MATURITY SCHEDULE See Inside Cover

Transcription

1 NEW ISSUE FULL BOOK-ENTRY S&P Insured Rating: AA S&P Underlying Rating: A+ See RATINGS herein In the opinion of Parker & Covert LLP, Sacramento, California, Special Counsel, based on an analysis of existing statutes, regulations, rulings, and court decisions and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, the portion of the Rental Payments designated as and constituting interest paid by the District under the Facilities Lease and received by the owners of the Certificates is excludable from gross income for federal income tax purposes and is exempt from State of California personal income taxes. In the further opinion of Special Counsel, such interest is not an item of tax preference for purposes of the alternative minimum tax imposed on individuals. Special Counsel expresses no opinion regarding any other tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest with respect to, the Certificates. See LEGAL MATTERS Tax Matters herein. DATED: Date of Delivery $59,780, CERTIFICATES OF PARTICIPATION Evidencing and Representing Proportionate Interests of the Registered Owners Thereof in Rental Payments to be Made by the VISALIA UNIFIED SCHOOL DISTRICT (Tulare County, California) DUE: May 1, as shown on the inside cover The Visalia Unified School District 2018 Certificates of Participation (the Certificates ) in the aggregate principal amount of $59,780,000 are being executed and delivered for the benefit of Visalia Unified School District (the District ) to (i) finance the acquisition, construction, modernization, and installation of school facilities improvements (the Project ) and (ii) pay certain costs of issuance of the Certificates, including premiums for a municipal bond insurance policy and debt service reserve insurance policy. See PLAN OF FINANCE herein. The Certificates evidence and represent proportionate interests of the registered owners thereof in Rental Payments to be made by the District to the Visalia Financing Corporation (the Corporation ) for the use and occupancy of certain real property (the Facilities ) under and pursuant to a facilities lease between the District and the Corporation dated as of May 1, 2018 (the Facilities Lease ). The Corporation will assign its right to receive Rental Payments from the District under the Facilities Lease and its right to enforce payment of the Rental Payments when due or otherwise protect its interest in the event of a default by the District thereunder to MUFG Union Bank, N.A. as trustee (the Trustee ) for the benefit of the registered owners of the Certificates pursuant to a trust agreement dated as of May 1, 2018 by and between the District, the Corporation and the Trustee (the Trust Agreement ). See APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS attached hereto. The Certificates will be executed and delivered in book-entry form only, and will be initially registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ). Individual purchases of the Certificates will be made in book-entry only form and only in authorized denominations as described in this Official Statement. Purchasers of the Certificates (the Beneficial Owners ) will not receive physical certificates representing their interest in the Certificates. See APPENDIX F DTC BOOK-ENTRY SYSTEM attached hereto. Interest with respect to the Certificates is payable semiannually on May 1 and November 1 of each year, commencing November 1, The Certificates are subject to redemption prior to maturity as described herein. See THE CERTIFICATES Redemption Provisions herein. The District will covenant in the Facilities Lease to take such action as may be necessary to include all Rental Payments and Additional Payments in its annual budgets and to make the necessary annual appropriations for all such Rental Payments, subject to abatement during any period in which by reason of damage or destruction of the Facilities, or by reason of eminent domain proceedings with respect to the Facilities, there is substantial interference with the use and occupancy by the District of the Facilities or any portion thereof. See SPECIAL RISK FACTORS herein. Neither the Certificates nor the obligation of the District to make Rental Payments under the Facilities Lease constitutes a debt or indebtedness of the Corporation, the District, the State of California or any political subdivision thereof within the meaning of any Constitutional or statutory debt limitation or restriction or an obligation for which the Corporation or the District is obligated to levy or pledge any form of taxation. The scheduled payment of principal of and interest with respect to the Certificates when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Certificates by ASSURED GUARANTY MUNICIPAL CORP. See BOND INSURANCE herein and APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY attached hereto. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR GENERAL REFERENCE ONLY. IT IS NOT A SUMMARY OF ALL PROVISIONS OF THE CERTIFICATES. PROSPECTIVE INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. CAPITALIZED TERMS USED ON THIS COVER PAGE NOT OTHERWISE DEFINED WILL HAVE THEIR MEANINGS SET FORTH HEREIN. MATURITY SCHEDULE See Inside Cover The Certificates will be offered when, as and if executed and delivered and received by Fidelity Capital Markets (the Underwriter ), subject to the approval as to their legality by Parker & Covert LLP, Special Counsel to the District. It is anticipated that the Certificates, in bookentry form, will be available for delivery through the facilities of DTC on or about May 15, This Official Statement is dated April 25, 2018.

2 $59,780,000 VISALIA UNIFIED SCHOOL DISTRICT (TULARE COUNTY, CALIFORNIA) 2018 CERTIFICATES OF PARTICIPATION MATURITY SCHEDULE SERIAL BONDS Maturity Date May 1 Principal Amount Interest Rate Reoffering Yield Price CUSIP $1,085, % 1.750% % BZ ,185, CA ,240, CB ,305, C CC ,370, C CD ,410, C CE ,450, C CF ,495, C CG ,540, C CH ,585, CJ ,635, CK ,685, CL ,735, CM ,795, CN ,850, CP ,915, CQ ,980, CR ,045, CS ,120, CT ,195, CU0 C = Yield to call at par on May 1, TERM BONDS Maturity Date May 1 Principal Amount Interest Rate Reoffering Yield Price CUSIP $4,630, % 3.750% C % CV ,000, CW ,530, CX4 C = Yield to call at par on May 1, CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by S&P Capital IQ on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. Neither the District nor the Underwriter is responsible for the selection or correctness of the CUSIP numbers set forth herein. - ii -

3 Use of Official Statement. This Official Statement is submitted with respect to the sale of the Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract between any owner of Certificates and the District. No Securities Laws Registration. The Certificates have not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exceptions therein for the issuance and sale of municipal securities. The Certificates have not been registered or qualified under the securities law of any state. No Unlawful Offers of Solicitations. This Official Statement does not constitute an offer to sell nor the solicitation of an offer to buy nor shall there be any sale of the Certificates by a person in any jurisdiction in which it is unlawful for such person to make an offer, solicitation or sale. No Offering Except by This Official Statement. 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, and if given or made, such other information or representations must not be relied upon as having been authorized by the District. Information in Official Statement. The information set forth herein has been furnished by the District, and other sources that are believed to be reliable, but is not guaranteed as to accuracy or completeness. 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. Estimates and Projections. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, project, budget or similar words. The achievement of certain results or other expectations contained in such forward-looking statements involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The District does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based change. Website. The District maintains a website; however, the information presented there is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Certificates. Statement of Underwriter. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities under federal securities laws, as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Stabilization of and Changes to Offering Prices. In connection with the offering, the Underwriter may over-allot or effect transactions that stabilize or maintain the market price of the Certificates offered hereby at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Certificates to certain dealers, institutional investors, banks or others at prices lower or higher than the public offering prices stated on the inside cover page hereof and said public offering prices may be changed from time to time by the Underwriter. Bond Insurance. Assured Guaranty Municipal Corp. ( AGM ) makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading BOND INSURANCE herein and APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY attached hereto. - iii -

4 $59,780,000 VISALIA UNIFIED SCHOOL DISTRICT (TULARE COUNTY, CALIFORNIA) 2018 CERTIFICATES OF PARTICIPATION DISTRICT BOARD OF EDUCATION William A. Fulmer, President John L. Crabtree, Clerk Juan R. Guerrero, Member Jim L. Qualls, Member Charles E. Ulmschneider, Member Lucia D. Vazquez, Member DISTRICT ADMINISTRATION Todd Oto, Ed.D., Superintendent Robert Gröeber, Assistant Superintendent, Administrative Services Tamara Ravalín, Ed.D., Assistant Superintendent, Human Resources Development Melanie Stringer, Ed.D., Assistant Superintendent, Instructional Services Visalia Unified School District 5000 West Cypress Avenue Visalia, California (559) MUNICIPAL ADVISOR Government Financial Strategies inc N Street, Suite 13 Sacramento, California (916) SPECIAL COUNSEL Parker & Covert LLP 2520 Venture Oaks Way, Suite 190 Sacramento, California (916) TRUSTEE MUFG Union Bank, N.A. Corporate Trust Services 350 California Street, 17 th Floor San Francisco, California (415) iv -

5 $59,780,000 VISALIA UNIFIED SCHOOL DISTRICT (TULARE COUNTY, CALIFORNIA) 2018 CERTIFICATES OF PARTICIPATION TABLE OF CONTENTS INTRODUCTORY STATEMENT... 1 General... 1 The District... 1 The Corporation... 1 Purpose of Issue... 2 Authority for Delivery... 2 Form and Registration... 2 Payment of Principal and Interest... 2 Redemption Prior to Maturity... 2 Security and Sources of Payment... 2 Bond Insurance... 3 Debt Service Reserve Insurance... 3 Special Risk Factor Abatement... 3 Tax Matters... 4 Continuing Disclosure... 4 Professionals Involved... 4 Other Information... 4 THE CERTIFICATES... 5 Amount and Purpose... 5 Form and Registration... 5 Payment of Principal and Interest... 5 Transfer and Exchange... 6 Redemption Provisions... 6 SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES... 8 Nature of the Certificates... 8 Rental Payments... 8 Rental Payments Schedule... 9 Abatement Certificate Reserve Fund Insurance Remedies on Default BOND INSURANCE Bond Insurance Policy Assured Guaranty Municipal Corp THE FACILITIES PLAN OF FINANCE The Project Application and Investment of Certificate Proceeds Sources and Uses of Funds Page # - v -

6 SPECIAL RISK FACTORS Payments Not District Debt Abatement Additional Obligations Substitution of or Removal from the Facilities No Earthquake Insurance Coverage Hazardous Substances Pension Benefit Liability No Acceleration Upon Default Enforcement of Remedies Bankruptcy Loss of Tax Exemption State Finances THE CORPORATION THE DISTRICT General Information The District Board of Education and Key Administrative Personnel Enrollment Charter Schools Employee Relations Pension Plans Other Postemployment Benefits (OPEB) DISTRICT FINANCIAL INFORMATION Accounting Practices Budget and Financial Reporting Process Financial Statements Revenues Expenditures Short-Term Borrowings Capitalized Lease Obligations Long-Term Borrowings Direct and Overlapping Bonded Debt PROPERTY TAXATION SYSTEM Assessed Valuation of Property Tax Rates Tax Collections and Delinquencies Alternative Method of Tax Apportionment CITY AND COUNTY ECONOMIC PROFILE General Information Population Personal Income Labor Force and Employment Employment by Industry Major Employers Commercial Activity Construction Activity CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND EXPENDITURES48 Background Article XIIIA of the State Constitution Article XIIIB of the State Constitution Articles XIIIC and XIIID of the State Constitution Minimum Guarantee of State Funding for Education Community Redevelopment and Revitalization Limits on State Authority Over Local Tax Revenues Temporary State Tax Increases Enacted Budget Required for Disbursement of State Funds State and School District Budgetary Reserves School Facilities Funding Impact of Future Legislation vi -

7 FUNDING OF PUBLIC EDUCATION IN THE STATE Sources of Revenue for Public Education The State Budget Process The State Budget The Proposed State Budget Future Budgets LEGAL MATTERS No Litigation Legal Opinion Tax Matters Legality for Investment RATINGS MUNICIPAL ADVISOR INDEPENDENT AUDITOR UNDERWRITING AND INITIAL OFFERING PRICE CONTINUING DISCLOSURE ADDITIONAL INFORMATION APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS APPENDIX B THE FINANCIAL STATEMENTS OF THE DISTRICT FOR THE YEAR ENDED JUNE 30, 2017 APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX D FORM OF OPINION OF SPECIAL COUNSEL APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY APPENDIX F DTC BOOK-ENTRY SYSTEM - vii -

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9 OFFICIAL STATEMENT $59,780, CERTIFICATES OF PARTICIPATION Evidencing and Representing Proportionate Interests of the Registered Owner Thereof in Rental Payments to be Made by the VISALIA UNIFIED SCHOOL DISTRICT (TULARE COUNTY, CALIFORNIA) As the Rental for Certain Property Pursuant to a Facilities Lease with the VISALIA FINANCING CORPORATION INTRODUCTORY STATEMENT General The purpose of this Official Statement, which includes the cover page, inside cover page, table of contents and attached appendices (the Official Statement ), is to provide certain information concerning the sale and delivery of the Visalia Unified School District 2018 Certificates of Participation (the Certificates ). This INTRODUCTORY STATEMENT is not a summary of this Official Statement - it is only a brief description of and guide to this Official Statement. This INTRODUCTORY STATEMENT is qualified by more complete and detailed information contained in the entire Official Statement, including the cover page, inside cover page and appendices attached hereto, and the documents summarized or described herein. A full review of the entire Official Statement should be made by prospective investors in the Certificates. The offering of the Certificates to potential investors is made only by means of the entire Official Statement. Capitalized terms not defined herein have the meaning assigned to such terms in the Legal Documents. The District Visalia Unified School District (the District ), a political subdivision of the State of California (the State ) established in 1885, is located in the central region of the State in the San Joaquin Valley. The District occupies approximately 214 square miles in Tulare County (the County ) and serves a population of approximately 148,500 people residing in the city of Visalia (the City ) and surrounding unincorporated areas. The District operates 41 schools, including five charter schools, serving approximately 28,500 students in transitional kindergarten through twelfth grade as well as additional students in preschool programs and adult education. A seven-member Board of Education (the District Board ) governs the District. See THE DISTRICT and DISTRICT FINANCIAL INFORMATION herein. The Corporation The Visalia Financing Corporation (the Corporation ) is a non-profit public benefit corporation duly organized in 1989 and existing under the laws of the State. The Corporation was previously established for the purpose of providing financial assistance to the District by acquiring, constructing and financing various facilities, land and equipment, and by leasing certain facilities, land and equipment, for the use, benefit, and enjoyment of the public served by the District, as well as any purpose incidental thereto. The Corporation s board of directors is composed of the seven members of the District Board. The Corporation is not capitalized and has no assets. The Corporation has no liability to the owners of the Certificates. See THE CORPORATION herein

