to the Child Development Fund to cover the operating deficit. The Unrestricted General Fund transferred to the Cafeteria Fund to cover the operating deficit. The County School Facilities Fund transferred to Building Fund for construction cost reimbursements. The Special Reserve for Capital Outlay Fund transferred lease revenues to the General Fund. Total interfund transfers $ 1,814,000 4,185,463 3,044,147 1,286, ,721 $ 10,548,907 Included as other local sources in the statement of revenues, expenditures, and changes in fund balances of the County School Service Special Revenue Fund is $62,479,303 of which the source is the District General Fund. 39 C-42

123 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 6 - ACCOUNTS PAYABLE Accounts payable at June 30, 2014, consisted of the following: Non-Major Total General County School Building Governmental Governmental Proprietary Fund Fund Fund Funds Funds Fund Vendor payables $ 15,677,484 $ 7,428,117 $ 18,417,502 $ 1,954,924 $ 43,478,027 $ 600,116 State categorical 2,276, ,189,647 7,466,350 - Federal categorical 27 6,671, ,671,999 - TRANS Interest 1,573, ,573,699 - Total Accounts Payable $ 19,527,913 $ 14,100,089 $ 18,417,502 $ 7,144,571 $ 59,190,075 $ 600,116 Additional interest payable in the statement of net position includes $11,635,708 for accrued interest on long term obligations. NOTE 7 - UNEARNED REVENUE Unearned revenue at June 30, 2014, consists of the following: Non-Major Total General County School Governmental Governmental Fund Fund Funds Funds Federal financial assistance $ 1,407,458 $ 290,462 $ 2,730 $ 1,700,650 State categorical aid 1,351, ,983 3,756,272 5,211,451 Total unearned revenue $ 2,758,654 $ 394,445 $ 3,759,002 $ 6,912,101 NOTE 8 - TAX AND REVENUE ANTICIPATION NOTES (TRANS) On August 15, 2013, the District issued $90,000,000 of Tax and Revenue Anticipation Notes bearing interest at two percent. The notes were issued to supplement cash flows. Repayment requirements are that 50 percent of principal and interest be deposited with the Fiscal Agent by January 31, 2014, until 100 percent of principal and interest is due on account by April 30, Interest and principal are due and payable on August 14, Accrued interest on the TRANS obligation was $1,573,699 at June 30, Outstanding TRANS on June 30, 2014 consists of the following: Outstanding Outstanding Issue Date Rate Maturity Date July 1, 2013 Additions Payments June 30, /15/ % 8/14/2014 $ - $ 90,000,000 $ - $ 90,000, C-43

124 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 9 - LONG-TERM OBLIGATIONS Summary The changes in the District's long-term obligations during the year consisted of the following: Balance Balance Due in July 1, 2013 Additions Deductions June 30, 2014 one year General obligation bonds $ 647,360,000 $ 205,000,000 $ 34,230,000 $ 818,130,000 $ 35,485,000 Bond premium 45,274,120 15,310,751 4,056,904 56,527,967 4,056,904 Bond defeasance costs (1,910,791) - (1,910,791) - - Accumulated vacation 5,803,053 4,051,294-9,854,347 - Capital leases 17,531,179-1,349,140 16,182,039 2,492,998 Revenue limit deficit 2,200,359-1,100,179 1,100,180 1,100,180 Post employment liability 156,949,410 65,037,374 34,361, ,624,808 - $ 873,207,330 $ 289,399,419 $ 73,187,408 $ 1,089,419,341 $ 43,135,082 Payment of the general obligation bonds will be made by the Bond Interest and Redemption Fund. The Bond Interest and Redemption Fund receives property tax revenues which are used solely to repay the principal and interest due on these obligations. The amount has been assigned in the fund balance of Special Reserve Capital Projects Fund. The accrued vacation and postemployment liability will be paid by the fund for which the employee worked at time of payment. Payments on capital leases will be made by the Special Reserve Capital Fund which also receives contributions from the General Fund. The revenue limit deficit will be deducted from the General Fund annual apportionment. Outstanding general obligation bonded debt Bond Issue Maturity Interest Original Outstanding Issued Outstanding Issuance Date Date Rate Issue July 1, 2013 (Redeemed) June 30, , Series 2006C 10/12/06 6/15/ % $ 92,000,000 $ 68,680,000 $ (3,990,000) $ 64,690, , Series 2007A 02/28/07 6/15/ % 100,000,000 79,525,000 (4,100,000) 75,425, , Series 2009B 01/22/09 6/15/ % 150,000, ,340,000 (8,260,000) 104,080, , Series 2010C 05/19/10 5/15/ % 12,955,000 12,955,000-12,955, , Series 2010D 05/19/10 6/15/ % 72,370,000 72,370,000-72,370, , Series 2010E 05/19/10 6/15/ % 99,675,000 83,090,000 (6,695,000) 76,395, , Series 2012A 03/06/12 6/15/ % 115,000, ,390,000 (3,790,000) 107,600, Refunding 03/06/12 6/15/ % 116,140, ,010,000 (7,395,000) 99,615, , Series B /23/14 6/15/33 3.0%-5.0% 205,000, ,000, ,000,000 $ 647,360,000 $ 170,770, ,130,000 Unamortized bond premium 56,527,967 Total $ 874,657, C-44

125 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Debt Service Requirement to Maturity Interest to Fiscal Year Principal Maturity Total 2015 $ 35,485,000 $ 38,165,907 $ 73,650, ,935,000 36,458,057 94,393, ,315,000 33,585,307 79,900, ,585,000 31,325,207 79,910, ,895,000 29,015,657 79,910, ,570, ,966, ,536, ,345,000 45,544, ,889, ,000,000 8,953, ,953,117 Total $ 818,130,000 $ 330,013,940 $ 1,148,143,940 Accumulated Unpaid Employee Vacation and Vested Sick Leave Full-time District employees are entitled to vacation days a year, depending upon length of service, for which up to 30 working days in excess of the employee s annual vacation award may be carried over to the next year. Increases to vested compensated absences reflect net changes during the year ended June 30, Also, the City and County of San Francisco Charter provisions allow classified employees to accumulate up to 130 working days of sick leave. Certificated employees, under State law, are allowed to accumulate unlimited days of sick leave. Upon normal retirement, the District will redeem 100 percent of the sick leave accrued by classified personnel prior to December 5, 1978, and no sick leave accrued after December 5, No sick leave amounts are payable to certificated personnel upon normal retirement, or to employees who terminate for any reason prior to retirement. Capital Leases Reported with capital assets are the energy retrofit capital lease of $32,947,132 and corresponding accumulated depreciation of $19,768,279 at June 30, The District's liabilities on lease agreements with options to purchase are summarized below: Energy Retrofit Balance, Beginning of Year $ 23,106,268 Payments (2,420,386) Balance, End of Year $ 20,685, C-45

126 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 The capital leases have minimum lease payments as follows: Year Ending Lease June 30, Payment 2015 $ 2,492, ,567, ,644, ,724, ,805, ,450,218 Total 20,685,882 Less: Amount Representing Interest 4,503,843 Present Value of Minimum Lease Payments $ 16,182,039 Revenue Limit Deficit Due to a change in the way the State calculated the revenue limit for the fiscal year, the District recorded negative State aid in the amount of $10,051,433. This negative amount is normally considered to be a current liability as the District owes the money back to the State. The District met with the State and the two parties agreed to a repayment plan that will allow the District to repay this obligation over ten years. At June 30, 2014, the principal balance outstanding for the District was $1,100,180. The terms of the agreement call for the District to repay the balance, in the form of a reduction of subsequent years state apportionments, without interest. The final payment of $1,100,180 will be made during the fiscal year. Other Postemployment Benefits (OPEB) Obligation The District s annual required contribution for the year ended June 30, 2014, was $64,141,676, and contributions made by the District during the year were $34,361,976. Interest on the net OPEB obligation and adjustments to the annual required contribution were $7,847,471 and $(6,951,773), respectively, which resulted in an increase to the net OPEB obligation of $30,675,398. As of June 30, 2014, the District has not funded the obligation. See Note 12 for additional information regarding the OPEB obligation and the postemployment benefits plan. 43 C-46

127 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 10 - FUND BALANCES Fund balances are composed of the following elements: County Non-Major Total General School Service Building Governmental Governmental Fund Fund Fund Funds Funds Nonspendable Revolving cash $ 500 $ - $ - $ 10,991 $ 11,491 Stores inventories 667, , ,467 Prepaid expenditures 2,620, ,620,660 Total nonspendable 3,288, ,061 3,312,618 Restricted Legally restricted 38,359,629 3,467,173-1,555,581 43,382,383 Capital projects ,833,795 43,164, ,998,116 Debt services ,787,906 31,787,906 Total restricted 38,359,629 3,467, ,833,795 76,507, ,168,405 Committed Deferred maintenance ,402,788 1,402,788 Total committed ,402,788 1,402,788 Assigned Tier III commitment 982, ,326 Capital projects ,043,178 1,043,178 Total assigned 982, ,043,178 2,025,504 Unassigned Reserve for economic uncertainties 12,125,058 2,749, ,874,759 Remaining unassigned 7,982,270 1,672, ,654,859 Total unassigned 20,107,328 4,422, ,529,618 Total fund balances $ 62,737,840 $ 7,889,463 $ 263,833,795 $ 78,977,835 $ 413,438, C-47

128 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Reconciliation to Statement of Net Position The following is a reconciliation of the difference between the unassigned general fund balance and the unrestricted net position deficit as shown in the Statement of Net Position: Balance per Governmental Funds Balance Sheet $ 20,107,328 Add Back Tier III assigned balance 982,326 General Fund revolving cash 500 General Fund prepaid operating expenditures 2,620,660 General Fund inventory 667,397 County School Service Fund unassigned fund balance 4,422,290 Deferred Maintenance Fund committed fund balance 1,402,788 Special Reserve Fund for Capital Outlay assigned fund balance 1,043,178 Deduct Compensated absences liability (9,854,347) Revenue limit deficit (1,100,180) Other post employment benefits liability (187,624,808) Balance per Statement of Net Position $ (167,332,868) NOTE 11 - LEASE REVENUES Lease agreements have been entered into with various lessees for terms that exceed one year. None of the agreements contain purchase options. All of the agreements contain a termination clause providing for cancellation after a specified number of days written notice to lease, but is unlikely that the District will cancel any of the agreements prior to their expiration date. The future minimum lease payments expected to be received under these agreements are as follows: Year Ending Lease June 30, Revenue 2015 $ 6,678, ,218, ,289, ,252, ,417,910 Thereafter 113,666,668 Total $ 145,523, C-48

129 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 12 - POSTEMPLOYMENT HEALTH CARE PLAN AND OTHER POSTEMPLOYMENT BENEFITS (OPEB) OBLIGATION Plan Description The Postemployment Benefit Plan (the Plan) is an agent multiple-employer (agent) defined benefit healthcare plan administered by the City and County of San Francisco Health Service System (HSS). The Plan provides medical insurance benefits to eligible retirees and their spouses. Membership of the Plan consists of 5,038 retirees and their beneficiaries currently receiving benefits and 6,805 active plan members. The unfunded portion of the annual requirement contributions (net OPEB obligation) is presented in the statement of net position as a portion of long-term obligations. Funding Policy The contribution requirements of plan members and the District are established and may be amended by the District and the Teachers Association (CEA), the local California Service Employees Association (CSEA), and unrepresented groups. The required contribution is based on projected pay-as-you-go financing requirements, with an additional amount to prefund benefits as determined annually through the agreements between the District, CEA, CSEA and the unrepresented groups. For fiscal year , the District contributed $34,361,976 to the plan, all of which was used for current premiums (approximately 50 percent of total premiums). The non- Medicare retirees pay 50% of active employee contributions up to cap and the Medicare retirees pay 50% of the difference between active employee contributions up to cap. Annual OPEB Cost and Net OPEB Obligation The District's annual other postemployment benefit (OPEB) cost (expense) is calculated 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 thirty years. The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District's net OPEB obligation: Annual required contribution $ 64,141,676 Interest on net accrued OPEB obligation 7,847,471 Adjustment to annual required contribution (6,951,773) Annual OPEB cost (expense) 65,037,374 Contributions made (34,361,976) Increase in net OPEB obligation 30,675,398 Net OPEB obligation, beginning of year 156,949,410 Net OPEB obligation, end of year $ 187,624, C-49