10 Purpose of Issue The Certificates are being executed and delivered for the benefit of the District in the aggregate principal amount of $59,780,000 to (i) finance the acquisition, construction, modernization, and installation of school facilities improvements (the Project ) and (ii) pay certain costs of issuance of the Certificates, including the premiums for a municipal bond insurance policy and debt service reserve insurance policy. Proceeds from the sale and delivery of the Certificates will be deposited into the funds and accounts as established under a trust agreement dated as of May 1, 2018 (the Trust Agreement ) by and among the District, the Corporation and MUFG Union Bank, N.A. as trustee (the Trustee ). See PLAN OF FINANCE herein and APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS TRUST AGREEMENT attached hereto. Authority for Delivery The Certificates are being executed and delivered pursuant to the provisions of the California Government Code (the Government Code ) and other applicable law, and pursuant to a resolution adopted by the District on March 20, 2018 (the Resolution ) and the Trust Agreement. The Certificates represent proportionate interests of the registered owners thereof (the Registered Owners ) in rental payments (the Rental Payments ) to be made by the District as the rental for the use and possession of certain property (the Facilities, described herein) leased from the Corporation pursuant to a facilities lease dated as of May 1, 2018 (the Facilities Lease ). See THE FACILITIES herein and APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS FACILITIES LEASE attached hereto. Form and Registration The Certificates will be executed and delivered as one fully registered certificate for each maturity, without coupons, in the principal amounts set forth on the inside cover page hereof. Individual purchases of the Certificates will be made in bookentry only form in principal amounts of $5,000 and any integral multiple thereof. Purchasers of the Certificates (the Beneficial Owners ) will not receive physical certificates representing their interest in the Certificates. When delivered, the Certificates will be initially registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ). See THE CERTIFICATES Form and Registration herein and APPENDIX F DTC BOOK-ENTRY SYSTEM attached hereto. Payment of Principal and Interest The Certificates are dated their date of delivery and mature on May 1 in each of the years and in the amounts set forth on the inside cover page hereof. Interest with respect to the Certificates is payable semiannually on May 1 and November 1 of each year, commencing November 1, Interest with respect to the Certificates is computed on the basis of a 360-day year comprised of 12 months of 30 days each. See THE CERTIFICATES Payment of Principal and Interest herein. So long as Cede & Co. is the registered owner of the Certificates, payments of principal of and interest with respect to the Certificates will be made by MUFG Union Bank, N.A. as trustee to DTC for subsequent disbursement to DTC participants who will remit such payments to the Beneficial Owners. See APPENDIX F DTC BOOK-ENTRY SYSTEM attached hereto. Redemption Prior to Maturity The Certificates are subject to optional redemption, mandatory redemption from net proceeds of insurance or eminent domain proceedings and mandatory sinking fund redemption. See THE CERTIFICATES Redemption Provisions herein. Security and Sources of Payment Under the terms of a ground lease dated as of May 1, 2018 by and between the District and the Corporation (the Ground Lease ), the District will lease the Facilities to the Corporation. Under the terms of the Facilities Lease, the District will lease back the Facilities from the Corporation and is required to pay Rental Payments from any source of legally available funds for the use and possession of the Facilities, which amounts are sufficient in both time and aggregate amount to pay the principal - 2 -

11 of and interest with respect to the Certificates. See THE CERTIFICATES Rental Payments and SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES herein. Pursuant to the Trust Agreement, the Corporation will assign to the Trustee, for the benefit of the Registered Owners of the Certificates, (i) its rights under the Facilities Lease, including its right to receive all of the Rental Payments and its right to enforce Rental Payments when due or otherwise to protect its interests if an Event of Default (as defined in the Facilities Lease) occurs, and any and all privileges, title and interest the Corporation has to and under the Facilities Lease (excepting only the Corporation s rights to receive reimbursement for costs it has incurred and certain limitation of liability), and (ii) all of its rights, title, and interest in the Ground Lease. The District will covenant to make the Rental Payments from any source of available funds in an amount and time sufficient for the payment of principal and interest with respect to the Certificates. The District will further covenant to take such action as may be necessary to include all Rental Payments and Additional Payments (as defined herein) in its annual budgets and to make the necessary annual appropriations for all such Rental Payments and Additional Payments. See THE CERTIFICATES herein. THE OBLIGATION OF THE DISTRICT TO MAKE RENTAL PAYMENTS DOES NOT CONSTITUTE AN OBLIGATION OF THE DISTRICT FOR WHICH THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION. NEITHER THE CERTIFICATES NOR THE OBLIGATION OF THE DISTRICT TO MAKE RENTAL PAYMENTS UNDER THE FACILITIES LEASE CONSTITUTES A DEBT OR INDEBTEDNESS OF THE CORPORATION, THE DISTRICT, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION OR AN OBLIGATION FOR WHICH THE CORPORATION OR THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION. Bond Insurance The scheduled payment of principal of and interest with respect to the Certificates when due will be guaranteed under an insurance policy (the Bond Insurance Policy ) to be issued concurrently with the delivery of the Certificates by Assured Guaranty Municipal Corp. ( AGM ). See BOND INSURANCE herein and APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY attached hereto. Debt Service Reserve Insurance The Trust Agreement establishes a separate fund designated as the Certificate Reserve Fund for the benefit of the Registered Owners and Beneficial Owners. Upon the execution and delivery of the Certificates, a debt service reserve insurance policy (the Reserve Policy ) in an amount equal to the initial Reserve Requirement (as defined herein), issued by AGM, will be deposited into the Certificate Reserve Fund. See THE CERTIFICATES Certificate Reserve Fund herein. Special Risk Factor Abatement The obligation of the District under the Facilities Lease to pay Rental Payments is in consideration for the use and possession of the Facilities. The obligation of the District to make Rental Payments and Additional Payments (other than to the extent that funds to make Rental Payments are then available pursuant to the Trust Agreement) may be abated in whole or in part if the District does not have full use and possession of the Facilities. Rental Payments and Additional Payments due under the Facilities Lease will be abated proportionately during any period in which, by reason of damage to, destruction of, taking under the power of eminent domain (or sale to any entity threatening the use of such power) of, or title defect with respect to any portion of the Facilities, there is substantial interference with the use and possession of the Facilities or a portion thereof. The amount of abatement will be such that the resulting Rental Payments and Additional Payments represent fair consideration for the use and possession of the portion of the Facilities not so interfered with. Such abatement will commence with the date of such interference and will end only with cure thereof. The District is obligated to maintain rental interruption insurance in an amount sufficient to pay the Rental Payments during the two-year period in which the total of such Rental Payments is greatest. Such abatement should not present a problem so long as proceeds of the District s rental interruption insurance are available and there are amounts in the Certificate Reserve Fund available to make Rental Payments when and as due. Abatement of Rental Payments is not a default under the Facilities Lease and does not permit the Trustee to take any action or avail itself of any remedy against the District. See APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS FACILITIES LEASE attached hereto

12 If damage or destruction or eminent domain proceedings results in abatement or adjustment of Rental Payments and Additional Payments, and the resulting Rental Payments, together with other available moneys under the Trust Agreement, are insufficient to make all payments of principal and interest with respect to the Certificates when due during the period that the Facilities are being replaced, repaired or reconstructed, then such payments of principal and interest with respect to the Certificates may not be made and no remedy is available to the Trustee or the Registered Owners under the Facilities Lease or Trust Agreement for nonpayment under such circumstances. The District will have in place at the time of closing of the sale of the Certificates a policy of rental abatement insurance that will cover at least two years of Rental Payments. If reconstruction or replacement of the Facilities takes longer than two years and the Certificate Reserve Fund is depleted, then the Registered Owners would not receive payments on their Certificates as scheduled. However, if rental is abated, the term of the Facilities Lease will be extended for a period equal to the period of the abatement, up to 10 years, or until all payments on the Certificates are made. See SPECIAL RISK FACTORS Abatement herein. Tax Matters In the opinion of Parker & Covert LLP, Sacramento, California, Special Counsel, based on an analysis of existing statutes, regulations, rulings, and court decisions and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, the portion of the Rental Payments designated as and constituting interest paid by the District under the Facilities Lease and received by the owners of the Certificates is excludable from gross income for federal income tax purposes and is exempt from State personal income taxes. In the further opinion of Special Counsel, such interest is not an item of tax preference for purposes of the alternative minimum tax imposed on individuals. See LEGAL MATTERS Tax Matters herein. The form of the proposed opinion of Special Counsel relating to the Certificates is included with this Official Statement. See APPENDIX D FORM OF OPINION OF SPECIAL COUNSEL attached hereto. Continuing Disclosure The District will covenant for the benefit of the Registered Owners and Beneficial Owners to make available annually certain financial information and operating data relating to the District and to provide notices of the occurrence of certain enumerated events in compliance with Securities and Exchange Commission (the SEC ) Rule 15c2-12(b)(5). The specific nature of the information to be made available annually and the enumerated events for which notice will be given are set forth in APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE attached hereto. See also CONTINUING DISCLOSURE herein. Professionals Involved Government Financial Strategies inc., Sacramento, California, has acted as municipal advisor (the Municipal Advisor ) to the District with respect to the sale and delivery of the Certificates. See MUNICIPAL ADVISOR herein. Certain proceedings in connection with the sale and delivery of the Certificates are subject to the approving legal opinion of Parker & Covert LLP, Sacramento, California, as Special Counsel to the District with respect to the Certificates. MUFG Union Bank, N.A. will act as trustee, registrar, and transfer agent with respect to the Certificates. Parker & Covert LLP and MUFG Union Bank, N.A. will receive compensation contingent upon the execution and delivery of the Certificates. Other Information This Official Statement may be considered current only as of its dated date affixed to the cover page hereof, and the information contained herein is subject to change. Brief descriptions of the Certificates, the security for the Certificates and the District are included in this Official Statement, together with summaries of certain provisions relating to the Ground Lease, the Facilities Lease and the Trust Agreement (collectively, the Legal Documents ). Such summaries do not purport to be comprehensive or definitive, and all references made herein to the Legal Documents are qualified in their entirety by reference to such documents, and all references herein to the Certificates are qualified in their entirety by reference to the form thereof included in the Legal Documents. Information concerning this Official Statement, the Certificates, the District, the Legal Documents or any other information relating to the sale and delivery of the Certificates is available for public inspection and may be obtained by contacting Visalia - 4 -

13 Unified School District, 5000 West Cypress Avenue, Visalia, California 93277, telephone (559) , Attention: Assistant Superintendent, Administrative Services, or by contacting the Financial Advisor, Government Financial Strategies inc., 1228 N Street, Suite 13, Sacramento, California , telephone (916) THE CERTIFICATES Amount and Purpose The Certificates are being executed and delivered in the principal amount of $59,780,000 to (i) finance the acquisition, construction, modernization, and installation of school facilities improvements and (ii) pay certain costs of issuance of the Certificates, including the premiums for the Bond Insurance Policy and the Reserve Policy. See PLAN OF FINANCE herein. Form and Registration The Certificates are dated their date of delivery and are executed and delivered as fully registered certificates, without coupons, in denominations of $5,000 principal amount, or any integral multiple thereof, in book-entry form only. Pursuant to the Trust Agreement, the Trustee will keep and maintain for and on behalf of the District at the Trustee s principal corporate trust office, books (the Registration Books ) for recording the Registered Owners, the transfer, exchange, and replacement of the Certificates, and the payment of the principal and interest with respect to the Certificates to the Registered Owners. All transfers, exchanges, and replacement of the Certificates will be noted in the Registration Books. The Registration Books will at all times be open to inspection during normal business hours by the District. The Certificates will be initially executed and registered in the name of Cede & Co. as nominee of DTC. Purchases of Certificates under the DTC book-entry system must be made by or through a DTC participant, and ownership interests in Certificates will be recorded as entries on the books of said participants. Except in the event that use of this book-entry system is discontinued for the Certificates, purchasers of the Certificates will not receive physical certificates representing their ownership interests in the Certificates. See APPENDIX F DTC BOOK-ENTRY SYSTEM attached hereto. So long as the Certificates are registered in the name of Cede & Co., or its registered assigns, as nominee for DTC, references in this Official Statement to the Registered Owners mean Cede & Co., or its registered assigns, and do not mean the purchasers or Beneficial Owners of the Certificates. Payment of Principal and Interest The Certificates evidence and represent proportionate interests of the Registered Owners thereof in the principal and interest components of Rental Payments to be made by the District pursuant to the Facilities Lease. The Certificates mature on May 1 in each of the years and in the amounts set forth on the inside cover page hereof. Interest with respect to the Certificates is payable on May 1 and November 1 of each year (each, an Interest Payment Date ), commencing November 1, Interest with respect to the Certificates is computed on the basis of a 360-day year comprised of 12 months of 30 days each. Pursuant to the Facilities Lease, Rental Payments are required to be made by the District from any source of legally available funds, including, but not limited to, unrestricted moneys in the District s general fund (the General Fund ) on or before the fifteenth day of the month immediately preceding each Interest Payment Date for the use and possession of the Facilities. The Facilities Lease requires that Rental Payments be made to the Trustee for deposit in a special fund (the Certificate Fund ). The principal of the Certificates is payable in lawful money of the United States of America by wire transfer on each principal and redemption date to Cede & Co., or its registered assigns, so long as Cede & Co. or its registered assigns, is the sole Registered Owner, or if the book-entry system is no longer in use, to the Registered Owners thereof upon surrender thereof at the office of the Trustee. Interest with respect to the Certificates is payable in lawful money of the United States of America by wire transfer on each Interest Payment Date to Cede & Co., or its registered assigns, so long as Cede & Co., or its registered assigns, is the sole Registered Owner. In the event the book-entry system is no longer in use, interest with respect to each Certificate due on any Interest Payment Date is payable by check of the Trustee mailed to the Registered Owner thereof, or, upon the written request of any Registered Owner of $1,000,000 or more in aggregate amount of principal represented by Certificates who has - 5 -