130 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Trend Information Trend information for annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation is as follows: Year Ended Annual OPEB Contributions Percentage Net OPEB June 30, Cost Made Contributed Obligation 2014 $ 65,037,374 $ 34,361,976 53% $ 187,624, ,543,205 33,886,544 53% 156,949, ,379,332 34,664,509 55% 127,292,749 Funded Status and Funding Progress A schedule of funding progress as of the most recent actuarial valuation is as follow: Actuarial Unfunded UAAL as a Actuarial Actuarial Accrued AAL Funded Percentage of Valuation Value Liability (UAAL) Ratio Covered Covered Payroll Date of Assets (a) (AAL) - (b) (b - a) (a / b) Payroll (c) ([b - a] / c) December 1, 2013 $ - $ 680,924,643 $ 680,924, % $ 422,361, % Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, investment returns, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the December 1, 2013, actuarial valuation, the entry age normal method was used. The actuarial assumptions included a five percent investment rate of return (net of administrative expenses), based on assumed long term return on plan assets or employer assets, as appropriate. Healthcare cost trend rate is four percent with the assumption that trend increases in excess of general inflation result in fundamental changes in health care finance and/or delivery which will bring increases in health care costs more closely in line with general inflation. The UAAL is being amortized at a level percentage of payroll method. The UAAL is amortized using an opened amortization period of thirty years. The remaining amortization period at July 1, 2014, was thirty years, on an open basis. The actuarial value of assets was not determined in the valuation. 47 C-50

131 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 13 - RISK MANAGEMENT The District s risk management activities are recorded in the General Fund and Self Insurance Funds. Employee life, health, and disability programs are administered through the purchase of commercial insurance. Employee dental and workers compensation insurance is provided on a self-funded basis. The District participates in Schools Excess Liability Fund (SELF) joint powers authority (JPA). The District pays annual contributions to SELF for additional excess liability coverage. Additional commercial insurance is also purchased for excess workers compensation, property, general liability, crime, student foreign travel, and student accidents. For workers compensation coverage, the District maintains a $500,000 self-insured retention, with $150,000,000 in coverage through Safety National for excess coverage. The District maintains property coverage through Axis Insurance and RSUI Indemnity Company in the amount of $300 million per occurrence, with a $100,000 deductible. The District does not maintain insurance for earthquake risks. For insured programs, there have been no significant reductions in insurance coverage. Settlement amounts have not exceeded insurance coverage for the current year or the three prior years. Claim Liabilities Self Insurance Fund The District records an estimated liability for indemnity torts and other claims against the District. Claims liabilities for workers compensation are based on a current actuarial study using the expected value as the basis for the total liability. The worker s compensation liabilities are reported at their present value using an expected future investment yield assumption of two percent. The following represents the changes in approximate aggregate liabilities for the District from July 1, 2012 to June 30, 2014: Total Liability Balance, July 1, 2012 $ 27,464,285 Claims and changes in estimates 21,135,798 Claims payments (18,117,182) Liability Balance, June 30, ,482,901 Claims and changes in estimates 21,066,950 Claims payments (18,471,684) Liability Balance, June 30, 2014 $ 33,078,167 Assets available to pay claims at June 30, 2014 $ 46,337,940 NOTE 14 - EMPLOYEE RETIREMENT SYSTEMS Qualified employees are covered under multiple-employer retirement plans. All eligible employees are eligible to participate under defined benefit retirement plans maintained by agencies of the City and County of San Francisco and the State of California. Certificated employees hired as of or after July 1, 1972, are eligible to participate in the cost-sharing multiple-employer, contributory California State Teachers' Retirement System (CalSTRS). Classified employees and certain certificated employees hired prior to July 1, 1972, are eligible to participate in the single-employer San Francisco Employees Retirement System (SFERS). 48 C-51

132 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 CalSTRS Plan Description The District contributes to the 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. As a result of the Public Employee Pension Reform Act of 2013 (PEPRA), changes have been made to the defined benefit pension plan effective January 1, Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers' Retirement Law. CalSTRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalSTRS annual financial report may be obtained from CalSTRS, 100 Waterfront Place, West Sacramento, CA or online at Funding Policy Due to the implementation of the Public Employee Pension Reform Act of 2013 (PEPRA), new members must pay at least 50 percent of the normal costs of the plan, which can fluctuate from year to year. For , the required contribution rate for new members is 8.0 percent. "Classic" plan members are also required to contribute 8.0 percent of their salary. The District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by CalSTRS Teachers' Retirement Board. The required employer contribution rate for fiscal year was 8.25 percent of annual payroll. The District s contributions to CalSTRS for the fiscal years ending June 30, 2014, 2013 and 2012 were $24,777,345, and $23,740,327, and $23,290,306 respectively, and equal 100 percent of the required contributions for each year. SFERS Plan Description The District contributes to the San Francisco Employees Retirement System (SFERS); a cost-sharing multipleemployer public employee retirement system defined benefit pension plan administered by the City and County of San Francisco (the City). SFERS is a separate department of the City, deriving its powers, functions, and responsibility from the City charter and ordinances of the Board of Supervisors of the City. Substantially all employees of the City and County are member including most of the District s classified permanent full-time employees and certain certificated employees hired prior to July 1, Members are classified according to City bargaining units as police, fire, and miscellaneous. District employees are members of the miscellaneous pool. The retirement fund provides retirement, disability, and death benefits based on the employee s years of service, age, and final compensation. Employees with 20 years of service who have attained age 50 or those with 10 years of service who have attained age 60 are eligible for retirement benefits. SFERS issues a separate annual financial report that includes financial statements and required supplementary information. Copies of the SFERS annual financial report may be obtained online at Funding Policy In accordance with the City charter, District participants contribute 7.5 percent to 12.0 percent of their salaries to the SFERS. The funding policy of SFERS provides for actuarially determined periodic contributions by the District at rates such that sufficient assets will be available to SFERS to pay District participants benefits when due. Employer contribution rate for the year ended June 30, 2014 was percent of covered payroll. During the years ended June 30, 2014, 2013, and 2012 the District s contributions were $15,790,954, $12,890,078, and $11,692,725 respectively, and equal 100 percent of the required contributions for each year. 49 C-52

133 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 SRP The SRP is a defined benefit retirement plan that was available to eligible certificated bargaining unit members that elected to participate during the enrollment period ending in fiscal years 1994 and 1998 as part of an early retirement program. Benefits available to participants under SRP include life annuity equal to 7 percent of final annual salary or other actuarially equivalent benefits. The District funds these benefits on a pay-as-you-go basis. On Behalf Payments The State of California makes contributions to CalSTRS on behalf of the District. Under accounting principles generally accepted in the United States of America, these amounts are to be reported as revenues and expenditures; however, guidance received from the California Department of Education advises local educational agencies not to record these amounts in the Annual Financial and Budget Report. The amounts have been recorded in these financial statements. On behalf payments have been excluded from the calculation of available reserves and have not been included in the budget amounts reported in the General Fund Budgetary Comparison Schedule. The State contributions to CalSTRS are as follows: Fiscal Percent of General County School Child Development Total State Year Annual Payroll Fund Fund Fund Contribution % $ 12,571,992 $ 2,451,432 $ 616,029 $ 15,639, % 11,527,019 2,248, ,407 14,420, % 11,532,668 2,203, ,720 14,263,266 NOTE 15 - COMMITMENTS AND CONTINGENCIES Grants The District received financial assistance from federal and state agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the general fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material adverse effect on the overall financial position of the District at June 30, Litigation The District is involved in litigation on various matters arising in the normal course of business. In the opinion of management and legal counsel, the disposition of all litigation pending is not expected to have a material adverse effect on the overall financial position of the District at June 30, C-53

134 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 Construction Commitments: As of June 30, 2014, the District had the following commitments with respect to the unfinished capital projects: Remaining Expected Construction Date of Capital Project Site Commitment Completion 300 Seneca - New Academic Campus $ 4,726,835 1-Mar-2015 Cesar Chavez Chavez Elementary School 1,363, Aug-2014 George Peabody Elementary School 1,790, Jan-2015 Gordon Lau Elementary School 12,280, Jan-2016 Jose Ortega Elementary School 9,041,400 7-Aug-2015 Lowell High School 2,839, Oct-2015 Miraloma Elementary School 6,656, Sep-2015 Miscellaneous construction commitments 2,326, Jan-2016 Monroe Elementary School 4,863, Jan-2015 Phillip and Sala Burton High School 23,980,523 6-Sep-2016 Roosevelt Middle School 11,607, Aug-2015 School of the Arts / Mcateer 1,251, Sep-2014 Starr King Elementary School 6,937,214 1-Aug-2015 Sunnyside Elementary School 6,294,534 2-Oct-2015 William L. Brown Jr. Academy 29,564, Jun-2015 Total construction commitments $ 125,524, C-54

135 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 16 - PARTICIPATION IN PUBLIC ENTITY RISK POOLS AND JOINT POWER AUTHORITIES The District is a member of the School Project for Utility Rate Reduction (SPURR) and participates in the Schools Excess liability Fund (SELF) joint powers authority (JPA). The District pays annual contributions to SELF for additional excess liability coverage. The relationship between the District and the JPA s is such that they are not component units of the District for financial reporting purposes. These entities have budgeting and financial reporting requirements independent of member units and their financial statements are not presented in these financial statements; however, fund transactions between the entities and the District are included in these statements. Audited financial statements are generally available from the respective entities. NOTE 17 - ADOPTION OF NEW ACCOUNTING STANDARDS As of July 1, 2013, the District adopted GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, which required de-recognition of deferred cost of issuance. The amount of $3,438,367 is recognized as a component of interest expense on the Statement of Activities. 52 C-55