14 provided the Trustee with wire transfer instructions, by wire transfer to an account within the United States on each Interest Payment Date to the Registered Owner thereof as of the close of business on the fifteenth day of the month preceding the relevant Interest Payment Date. Transfer and Exchange If the book-entry system as described herein is no longer used with respect to the Certificates, the provisions in the Trust Agreement summarized below will govern the transfer and exchange of the Certificates. See APPENDIX F DTC BOOK- ENTRY SYSTEM attached hereto. Upon surrender of a Certificate for transfer at the corporate trust office of the Trustee, the Trustee will execute and deliver a new Certificate of the same series and maturity for a like aggregate principal amount and destroy such surrendered Certificate in accordance with the law. Certificates may be exchanged for a like aggregate principal amount of Certificates of other authorized denominations of the same maturity and series upon surrender of the Certificates for exchange. All Certificates surrendered upon any exchange or transfer will be cancelled by the Trustee and thereafter disposed of as provided for in the Trust Agreement. Every Certificate presented or surrendered for transfer or exchange must be accompanied by a written instrument of transfer in a form approved by the Trustee and duly executed by the Registered Owner or by his attorney duly authorized. No service charge will be made for any transfer or exchange of Certificates, but the Trustee may require the Registered Owner requesting such transfer or exchange to pay any tax or other governmental charge required to be paid with respect to such transfer or exchange. The Trustee will not be required to transfer or exchange (i) Certificates during the period established by the Trustee for the selection of Certificates for redemption or (ii) any Certificate that has been selected for redemption in whole or in part. Redemption Provisions Optional Redemption. The Certificates maturing on or before May 1, 2021 are not subject to optional redemption prior to their respective stated maturity dates. The Certificates maturing on or after May 1, 2022 are subject to redemption prior to their respective stated maturities, at the option of the District, from any source of available funds, as a whole or in part on any date (by such maturities as may be specified by the District and at random within a maturity), on or after May 1, 2021, at a redemption price equal to the principal represented by the Certificates called for redemption, plus accrued interest to the date fixed for redemption, without premium. Mandatory Sinking Account Redemption. The Certificates maturing by their terms on May 1, 2040 (the 2040 Term Certificate ), on May 1, 2042 (the 2042 Term Certificate ) and on May 1, 2048 (the 2048 Term Certificate and, together with the 2040 Term Certificate and the 2042 Term Certificate, the Term Certificates ) are subject to mandatory redemption in part, at random, on May 1 in the years and in the amounts set forth in the following tables; provided that, if some but not all of a Term Certificate to be so mandatorily redeemed has been optionally redeemed, the total principal amount of such Term Certificates to be redeemed subsequent to such redemption will be reduced on a pro rata basis, or as otherwise specified in writing by the District, in integral multiples of $5,000. Mandatory Sinking Account Redemption $4,630, Term Certificate May 1 Principal Amount 2039 $2,270, $2,360, Indicates maturity of the $4,630, Term Certificate

15 Mandatory Sinking Account Redemption $5,000, Term Certificate May 1 Principal Amount 2041 $2,455, $2,545, Indicates maturity of the $5,000, Term Certificate. Mandatory Sinking Account Redemption $17,530, Term Certificate May 1 Principal Amount 2043 $2,640, $2,750, $2,860, $2,975, $3,090, $3,215, Indicates maturity of the $17,530, Term Certificate. Extraordinary Redemption From Casualty Loss or Governmental Taking. The Certificates are subject to redemption prior to maturity as a whole on any date or in part (pro rata among maturities and at random within a maturity) on any Interest Payment Date from prepaid Rental Payments made by the District from funds received by the District due to a casualty loss, material title defect, or governmental taking of the Facilities or portions thereof by eminent domain proceedings, under the circumstances and upon the conditions and terms prescribed in the Trust Agreement and the Facilities Lease, at a redemption price equal to the sum of the principal amount represented thereby plus accrued interest represented thereby to the date fixed for redemption, without premium. Selection of Certificates for Redemption. In the case of any redemption at the election of the District of less than all the Certificates then outstanding, the District will, prior to the date fixed for redemption, notify the Trustee and the Corporation of such redemption date and of the principal amount of Certificates to be redeemed, and the District will select the maturities to be redeemed. If less than all the outstanding Certificates of any maturity are to be redeemed and such Certificates are not held in book-entry form, prior to the redemption date the Trustee will select the particular Certificates to be redeemed (in whole or in part) from the outstanding Certificates that have not previously been redeemed, in minimum denominations of $5,000 principal amount, by lot. For purposes of selection, each $5,000 principal amount is deemed to be a separate Certificate. The Trustee will notify the District in writing of the Certificates so selected for redemption and, in the case of a Certificate selected for partial redemption, the principal amount represented thereby to be redeemed. Notice of Redemption. Notice of redemption will be mailed (first class postage prepaid), or delivered by an acceptable electronic means, by the Trustee, not fewer than 30 nor more than 60 days prior to the redemption date, (i) to the respective Registered Owners designated for redemption at their addresses appearing on the Certificate Register, (ii) to the Municipal Securities Rulemaking Board (the MSRB ) through its Electronic Municipal Market Access ( EMMA ) website, or, in accordance with then-current guidelines of the SEC, such other addresses and/or such other services providing information with respect to called Certificates, or no such services, as the District may designate in writing to the Trustee, and (iii) by registered or overnight mail to DTC, or, in accordance with then-current guidelines of the SEC, to such other addresses and/or such other securities depositories, or no such depositories, as the District may designate in writing to the Trustee. Neither the failure to receive any such notice nor any defect in any notice so mailed will affect the sufficiency of the proceedings for the redemption of such Certificates or the cessation of accrual of interest represented thereby from and after the date fixed for redemption. Each notice of redemption will state the date of such notice, the date of issue of the Certificates, the redemption date, the redemption price, the place or places of redemption (including the name and appropriate address or addresses of the Trustee), the CUSIP number (if any) of the maturity or maturities, and, if less than all of any such maturity, the distinctive certificate numbers of the Certificates of such maturity to be redeemed and, in the case of Certificates to be redeemed in part only, the - 7 -

16 respective portions of the principal amount represented thereby to be redeemed. Each such notice will either (a) explicitly state that the proposed redemption is conditioned on there being on deposit on the redemption date sufficient money to pay in full the redemption price of the Certificates or portions thereof to be redeemed; or (b) be sent only if sufficient money to pay in full the redemption price of the Certificates or portions thereof to be redeemed is on deposit. Each such notice will also state that on said date there will become due and payable on each of said Certificates the redemption price thereof or of said specified portion of the principal amount represented thereby in the case of a Certificate to be redeemed in part only, together with interest represented thereby accrued to the date fixed for redemption, and that from and after such redemption date interest represented thereby will cease to accrue, and will require that such Certificates be then surrendered at the address or addresses of the Trustee specified in the redemption notice. Neither the District nor the Trustee has any responsibility for any defect in the CUSIP numbers of the Certificates to be redeemed. Neither the failure to identify the CUSIP numbers of the Certificates to be redeemed or any incorrect designation of such CUSIP numbers will affect the sufficiency of the proceedings for the redemption of such Certificates or the cessation of accrual of interest represented thereby from and after the date fixe for redemption. Effect of Redemption. Notice of redemption having been duly given as aforesaid and moneys for payment of the redemption price of the Certificates so to be redeemed being held by the Trustee, on the redemption date designated in such notice (i) the Certificates so to be redeemed will become due and payable at the redemption price specified in such notice, (ii) interest represented by such Certificates will cease to accrue, (iii) such Certificates will cease to be entitled to any benefit or security under the Trust Agreement, and (iv) the Registered Owners of such Certificates will have no rights in respect thereof except to receive payment of said redemption price. Upon surrender of any such Certificate for redemption in accordance with said notice, such Certificate will be paid by Trustee at the redemption price. Right to Rescind Notice. The District may rescind any optional redemption and notice thereof for any reason on any date prior to the date fixed for redemption by causing written notice of the rescission to be given to the Registered Owners so called for redemption. Any optional redemption and notice thereof will be rescinded if for any reason sufficient moneys are not available on the date fixed for redemption for such purpose. Notice of rescission of redemption will be given in the same manner in which notice of redemption was originally given. The actual receipt by the Registered Owner of notice of such rescission is not a condition precedent to rescission, and failure to receive such notice or any defect in such notice does not affect the validity of the rescission. SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES Nature of the Certificates Each Certificate represents a proportionate interest of the Registered Owner thereof in Rental Payments made by the District to the Corporation for the lease of the Facilities pursuant to the Facilities Lease. Pursuant to the Trust Agreement, the Corporation will assign to the Trustee, for the benefit of the Registered Owners of the Certificates, (i) its rights under the Facilities Lease, including all of the Rental Payments, its right to enforce Rental Payments when due or otherwise to protect its interests if an Event of Default (as defined in the Facilities Lease) occurs, and any and all privileges, title and interest the Corporation has to and under the Facilities Lease (excepting only the Corporation s rights to receive reimbursement for costs it has incurred and certain limitation of liability), and (ii) all of its rights, title, and interest in the Ground Lease. The District will pay Rental Payments directly to the Trustee, as assignee of the Corporation. Rental Payments Payments of principal and interest with respect to the Certificates when due will be made from Rental Payments payable by the District for the use and occupancy of the Facilities, rental interruption insurance proceeds, if any, insurance net proceeds pertaining to the Facilities to the extent that such net proceeds are not used for repair or replacement, and from money in the reserve fund established and held by the Trustee solely for the purpose of making up any deficiencies in the Certificate Fund. The District is also required to make additional payments as necessary to pay all Certificate Reserve Fund deficiencies, as well as fees, costs and expenses of the Corporation and the Trustee, Rebate Amounts and reimbursements to AGM of amounts drawn under the Bond Insurance Policy and the Reserve Policy and any associated costs (the Additional Payments ) in performance of the Facilities Lease and Trust Agreement. See APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS attached hereto

17 The District is obligated to pay the Rental Payments from any source of legally available funds, including but not limited to unrestricted moneys of the District, the majority of which are deposited into the General Fund. See SPECIAL RISK FACTORS Payments Not District Debt and DISTRICT FINANCIAL INFORMATION herein. The District will covenant under the Facilities Lease to take such action as may be necessary to include all Rental Payments and Additional Payments due under the Facilities Lease in its annual budget to and make the necessary annual appropriations therefor. The Facilities Lease requires that the District furnish annually to the Trustee a certificate stating that all Rental Payments and Additional Payments for the applicable fiscal year have been included in its annual budget. Such covenants are deemed in the Facilities Lease to be duties imposed by law and the ministerial duty of each and every public official of the District. THE OBLIGATION OF THE DISTRICT TO MAKE RENTAL PAYMENTS DOES NOT CONSTITUTE AN OBLIGATION OF THE DISTRICT FOR WHICH THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION. NEITHER THE CERTIFICATES NOR THE OBLIGATION OF THE DISTRICT TO MAKE RENTAL PAYMENTS UNDER THE FACILITIES LEASE CONSTITUTES A DEBT OR INDEBTEDNESS OF THE CORPORATION, THE DISTRICT, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION OR AN OBLIGATION FOR WHICH THE CORPORATION OR THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION. Rental Payments Schedule The Facilities Lease requires that Rental Payments be made on or before the fifteenth day of the month immediately preceding each Interest Payment Date. On each Interest Payment Date, the Trustee will withdraw from the Certificate Fund the aggregate amount necessary to make annual principal and semiannual interest payments with respect to the Certificates, as shown in the following table (without regard to redemption prior to maturity)

18 Payment Schedule 2018 Certificates of Participation Date Principal Interest Semiannual Debt Service Fiscal Year Debt Service November 1, $1,021, $1,021, May 1, 2019 $1,085, ,107, ,192, $3,214, November 1, ,080, ,080, May 1, ,185, ,080, ,265, ,346, November 1, ,051, ,051, May 1, ,240, ,051, ,291, ,342, November 1, ,020, ,020, May 1, ,305, ,020, ,325, ,345, November 1, , , May 1, ,370, , ,357, ,344, November 1, , , May 1, ,410, , ,376, ,343, November 1, , , May 1, ,450, , ,395, ,341, November 1, , , May 1, ,495, , ,418, ,342, November 1, , , May 1, ,540, , ,441, ,343, November 1, , , May 1, ,585, , ,463, ,341, November 1, , , May 1, ,635, , ,489, ,344, November 1, , , May 1, ,685, , ,515, ,345, November 1, , , May 1, ,735, , ,538, ,342, November 1, , , May 1, ,795, , ,570, ,346, November 1, , , May 1, ,850, , ,596, ,342, November 1, , , May 1, ,915, , ,630, ,345, November 1, , , May 1, ,980, , ,662, ,345, November 1, , , May 1, ,045, , ,693, ,341, November 1, , , May 1, ,120, , ,732, ,344, November 1, , , May 1, ,195, , ,770, ,345, November 1, , , May 1, ,270, , ,806, ,343, November 1, , , May 1, ,360, , ,851, ,343, November 1, , , May 1, ,455, , ,899, ,343, November 1, , , May 1, ,545, , ,943, ,341, November 1, , , May 1, ,640, , ,990, ,341, November 1, , , May 1, ,750, , ,047, ,345, November 1, , , May 1, ,860, , ,102, ,345, November 1, , , May 1, ,975, , ,160, ,346, November 1, , , May 1, ,090, , ,216, ,342, November 1, , , May 1, ,215, , ,279, ,343, Total $59,780, $40,406, $100,186, $100,186,

19 Abatement Rental Payments are subject to abatement during any period during which, by reason of material damage to or destruction of the Facilities or any portion thereof, there is substantial interference with the District s use of a substantial portion of the Facilities. See SPECIAL RISK FACTORS Abatement herein. If abatement occurs, the amount of abatement will be such that the resulting Rental Payments and Additional Payments represent fair consideration for use of that portion of the Facilities that is available for use as determined by the District. See SPECIAL RISK FACTORS Abatement herein. The abated Rental Payments will be payable solely from moneys deposited in the Certificate Reserve Fund, the Certificate Fund, or from the proceeds of rental interruption insurance, if any, in the event of damage or destruction as determined by the District. See APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS FACILITIES LEASE Abatement of Rental attached hereto. If the Rental Payments remain abated and the rental interruption insurance is exhausted and the Certificate Reserve Fund is depleted, the diminished Rental Payments, if any, may not be sufficient to pay the principal and interest with respect to the Certificates when due. See SPECIAL RISK FACTORS herein. The failure to make such payments of principal and interest with respect to the Certificates due to such abatement does not constitute an Event of Default under the Trust Agreement, the Facilities Lease or the Certificates. Certificate Reserve Fund The Trust Agreement provides that a Certificate Reserve Fund be funded in an amount equal to the least of (i) the maximum amount of Rental Payments coming due in any one year, (ii) 125 percent of the average amount of remaining Rental Payments coming due in each year, and (iii) 10 percent of the original aggregate principal amount of the Certificates (or, if the Certificates are sold with more than a de minimis amount of original issue discount or premium, the issue price of the Certificates (excluding pre issuance accrued interest), as those terms are defined in the Tax Code) (the Reserve Requirement ) from proceeds of the sale of the Certificates or cash deposited by the District. In lieu of a cash funded reserve, the District may purchase a debt service reserve insurance policy in the amount required thereunder in favor of the Trustee. In the event of insufficient funds in the Certificate Fund from which to make principal and/or interest payments to the Registered Owners of the Certificates as due on an Interest Payment Date, the Trustee will draw first on the Certificate Reserve Fund, to the extent available therefrom, to obtain sufficient funds to pay principal and/or interest as due to the Registered Owners of the Certificates. The Certificate Reserve Fund initially will be funded with the Reserve Policy in the amount of $3,346,300.00, the initial Reserve Requirement, issued by AGM upon the closing of the Certificates. See APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS TRUST AGREEMENT attached hereto. Insurance The District will maintain or cause to be maintained, throughout the term of the Facilities Lease, the following insurance: (i) A standard comprehensive general insurance policy or policies in protection of the Corporation, its successors and assigns, and the District and its members, directors, agents and employees. Such policy or policies will provide for indemnification against direct or contingent loss or liability for damages for bodily and personal injury, death, or property damage by reason of construction on, or operation of, the Facilities. (ii) Insurance against loss or damage to the Facilities by fire and lightning, with extended coverage and vandalism and malicious mischief insurance. Such extended coverage insurance will, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke, and other such hazards as are normally covered by such insurance. Such insurance will be in an amount equal to the full insurable value (without deduction for depreciation) of all structures constituting any part of the Facilities. (iii) Rental interruption insurance to cover loss, total or partial, of the use of the Facilities in an amount no less than the maximum Rental Payments coming due and payable during any twenty-four (24) month period. (iv) A policy of title insurance on the interest acquired by Corporation for the purposes of the Facilities in an amount equal to the entire unpaid principal amount of the Certificates. (v) Worker s compensation insurance in the amount as required by law. Such insurance (exclusive of title insurance) may be maintained through a system of self-insurance, under certain circumstances, as set forth in the Facilities Lease

20 Remedies on Default If the District defaults in performance of its obligations under the Facilities Lease, the Trustee, acting at the direction of AGM, will have the right to exercise any and all remedies available pursuant to law or granted pursuant to the Facilities Lease, including the right to re-enter and re-let the Facilities and to terminate the Facilities Lease; provided, however, that there is no right under any circumstances to accelerate the Rental Payments or otherwise declare any Rental Payments not then in default to be immediately due and payable. AGM has the right to control all remedies for default under both the Facilities Lease and the Trust Agreement. See APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS FACILITIES LEASE attached hereto. BOND INSURANCE Bond Insurance Policy Concurrently with the issuance of the Certificates, Assured Guaranty Municipal Corp. ( AGM ) will issue its Municipal Bond Insurance Policy for the Certificates (the Bond Insurance Policy ). The Bond Insurance Policy guarantees the scheduled payment of principal of and interest on the Certificates when due as set forth in the form of the Bond Insurance Policy included as APPENDIX E to this Official Statement. The Bond Insurance Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Assured Guaranty Municipal Corp. AGM is a New York domiciled financial guaranty insurance company and an indirect subsidiary of Assured Guaranty Ltd. ( AGL ), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol AGO. AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, infrastructure and structured finance markets. Neither AGL nor any of its shareholders or affiliates, other than AGM, is obligated to pay any debts of AGM or any claims under any insurance policy issued by AGM. AGM s financial strength is rated AA (stable outlook) by S&P Global Ratings, a business unit of Standard & Poor s Financial Services LLC ( S&P ), AA+ (stable outlook) by Kroll Bond Rating Agency, Inc. ( KBRA ) and A2 (stable outlook) by Moody s Investors Service, Inc. ( Moody s ). Each rating of AGM should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies, including withdrawal initiated at the request of AGM in its sole discretion. In addition, the rating agencies may at any time change AGM s long-term rating outlooks or place such ratings on a watch list for possible downgrade in the near term. Any downward revision or withdrawal of any of the above ratings, the assignment of a negative outlook to such ratings or the placement of such ratings on a negative watch list may have an adverse effect on the market price of any security guaranteed by AGM. AGM only guarantees scheduled principal and scheduled interest payments payable by the issuer of bonds insured by AGM on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the relevant insurance policy), and does not guarantee the market price or liquidity of the securities it insures, nor does it guarantee that the ratings on such securities will not be revised or withdrawn. Current Financial Strength Ratings On January 23, 2018, KBRA issued a financial guaranty surveillance report in which it affirmed AGM s insurance financial strength rating of AA+ (stable outlook). AGM can give no assurance as to any further ratings action that KBRA may take. On June 26, 2017, S&P issued a research update report in which it affirmed AGM s financial strength rating of AA (stable outlook). AGM can give no assurance as to any further ratings action that S&P may take

21 On August 8, 2016, Moody s published a credit opinion affirming its existing insurance financial strength rating of A2 (stable outlook) on AGM. AGM can give no assurance as to any further ratings action that Moody s may take. For more information regarding AGM s financial strength ratings and the risks relating thereto, see AGL s Annual Report on Form 10-K for the fiscal year ended December 31, Capitalization of AGM At December 31, 2017: The policyholders surplus of AGM was approximately $2,254 million. The contingency reserves of AGM and its indirect subsidiary Municipal Assurance Corp. ( MAC ) (as described below) were approximately $1,108 million. Such amount includes 100% of AGM s contingency reserve and 60.7 percent of MAC s contingency reserve. The net unearned premium reserves of AGM and its subsidiaries (as described below) were approximately $1,657 million. Such amount includes (i) 100 percent of the net unearned premium reserves of AGM and AGM s wholly owned subsidiaries Assured Guaranty (Europe) plc, Assured Guaranty (UK) plc, CIFG Europe S.A. and Assured Guaranty (London) plc (together, the AGM European Subsidiaries ) and (ii) 60.7 percent of the net unearned premium reserve of MAC. The policyholders surplus of AGM and the contingency reserves and net unearned premium reserves of AGM and MAC were determined in accordance with statutory accounting principles. The net unearned premium reserves of the AGM European Subsidiaries were determined in accordance with accounting principles generally accepted in the United States of America. Incorporation of Certain Documents by Reference Portions of the following document filed by AGL with the Securities and Exchange Commission (the SEC ) that relate to AGM are incorporated by reference into this Official Statement and shall be deemed to be a part hereof: the Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (filed by AGL with the SEC on February 23, 2018). All consolidated financial statements of AGM and all other information relating to AGM included in, or as exhibits to, documents filed by AGL with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, excluding Current Reports or portions thereof furnished under Item 2.02 or Item 7.01 of Form 8-K, after the filing of the last document referred to above and before the termination of the offering of the Certificates shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Copies of materials incorporated by reference are available over the internet at the SEC s website at at AGL s website at or will be provided upon request to Assured Guaranty Municipal Corp.: 1633 Broadway, New York, New York 10019, Attention: Communications Department (telephone (212) ). Except for the information referred to above, no information available on or through AGL s website shall be deemed to be part of or incorporated in this Official Statement. Any information regarding AGM included herein under the caption BOND INSURANCE Assured Guaranty Municipal Corp. or included in a document incorporated by reference herein (collectively, the AGM Information ) shall be modified or superseded to the extent that any subsequently included AGM Information (either directly or through incorporation by reference) modifies or supersedes such previously included AGM Information. Any AGM Information so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded. Miscellaneous Matters AGM makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading BOND INSURANCE

22 THE FACILITIES Pursuant to the Ground Lease and the Facilities Lease, respectively, the District will lease the Facilities to the Corporation and the Corporation will, in turn, lease the Facilities back to the District. APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS GROUND LEASE and FACILITIES LEASE attached hereto. During the period the Certificates are outstanding, the District will retain title to the Facilities and all structural additions thereto, and the Corporation will have a leasehold estate in the Facilities. The Facilities consist of the real property (the legal description of which is included in the Facilities Lease) and the improvements located thereon at (i) 3315 North Akers Street, Visalia, California 93291, known as Ridgeview Middle School, (ii) 1341 West Glendale Avenue, Visalia, California 93291, known as Riverway Elementary School, and (iii) 4222 South Dans Street, Visalia, California 93277, known as Cottonwood Creek Elementary School (collectively, the Facilities ). The property known as Ridgeview Middle School, constructed in 2016, has an insured value, exclusive of the value of the land, of $31,418,140. The site includes an administration / library / academy building, a multi-purpose / kitchen building, and a gymnasium totaling 114,056 square feet. In fiscal year , approximately 375 students were enrolled in seventh grade; the school began offering eighth grade in fiscal year The property known as Riverway Elementary School was constructed in 2017 at a cost of $24,899,114. Insured value information for Riverway Elementary School is not yet available. The site includes an administration building, three classroom buildings and a multi-use building totaling 50,168 square feet. Opened in fiscal year , Riverway Elementary School has enrollment of approximately 600 students in kindergarten through sixth grade. The property known as Cottonwood Creek Elementary School, constructed in 2006, has an insured value, exclusive of the land, of $10,510,520. The site includes an administration / multi-purpose / library building and nine classroom buildings totaling 53,887 square feet. In fiscal year , approximately 730 students were enrolled in kindergarten through sixth grade. The District and the Corporation may substitute property as part of the Facilities for purposes of the Ground Lease and the Facilities Lease, but only after the District provides to the Trustee the following information: (i) Executed copies of the amended Ground Lease and Facilities Lease containing the amended description of the Facilities. (ii) A statement of the District certifying that the amended Ground Lease and Facilities Lease, or memoranda thereof, and an amended memorandum of the Trust Agreement have been duly recorded in the official records of the County. (iii) An MAI fair market appraisal demonstrating that the value of the property that will constitute the Facilities after the substitution is greater than the principal amount of Certificates then outstanding, or a certificate of an insurance consultant stating that the replacement value (estimated for casualty insurance purposes) of the property that will constitute the Facilities after such substitution is greater than the principal amount of the Certificates then outstanding. (iv) A CLTA leasehold policy or policies or a commitment for such policy or policies or an amendment or endorsement to an existing policy or policies in an amount or amounts such that the amount of title insurance coverage with respect to the Facilities after the substitution is at least equal to the amount of such insurance with respect to the Facilities prior to the substitution. (v) A statement of the District certifying that such substitution does not adversely affect the District s use and occupancy of the Facilities, and that the Facilities, as amended, have a useful life extending at least to the date of termination of the Facilities Lease. (vi) A statement of the District certifying that the property that will constitute the Facilities after the substitution is not subject to any liens securing monetary obligations (other than Permitted Encumbrances as defined in the Facilities Lease), unless such liens are subordinate to the interests of the Corporation created by the Facilities Lease. (vii) A statement of the District certifying that the property that will constitute the Facilities after the substitution is essential to the fulfillment of the District s governmental purposes. (viii) An opinion of bond counsel stating that the amendments to the Ground Lease and the Facilities Lease that implement the substitution (1) are authorized or permitted by and comply with the State Constitution and laws of the State and the Trust Agreement; (2) upon execution and delivery will be valid obligations of the District and the Corporation; and (3) will not cause the direct payment subsidy provided for in Tax Code Section 6431 to not be available with respect to the Certificates. (ix) Evidence of delivery of written notice of the proposed substitution to each rating agency then rating the Certificates