136 REQUIRED SUPPLEMENTARY INFORMATION 53 C-56

137 SAN FRANCISCO UNIFIED SCHOOL DISTRICT GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2014 Variances - Favorable (Unfavorable) Budgeted Amounts Final Revenues Original Final Actual to Actual Local Control Funding Formula $ 283,861,246 $ 364,197,224 $ 375,832,260 $ 11,635,036 Federal sources 32,474,985 51,393,882 37,406,980 (13,986,902) Other state sources 128,612,686 57,287,836 44,138,296 (13,149,540) Other local sources 144,377, ,587, ,669,365 7,082,243 TOTAL REVENUES 1 589,326, ,466, ,046,901 (8,419,163) Expenditures Current Certificated salaries 245,140, ,201, ,973,902 2,227,935 Classified salaries 73,068,050 74,567,181 70,231,423 4,335,758 Employee benefits 125,046, ,300, ,352,041 4,948,712 Books and supplies 19,295,608 29,808,458 23,388,708 6,419,750 Services and operating expenditures 52,400,930 55,938,843 58,420,939 (2,482,096) Other outgo 68,997,679 79,401,257 76,188,463 3,212,794 Capital outlay 707,735 3,242,085 1,534,751 1,707,334 Debt service - principal 1,100,179 1,100,179 1,100,179 - Debt service - interest 1,698,699 1,698,699 1,698,699 - TOTAL EXPENDITURES 1 587,455, ,259, ,889,105 20,370,187 Excess (deficiency) of revenues over expenditures 1,870,897 (793,228) 11,157,796 11,951,024 Other Financing Uses Transfers in , ,721 Transfers out (11,486,386) (11,486,386) (9,043,610) 2,442,776 NET FINANCING SOURCES (USES (11,486,386) (11,486,386) (8,824,889) 2,661,497 NET CHANGE IN FUND BALANCES (9,615,489) (12,279,614) 2,332,907 14,612,521 Fund balance - Beginning 60,404,933 60,404,933 60,404,933 - Fund balance - Ending $ 50,789,444 $ 48,125,319 $ 62,737,840 $ 14,612,521 1 For comparison purpose, on behalf payments of $12,571,992 in Note 14 of the financial statements are excluded from this schedule. 54 C-57

138 SAN FRANCISCO UNIFIED SCHOOL DISTRICT COUNTY SCHOOL SERVICE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2014 Variances - Favorable (Unfavorable) Budgeted Amounts Final Revenue Original Final Actual to Actual Local Control Funding Formula $ 13,393,229 $ 15,904,184 $ 10,689,008 $ (5,215,176) Federal sources 15,001,758 14,538,555 13,112,037 (1,426,518) Other state sources 48,258,061 42,292,554 40,555,838 (1,736,716) Other local sources 66,086,560 69,834,429 71,402,767 1,568,338 TOTAL REVENUES 1 142,739, ,569, ,759,650 (6,810,072) Expenditures Current Certificated salaries 49,239,569 48,575,931 47,962, ,092 Classified salaries 26,347,387 25,882,443 25,265, ,758 Employee benefits 31,114,662 30,728,303 27,581,128 3,147,175 Books and supplies 1,856,037 1,978,713 1,596, ,969 Services and operating expenditures 36,156,371 36,449,490 35,078,654 1,370,836 Capital outlay - 104, ,746 TOTAL EXPENDITURES 1 144,714, ,719, ,485,050 6,234,576 NET CHANGE IN FUND BALANCES (1,974,418) (1,149,904) (1,725,400) (575,496) Fund balance - Beginning 9,614,863 9,614,863 9,614,863 - Fund balance - Ending $ 7,640,445 $ 8,464,959 $ 7,889,463 $ (575,496) 1 For comparison purpose, on behalf payments of $2,451,432 in Note 14 of the financial statements are excluded from this schedule. 55 C-58

139 SAN FRANCISCO UNIFIED SCHOOL DISTRICT SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB) FUNDING PROGRESS FOR THE YEAR ENDED JUNE 30, 2014 Actuarial Unfunded UAAL as a Actuarial Actuarial Accrued AAL Funded Percentage of Valuation Value Liability (UAAL) Ratio Covered Covered Payroll Date of Assets (a) (AAL) - (b) (b - a) (a / b) Payroll (c) ([b - a] / c) December 1, 2013 $ - $ 680,924,643 $ 680,924, % $ 422,361, % December 1, 2011 $ - 736,931, ,931, % 396,102, % November 1, 2009 $ - 552,653, ,653, % 370,787, % 56 C-59

140 SUPPLEMENTARY INFORMATION 57 C-60

141 SAN FRANCISCO UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2014 Pass-through Federal Grantor/Pass-Through CFDA Identifying Federal Grantor/Program or Cluster Title Number Number Expenditures U.S. DEPARTMENT OF EDUCATION Passed through California Department of Education Safe and Supportive Schools Programmatic Intervention $ 249,347 Career and Technical Education ,536 No Child Left Behind Title I School Improvement Grant ,296,485 ARRA - School Improvement Grant ,792,439 Part A, Basic Grants Low Income and Neglected ,222,343 Part A, School Wide Plan ,251,464 Part A, Program Improvement LEA Corrective Action ,463 Part C, Migrant Ed - Regular Program ,912 Part C, Migrant Ed - Summer Program ,325 Part D, Local Delinquent Programs ,668 Part G, Advanced Placement Test Fee Reimbursement ,297 Title II Part A, Teacher Quality ,021,179 Part A, Administrator Training ,458 Part B, CA Mathematics and Science Partnership ,172 Part D, Enhancing Education Through Technology ,851 Part D, ARRA Enhancing Education Through Technology Title III Immigrant Education Program Limited English Proficient Student Program ,733,553 Title IV Part B, 21st Century Community Learning Centers ,596,236 Title V Part B, Public Charter Schools Grant Program ,255 See accompanying note to supplementary information. 58 C-61

142 SAN FRANCISCO UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (Continued) FOR THE YEAR ENDED JUNE 30, 2014 Pass-through Federal Grantor/Pass-Through CFDA Identifying Federal Grantor/Program or Cluster Title Number Number Expenditures Individuals with Disabilities Education Act Early Intervention Grants ,623 Part B, Sec 611, Basic Local Assistance Entitlement ,618,648 Part B, Sec 611, Mental Health Allocation Plan ,143 Part B, Sec 611, Preschool Local Entitlement A ,044 Part B, Sec 611, Quality Assurance and Focused Monitoring ,935 Part B, Sec 619, Preschool Grants ,897 Part B, Private School ISPs ,527 Part B, Sec 619, Preschool Staff Development A ,629 Passed through California Department of Rehabiliation: Workability II, Transition Partnership ,192 U.S. DEPARTMENT OF EDUCATION Direct Grants Elementary and Secondary School Counseling Programs E 1 129,402 Mission Promise Neighborhood N 1 562,458 Maximizing our Transcultural Heritage Educational Resource A 1 8,100 Gaining Early Awareness and Readiness for Undergraduates A 1 1,571,427 Transition to Teaching A 1 199,700 Indian Education ,909 Total U.S. Department of Education 47,336,766 U.S. DEPARTMENT OF DEFENSE Passed through California Department of Education Junior Reserve Officers Training Corps ,703 Total U.S. Department of Defense 414,703 See accompanying note to supplementary information. 59 C-62

143 SAN FRANCISCO UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (Continued) FOR THE YEAR ENDED JUNE 30, 2014 Pass-through Federal Grantor/Pass-Through CFDA Identifying Federal Grantor/Program or Cluster Title Number Number Expenditures U.S. DEPARTMENT OF AGRICULTURE Passed through California Department of Education Especially Needy Breakfast Program ,920,551 Special Milk Program for Children ,685 National School Lunch Program / ,799,442 Child Care Food Program - Centers and Family Day Homes ,358,989 Commodity Supplemental Food Program ,892 Fresh Fruit and Vegetable Program ,264 Passed through California Department of Public Health Supplemental Nutrition Assistance Program ,486 Total U.S. Department of Agriculture 15,470,309 U.S. DEPARTMENT OF JUSTICE Direct Grant Mentoring for Success - Youth with Disabilities ,882 Passed through University of Georgia Group Mentoring for Resilience ,372 Total U.S. Department of Justice 111,254 U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Direct Grant Substance Abuse and Mental Health Services ,397 Comprehensive School Health Programs ,178 Passed through California Department of Education Federal Child Care, Center-based ,896,072 Passed through California Department of Health Care Services Medi-Cal Billing Option ,705,090 Head Start ,349,956 Total U.S. Department of Health and Human Services 16,510,693 Total Expenditures of Federal Awards $ 79,843,725 1 Pass-through identifying number not applicable/available. See accompanying note to supplementary information. 60 C-63

144 SAN FRANCISCO UNIFIED SCHOOL DISTRICT LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE JUNE 30, 2014 See accompanying note to supplementary information. ORGANIZATION The San Francisco Unified School District was established in 1851 and consists of an area comprising approximately 49 square miles. The District operates 8 transitional kindergartens, 72 elementary schools, 13 middle schools, 18 senior high schools (including two continuation schools and an independent study school), and 34 state-funded preschool sites. GOVERNING BOARD MEMBER OFFICE TERM EXPIRES Sandra Lee Fewer President 2017 Emily M. Murase, Ph. D Vice President 2015 Matthew Haney Commissioner 2017 Kim-Shree Maufas Commissioner 2015 Hydra B. Mendoza Commissioner 2015 Rachel Norton Commissioner 2017 Jill Wynns Commissioner 2017 Richard Carranza Donald Davis Guadalupe Guerrero Myong Leigh Laura Moran Karling Aguilera Fort Elizabeth Blanco Carla Bryant Monica Vasquez Leticia Salinas DeeDee Desmond David Goldin Joseph Grazioli David Wong Matthew McKenzie Jeannie Pon Janet Schulze Brent Stephens Kevin Truitt Luis Valentino ADMINISTRATION Superintendent of Schools General Counsel Deputy Superintendent, Instruction, Innovation & Social Justice Deputy Superintendent, Policy & Operations Chief of Staff Assistant Superintendent of Superintendent Zone - Mission Assistant Superintendent, Special Education Chief of Early Childhood Education Chief of Human Resources Assistant Superintendent, Elementary - Cohort I Assistant Superintendent of Superintendent Zone - Bayview Chief Facilities Officer Chief Financial Officer Assistant Superintendent, Elementary - Cohort II Chief Technology Officer Assistant Superintendent, Middle Schools Assistant Superintendent, High Schools Assistant Superintendent, Elementary - Cohort III Associate Superintendent, Student Support Services Chief Academic Officer, Curriculum and Instruction 61 C-64

145 SAN FRANCISCO UNIFIED SCHOOL DISTRICT SCHEDULE OF AVERAGE DAILY ATTENDANCE FOR THE YEAR ENDED JUNE 30, 2014 Final Report Amended Second Annual Period Report Report Regular ADA Transitional kindergarten through third 17, , Fourth through sixth 11, , Seventh and eighth 6, , Ninth through twelfth 14, , Total Regular ADA 49, , Extended Year Special Education Transitional kindergarten through third Fourth through sixth Seventh and eighth Ninth through twelfth Total Extended Year Special Education 1, , Special Education, Nonpublic, Nonsectarian Schools Transitional kindergarten through third Fourth through sixth Seventh and eighth Ninth through twelfth Total Special Education, Nonpublic, Nonsectarian Schools Extended Year Special Education, Nonpublic, Nonsectarian Schools Transitional kindergarten through third Fourth through sixth Seventh and eighth Ninth through twelfth Total Extended Year Special Education, Nonpublic, Nonsectarian Schools Community Day School Fourth through sixth Seventh and eighth Ninth through twelfth Total Community Day School Juvenile Halls, Homes and Camp, Probation Referred Elementary High School Total Juvenile Halls, Homes and Camp, Probation Referred Total ADA 51, , See accompanying note to supplementary information. 62 C-65

146 SAN FRANCISCO UNIFIED SCHOOL DISTRICT SCHEDULE OF INSTRUCTIONAL TIME FOR THE YEAR ENDED JUNE 30, 2014 Reduced Number of Days Minutes Minutes Actual Traditional Grade Level Requirement Requirement Minutes Calendar Status Kindergarten 36,000 35,000 46, Complied Grades 1-3 Grade 1 50,400 49,000 50, Complied Grade 2 50,400 49,000 50, Complied Grade 3 50,400 49,000 50, Complied Grades 4-6 Grade 4 54,000 52,500 54, Complied Grade 5 54,000 52,500 54, Complied Grade 6 54,000 52,500 57, Complied Grades 7-8 Grade 7 54,000 52,500 57, Complied Grade 8 54,000 52,500 57, Complied Grades 9-12 Grade 9 64,800 63,000 64, Complied Grade 10 64,800 63,000 64, Complied Grade 11 64,800 63,000 64, Complied Grade 12 64,800 63,000 64, Complied See accompanying note to supplementary information. 63 C-66