23 Property that is no longer part of the Facilities Lease as a result of such substitution of property completed in accordance with the Facilities Lease is released from the lien imposed by the Facilities Lease, and such property is conveyed to the District free of all restrictions and encumbrances imposed or created by the Facilities Lease, Ground Lease, or Trust Agreement. See SPECIAL RISK FACTORS Substitution of or Removal from the Facilities herein. PLAN OF FINANCE The Project The net proceeds of the Certificates are expected to be used by the District to finance the acquisition, construction, modernization, and installation of school facilities improvements referred to herein as the Project. Application and Investment of Certificate Proceeds A portion of the proceeds from the sale of the Certificates will be paid to AGM for the premiums of the Bond Insurance Policy and the Reserve Policy. The remaining proceeds from the sale of the Certificates will be paid to the Trustee who will: (i) transfer a portion of such proceeds to the Tulare County Treasurer-Tax Collector (the County Treasurer ) for deposit into a fund established and maintained by the District for the payment of costs of the Project (the Project Fund ) and (ii) deposit into a costs of issuance fund established with the Trustee (the Costs of Issuance Fund ) the remaining proceeds of the sale of the Certificates sufficient to pay certain costs of issuance of the Certificates. Moneys deposited in the Project Fund and Costs of Issuance Fund, as well as moneys in the Certificate Fund and the Certificate Reserve Fund, will be invested in any one or more investments generally permitted to school districts under the laws of the State. Interest earned on the investment of the moneys in the Certificate Fund and the Costs of Issuance Fund will be retained within the respective fund. Sources and Uses of Funds The sources and uses of funds in connection with the sale and delivery of the Certificates are set forth in the following schedule. Sources and Uses of Funds 2018 Certificates of Participation SOURCES OF FUNDS Par Amount of the Certificates $59,780, Net Original Issue Premium 34, TOTAL SOURCES OF FUNDS $59,814, USES OF FUNDS Project Fund $58,572, Costs of Issuance Fund 1 448, Underwriting Discount 793, TOTAL USES OF FUNDS $59,814, The Costs of Issuance Fund will be used to pay costs of issuance of the Certificates including fees and expenses of Special Counsel, the Municipal Advisor, the Trustee, the rating agency, the premiums for the Bond Insurance Policy and the Reserve Policy, and certain other expenses related to the delivery of the Certificates

24 SPECIAL RISK FACTORS The following factors, which represent major risk factors that have been identified at this time, should be considered along with all other information in this Official Statement by potential investors in evaluating the credit quality of the Certificates. There can be no assurance that other major risk factors do not exist or will not become evident at any future time regarding the credit quality of the Certificates. The discussion below does not purport to be, nor should it be construed to be, complete nor a summary of all factors which may affect the financial condition of the District, the District s ability to make Rental Payments in the future, the effectiveness of any remedies that the Trustee may have or the circumstances under which Rental Payments may be abated. Furthermore, no representations are made as to the future financial condition of the District. The District is obligated to make the Rental Payments from any lawfully available funds of the District, and the ability of the District to make Rental Payments may be adversely affected by the District s financial condition as of any particular time. Payments Not District Debt The full faith and credit of the District, the State and other political subdivisions thereof have not been pledged to the payment of the Rental Payments or any other payments due under the Facilities Lease. The District is not obligated to levy any form of taxation to pay Rental Payments. Neither the Rental Payments nor the Certificates constitute a debt of the District, the State, or any other political subdivision thereof. The Rental Payments and other payments due under the Facilities Lease (including payment of costs of repair and maintenance of the Facilities, utility charges, taxes and other governmental charges and assessments levied against the Facilities) are not secured by any pledge of taxes or other revenues of the District. In the event that the General Fund revenues are less than its total obligations, the District may choose to fund other costs or expenses before making Rental Payments. The District is obligated under the Facilities Lease to pay Rental Payments from any source of legally available funds (subject to the exceptions under which the Rental Payments may be abated) including from moneys within the General Fund. The General Fund finances the legally authorized activities of the District not provided for by other funds of the District that are restricted to the specific purposes for which those moneys were received. The District will covenant in the Facilities Lease that, for as long as the Facilities are available for its use, it will make the necessary annual appropriations within its budget for all Rental Payments and Additional Payments. See SPECIAL RISK FACTORS Abatement herein. Abatement The obligation of the District under the Facilities Lease to pay Rental Payments is in consideration for the use and possession of the Facilities. The obligation of the District to make Rental Payments and Additional Payments (other than to the extent that funds to make Rental Payments are then available pursuant to the Trust Agreement) may be abated in whole or in part if the District does not have full use and possession of the Facilities. Rental Payments and Additional Payments due under the Facilities Lease will be abated proportionately during any period in which, by reason of damage to, destruction of, taking under the power of eminent domain (or sale to any entity threatening the use of such power) of, or title defect with respect to any portion of the Facilities, there is substantial interference with the use and possession of the Facilities or a portion thereof. The amount of abatement will be such that the resulting Rental Payments and Additional Payments represent fair consideration for the use and possession of the portion of the Facilities not so interfered with. Such abatement will commence with the date of such interference and will end only with cure thereof. The District is obligated to maintain rental interruption insurance in an amount sufficient to pay the Rental Payments during the two-year period in which the total of such Rental Payments is greatest. Such abatement should not present a problem so long as proceeds of the District s rental interruption insurance are available and there are amounts in the Certificate Reserve Fund available to make Rental Payments when and as due. Abatement of Rental Payments is not a default under the Facilities Lease and does not permit the Trustee to take any action or avail itself of any remedy against the District. See APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS FACILITIES LEASE attached hereto. If damage or destruction or eminent domain proceedings results in abatement or adjustment of Rental Payments and Additional Payments, and the resulting Rental Payments, together with other available moneys under the Trust Agreement, are insufficient to make all payments of principal and interest with respect to the Certificates when due during the period that the Facilities are being replaced, repaired or reconstructed, then such payments of principal and interest with respect to the

25 Certificates may not be made and no remedy is available to the Trustee or the Registered Owners under the Facilities Lease or Trust Agreement for nonpayment under such circumstances. The District will have in place at the time of closing of the sale of the Certificates a policy of rental abatement insurance that will cover at least two years of Rental Payments. If reconstruction or replacement of the Facilities takes longer than two years and the Certificate Reserve Fund is depleted, then the Registered Owners would not receive payments on their Certificates as scheduled. However, if rental is abated, the term of the Facilities Lease will be extended for a period equal to the period of the abatement, up to 10 years, or until all payments on the Certificates are made. Additional Obligations The District may enter into additional obligations that constitute charges against its general revenues. To the extent that additional obligations are incurred by the District, the funds available to make Rental Payments may be decreased. Substitution of or Removal from the Facilities The Facilities Lease provides that, upon satisfaction of certain conditions, the District may substitute other real property, improvements and/or equipment for all or a portion of the Facilities or remove real property, improvements and/or equipment from the definition of Facilities. Although the Facilities Lease requires that the value of the Facilities after substitution is at least equal to the then outstanding principal amount of the Certificates, it does not require that such property have an annual fair rental value equal to the annual fair rental value of the Facilities at the time of substitution or removal. Thus, the Facilities could be replaced with property having less annual fair rental value than the Facilities. Such a replacement could have an adverse impact on the security for the Certificates, particularly if an abatement of Rental Payments were to occur subsequent to such substitution or removal. Furthermore, the Facilities Lease does not require that the substituted property be of any particular type. Consequently, property could be substituted that, upon the occurrence of an event of default under the Facilities Lease, could be more difficult to re-let than the Facilities. No Earthquake Insurance Coverage The District is not obligated under the Facilities Lease to procure and maintain, or cause to be procured and maintained, earthquake insurance on the Facilities for the duration of the Facilities Lease term. Should an earthquake cause damage to the Facilities such that there results substantial interference with the use and occupancy of the Facilities, Rental Payments would be abated but the policy of rental interruption insurance would not cover the abatement. See SPECIAL RISK FACTORS herein and APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS FACILITIES LEASE attached hereto. The District expects that it would, however, promptly apply for federal disaster aid or State disaster aid, if available, in the event that the Facilities are damaged or destroyed as a result of an earthquake. Any money received as a result of such disaster aid will be used to repair, reconstruct, restore or replace the damaged or destroyed portions of the Facilities or, at the option of the District, to redeem all outstanding Certificates if such use of such disaster aid is permitted. See THE CERTIFICATES Redemption Provisions herein. Hazardous Substances Owners and operators of real property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, referred to as CERCLA or the Superfund Act, is the most well known and widely applicable of these laws. In addition, State laws impose particular requirements with regard to hazardous substances. Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substance condition of property whether or not the owner (or operator) has anything to do with creating or handling the hazardous substance. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of the affected property or adjacent property. The valuation of the Facilities did not take into account the possible reduction in marketability and value of the Facilities by reason of the possible existence of a hazardous substance condition of the parcel. While the District is not aware of any such condition, it is possible that such hazardous substance conditions do currently exist and that the District is not aware of them

26 Further, it is possible that liabilities may arise in the future with respect to the Facilities resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of the Facilities. Pension Benefit Liability Many factors influence the amount of the District s pension benefit liabilities, including, without limitation, inflationary factors, changes in statutory provisions of the State Teachers Retirement System ( STRS ) and the Public Employees Retirement Fund of the Public Employees Retirement System ( PERS ) retirement system laws, changes in the level of benefits provided or in the contribution rates of the District, increases or decreases in the number of covered employees, changes in actuarial assumptions or methods (including but not limited to the assumed rate of return), and differences between actual and anticipated investment experience of STRS and PERS. Any of these factors could give rise to additional liability of the District to its pension plans as a result of which the District would be obligated to make additional payments to its pension plans in order to fully fund the District s obligations to its pension plans. No Acceleration Upon Default In the case of an Event of Default as defined in the Facilities Lease, there is no available remedy of acceleration of the total Rental Payments due over the term of the Facilities Lease. The District will only be liable for Rental Payments on an annual basis, and the Trustee would be required to seek a separate judgment each year for that year s Rental Payments. Any such suit for money damages would be subject to limitations on legal remedies against school districts in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. See APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS FACILITIES LEASE attached hereto. Enforcement of Remedies If the District defaults on its obligation to make Rental Payments, the Trustee, as assignee of the Corporation, may retain the Facilities Lease and hold the District liable for all Rental Payments on an annual basis and will have the right to re-enter and re-let the Facilities. Such re-entry and re-letting will not automatically effect a surrender of the Facilities Lease. In the event the Facilities are re-entered by reason of a default in Rental Payments or for any other reason, there can be no assurance that the Facilities can be re-let for a net amount equal to the then-due Rental Payments. The enforcement of any remedies provided in the Facilities Lease and Trust Agreement could prove both expensive and timeconsuming. In addition to the limitation on remedies contained in the Facilities Lease and the Trust Agreement, the rights and remedies provided in the Facilities Lease and the Trust Agreement may be limited by and are subject to provisions of federal bankruptcy laws, as now or hereafter enacted, and to other laws or equitable principles that may affect the enforcement of creditors rights and the limitation on remedies against public agencies in the State. Moreover, due to the essential nature of the governmental function of the Facilities, it is not certain whether a court would permit the exercise of the remedies of repossession and leasing with respect thereto. There can be no assurance that any such re-letting of the Facilities will not adversely affect the exclusion of the portion of each Rental Payment constituting interest, and the amounts thereof distributable in respect of the Certificates, from the gross income of the owners thereof for federal income tax purposes. Further, after any termination of the Facilities Lease, transfer of the Certificates may be subject to the registration provisions of the applicable federal and state securities laws. Accordingly, there is no assurance that the market for the Certificates will not be impaired following any termination of the Facilities Lease. So long as the Bond Insurance Policy remains in effect and AGM is not in default of its obligations thereunder, AGM will have the right to control all remedies for default under the Facilities Lease and the Trust Agreement and will not be required to obtain the consent of the Registered Owners or Beneficial Owners with respect to the exercise of remedies