147 SAN FRANCISCO UNIFIED SCHOOL DISTRICT RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014 There were no adjustments to the unaudited actual financial report, which required reconciliation to the audited financial statements at June 30, See accompanying note to supplementary information. 64 C-67

148 SAN FRANCISCO UNIFIED SCHOOL DISTRICT SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2014 (Budget) GENERAL FUND Revenues $ 627,946,285 $ 607,265,622 $ 561,310,549 $ 564,345,754 Expenditures 629,303, ,889, ,080, ,859,381 Other uses and transfers out 11,200,971 9,043,610 11,718,037 6,882,333 Total Expenditures and Other Uses 640,504, ,932, ,798, ,741,714 CHANGE IN FUND BALANCE $ (12,558,596) $ 2,332,907 $ (17,487,611) $ (395,960) ENDING FUND BALANCE $ 50,179,244 $ 62,737,840 $ 60,404,933 $ 77,892,544 AVAILABLE RESERVES $ 25,310,936 $ 20,107,328 $ 31,946,753 $ 46,398,384 AVAILABLE RESERVES AS A PERCENTAGE OF TOTAL OUTGO % 3.32% 5.52% 8.22% LONG-TERM OBLIGATIONS $ 1,046,284,259 $ 1,089,419,341 $ 873,207,330 $ 892,695,298 AVERAGE DAILY ATTENDANCE AT P ,143 51,241 51,269 51,381 The General Fund balance has decreased by $15,154,704 over the past two years. The fiscal year budget projects a decrease of $12,558,596, or 20 percent. For a district this size, the State recommends available reserves of at least two percent of total General Fund expenditures, transfers out, and other uses (total outgo). The District has incurred an operating deficit in the General Fund during two of the three prior years. However, the General Fund experienced an operating surplus in fiscal year The District anticipates a General Fund operating deficit during the fiscal year. Total long-term liabilities have increased by $196,724,043 over the past two years. The primary reason for the increase in long-term liabilities is due to the issuance of general obligation bonds and actuarially calculated post employment benefits. Average daily attendance has decreased by 140 over the past two years. A decrease of 98 ADA is anticipated during fiscal year Available reserves declined $26,291,056 from However, the District projects an increase of $5,203,608 during the fiscal year. 1 Budget 2015 is based on the most current District projection and is included for analytical purposes only and has not been subjected to audit. 2 ADA amounts include District and County programs. 3 On behalf payments of $12,571,992, $11,527,019, and $11,532,668 are excluded from this schedule. See accompanying note to supplementary information. 65 C-68

149 SAN FRANCISCO UNIFIED SCHOOL DISTRICT SCHEDULE OF CHARTER SCHOOLS FOR THE YEAR ENDED JUNE 30, 2014 Included in Name of Charter School Audit Report City Arts and Technology High School No Creative Arts Charter School No Five Keys Adult School No Five Keys Charter School No Five Keys Independence High School No Gateway High School No Gateway Middle School No KIPP Bayview Academy No KIPP San Francisco Bay Academy No KIPP San Francisco College Preparatory No Leadership High School No Life Learning Academy No Thomas Edison Charter Academy No See accompanying note to supplementary information. 66 C-69

150 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2014 Special Revenue Funds Child Deferred Development Cafeteria Maintenance ASSETS Cash $ - $ 10,991 $ 7,587 Investments - - 1,551,917 Receivables 9,357,443 4,310,327 2,257 Stores inventories - 13,070 - Total Assets $ 9,357,443 $ 4,334,388 $ 1,561,761 LIABILITIES AND FUND BALANCES Liabilities Overdrafts $ 2,110,686 $ 3,784,415 $ - Accounts payable 5,701, , ,973 Unearned revenue - 2,730 - Total Liabilities 7,812,472 4,299, ,973 Fund Balances Nonspendable - 24,061 - Restricted 1,544,971 10,610 - Committed - - 1,402,788 Assigned Total Fund Balances 1,544,971 34,671 1,402,788 Total Liabilities and Fund Balances $ 9,357,443 $ 4,334,388 $ 1,561,761 See accompanying note to supplementary information. 67 C-70

151 Capital Project Funds Debt Service Funds Total Bond Interest Non-Major Capital State School County School Special Reserve and Tax Governmental Facilities Building Facilities Capital Outlay Redemption Override Funds $ - $ - $ - $ - $ - $ - $ 18,578 29,856,418 4,289,291 9,006,888 5,519,660 31,687,477 33,269 81,944,920 43,418 6,238 13,098-67,160-13,799, ,070 $ 29,899,836 $ 4,295,529 $ 9,019,986 $ 5,519,660 $ 31,754,637 $ 33,269 $ 95,776,509 $ - $ - $ - $ - $ - $ - $ 5,895, , , ,144,571-3,756, ,759, ,918 3,756, , ,798, ,061 29,505, ,257 9,019,986 4,099,160 31,754,637 33,269 76,507, ,402, ,043, ,043,178 29,505, ,257 9,019,986 5,142,338 31,754,637 33,269 78,977,835 $ 29,899,836 $ 4,295,529 $ 9,019,986 $ 5,519,660 $ 31,754,637 $ 33,269 $ 95,776, C-71

152 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2014 Special Revenue Funds Child Deferred Development Cafeteria Maintenance REVENUES Federal sources $ 15,605,016 $ 13,631,678 $ - Other state sources 9,591,983 1,042,298 - Other local sources 8,371,493 1,671,528 13,127 Total Revenues 33,568,492 16,345,504 13,127 EXPENDITURES Current Instruction 23,522, Instruction related activities: Supervision of instruction 5,584, Instructional library, media and technology 25, School site administration 3,680, Pupil Services: Food services 3,554,934 18,601,479 - All other pupil services 173, General administration: All other general administration 1,569, ,554 - Plant services 869, Facility acquisition and construction 55,000 6, ,891 Debt service Principal Interest and other Total Expenditures 39,034,046 19,434, ,891 Excess (deficiency) of revenues over expenditures (5,465,554) (3,088,629) (445,764) Other Financing Sources: Transfers in 5,999,463 3,044,147 - Other sources Transfers out Net Financing Sources 5,999,463 3,044,147 - NET CHANGE IN FUND BALANCES 533,909 (44,482) (445,764) Fund Balance - Beginning 1,011,062 79,153 1,848,552 Fund Balance - Ending $ 1,544,971 $ 34,671 $ 1,402,788 See accompanying note to supplementary information. 69 C-72

153 Capital Project Funds Debt Service Funds Total Bond Interest Non-Major Capital State School County School Special Reserve and Governmental Facilities Building Facilities Capital Outlay Redemption Tax Override Funds $ - $ - $ - $ - $ 1,999,662 $ - $ 31,236, ,823, ,870-12,644,658 8,905,437 33,232 70,822 3,383,158 74,474,096-96,922,893 8,905,437 33,232 1,894,329 3,383,158 76,660, ,803, ,522, ,584, , ,680, ,156, , ,395, ,523, ,392,898 5,438, , , ,941, ,349,140 34,230,000-35,579, ,071,251 34,606,326-35,677,577 5,438, ,478 4,319,123 68,836, ,129,527 3,466,907 33,232 1,285,851 (935,965) 7,824,302-2,674, ,043, ,310,751-15,310, (1,286,576) (218,721) - - (1,505,297) - - (1,286,576) (218,721) 15,310,751-22,849,064 3,466,907 33,232 (725) (1,154,686) 23,135,053-25,523,444 26,039, ,025 9,020,711 6,297,024 8,619,584 33,269 53,454,391 $ 29,505,918 $ 539,257 $ 9,019,986 $ 5,142,338 $ 31,754,637 $ 33,269 $ 78,977, C-73

154 SAN FRANCISCO UNIFIED SCHOOL DISTRICT GENERAL UNRESTRICTED AND RESTRICTED FUNDS COMBINING BALANCE SHEET JUNE 30, 2014 Total General Unrestricted Restricted Fund ASSETS Cash and cash equivalents $ 500 $ - $ 500 Investments 87,260,191 23,510, ,771,055 Receivables 36,672,931 24,291,864 60,964,795 Stores inventories 667, ,397 Prepaid expenditures 2,620,660-2,620,660 Total Assets $ 127,221,679 $ 47,802,728 $ 175,024,407 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ 12,843,468 $ 6,684,445 $ 19,527,913 Current loans 90,000,000-90,000,000 Unearned revenue - 2,758,654 2,758,654 Total Liabilities 102,843,468 9,443, ,286,567 Fund Balances Nonspendable 3,288,557-3,288,557 Restricted - 38,359,629 38,359,629 Assigned 982, ,326 Unassigned 20,107,328-20,107,328 Total Fund Balances 24,378,211 38,359,629 62,737,840 Total Liabilities and Fund Balances $ 127,221,679 $ 47,802,728 $ 175,024,407 See accompanying note to supplementary information. 71 C-74

155 SAN FRANCISCO UNIFIED SCHOOL DISTRICT GENERAL UNRESTRICTED AND RESTRICTED FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2014 Total General Unrestricted Restricted Fund REVENUES Local Control Funding Formula $ 375,832,260 $ - $ 375,832,260 Federal sources 679,632 36,727,348 37,406,980 Other state sources 15,205,751 41,504,537 56,710,288 Other local sources 43,741, ,928, ,669,365 Total Revenues 435,459, ,159, ,618,893 EXPENDITURES Current Instruction 202,157,809 59,811, ,969,218 Instruction related activities Supervision of instruction 19,063,185 71,492,645 90,555,830 Instructional library and technology 907,727 7,387,306 8,295,033 School site administration 33,114, ,691 33,932,551 Pupil Services Home-to school transportation 5,815,431 2,595,521 8,410,952 Food services 194,586 5, ,425 All other pupil services 18,034,360 18,680,201 36,714,561 General administration Data processing 6,418, ,117 6,533,962 All other general administration 16,993,177 4,389,719 21,382,896 Plant services 41,418,554 9,480,706 50,899,260 Facility acquisition and construction 715,341 3,557,646 4,272,987 Ancilliary services 405,053 1,802,210 2,207,263 Other outgo 76,930,141 3,352,876 80,283,017 Enterprise services - 4,264 4,264 Debt service Principal 1,100,179-1,100,179 Interest 1,698,699-1,698,699 Total Expenditures 424,967, ,493, ,461,097 Excess of expenditures over revenues 10,491, ,741 11,157,796 OTHER FINANCING SOURCES (USES): Transfers in 218, ,721 Transfers out (7,229,610) (1,814,000) (9,043,610) Other sources (uses) (15,175,384) 15,175,384 - Net Financing Uses (22,186,273) 13,361,384 (8,824,889) NET CHANGE IN FUND BALANCES (11,695,218) 14,028,125 2,332,907 Fund Balance - Beginning 36,073,429 24,331,504 60,404,933 Fund Balance - Ending $ 24,378,211 $ 38,359,629 $ 62,737,840 See accompanying note to supplementary information. 72 C-75

156 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2014 NOTE 1 - PURPOSE OF SCHEDULES Schedule of Expenditures of Federal Awards The accompanying Schedule of Expenditures of Federal Awards includes the Federal grant activity of the District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of the United States Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. The following schedule provides reconciliation between revenues reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances and the related expenditures reported on the Schedule of Expenditures of Federal Awards. CFDA Number Amount Total Federal Revenues reported on the Statement of Revenues, Expenditures and Changes in Fund Balance: $ 81,755,373 Federal interest subsidy on Qualified Construction Bonds and Build America Bonds Not Applicable (1,999,662) Various grants reported as unearned revenue (170,878) Noncash Federal awards are not recorded on the Financial Statements ,892 Total Schedule of Expenditures of Federal Awards $ 79,843,725 Subrecipients Of the Federal expenditures presented in the schedule, the District provided Federal awards to sub-recipients as follows: CFDA Amount Provided Program Title Number to Subrecipients Title I, Part A, Basic Grants Low Income and Neglected $ 544,813 Title II, Part A, Teacher Quality ,930 Total $ 562,743 Local Education Agency Organization Structure This schedule provides information about the District's boundaries and schools operated, members of the governing board, and members of the administration. 73 C-76

157 SAN FRANCISCO UNIFIED SCHOOL DISTRICT NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2014 Schedule of Average Daily Attendance (ADA) Average daily attendance (ADA) is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of State funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs. Schedule of Instructional Time The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. The District neither met nor exceeded its target funding. The schedule presents information on the amount of instructional time offered by the District and whether the District complied with the provisions of Education Code Sections through Districts must maintain their instructional minutes at the requirements, as required by Education Code Section Reconciliation of Annual Financial and Budget Report with Audited Financial Statements This schedule provides the information necessary to reconcile the fund balance of all funds reported on the Unaudited Actual Financial Report, to the audited financial statements. Schedule of Financial Trends and Analysis This schedule discloses the District's financial trends by displaying past years' data along with current year budget information. These financial trend disclosures are used to evaluate the District's ability to continue as a going concern for a reasonable period of time. Schedule of Charter Schools This schedule lists all schools chartered by the District or County Office of Education, and displays information for each charter school on whether or not the school is included in the District audit. Non-Major Governmental Funds Combining Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances The Non-Major Governmental Funds Combining Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances is included to provide information regarding the individual funds that have been included in the Non-Major Governmental Funds column on the Governmental Funds Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances. General Unrestricted and Restricted Funds Combining Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances The General Unrestricted and Restricted Funds Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances is included to provide information regarding the unrestricted and restricted funds that have been included in the General Funds column on the Governmental Funds Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances. 74 C-77

158 INDEPENDENT AUDITOR S REPORTS 75 C-78

159 INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Education San Francisco Unified School District San Francisco, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the San Francisco Unified School District (the 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 financial statements, and have issued our report thereon dated December 12, Change in Accounting Principles The District has adopted the provisions of GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. Our opinion is not modified with respect to this matter. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we do not express an opinion on the effectiveness of the District's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 76 C-79

160 Compliance and Other Matters As part of obtaining reasonable assurance about whether the District's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of This Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Palo Alto, California December 12, C-80

161 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133 Board of Education San Francisco Unified School District San Francisco, California Report on Compliance for Each Major Federal Program We have audited the San Francisco Unified School District's (the District) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the District's major Federal programs for the year ended June 30, The major Federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its Federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of the District's major Federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about 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 on compliance for each major Federal program. However, our audit does not provide a legal determination of the District's compliance. Opinion on Each Major Federal Program In our opinion, the 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, C-81

162 Report on Internal Control Over Compliance Management of the 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 the District's internal control over compliance with the types of requirements that could have a direct and material effect on each major Federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major Federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of District's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a Federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Palo Alto, California December 12, C-82

163 INDEPENDENT AUDITOR'S REPORT ON STATE COMPLIANCE Board of Education San Francisco Unified School District San Francisco, California Report on State Compliance We have audited the San Francisco Unified School District's (the District) compliance with the types of compliance requirements as identified in the Standards and Procedures for Audit of California K-12 Local Educational Agencies that could have a direct and material effect on each of the District's State government programs as noted below for the year ended June 30, Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its State's programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance of each of the District's State programs based on our audit of the types of compliance requirements referred to above. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Standards and Procedures for Audits of California K-12 Local Educational Agencies These standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a material effect on the applicable government programs noted below. An audit includes examining, on a test basis, evidence about 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 opinions. Our audit does not provide a legal determination of District's compliance with those requirements. 80 C-83

164 Unmodified Opinion on Each Program In our opinion District's complied, in all material respects, with the compliance requirements referred to above that are applicable to the government programs noted below that were audited for the year ended June 30, 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: Procedures in Audit Guide Procedures Performed Attendance Accounting: Attendance Reporting 6 Yes Teacher Certification and Misassignments 3 Yes Kindergarten Continuance 3 Yes Independent Study 23 Yes Continuation Education 10 Yes Instructional Time: School Districts 10 Yes Instructional Materials: General Requirements 8 Yes Ratios of Administrative Employees to Teachers 1 Yes Classroom Teacher Salaries 1 Yes Early Retirement Incentive 4 Not Applicable Gann Limit Calculation 1 Yes School Accountability Report Card 3 Yes Juvenile Court Schools 8 Yes Local Control Funding Formula Certification 1 Yes California Clean Energy Jobs Act 3 No* After School Education and Safety Program: General Requirements 4 Yes After School 5 Yes Before School 6 Not Applicable Education Protection Account Funds 1 Yes Common Core Implementation Funds 3 Yes Unduplicated Local Control Funding Formula Pupil Counts 3 Yes Charter Schools: Contemporaneous Records of Attendance 8 Not Applicable Mode of Instruction 1 Not Applicable Non Classroom-Based Instruction/Independent Study 15 Not Applicable Determination of Funding for Non Classroom-Based Instruction 3 Not Applicable Annual Instruction Minutes Classroom-Based 4 Not Applicable Charter School Facility Grant Program 1 Not Applicable *We did not perform testing for California Clean Energy Jobs Act because the District has not spent the award as of June 30, Palo Alto, California December 12, C-84

165 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 82 C-85

166 SAN FRANCISCO UNIFIED SCHOOL DISTRICT SUMMARY OF AUDITOR S RESULTS FOR THE YEAR ENDED JUNE 30, 2014 FINANCIAL STATEMENTS Type of auditor's report issued: Internal control over financial reporting: Material weakness identified? Significant deficiency identified? Noncompliance material to financial statements noted? FEDERAL AWARDS Internal control over major federal programs: Material weakness identified? Significant deficiency identified? Type of auditor's report issued on compliance for major federal programs: Any audit findings disclosed that are required to be reported in accordance with Section.510(a) of OMB Circular A-133? Unmodified No None reported No No None reported Unmodified No Identification of major federal programs: CFDA Numbers Name of Federal Program or Cluster Child Care and Development Special Education Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as low-risk auditee? $ 2,395,312 Yes STATE AWARDS Type of auditor's report issued on compliance for all state programs: Unmodified 83 C-86

167 SAN FRANCISCO UNIFIED SCHOOL DISTRICT FINANCIAL STATEMENT FINDINGS FOR THE YEAR ENDED JUNE 30, 2014 None reported. 84 C-87

168 SAN FRANCISCO UNIFIED SCHOOL DISTRICT FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2014 None reported. 85 C-88

169 SAN FRANCISCO UNIFIED SCHOOL DISTRICT STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2014 None reported. 86 C-89

170 SAN FRANCISCO UNIFIED SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2014 Financial Statement Findings None reported. Federal Awards Findings None reported. State Awards Findings Code Criteria The purpose of the After School Education and Safety (ASES) program is to support student success in school by providing academic support and enrichment opportunities. An ASES after school program was never intended to be a drop-in or child care program. The legislature determined that regular attendance would serve as the measure for demonstrating compliance with the legislation s purpose (EDC 8483[a][1]), intent (EDC 8483[a][2]), and criteria for ongoing program funding (EDC [a][1][A]). Each site operating an After School Education and Safety (ASES) program is required to have sign-in and sign-out procedures, including early-release and late-arrival procedures, and to maintain documentation in order to support the reported attendance. Condition A portion of reported students served resulted from attendance inconsistent with the ASES early release policy because the established policy is not consistently followed. We identified instances of early dismissal, yet the sign out documentation lacks required elements such as time, signature, or reconciliation to the established early release policy. We also identified instances where the documentation does not provide a record of the dismissal time. For the ASES sites where this condition is applicable, the portion of reported students served that resulted in attendance of less than a full day is as follows: ASES School Site Days Examined Errors Noted % Bessie Carmichael % Buena Vista % James Denman % Mckinley % Miraloma % Questioned Costs ASES grants are direct funded as three-year renewable grants per site; grants are not reimbursed for earned attendance. A discrepancy in the number of students served in the current year will not impact current year funding, but it could very well impact funding for future periods. The funding amounts for future years are based on a number of factors of which number of students served is one. As such it is not possible to project what the fiscal impact of the errors noted above will have on current or future site grant award amounts. 87 C-90

171 SAN FRANCISCO UNIFIED SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2014 Context We do not question if the District is providing an after school program consistent with the intent of the ASES program. However, the level of documentation related to attendance reporting does not meet the requirements set forth by regulatory literature for five identified sites of the District's 74 ASES after school programs. Effect Operating a program inconsistent from the intent can result in the District unable to provide a basis for future funding. Recommendation Sites and the District should enhance procedures to review the sign-in and sign-out documentation on a periodic basis to ensure that early dismissal is consistent with the established early release policy. It is also recommended that the District provide additional training to site coordinators of rules and regulations regarding attendance tracking and reporting. Site coordinators should be reminded of the need to document when a student signs out of the program, signature, time, and a connection to the early release policy. Because of the inevitable turnover of personnel that occurs, this type of training should be given on an as needed basis, but at least annually. The District should consider frequent internal audits of the sites. Corrective Action Plan The District has redesigned its online attendance system to ensure increased compliance with the ASES early release policy. In addition to the annual August training on the rules and regulations regarding attendance tracking and reporting, the District has implemented quarterly attendance trainings to ensure that any new staff have the training they need to ensure compliance with the attendance tracking procedures. The District has also initiated bi-annual attendance site reviews in the Fall and the Spring. During the site visits, program staff are provided with individual training and given two weeks to correct any findings. Program staff are also required to attend the appropriated quarterly attendance training. Current Year Status Implemented. 88 C-91

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173 APPENDIX D BOOK-ENTRY ONLY SYSTEM The Depository Trust Company ( DTC ), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully registered Bonds 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 Bond certificate will be issued for each maturity of the Bonds, each in the principal amount of such maturity, and will be deposited with DTC. 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 bookentry 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 has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Information on these websites is not incorporated herein. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the D-1

174 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC s practice, unless otherwise instructed by the District, is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments of principal of, premium, if any, and interest on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the District or the Paying 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 (nor its nominee) nor the Paying Agent or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payments of principal of, premium, if any, and interest on the Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Paying Agent and the District. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The District may decide to discontinue use of the system of book-entry-only transfers through (DTC) (or a successor securities depository). In that event, Bond certificates will be printed and delivered. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy thereof. The District, the Paying Agent and the Original Purchasers cannot and do not give any assurances that DTC will distribute to Participants or that Participants or others will distribute to the Beneficial Owners payments of principal of and interest and premium, if any, on the Bonds paid or any redemption or other notices or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. None of the District, the Paying Agent or the Original Purchasers is not responsible or liable for the failure of DTC or any Participant or Indirect Participant to make any payments or give any notice to a Beneficial Owner with respect to the Bonds or any error or delay relating thereto. Neither the District nor the Paying Agent will have any responsibility or obligation to Participants, to Indirect Participants or to any Beneficial Owner with respect to (i) the accuracy of any records maintained by DTC, any Participant, or any Indirect Participant; (ii) the payment by DTC or any Participant or Indirect Participant of any amount with respect to the principal of or premium, if any, or interest on the Bonds; (iii) any notice that is permitted or required to be given to Holders pursuant to the Resolution; (iv) the selection by DTC, any Participant or any Indirect Participant of any person to receive payment in the event of a partial redemption of the Bonds; (v) any consent given or other action taken by DTC as Bondholder; or (vi) any other procedures or obligations of DTC, Participants or Indirect Participants under the book-entry system. D-2