27 The Trustee is not empowered to sell the Facilities for the benefit of the Registered Owners or Beneficial Owners. See APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS FACILITIES LEASE attached hereto. Bankruptcy The District is a unit of State government and therefore is not subject to the involuntary procedures of the United States Bankruptcy Code (the Bankruptcy Code ). However, pursuant to Chapter 9 of the Bankruptcy Code, the District may seek voluntary protection from its creditors for purposes of adjusting its debts. In the event the District were to become a debtor under the Bankruptcy Code, the District would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding and a Registered Owner would be treated as a creditor in a municipal bankruptcy. Among the adverse effects of such a bankruptcy would be: (i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the District or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the District; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the incurrence of unsecured or court-approved secured debt which may have a priority of payment superior to that of secured debt which may have a priority of payment superior to that of Registered Owners; and (iv) the possibility of the adoption of a plan for the adjustment of the District s debt (a Plan ) without the consent of all of the Registered Owners, which Plan may restructure, delay, compromise or reduce the amount of the claim of the Registered Owners if the Bankruptcy Court finds that the Plan is fair and equitable. In addition, the Bankruptcy Code would invalidate any provision of the Certificates of which makes the bankruptcy or insolvency of the District an Event of Default. With the exception of the provisions contained in the Plan, a Bankruptcy Court could not impose restrictions on the District s power or its property without the consent of the District. Special Counsel will limit its opinion as to the enforceability of the Certificates and of the Trust Agreement to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or others similar laws affecting generally the enforcement of creditors rights, by equitable principles and by the exercise of judicial discretion. Additionally, the Certificates are not subject to acceleration in the event of the breach of any covenant or duty under the Trust Agreement. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the Certificate Owners. Loss of Tax Exemption In the opinion of Special Counsel, the Certificates constitute governmental obligation under the Internal Revenue Code of 1986, as amended (the Code ). The District will covenant to comply with restrictions under the Code relating to use of Certificate proceeds, Certificate Reserve Fund funding requirements, investment yield limitations, rebate requirements, federal guarantee prohibitions and registration requirements so that interest paid with respect to the Certificates is excludable from gross income for federal income tax purposes. However, in the event the District fails to comply with any of these covenants, interest paid with respect to the Certificates could become includable in gross income for federal income tax purposes, possibly retroactive to the date of delivery of the Certificates. State Finances A significant source of unrestricted revenue for the District consists of revenues it receives from the State. This State revenue is utilized by the District in its normal course of operation, including the discharging of obligations such as the payment of Rental Payments. Changes to the economic conditions within the State or the State s funding priorities could substantially alter the General Fund revenues available to the District in any fiscal year. The District cannot predict whether such changes may occur or how such changes may affect the District s finances. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND EXPENDITURES and FUNDING OF PUBLIC EDUCATION IN THE STATE herein

28 THE CORPORATION The Corporation is a non-profit public benefit corporation duly organized in 1989 and existing under the laws of the State. The Corporation was previously established for the purpose of providing financial assistance to the District by acquiring, constructing and financing various facilities, land and equipment, and by leasing certain facilities, land and equipment, for the use, benefit, and enjoyment of the public served by the District, as well as any purpose incidental thereto. The Corporation s board of directors is composed of the seven members of the District Board. The Corporation is not capitalized and has no assets. The Corporation has no liability to the owners of the Certificates. THE DISTRICT General Information The District, established in 1885, occupies approximately 214 square miles in the County and serves a population of approximately 148,500 people residing in the city of Visalia and surrounding unincorporated areas. The District provides education to approximately 28,500 students in transitional kindergarten through grade twelve as well as additional students in preschool programs and adult education. The District operates 41 schools, including five charter schools. The District Board of Education and Key Administrative Personnel The District Board governs all activities related to public education within the jurisdiction of the District. The District Board has decision-making authority, the power to designate management, the responsibility to significantly influence operations and is accountable for all fiscal matters relating to the District. The District Board consists of seven members. Each District Board member is elected by the public for a four-year term of office. Elections for the District Board are held every two years, alternating between three and four positions available. A president of the District Board is elected by members each year. Due to the death of a Board member in March 2018, one position on the Board is vacant. The District intends to fill the vacant position in an election to be held in November 2018, with the term of such position expiring in November The members of the District Board, together with their office and the date their term expires, are set forth in the following table. District Board of Education Visalia Unified School District Name Title Term Expires William A. Fulmer President November 2020 John L. Crabtree Clerk November 2018 Juan R. Guerrero Member November 2018 Jim L. Qualls Member November 2018 Charles E. Ulmschneider Member November 2018 Lucia D. Vazquez Member November 2020 Vacant Member November 2020 The Superintendent of the District is appointed by and reports to the District Board. The Superintendent is responsible for managing the District s day-to-day operations and supervising the work of other key District administrators. The current members of the District s administration and positions held are set forth on page iv of this Official Statement

29 Enrollment Student enrollment determines to a large extent the amount of funding a State public school district receives for program, facilities and staff needs. 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. Enrollment can fluctuate due to factors such as population growth, competition from private, parochial, and public charter schools, inter-district transfers in or out, and other causes. Losses in enrollment will cause a school district to lose operating revenues, without necessarily permitting the school district to make adjustments in fixed operating costs. The ADA as of the last day of the last full attendance month concluding prior to April 15 ( P-2 ADA ) is used by the State as the basis for State apportionments. Set forth in the following table is the historical and current fiscal year projected P-2 ADA for the District. Average Daily Attendance Visalia Unified School District Total P-2 ADA 1 25,923 25,802 26,066 26,575 26,331 1 Excluding charter school average daily attendance figures. 2 Estimated as of the fiscal year second interim report. Charter Schools The District operates five fiscally dependent charter schools: Charter Alternatives Academy serves sixth through twelfth grade with total enrollment of 89 in fiscal year Visalia Technical Early College serves ninth through twelfth grade with total enrollment of 278 in fiscal year Charter Home School Academy serves K through eighth grade with total enrollment of 100 in fiscal year Visalia Charter Independent Study serves eighth through twelfth grade with total enrollment of 518 in fiscal year Global Learning Charter School serves transitional kindergarten through sixth grade; the school opened for the school year Fiscally dependent schools operate, to a certain extent, under the financial control of the District, with their financial activities presented in the District s financial statements. See APPENDIX B THE FINANCIAL STATEMENTS OF THE DISTRICT AS OF AND FOR THE YEAR ENDED JUNE 30, 2017 attached hereto. In addition, there are three independent charter schools operating within the District: Blue Oak Academy serves kindergarten through eighth grade and opened in fiscal year Sycamore Valley Academy serves kindergarten through eighth grade with total enrollment of 375 in fiscal year Valley Life Charter School serves kindergarten through twelfth grade with total enrollment of 664 in fiscal year The financial activities of fiscally independent charter schools are not presented in the District s financial statements. Charter schools can adversely affect school district funding, either by reducing funded enrollment at the school district or, for community-funded districts, by increasing the in-lieu property tax transfer. However, certain per-pupil expenditures of a school district also decrease based upon the number of students enrolled in charter schools. Pursuant to Proposition 39, school districts are required to provide facilities reasonably equivalent to those provided to regular district students for charter schools having a projected average daily attendance of at least 80 or more students from that district. Employee Relations State law provides that employees of public school districts of the State are to be divided into appropriate bargaining units which then may be represented by an exclusive bargaining agent. The District has two recognized bargaining units representing its non-management employees. The Visalia Unified Teachers Association ( VUTA ) is the exclusive

30 bargaining unit for the non-management certificated personnel of the District. The California School Employees Association, Chapter #83 ( CSEA #83 ) is the exclusive bargaining unit for the District s classified, non-management employees. Set forth in the following table are the District s bargaining units, number of full-time equivalents ( FTEs ) projected for fiscal year as of the second interim report, and contract status. Bargaining Units, Number of Employees and Contract Status Visalia Unified School District Bargaining Unit Full-Time Equivalents Contract Status VUTA 1,341 Settled for fiscal year CSEA #83 1,063 Settled for fiscal year The District has an additional 257 FTEs not represented by a bargaining unit projected for fiscal year as of the second interim report. Pension Plans All full-time employees of the District, as well as certain part-time employees, are eligible to participate under defined benefit retirement plans maintained by agencies of the State. Qualified certificated employees are eligible to participate in the costsharing multiple-employer STRS. Qualified classified employees are eligible to participate in the cost-sharing multipleemployer PERS, which acts as a common investment and administrative agent for participating public entities within the State. The District s part-time, seasonal and other employees not otherwise covered by STRS or PERS are eligible to participate in a defined contribution plan operated by the Public Agency Retirement System ( PARS ), a multi-employer retirement trust. The District accounts for its pension costs and obligations pursuant to Governmental Accounting Standards Board ( GASB ) Statement No. 67, Financial Reporting for Pension Plans ( GASB 67 ) and Statement No. 68, Accounting and Financial Reporting for Pensions ( GASB 68 ) which replaced GASB Statements Nos. 25 and 27, respectively. GASB 68 requires an employer that provides a defined benefit pension, such as the District, to recognize and report its long-term obligation for pension benefits as a liability as it is earned by employees. The District implemented the new reporting standards as reflected in the District s financial statements for fiscal year See APPENDIX B THE FINANCIAL STATEMENTS OF THE DISTRICT AS OF AND FOR THE YEAR ENDED JUNE 30, 2017 attached hereto. STRS Description and Contributions. STRS operates under the California Education Code (the Education Code ) sections commonly known as the State Teachers Retirement Law. Membership is mandatory for all certificated employees of State public schools meeting the eligibility requirements. STRS provides retirement, disability and death benefits based on an employee s years of service, age and final compensation. Employees vest after five years of service and may receive early retirement benefits as early as age 50 or normal retirement either at age 60 or 62 depending on their hire date. Prior to fiscal year , and unlike typical defined benefit programs, none of the employee, employer nor State contribution rates to the STRS Defined Benefit Program varied annually to make up funding shortfalls or assess credits for actuarial surpluses. In recent years, the combined employer, employee and State contributions to the STRS Defined Benefit Program have not been sufficient to pay actuarially required amounts. As a result, and due to significant investment losses, the unfunded actuarial liability of the STRS Defined Benefit Program has increased significantly in recent fiscal years. In September 2013, STRS projected that the STRS Defined Benefit Program would be depleted in 31 years assuming existing contribution rates continued, and other significant actuarial assumptions were realized. In an effort to reduce the unfunded actuarial liability of the STRS Defined Benefit Program, in 2014 the State passed the legislation described below to increase contribution rates. Prior to July 1, 2014, K-14 school districts were required by statute to contribute 8.25% of eligible salary expenditures, while participants contributed eight percent of their respective salaries. On June 24, 2014, the Governor signed AB 1469 ( AB 1469 ) into law as a part of the State s fiscal year budget. AB 1469 seeks to fully fund the unfunded actuarial obligation with respect to service credited to members of the STRS Defined Benefit Program before July 1, 2014 (the

31 Liability ), within 32 years, by increasing member, K-14 school district and State contributions to STRS. Commencing on July 1, 2014, the employee contribution rate increased over a three-year phase-in period in accordance with the schedule set forth in the following table. Member Contribution Rates STRS (Defined Benefit Program) Effective Date STRS Members Hired Prior to January 1, 2013 STRS Members Hired On or after January 1, 2013 July 1, % 8.150% July 1, July 1, Source: AB Pursuant to the California Public Employees Pension Reform Act of 2013, the contribution rates for members hired after January 1, 2013 will be adjusted if the normal cost increases by more than one percent since the last time the member contribution was set. While the contribution rate for employees hired after January 1, 2013 will remain unchanged at 9.205% of creditable compensation for fiscal year commencing July 1, 2017, the STRS actuary currently estimates that member contribution rates for such members will have to increase to % of creditable compensation effective July 1, 2018, based on the new actuarial assumptions discussed below. Pursuant to AB 1469, K-14 school districts contribution rate will increase over a seven-year phase in period in accordance with the schedule set forth in the following table. Member Contribution Rates STRS (Defined Benefit Program) 1 Percentage of eligible salary expenditures to be contributed. Source: AB Effective Date K-14 School Districts 1 July 1, % July 1, July 1, July 1, July 1, July 1, July 1, Based upon the recommendation from its actuary, for fiscal year and each fiscal year thereafter, the STRS Teachers Retirement Board (the STRS Board ) is required to increase or decrease the K-14 school districts contribution rate to reflect the contribution required to eliminate the remaining 2014 Liability by June 30, 2046; provided that the rate cannot change in any fiscal year by more than one percent of creditable compensation upon which members contributions to the STRS Defined Benefit Program are based; and provided further that such contribution rate cannot exceed a maximum of 20.25%. In addition to the increased contribution rates discussed above, AB 1469 also requires the STRS Board to report to the State Legislature every five years (commencing with a report due on or before July 1, 2019) on the fiscal health of the STRS Defined Benefit Program and the unfunded actuarial obligation with respect to service credited to members of that program before July 1, The reports are also required to identify adjustments required in contribution rates for K-14 school districts and the State in order to eliminate the 2014 Liability. The State also contributes to STRS, currently in an amount equal to 6.828% of teacher payroll for fiscal year The State s contribution reflects a base contribution rate of 2.017%, and a supplemental contribution rate that will vary from year to year based on statutory criteria. Based upon the recommendation from its actuary, for fiscal year and each fiscal year thereafter, the STRS Board is required, with certain limitations, to increase or decrease the State s contribution rates to