175 APPENDIX E PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the Disclosure Agreement ), dated as of October 21, 2015, is executed and delivered by San Francisco Unified School District (the Issuer or the District ) and Digital Assurance Certification, L.L.C., as exclusive Disclosure Dissemination Agent (the Disclosure Dissemination Agent or DAC ) for the benefit of the Holders (hereinafter defined) of the San Francisco Unified School District (City and County of San Francisco, California) General Obligation Bonds (Proposition A, Election of 2006) Series F (2015) (the Series F Bonds ) and (Proposition A, Election of 2011) Series C (2015) (the Series C Bonds ) and the San Francisco Unified School District (City and County of San Francisco, California) 2015 General Obligation Refunding Bonds (the Refunding Bonds and, together with the Series F and Series C Bonds, the Bonds ) in order to provide certain continuing disclosure with respect to the Bonds in accordance with Rule 15c2-12 of the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time (the Rule ). The services provided under this Disclosure Agreement solely relate to the execution of instructions received from the Issuer through use of the DAC system and do not constitute advice within the meaning of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act ). DAC will not provide any advice or recommendation to the Issuer or anyone on the Issuer s behalf regarding the issuance of municipal securities or any municipal financial product as defined in the Act and nothing in this Disclosure Agreement shall be interpreted to the contrary. SECTION 1. Definitions. Capitalized terms not otherwise defined in this Disclosure Agreement shall have the meaning assigned in the Rule or, to the extent not in conflict with the Rule, in the Official Statement (hereinafter defined). The capitalized terms shall have the following meanings: Annual Report means an Annual Report described in and consistent with Section 3 of this Disclosure Agreement. Annual Filing Date means the date, set in Sections 2(a) and 2(f), by which the Annual Report is to be filed with the MSRB. Annual Financial Information means annual financial information as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(b) of this Disclosure Agreement. Audited Financial Statements means the financial statements (if any) of the Issuer for the most recently completed fiscal year prior to the reporting date, certified by an independent auditor as prepared in accordance with generally accepted accounting principles or otherwise, as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(a) of this Disclosure Agreement. Bonds means the bonds as listed in the attached Exhibit A, with the 9-digit CUSIP numbers relating thereto. Certification means a written certification of compliance signed by the Disclosure Representative stating that the Annual Report, Audited Financial Statements, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure or Voluntary Financial Disclosure delivered to the Disclosure Dissemination Agent is the Annual Report, Audited Financial Statements, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure or Voluntary Financial Disclosure required to be submitted to the MSRB under this Disclosure Agreement. A Certification shall accompany each such document submitted to the Disclosure Dissemination Agent by the Issuer and include the full names of the Bonds and the 9-digit CUSIP numbers for all Bonds to which the document applies. E-1

176 Disclosure Representative means the Issuer s Deputy Superintendent, Policy and Operations, Executive Director of Business Services, Chief Business Officer, Chief Financial Officer or other equivalent authorized officer as may exist from time to time, or such other person as the Issuer shall designate in writing to the Disclosure Dissemination Agent from time to time as the person responsible for providing Information to the Disclosure Dissemination Agent. Disclosure Dissemination Agent means Digital Assurance Certification, L.L.C., acting in its capacity as Disclosure Dissemination Agent hereunder, or any successor Disclosure Dissemination Agent designated in writing by the Issuer pursuant to Section 9 hereof. Failure to File Event means the Issuer s failure to file an Annual Report on or before the Annual Filing Date. Force Majeure Event means: (i) acts of God, war, or terrorist action; (ii) failure or shut-down of the Electronic Municipal Market Access system maintained by the MSRB; or (iii) to the extent beyond the Disclosure Dissemination Agent s reasonable control, interruptions in telecommunications or utilities services, failure, malfunction or error of any telecommunications, computer or other electrical, mechanical or technological application, service or system, computer virus, interruptions in Internet service or telephone service (including due to a virus, electrical delivery problem or similar occurrence) that affect Internet users generally, or in the local area in which the Disclosure Dissemination Agent or the MSRB is located, or acts of any government, regulatory or any other competent authority the effect of which is to prohibit the Disclosure Dissemination Agent from performance of its obligations under this Disclosure Agreement. Holder means any person (a) having the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries) or (b) treated as the owner of any Bonds for federal income tax purposes. Information means, collectively, the Annual Reports, the Audited Financial Statements (if any), the Notice Event notices, the Failure to File Event notices, the Voluntary Event Disclosures and the Voluntary Financial Disclosures. MSRB means the Municipal Securities Rulemaking Board, or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at Notice Event means any event listed in Section 4(a) of this Disclosure Agreement. Obligated Person means any person, including the Issuer, who is either generally or through an enterprise, fund, or account of such person committed by contract or other arrangement to support payment of all, or part of the obligations on the Bonds (other than providers of municipal bond insurance, letters of credit, or other liquidity facilities), as shown on Exhibit A. Official Statement means that Official Statement prepared by or on behalf of the Issuer in connection with the Bonds. Rule means Rule 15c2 12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. Trustee means the institution, if any, identified as such in the document under which the Bonds were issued. E-2

177 Underwriters means any of the original underwriters of the Bonds required to comply with the Rule in connection with the offering of the Bonds. Voluntary Event Disclosure means information of the category specified in any of subsections (e)(vi)(1) through (e)(vi)(11) of Section 2 of this Disclosure Agreement that is accompanied by a Certification of the Disclosure Representative containing the information prescribed by Section 7(a) of this Disclosure Agreement. Voluntary Financial Disclosure means information of the category specified in any of subsections (e)(vii)(1) through (e)(vii)(9) of Section 2 of this Disclosure Agreement that is accompanied by a Certification of the Disclosure Representative containing the information prescribed by Section 7(b) of this Disclosure Agreement. SECTION 2. Provision of Annual Reports. (a) The Issuer shall provide, annually, an electronic copy of the Annual Report and Certification to the Disclosure Dissemination Agent, together with a copy for the Trustee, not later than 30 days prior to the Annual Filing Date. Promptly upon receipt of an electronic copy of the Annual Report and the Certification, the Disclosure Dissemination Agent shall provide an Annual Report to the MSRB not later than 270 days after the end of each fiscal year of the Issuer, commencing with the fiscal year ending June 30, Such date and each anniversary thereof is the Annual Filing Date. The Annual Report must be submitted in electronic format accompanied by such identifying information as is prescribed by the MSRB, may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 3 of this Disclosure Agreement. (b) If on the fifteenth (15th) day prior to the Annual Filing Date, the Disclosure Dissemination Agent has not received a copy of the Annual Report and Certification, the Disclosure Dissemination Agent shall contact the Disclosure Representative by telephone and in writing (which may be by ) to remind the Issuer of its undertaking to provide the Annual Report pursuant to Section 2(a). Upon such reminder, the Disclosure Representative shall either (i) provide the Disclosure Dissemination Agent with an electronic copy of the Annual Report and the Certification) no later than two (2) business days prior to the Annual Filing Date, or (ii) instruct the Disclosure Dissemination Agent in writing that the Issuer will not be able to file the Annual Report within the time required under this Disclosure Agreement, state the date by which the Annual Report for such year will be provided and instruct the Disclosure Dissemination Agent that a Failure to File Event has occurred and to immediately send a notice to the MSRB in substantially the form attached as Exhibit B, accompanied by a cover sheet completed by the Disclosure Dissemination Agent in the form set forth in Exhibit C-1. (c) If the Disclosure Dissemination Agent has not received an Annual Report and Certification by 6:00 p.m. Eastern time on the Annual Filing Date (or, if such Annual Filing Date falls on a Saturday, Sunday or holiday, then the first business day thereafter) for the Annual Report, a Failure to File Event shall have occurred and the Issuer irrevocably directs the Disclosure Dissemination Agent to immediately send a notice to the MSRB in substantially the form attached as Exhibit B without reference to the anticipated filing date for the Annual Report, accompanied by a cover sheet completed by the Disclosure Dissemination Agent in the form set forth in Exhibit C-1. (d) If Audited Financial Statements of the Issuer are prepared but not available prior to the Annual Filing Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the Audited Financial Statements shall be filed in the same manner as the Annual Report when they become available. (e) The Disclosure Dissemination Agent shall: (i) verify the filing specifications of the MSRB each year prior to the Annual Filing Date; E-3

178 (ii) (iii) (iv) (v) (vi) upon receipt, promptly file each Annual Report received under Section 2(a) with the MSRB; upon receipt, promptly file each Audited Financial Statement received under Section 2(d) with the MSRB; upon receipt, promptly file the text of each Notice Event received under Sections 4(a) and 4(b)(ii) with the MSRB, identifying the Notice Event as instructed by the Issuer pursuant to Section 4(a) or 4(b)(ii) (being any of the categories set forth in Exhibit C-1) when filing pursuant to Section 4(c) of this Disclosure Agreement; upon the occurrence of a Failure to File Event as described in Section 2(b)(ii) or 2(c) of this Disclosure Agreement, promptly file a completed copy of Exhibit B to this Disclosure Agreement with the MSRB, identifying the filing as Failure to provide annual financial information as required when filing pursuant to Section 2(b)(ii) or Section 2(c) of this Disclosure Agreement; upon receipt, promptly file the text of each Voluntary Event Disclosure received under Section 7(a) with the MSRB, identifying the Voluntary Event Disclosure as instructed by the Issuer pursuant to Section 7(a) (being any of the categories set forth below) when filing pursuant to Section 7(a) of this Disclosure Agreement: 1. amendment to continuing disclosure undertaking; 2. change in obligated person; 3. notice to investors pursuant to bond documents; 4. certain communications from the Internal Revenue Service; 5. secondary market purchases; 6. bid for auction rate or other securities; 7. capital or other financing plan; 8. litigation/enforcement action; 9. change of tender agent, remarketing agent, or other on-going party; 10. derivative or other similar transaction; and 11. other event-based disclosures; (vii) upon receipt, promptly file the text of each Voluntary Financial Disclosure received under Section 7(b) with the MSRB, identifying the Voluntary Financial Disclosure as instructed by the Issuer pursuant to Section 7(b) (being any of the categories set forth below) when filing pursuant to Section 7(b) of this Disclosure Agreement: 1. quarterly/monthly financial information; 2. change in fiscal year/timing of annual disclosure; 3. change in accounting standard; E-4

179 4. interim/additional financial information/operating data; 5. budget; 6. investment/debt/financial policy; 7. information provided to rating agency, credit/liquidity provider or other third party; 8. consultant reports; and 9. other financial/operating data. (viii) provide the Issuer evidence of the filings of each of the above when made, which shall be by means of the DAC system, for so long as DAC is the Disclosure Dissemination Agent under this Disclosure Agreement. (f) The Issuer may adjust the Annual Filing Date upon change of its fiscal year by providing written notice of such change and the new Annual Filing Date to the Disclosure Dissemination Agent, Trustee (if any) and the MSRB, provided that the period between the existing Annual Filing Date and new Annual Filing Date shall not exceed one year. (g) Any Information received by the Disclosure Dissemination Agent before 6:00 p.m. Eastern time on any business day that it is required to file with the MSRB pursuant to the terms of this Disclosure Agreement and that is accompanied by a Certification and all other information required by the terms of this Disclosure Agreement will be filed by the Disclosure Dissemination Agent with the MSRB no later than 11:59 p.m. Eastern time on the same business day; provided, however, the Disclosure Dissemination Agent shall have no liability for any delay in filing with the MSRB if such delay is caused by a Force Majeure Event provided that the Disclosure Dissemination Agent uses reasonable efforts to make any such filing as soon as possible. SECTION 3. Content of Annual Reports. (a) Audited Financial Statements prepared in accordance with generally accepted accounting principles as set forth by the National Council on Governmental Accounting will be included in the Annual Report, such Audited Financial Statements to include District enrollment or Average Daily Attendance for the fiscal year of such Audited Financial Statements. (b) To the extent not included in the Audited Financial Statements of the Issuer, the Annual Report shall also include the following Annual Financial Information. (i) (ii) (iii) (iv) (v) (vi) District average daily attendance. Issuer outstanding debt. Information regarding total assessed valuation of taxable properties within the Issuer, if and to the extent provided to the Issuer. Information regarding total secured tax charges and delinquencies on taxable properties within the Issuer, if and to the extent provided to the Issuer. Information regarding total assessed valuation and parcels by land use. Information regarding the assessed valuation per parcel of single family homes. (vii) Information regarding the largest local secured taxpayers. E-5

180 (viii) Adopted general fund budget of the District and any amendments for the current fiscal year through the Annual Filing Date. Any or all of the items listed above may be included by specific reference from other documents, including official statements of debt issues with respect to which the Issuer is an obligated person (as defined by the Rule), which are available to the public on the MSRB s website or have been previously filed with the Securities and Exchange Commission. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The Issuer will clearly identify each such document so incorporated by reference. The descriptions contained in clause (b) above of financial information and operating data to be included in the Annual Report are of general categories or types of financial information and operating data. When such descriptions include information that no longer can be generated because the operations to which it related have been materially changed or discontinued, or due to changes in accounting practices, legislative or organizational changes, a statement to that effect shall be provided in lieu of such information. Comparable information shall be provided if available. SECTION 4. Reporting of Notice Events. Event: (a) The occurrence of any of the following events with respect to the Bonds constitutes a Notice 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 Bonds, or other material events affecting the tax status of the Bonds; 7. Modifications to rights of Bond holders, if material; 8. Bond calls, if material, and tender offers; 9. Defeasances; 10. Release, substitution, or sale of property securing repayment of the Bonds, if material; 11. Rating changes; 12. Bankruptcy, insolvency, receivership or similar event of the District; 13. The consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; E-6

181 14. Appointment of a successor or additional trustee or the change of name of a trustee, if material. For the purposes of the event described in subsection (a)(12) of this Section 4, the event 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 U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the 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. The District shall, in a timely manner not in excess of 10 business days after its occurrence, notify the Disclosure Dissemination Agent in writing of the occurrence of a Notice Event. Such notice shall instruct the Disclosure Dissemination Agent to report the occurrence pursuant to subsection (c) and shall be accompanied by a Certification. Such notice or Certification shall identify the Notice Event that has occurred (which shall be any of the categories set forth in Section 2(e)(iv) of this Disclosure Agreement), include the text of the disclosure that the District desires to make, contain the written authorization of the District for the Disclosure Dissemination Agent to disseminate such information, and identify the date the District desires for the Disclosure Dissemination Agent to disseminate the information (provided that such date is not later than the tenth business day after the occurrence of the Notice Event). (b) The Disclosure Dissemination Agent is under no obligation to notify the Issuer or the Disclosure Representative of an event that may constitute a Notice Event. In the event the Disclosure Dissemination Agent so notifies the Disclosure Representative, the Disclosure Representative will within two business days of receipt of such notice (but in any event not later than the tenth business day after the occurrence of the Notice Event, if the Issuer determines that a Notice Event has occurred) instruct the Disclosure Dissemination Agent that (i) a Notice Event has not occurred and no filing is to be made or (ii) a Notice Event has occurred and the Disclosure Dissemination Agent is to report the occurrence pursuant to subsection (c) of this Section 4, together with a Certification and the text of the disclosure that the Issuer desires to make, the written authorization of the Issuer for the Disclosure Dissemination Agent to disseminate such information, and identify the date the Issuer desires for the Disclosure Dissemination Agent to disseminate the information, provided that such date is not later than the tenth business day after the occurrence of the Notice Event. (c) If the Disclosure Dissemination Agent has been instructed by the Issuer as prescribed in subsection (a) or (b)(ii) of this Section 4 to report the occurrence of a Notice Event, the Disclosure Dissemination Agent shall promptly file a notice of such occurrence with MSRB in accordance with Section 2(e)(iv) hereof. This notice will be filed with a cover sheet completed by the Disclosure Dissemination Agent in the form set forth in Exhibit C-1. SECTION 5. CUSIP Numbers. Whenever providing information to the Disclosure Dissemination Agent, including but not limited to Annual Reports, documents incorporated by reference to the Annual Reports, Audited Financial Statements, Notice Event notices, Failure to File Event notices, Voluntary Event Disclosures and Voluntary Financial Disclosures, the Issuer shall indicate the full name of the Bonds and the 9-digit CUSIP numbers for the Bonds as to which the provided information relates. SECTION 6. Additional Disclosure Obligations. The Issuer acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, may apply to the Issuer, and that the duties and responsibilities of the Disclosure Dissemination Agent under this Disclosure Agreement do not extend to providing legal advice regarding such laws. The Issuer acknowledges and understands that the duties of the Disclosure Dissemination Agent relate exclusively to execution of the mechanical tasks of disseminating information as described in this Disclosure Agreement. E-7

182 SECTION 7. Voluntary Filing. (a) The Issuer may instruct the Disclosure Dissemination Agent to file a Voluntary Event Disclosure with the MSRB from time to time pursuant to a Certification of the Disclosure Representative. Such Certification shall identify the Voluntary Event Disclosure (which shall be any of the categories set forth in Section 2(e)(vi) of this Disclosure Agreement), include the text of the disclosure that the Issuer desires to make, contain the written authorization of the Issuer for the Disclosure Dissemination Agent to disseminate such information, and identify the date the Issuer desires for the Disclosure Dissemination Agent to disseminate the information. If the Disclosure Dissemination Agent has been instructed by the Issuer as prescribed in this Section 7(a) to file a Voluntary Event Disclosure, the Disclosure Dissemination Agent shall promptly file such Voluntary Event Disclosure with the MSRB in accordance with Section 2(e)(vi) hereof. This notice will be filed with a cover sheet completed by the Disclosure Dissemination Agent in the form set forth in Exhibit C-2. (b) The Issuer may instruct the Disclosure Dissemination Agent to file a Voluntary Financial Disclosure with the MSRB from time to time pursuant to a Certification of the Disclosure Representative. Such Certification shall identify the Voluntary Financial Disclosure (which shall be any of the categories set forth in Section 2(e)(vii) of this Disclosure Agreement), include the text of the disclosure that the Issuer desires to make, contain the written authorization of the Issuer for the Disclosure Dissemination Agent to disseminate such information, and identify the date the Issuer desires for the Disclosure Dissemination Agent to disseminate the information. If the Disclosure Dissemination Agent has been instructed by the Issuer as prescribed in this Section 7(b) to file a Voluntary Financial Disclosure, the Disclosure Dissemination Agent shall promptly file such Voluntary Financial Disclosure with the MSRB in accordance with Section 2(e)(vii) hereof. This notice will be filed with a cover sheet completed by the Disclosure Dissemination Agent in the form set forth in Exhibit C-3. (c) The parties hereto acknowledge that the Issuer is not obligated pursuant to the terms of this Disclosure Agreement to file any Voluntary Event Disclosure pursuant to Section 7(a) hereof or any Voluntary Financial Disclosure pursuant to Section 7(b) hereof. (d) Nothing in this Disclosure Agreement shall be deemed to prevent the Issuer from disseminating any other information through the Disclosure Dissemination Agent using the means of dissemination set forth in this Disclosure Agreement or including any other information in any Annual Report, Audited Financial Statements, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure or Voluntary Financial Disclosure, in addition to that required by this Disclosure Agreement. If the Issuer chooses to include any information in any Annual Report, Audited Financial Statements, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure or Voluntary Financial Disclosure in addition to that which is specifically required by this Disclosure Agreement, the Issuer shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report, Audited Financial Statements, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure or Voluntary Financial Disclosure. SECTION 8. Termination of Reporting Obligation. The obligations of the Issuer and the Disclosure Dissemination Agent under this Disclosure Agreement shall terminate with respect to the Bonds upon the legal defeasance, prior redemption or payment in full of all of the Bonds, when the Issuer is no longer an obligated person with respect to the Bonds, or upon delivery by the Disclosure Representative to the Disclosure Dissemination Agent of an opinion of counsel expert in federal securities laws to the effect that continuing disclosure is no longer required. SECTION 9. Disclosure Dissemination Agent. The Issuer has appointed Digital Assurance Certification, L.L.C. as exclusive Disclosure Dissemination Agent under this Disclosure Agreement. The Issuer may, upon 30 days written notice to the Disclosure Dissemination Agent, replace or appoint a successor Disclosure Dissemination Agent. Upon termination of DAC s services as Disclosure Dissemination Agent, whether by notice of the Issuer or DAC, the Issuer agrees to appoint a successor Disclosure Dissemination Agent or, alternately, agrees to assume all responsibilities of Disclosure Dissemination Agent under this Disclosure Agreement for the benefit of the Holders of the Bonds. Notwithstanding any replacement or appointment of a successor, the Issuer shall remain liable until payment in full for any and all sums owed and payable to the Disclosure Dissemination Agent. The Disclosure Dissemination Agent may resign at any time by providing thirty days prior written notice to the Issuer. E-8