32 reflect the contribution required to eliminate the unfunded actuarial accrued liability attributed to benefits in effect before July 1, In addition, the State is currently required to make an annual general fund contribution up to 2.5% of the fiscal year covered STRS member payroll to the Supplemental Benefit Protection Account (the SBPA ), which was established by statute to provide supplemental payments to beneficiaries whose purchasing power has fallen below 85% of the purchasing power of their initial allowance. The District s actual STRS contribution for fiscal years through and the projected contribution for fiscal year as of the second interim report are set forth in the following table. STRS Employer Contributions Visalia Unified School District Fiscal Year District Contribution Rate District Contribution 1 Total District Governmental Funds Expenditures District Contributions as Percentage of Total Governmental Funds Expenditures % $7,512,603 $192,165, % ,769, ,556, ,175, ,197, ,268, ,248, ,275, ,471, ,332, ,206, ,042, ,629, In each instance equal to 100 percent of the required contribution. 2 Estimated as of the fiscal year second interim report. 3 Includes State on-behalf payment of $6,920,153. Excluding the State on-behalf payment would reduce the District contribution as percentage of total governmental funds expenditures in fiscal year to 5.00 percent. PERS Description and Contributions. All full-time classified employees of the District as well as certain part-time classified employees participate in PERS, which provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries based on an employee s years of service, age and final compensation. Employees hired before January 1, 2013 fully vest after five years of service and may receive retirement benefits at age 50; employees hired after that date fully vest at age 52. These benefit provisions and all other requirements are established by State statute and District resolution. Active plan members with an enrollment date prior to January 1, 2013 are required to contribute seven percent of their salary, while active plan members with an enrollment date on or after January 1, 2013 are required to contribute the greater of 50 percent of normal costs or six percent of their salary, and for fiscal year the rate is 6.5%. The District is required to pay an actuarially determined rate

33 The District s actual PERS contribution for fiscal years through and the projected contribution for fiscal year as of the second interim report are set forth in the following table. PERS Employer Contributions Visalia Unified School District Fiscal Year District Contribution Rate District Contribution 1 Total District Governmental Funds Expenditures District Contributions as Percentage of Total Governmental Funds Expenditures % $3,099,751 $192,165, % ,238, ,556, ,442, ,197, ,883, ,248, ,438, ,471, ,766, ,206, ,680, ,629, In each instance equal to 100 percent of the required contribution. 2 Estimated as of the fiscal year second interim report. Based on the Schools Pool Actuarial Valuation as of June 30, 2016 (the 2016 PERS Actuarial Valuation ), the three-year phased in reduction of the discount rate is currently projected to result in an employer contribution rate of 17.7% for fiscal year , and annual increases thereafter, resulting in a projected 25.1% employer contribution rate by fiscal year Such projections contained in the 2016 PERS Actuarial Valuation assume that all other actuarial assumptions will be realized and no changes to assumptions, contributions, benefits or funding will occur during the projected period. Unfunded Liabilities and Pension Expense Reporting. Both STRS and PERS have substantial statewide, unfunded liabilities. The amount of these liabilities will vary depending on actuarial assumptions, returns on investment, salary scales and participant contributions. The actuarial funding method used in the STRS actuarial valuation as of June 30, 2016 is the entry age normal cost method, and assumes, among other things, a 7.25 percent investment rate of return, 7.25 percent interest on member accounts, projected 2.75 percent inflation, and projected payroll growth of 3.5 percent. Beginning in the year ending June 30, 2017, a 7.0 percent investment rate of return will be used for the STRS actuarial valuation. The following table shows the statewide funding progress of the STRS plan for the previous six years. Funding Progress California State Teachers Retirement System (STRS) 1 Actuarial Valuation Date as of June 30 Actuarial Value of Plan Assets Actuarial Accrued Liability Total Unfunded Actuarial Liability Funded Ratio Covered Payroll Unfunded Liability as a Percentage of Payroll 2011 $143,930 $208,405 $64,475 69% $26, % , ,189 70, , , ,281 73, , , ,213 72, , , ,753 76, , , ,704 96, n/a n/a 1 Dollars in millions. Source: California State Teachers Retirement System, Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2016; California State Teachers Retirement System, Defined Benefit Program Actuarial Valuation for Fiscal Year Ended June 30,

34 Pursuant to Government Code Section et seq., PERS is authorized to create risk pools for public agencies, combining assets and liabilities across employers in large risk-sharing pools to help reduce the large fluctuations in the employer s contribution rate caused by unexpected demographic events. The Schools Pool provides identical retirement benefits to nearly all classified school employees in the State. The actuarial funding method used in the PERS Schools Pool actuarial valuation as of June 30, 2016 is the individual entry age normal cost method, and assumes, among other things, a 7.5 percent investment rate of return and projected 2.75 percent inflation; projected payroll growth varies by entry age and service. In December 2016, PERS approved a plan to reduce the assumed investment rate of return from 7.5 percent to 7.0 percent over a three-year period. PERS expects that the employer contribution rate will increase during the next few years as the impact of the decision to lower the investment return assumption is phased in. The following table shows the statewide funding progress of the PERS plan for the previous six years. Funding Progress Public Employees Retirement System (PERS) 1 Actuarial Valuation Date as of June 30 Market Value of Plan Assets Actuarial Accrued Liability Total Unfunded Actuarial Liability Funded Ratio Covered Payroll Unfunded Liability as a Percentage of Payroll 2011 $45,901 $58,358 $12, % $10, % ,854 59,439 14, , ,482 61,487 12, , ,838 65,600 8, , ,814 73,325 16, , ,785 77,544 21, , Dollars in millions. Source: California Public Employees Retirement System, Schools Pool Actuarial Valuation as of June 30, For the year ended June 30, 2017, the District s combined recognized pension expense was $36,985,128. The District s total net pension liability as of June 30, 2017 was $247,343,000. The District s recognized pension expenses and net pension liability as reported financial statements for fiscal years , the first year for which the data was provided, through are set forth in the following tables. Proportionate Share of the Net Pension Liability STRS Visalia Unified School District Fiscal Year Proportion of Statewide Liability Proportionate Share of Statewide Liability Covered Employee Payroll Proportionate Share of Statewide Liability as Percentage of Covered Employee Payroll Fiduciary Net Position as Percentage of Total Pension Liability % $127,708,000 $98,100, % 76.52% ,391, ,372, ,666, ,403,

35 Proportionate Share of the Net Pension Liability PERS Visalia Unified School District Fiscal Year Proportion of Statewide Liability Proportionate Share of Statewide Liability Covered Employee Payroll Proportionate Share of Statewide Liability as Percentage of Covered Employee Payroll Fiduciary Net Position as Percentage of Total Pension Liability % $32,290,000 $29,950, % 83.38% ,931,000 32,996, ,677,000 37,465, The District has set aside approximately $6.5 million in an Internal Revenue Code Section 115 irrevocable trust established with PARS to prefund pension obligations. Funds set aside in the trust offset the District s unfunded pension liabilities and may be used at any time solely to pay pension obligations. PARS Description and Contributions. The District s part-time, seasonal and other employees not otherwise covered by STRS or PERS are eligible to participate in a defined contribution plan operated by PARS. Benefit provisions and other requirements are established by District management based on agreements with the various bargaining units. Under current terms, the District and employees each contribute 3.75% of a participating employee s salary to PARS. Approximately 350 active District employees participate in PARS, with the District s annual contribution approximately $125,000. The District is unable to predict the future amount of State pension liabilities and the amount of required District contributions. Pension plan, annual contribution requirements and liabilities are more fully described in APPENDIX B THE FINANCIAL STATEMENTS OF THE DISTRICT AS OF AND FOR THE YEAR ENDED JUNE 30, 2017 attached hereto. Other Postemployment Benefits (OPEB) In addition to the pension benefits described above, the District provides postemployment health care benefits (known as other postemployment benefits, or OPEB ), in accordance with District employment contracts, to retirees meeting certain eligibility requirements. The District provides OPEB to employees who retire from the District on or after attaining the age of 55 with at least 15 years of service. Benefits for eligible retirees end at age 65, in accordance with contracts between the District and employee groups. The GASB Statement No. 45, Accounting and Financial Reporting by Employers for Post Employment Benefits Other Than Pensions ( GASB 45 ) requires public agency employers providing healthcare benefits to retirees to recognize and account for the costs for providing these benefits on an accrual basis and provide footnote disclosure on the progress toward funding the benefits, in order to quantify a government agency s current liability for future benefit payments. GASB 45 is directed at quantifying and disclosing OPEB obligations, and does not impose any requirement on public agencies to fund such obligations. The District completed an actuarial study assessing the District s OPEB liability as of July 1, Based on the study, the District s actuarial accrued liability (the AAL ), which can also be considered to be the present value of all benefits earned to date assuming that an employee accrues retiree healthcare benefits ratably over his career, was $91,575,718. The AAL is an actuarial estimate that depends on a variety of assumptions about future events, such as health care costs and beneficiary mortality. Every year, active employees earn additional future benefits, an amount known as the normal cost, which is added to the AAL. The District has established a trust account with PARS for the pre-funding of OPEB. As of July 1, 2016, trust assets had an actuarial value of $1,999,584, leaving an unfunded actuarial accrued liability ( UAAL ) of $89,576,134. In addition, the District set aside approximately $16.1 million in a Special Reserve Fund for OPEB as of June 30, 2017, with plans to transfer an additional $1.9 million into the fund in fiscal year However, such funds are not in an irrevocable trust and can be used for any legal purpose upon Board action. The annual required contribution ( ARC ) is the amount required if the District were to fund each year s normal cost plus an annual amortization of the unfunded actuarial accrued liability, assuming the UAAL will be fully funded over a 30-year period. If the amount budgeted and funded in any year is less than the ARC, the difference reflects the amount by which the UAAL is growing. The actuarial study calculated the ARC to be $8,157,885 as of July 1,

36 The District funds its OPEB liability on a pay-as-you go basis. The District paid $8,057,254 towards OPEB in fiscal year , paid $7,968,943 in fiscal year , and estimates paying $4,693,502 in fiscal year as of the second interim report (with an additional $1.9 million transferred into the Special Reserve Fund for OPEB). See APPENDIX B THE FINANCIAL STATEMENTS OF THE DISTRICT AS OF AND FOR THE YEAR ENDED JUNE 30, 2017 for additional information regarding the District s OPEB. DISTRICT FINANCIAL INFORMATION Accounting Practices The District accounts for its financial transactions in accordance with the policies and procedures of the State Department of Education s California School Accounting Manual, which, pursuant to Education Code Section 41010, is to be followed by all school districts in the State. The accounting policies of the District conform to accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board and the American Institute of Certified Public Accountants. The District s financial statements consist of government-wide statements and fund-based financial statements. Governmentwide statements, consisting of a statement of net assets and a statement of activities, report all the assets, liabilities, revenue and expenses of the District and are accounted for using the economic resources measurement focus and accrual basis of accounting. The fund-based financial statements consist of a series of statements that provide information about the District s major and non-major funds. Governmental funds, including the General Fund, special revenues funds, capital project funds and debt service funds, are accounted for using the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which they become measurable and available, while expenditures are recognized in the period in which the liability is incurred, if measurable. Proprietary funds and fiduciary funds are accounted for using the economic resources measurement focus and accrual basis of accounting. See NOTE 1 in APPENDIX B attached hereto for a further discussion of applicable accounting policies. The independent auditor for the District in fiscal year was Crowe Horwath, Sacramento, California (the Auditor ). The financial statements of the District as of and for the year ended June 30, 2017, are set forth in APPENDIX B attached hereto. The District has not requested nor did the District obtain permission from the Auditor to include the audited financial statements as an appendix to this Official Statement. The Auditor has not been engaged to perform and has not performed, since the date of its report attached hereto, any procedures on the financial statements addressed in that report. The Auditor also has not performed any procedures relating to this Official Statement. Budget and Financial Reporting Process The General Fund finances the legally authorized activities of the District for which restricted funds are not provided. General Fund revenues are derived from such sources as federal and State school apportionments, taxes, use of money and property, and aid from other governmental agencies. The District is required by provisions of the Education Code to maintain a balanced budget each year, where the sum of expenditures plus the ending fund balance cannot exceed revenues plus the carry-over fund balance from the previous year. The State Department of Education imposes a uniform budgeting format for all school districts. The fiscal year for all State school districts and county offices of education is July 1 to June 30. Because most school districts depend on State funds for a substantial portion of revenue, the State budget is an extremely important input in the school district budget preparation process. However, there is very close timing between final approval of the State budget (legally required by June 15), the adoption of the associated school finance legislation, and the adoption of local school district budgets. In some years, the State budget is not approved by the legal deadline which forces school districts to begin the new fiscal year with only estimates of the amount of funding they will actually receive. The school district budgeting process involves continuous planning and evaluation. Within the deadlines, school districts work out their own schedules for considering whether or not to hire or replace staff, negotiating contracts with all employees, reviewing programs, and assessing the need to repair existing or acquire new facilities. Decisions depend on the critical