183 SECTION 10. Remedies in Event of Default. In the event of a failure of the Issuer or the Disclosure Dissemination Agent to comply with any provision of this Disclosure Agreement, the Holders rights to enforce the provisions of this Agreement shall be limited solely to a right, by action in mandamus or for specific performance, to compel performance of the parties obligation under this Disclosure Agreement. Any failure by a party to perform in accordance with this Disclosure Agreement shall not constitute a default on the Bonds or under any other document relating to the Bonds, and all rights and remedies shall be limited to those expressly stated herein. SECTION 11. Duties, Immunities and Liabilities of Disclosure Dissemination Agent. (a) The Disclosure Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement. The Disclosure Dissemination Agent s obligation to deliver the information at the times and with the contents described herein shall be limited to the extent the Issuer has provided such information to the Disclosure Dissemination Agent as required by this Disclosure Agreement. The Disclosure Dissemination Agent shall have no duty with respect to the content of any disclosures or notice made pursuant to the terms hereof. The Disclosure Dissemination Agent shall have no duty or obligation to review or verify any Information or any other information, disclosures or notices provided to it by the Issuer and shall not be deemed to be acting in any fiduciary capacity for the Issuer, the Holders of the Bonds or any other party. The Disclosure Dissemination Agent shall have no responsibility for the Issuer s failure to report to the Disclosure Dissemination Agent a Notice Event or a duty to determine the materiality thereof. The Disclosure Dissemination Agent shall have no duty to determine, or liability for failing to determine, whether the Issuer has complied with this Disclosure Agreement. The Disclosure Dissemination Agent may conclusively rely upon Certifications of the Issuer at all times. The obligations of the Issuer under this Section shall survive resignation or removal of the Disclosure Dissemination Agent and defeasance, redemption or payment of the Bonds. (b) The Disclosure Dissemination Agent may, from time to time, consult with legal counsel (either inhouse or external) of its own choosing in the event of any disagreement or controversy, or question or doubt as to the construction of any of the provisions hereof or its respective duties hereunder, and shall not incur any liability and shall be fully protected in acting in good faith upon the advice of such legal counsel. The reasonable fees and expenses of such counsel shall be payable by the Issuer. (c) All documents, reports, notices, statements, information and other materials provided to the MSRB under this Agreement shall be provided in an electronic format and accompanied by identifying information as prescribed by the MSRB. SECTION 12. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Issuer and the Disclosure Dissemination Agent may amend this Disclosure Agreement and any provision of this Disclosure Agreement may be waived, if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws acceptable to both the Issuer and the Disclosure Dissemination Agent to the effect that such amendment or waiver does not materially impair the interests of Holders of the Bonds and would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule; provided neither the Issuer or the Disclosure Dissemination Agent shall be obligated to agree to any amendment modifying their respective duties or obligations without their consent thereto. Notwithstanding the preceding paragraph, the Disclosure Dissemination Agent shall have the right to adopt amendments to this Disclosure Agreement necessary to comply with modifications to and interpretations of the provisions of the Rule as announced by the Securities and Exchange Commission from time to time by giving not less than 20 days written notice of the intent to do so together with a copy of the proposed amendment to the Issuer. No such amendment shall become effective if the Issuer shall, within 10 days following the giving of such notice, send a notice to the Disclosure Dissemination Agent in writing that it objects to such amendment. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Disclosure Dissemination Agent, the underwriter, and the Holders from time to time of the Bonds, and shall create no rights in any other person or entity. E-9

184 SECTION 14. Governing Law. This Disclosure Agreement shall be governed by the laws of the State of California (other than with respect to conflicts of laws). SECTION 15. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. The Disclosure Dissemination Agent and the Issuer have caused this Disclosure Agreement to be executed, on the date first written above, by their respective officers duly authorized. DIGITAL ASSURANCE CERTIFICATION, L.L.C., as Disclosure Dissemination Agent By: Name: Title: SAN FRANCISCO UNIFIED SCHOOL DISTRICT, as Issuer By: Reeta Madhavan Chief Financial Officer E-10

185 EXHIBIT A TO EXHIBIT E NAME AND CUSIP NUMBERS OF BONDS Name of Issuer Obligated Person(s) Name of Bond Issue: Date of Issuance:, 2015 Date of Official Statement:, 2015 San Francisco Unified School District San Francisco Unified School District San Francisco Unified School District (City and County of San Francisco, California) General Obligation Bonds (Proposition A, Election of 2006), Series F (2015) and (Proposition A, Election of 2011), Series C (2015) and San Francisco Unified School District (City and County of San Francisco, California) 2015 General Obligation Refunding Bonds CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: E-11

186 EXHIBIT B TO EXHIBIT E NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Issuer Obligated Person: Name of Bond Issue: San Francisco Unified School District San Francisco Unified School District San Francisco Unified School District (City and County of San Francisco, California) General Obligation Bonds (Proposition A, Election of 2006), Series F (2015) and (Proposition A, Election of 2011), Series C (2015) and San Francisco Unified School District (City and County of San Francisco, California) 2015 General Obligation Refunding Bonds Date of Issuance:, 2015 Date of Disclosure Agreement:, 2015 CUSIP Number: NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect to the abovenamed Bonds as required by the Disclosure Agreement, dated as of, 2015, between the Issuer and Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent. The Issuer has notified the Disclosure Dissemination Agent that it anticipates that the Annual Report will be filed by [ ] Dated: Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent, on behalf of the Issuer cc: Issuer Obligated Person E-12

187 EXHIBIT C-1 TO EXHIBIT E EVENT NOTICE COVER SHEET This cover sheet and material event notice should be sent to the Municipal Securities Rulemaking Board pursuant to Securities and Exchange Commission Rule 15c2-12(b)(5)(i)(C) and (D). Issuer s and/or Other Obligated Person s Name: San Francisco Unified School District Issuer s Six-Digit CUSIP Number: [ ]I or Nine-Digit CUSIP Number(s) of the bonds to which this material event notice relates: [ ]I Number of pages of attached material event notice: Description of Material Events Notice (Check One): 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 or events affecting the tax-exempt status of the security; 7. Modifications to rights of securities holders, if material; 8. Bond calls, if material; 9. Defeasances; 10. Release, substitution, or sale of property securing repayment of the securities, if material; 11. Rating changes; 12. Tender offers; 13. Bankruptcy, insolvency, receivership or similar event of the obligated person; 14. Merger, consolidation, or acquisition of the obligated person, if material; and 15. Appointment of a successor or additional trustee, or the change of name of a trustee, if material. Failure to provide annual financial information as required. I hereby represent that I am authorized by the issuer or its agent to distribute this information publicly: Signature: Name: Date: Title: Digital Assurance Certification, L.L.C. 390 N. Orange Avenue, Suite 1750 Orlando, FL E-13

188 EXHIBIT C-2 TO EXHIBIT E VOLUNTARY EVENT DISCLOSURE COVER SHEET This cover sheet and accompanying voluntary event disclosure will be sent to the MSRB, pursuant to the Continuing Disclosure Agreement dated as of between the Issuer and DAC. Issuer s and/or Other Obligated Person s Name: San Francisco Unified School District Issuer s Six-Digit CUSIP Number: [ ] [ ] or Nine-Digit CUSIP Number(s) of the bonds to which this notice relates: [ ] Number of pages attached: Description of Material Events Notice (Check One): 1. amendment to continuing disclosure undertaking; 2. change in obligated person; 3. notice to investors pursuant to bond documents; 4. certain communications from the Internal Revenue Service; 5. secondary market purchases; 6. bid for auction rate or other securities; 7. capital or other financing plan; 8. litigation/enforcement action; 9. change of tender agent, remarketing agent, or other on-going party; 10. derivative or other similar transaction; and 11. other event-based disclosures. I hereby represent that I am authorized by the issuer or its agent to distribute this information publicly: Signature: Name: Date: Title: Digital Assurance Certification, L.L.C. 390 N. Orange Avenue, Suite 1750 Orlando, FL E-14

189 EXHIBIT C-3 TO EXHIBIT E VOLUNTARY FINANCIAL DISCLOSURE COVER SHEET This cover sheet and accompanying voluntary financial disclosure will be sent to the MSRB, pursuant to the Continuing Disclosure Agreement dated as of between the Issuer and DAC. Issuer s and/or Other Obligated Person s Name: [ ]I Issuer s Six-Digit CUSIP Number: [ ]I [ ] or Nine-Digit CUSIP Number(s) of the bonds to which this notice relates: [ ] Number of pages attached: Description of Voluntary Financial Disclosure (Check One): 1. quarterly/monthly financial information; 2. change in fiscal year/timing of annual disclosure; 3. change in accounting standard; 4. interim/additional financial information/operating data; 5. budget; 6. investment/debt/financial policy; 7. information provided to rating agency, credit/liquidity provider or other third party; 8. consultant reports; and 9. other financial/operating data. I hereby represent that I am authorized by the issuer or its agent to distribute this information publicly: Signature: Name: Date: Title: Digital Assurance Certification, L.L.C. 390 N. Orange Avenue, Suite 1750 Orlando, FL E-15

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191 APPENDIX F EXCERPTS FROM THE CITY AND COUNTY OF SAN FRANCISCO INVESTMENT PORTFOLIO REPORT The following information has been provided by the City for use herein. The District takes no responsibility for the accuracy or completeness of such information. Investment Pool The Treasurer of the City and County of San Francisco (the Treasurer ) is authorized by Charter Section to invest funds available under California Government Code Title 5, Division 2, Part 1, Chapter 4, Article 6.0. In addition to the funds of the City, the funds of various City departments and local agencies located within the boundaries of the City, including the school and community college districts, airport and local hospitals, are deposited into the City and County s Pooled Investment Fund (the Pool ). The funds are commingled for investment purposes. Investment Policy The management of the Pool is governed by the Investment Policy administered by the Office of the Treasurer and Tax Collector, in accordance with California Government Code, Sections 27000, 53601, 53635, et. al. In order of priority, the objectives of this Investment Policy are safety, liquidity, and return on investments. Safety of principal is the foremost objective of the investment program. The investment portfolio maintains sufficient liquidity to meet all expected expenditures for at least the next six months. The Treasurer is required by State law and the Investment Policy to denote to the City Controller, the Mayor, and the Board of Supervisors that the City s investment portfolio meets this liquidity requirement. The Office of the Treasurer and Tax Collector also attempts to generate a market rate of return, without undue compromise of the first two objectives. A Treasury Oversight Committee was established by the San Francisco Board of Supervisors in Ordinance No The duties of the Committee are to (1) review and monitor the investment policy described in California Government Code Section and prepared annually by the Treasurer; and (2) cause an annual audit to be conducted to determine the Treasurer s compliance with California Government Code Article 6 including Sections through and City Administrative Code Section The audit may examine the structure of the investment portfolio and risk. This Committee meets quarterly. A complete copy of the Treasurer s Investment Policy, effective October 2014, is posted at the Treasurer s website: The information available on such website is not incorporated herein by reference. Investment Portfolio As of June 30, 2015, the City s surplus investment fund consisted of the investments classified in the table below and had the investment maturity distribution presented in the following table. F-1

192 CITY AND COUNTY OF SAN FRANCISCO Investment Portfolio As of June 30, 2015 (1) ($ in millions) Type of Investment Par Value Book Value Market Value U.S. Treasuries $475,000,000 $472,153,320 $477,867,500 Federal Agencies 4,153,548,000 4,162,753,635 4,166,102,251 State and Local Obligations 316,375, ,544, ,650,666 Public Time Deposits 960, , ,000 Negotiable Certificates of Deposit 725,000, ,989, ,754,867 Commercial Paper 400,000, ,985, ,000,000 Medium Term Notes 612,729, ,842, ,893,855 Money Market Funds 285,114, ,114, ,114,825 TOTAL (2) $6,968,726,825 $6,983,343,286 $6,987,343,964 (1) (2) June 2015 Earnings Yield: 0.667%. Totals may not add due to rounding. Source: Office of the Treasurer & Tax Collector, City and County of San Francisco F-2

193 CITY AND COUNTY OF SAN FRANCISCO Investment Maturity Distribution As of June 30, 2015 Maturity (1) Par Value Percentage (2) 0 to 1 Month $882,469, % 1 to 2 Months 9,000, to 3 Months 306,236, to 4 Months 119,300, to 5 Months 253,525, to 6 Months 137,255, to 12 Months 734,154, to 24 Months 2,573,497, to 36 Months 1,408,790, to 48 Months 355,000, to 60 Months 189,500, TOTAL (3) $6,968,726, % (1) (2) (3) Weighted Average Maturity: 536 Days. Percentage of Par Value. Totals may not add due to rounding. Source: Office of the Treasurer & Tax Collector, City and County of San Francisco F-3

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196 SAN FRANCISCO UNIFIED SCHOOL DISTRICT (CITY AND COUNTY OF SAN FRANCISCO, CALIFORNIA) General Obligation Bonds and 2015 General Obligation Refunding Bonds