37 estimates of enrollment, fixed costs, commitments in contracts with employees as well as best guesses about how much money will be available for elementary and secondary education. The timing of some decisions is forced by legal deadlines. For example, preliminary layoff notices to teachers must be delivered in March, with final notices in May. This necessitates projecting enrollments and determining staffing needs long before a school district will know either its final financial position for the current year or its revenue for the next year. School districts must adopt an annual budget on or before July 1 of each year. The budget must be submitted to the county superintendent within five days of adoption or by July 1, whichever occurs first. The governing board of the school district must not adopt a budget before the governing board adopts a local control and accountability plan (the LCAP ) for that budget year. See FUNDING OF PUBLIC EDUCATION IN THE STATE herein. The county superintendent will examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical corrections necessary to bring the budget into compliance, will determine if the budget allows the school district to meet its current obligations, will determine if the budget is consistent with a financial plan that will enable the school district to meet its multi-year financial commitments, and will determine if the budget ensures the fiscal solvency and accountability for the goals outlined in the LCAP. On or before September 15, the county superintendent will approve or disapprove the adopted budget for each school district within its jurisdiction based on these standards. The school district board must be notified by September 15 of the county superintendent s recommendations for revision and reasons for the recommendations. The county superintendent may assign a fiscal advisor or appoint a committee to examine and comment on the superintendent s recommendations. The committee must report its findings no later than September 20. Any recommendations made by the county superintendent must be made available by the school district for public inspection. The law does not provide for conditional approvals; budgets must be either approved or disapproved. No later than October 22, the county superintendent must notify the State Superintendent of Public Instruction (the State Superintendent ) of all school districts whose budget may be disapproved, and no later than November 8, the county superintendent must notify the State Superintendent of all school district budgets that have been disapproved or budget committees waived. For school districts whose budgets have been disapproved, the school district must revise and readopt its budget by October 8, reflecting changes in projected income and expense since July 1, and responding to the county superintendent s recommendations. The county superintendent must determine if the budget conforms with the standards and criteria applicable to final school district budgets and not later than November 8, will approve or disapprove the revised budgets. If the budget is disapproved, the county superintendent will call for the formation of a budget review committee pursuant to Education Code Section Until a school district s budget is approved, the school district will operate on the lesser of its proposed budget for the current fiscal year or the last budget adopted and reviewed for the prior fiscal year. Under the provisions of State Assembly Bill 1200, each school district is required to file interim certifications with the county office of education as to its ability to meet its financial obligations for the remainder of the then-current fiscal year and, based on current forecasts, for the subsequent two fiscal years. Each school district is required by the Education Code to file two interim reports each year the first report for the period ending October 31 by not later than December 15, and the second report for the period ending January 31 by not later than March 15. Each interim report shows fiscal year-to-date financial operations and the current budget, with any budget amendments made in light of operations and conditions to that point. The county office of education reviews the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that will be unable to meet its financial obligations for the remainder of the fiscal year or subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations for the current fiscal year or subsequent two fiscal years. If either the first or second interim report is not positive, the county superintendent may require the school district to provide a third interim report by June 1 covering the period ending April 30. If not required, a third interim report is generally not prepared (though may be at the election of the school district). The county superintendent must annually present a report to the governing board of the school district and the State Superintendent of Public Instruction regarding the fiscal solvency of any school district with a disapproved budget, qualified interim certification, or negative interim certification, or that is determined at any time to be in a position of fiscal uncertainty pursuant to Education Code Section Any school district with a qualified or negative certification must allow the county office of education at least 10 working days to review and comment on any proposed agreement made between its bargaining units and the school district before it is ratified by the school district board (or the state administrator). The county superintendent will notify the school district, the county board of education, the school district governing board and the school district superintendent (or the state administrator), and each parent and teacher organization of the school district within those 10 days if, in his or her opinion, the agreement would endanger the fiscal well-being of the school district. Also, pursuant to

38 Education Code Section 42133, a school district that has a qualified or negative certification in any fiscal year may not issue, in that fiscal year or the next succeeding fiscal year, non-voter approved debt unless the county superintendent of schools determines that the repayment of that debt by the school district is probable. The filing status for each of the District s interim reports for the previous four years and the current year appears in the following table. Certifications of Interim Financial Reports Visalia Unified School District 1 Self-certified. Fiscal Year First Interim Second Interim Positive Positive Positive Positive Positive Positive Positive Positive Positive Positive 1 Financial Statements Figures presented in summarized form herein have been gathered from the District s financial statements. The audited financial statements of the District for the fiscal year ending June 30, 2017, have been included in APPENDIX B attached hereto. Audited financial statements and other financial reports for prior fiscal years are on file with the District and available for public inspection during normal business hours. Copies of financial statements relating to any year are available to prospective investors and or their representatives upon request by contacting Visalia Unified School District, 5000 West Cypress Avenue, Visalia, California 93277, telephone (559) , Attention: Assistant Superintendent, Administrative Services, or by contacting the Municipal Advisor, Government Financial Strategies inc., 1228 N Street, Suite 13, Sacramento, California , telephone (916)

39 The following table sets forth the District s audited General Fund balance sheet data for fiscal years through General Fund Balance Sheet Visalia Unified School District Audited Audited Audited Audited Audited ASSETS Cash and Investments $38,784,786 $58,003,664 $74,516,155 $103,125,812 $100,728,418 Receivables 45,617,501 36,110,027 15,857,057 15,672,472 16,828,131 Due From Other Funds 3,091,770 3,559,082 4,438,596 2,708,885 2,839,878 Prepaid Expenditures 20,800 10, Stores Inventory 175, , , , ,328 TOTAL ASSETS $87,690,023 $97,893,473 $95,004,759 $121,839,677 $120,543,755 LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable $8,954,109 $11,883,348 $9,706,931 $7,617,713 $7,897,944 Due to Other Funds 3,085,387 14,009,674 10,533,975 25,354,952 4,947,071 Unearned Revenue 1,956,213 2,652,860 3,727,814 7,578,876 11,154,954 TOTAL LIABILITIES $13,995,709 $28,545,882 $23,968,720 $40,551,541 23,999,969 FUND BALANCES Nonspendable $240,167 $261,866 $235,627 $382,251 $180,892 Restricted 14,375,680 14,547,792 12,315,202 13,834,757 15,279,705 Committed 14,090,483 10,021, Assigned 7,786,139 7,221,631 31,625,789 25,874,634 36,029,412 Unassigned 37,201,845 37,294,795 26,859,421 41,196,494 45,053,777 TOTAL FUND BALANCES $73,694,314 $69,347,591 $71,036,039 $81,288,136 $96,543,786 TOTAL LIABILITIES AND FUND BALANCES $87,690,023 $97,893,473 $95,004,759 $121,839,677 $120,543,

40 The following table sets forth the District s audited General Fund activity for fiscal years through and estimated activity for fiscal year as of the second interim report. General Fund Activity 1 Visalia Unified School District Audited Audited Audited Audited Second Interim BEGINNING BALANCE $73,694,314 $69,347,591 $71,036,039 $81,288,136 $96,543,786 GASB 54 Adjustment (16,113,555) ADJUSTED BEGINNING BALANCE $73,694,314 $69,347,591 $71,036,039 $81,288,136 $80,430,231 REVENUES Revenue Limit/LCFF $177,195,328 $202,378,997 $233,918,683 $250,948,237 $258,818,420 Federal Revenue 14,957,116 18,323,841 18,681,490 16,256,180 25,506,622 Other State Revenues 12,764,746 15,311,088 34,829,890 27,148,012 26,149,582 Other Local Revenues 16,304,971 16,333,524 16,883,999 15,311,069 12,673,719 TOTAL REVENUES $221,222,161 $252,347,450 $304,314,062 $309,663,498 $323,148,343 EXPENDITURES Certificated Salaries $97,611,818 $103,284,371 $114,430,593 $121,589,551 $131,407,858 Classified Salaries 28,187,572 31,007,190 35,327,890 38,204,652 44,462,591 Employee Benefits 44,612,794 54,725,269 63,565,137 70,734,373 80,380,975 Books and Supplies 15,404,484 17,899,979 18,081,192 18,515,932 31,099,712 Contracts and Operating Expenses 16,567,334 22,653,673 24,141,343 27,288,635 32,133,347 Capital Outlay 5,516,607 7,670,927 11,309,447 11,636,180 13,590,143 Other Outgo 3,875,470 2,299,305 2,526,884 2,634,114 1,934,907 Debt Service (578,255) 707,297 2,089, ,522 0 TOTAL EXPENDITURES $211,197, ,248,011 $271,471,717 $291,034,959 $335,009,533 OTHER FINANCING SOURCES ($14,371,060) ($10,410,991) ($22,590,248) ($3,372,889) ($2,348,637) NET INCREASE (DECREASE) ($4,346,723) $1,688,448 $10,252,097 $15,255,650 ($14,209,827) ENDING BALANCE $69,347,591 $71,036,039 $81,288,136 $96,543,786 $66,220,404 Balance, Special Reserve for OPEB ,075,110 ENDING BALANCE, GAAP BASIS $69,347,591 $71,036,039 $81,288,136 $96,543,786 $84,295,514 1 The District has implemented Government Accounting Standard Board Statement No. 54, Fund Balance Reporting and Government Type Definitions ( GASB 54 ), the effect of which was to reclassify and restate the District s Special Reserve Fund for OPEB (Fund 20) within the General Fund. However, the District's internal reporting, including the fiscal year second interim report, does not reflect the implementation of GASB 54. Figures may not total due to rounding. Revenues The District categorizes its General Fund revenues into four primary sources: revenue limit / LCFF sources, federal revenues, other State revenues and other local revenues. Revenue Limit / Local Control Funding Formula (LCFF). For nearly half a century, State school districts operated under general purpose revenue limit funding based on a district s average daily student attendance, much of which was restricted by category as to how each dollar could be spent. Revenue limit funding was calculated by multiplying a school district s ADA

41 (using the greater of the current or prior year P-2 ADA) by the school district s revenue limit funding per ADA, with certain adjustments. In landmark legislation effective fiscal year , the State introduced a new formula, the local control funding formula ( LCFF ), to be phased in through fiscal year LCFF consolidates most categorical programs in order to give school districts more control over how to spend their revenues. At full implementation of LCFF, school districts will receive a uniform base grant per student based on grade span, a supplemental grant based on an unduplicated count of the targeted disadvantaged students ( unduplicated students ) in the school district, and an additional concentration grant based on the number of unduplicated students in the school district above 55 percent, with qualifying schools receiving an additional necessary small school allowance. Approximately percent of the District s students were unduplicated students for fiscal year as of February 2018 based on P-1 ADA. The base, supplemental, and concentration grant amounts per student were set in fiscal year and are subject to cost-of-living adjustments thereafter. School districts that would otherwise receive less funding at full implementation of LCFF than they did under the revenue-limit system are also guaranteed an additional Economic Recovery Target ( ERT ) grant to restore funding to at or above their pre-recession funding, adjusted for inflation. The ERT add-on is paid incrementally over the LCFF implementation period. In fiscal year , the District s estimates its LCFF funding at full implementation to be $254,933,626 as of the second interim report, comprised of $210,119,862 in base grant funding, $28,361,979 in supplemental grant funding, $13,121,985 in concentration grant funding, and $3,329,800 in add-on funding. To calculate LCFF funding during the phase-in period, school districts calculate their funding gap, the difference between LCFF funding calculated at full implementation and their funding floor, an amount based on fiscal year funding levels under the revenue limit system adjusted for prior LCFF phase-in adjustments. School districts receive their funding floor plus a percentage of their funding gap as specified in the State budget. In fiscal year , the State estimates funding 41.9 percent of the remaining gap based on P-1 ADA. As of the fiscal year second interim report, the District estimates receiving $239,077,854 as its floor entitlement and $7,130,341 in gap funding under LCFF. See FUNDING OF PUBLIC EDUCATION IN THE STATE herein for more information about LCFF. Set forth in the following table is the District s P-2 ADA by grade span, total enrollment, and the percentage of unduplicated student enrollment for fiscal years through , as well as estimated data for fiscal year as of the second interim report. ADA, Enrollment and Unduplicated Student Enrollment Percentage Visalia Unified School District Fiscal Year P-2 ADA Grades TK-3 P-2 ADA Grades 4-6 P-2 ADA Grades 7-8 P-2 ADA Grades 9-12 Total Total P-2 ADA 1 Enrollment 1,2 Unduplicated Student Enrollment Percentage ,455 6,166 4,032 7,270 25,923 26, % ,428 6,361 4,002 7,281 26,071 27, ,511 6,466 3,998 7,377 26,352 27, ,538 6,468 4,157 7,452 26,616 27, ,188 6,468 4,158 7,452 26,266 27, Charter school enrollment not included. 2 As of the October report submitted to the California Basic Educational Data System ( CBEDS ). 3 For purposes of calculating supplemental and concentration grants, a school district s fiscal year percentage of unduplicated students is determined solely as the percentage of its total fiscal year total enrollment. For fiscal year , the percentage of unduplicated students is based on the two-year average of unduplicated student enrollment in fiscal years and Beginning in fiscal year , a school district s percentage of unduplicated student enrollment is based on a rolling average of such district s unduplicated student enrollment for the then-current fiscal year and the two immediately preceding fiscal years. 4 Based on the fiscal year second interim report

42 Set forth in the following table is the District s actual LCFF funding per ADA for fiscal years through and estimated LCFF funding per ADA for fiscal year as of the second interim report. LCFF Funding per ADA Visalia Unified School District Fiscal Year Funded ADA 1 Funding per ADA 2 Average LCFF Average LCFF Funding per ADA at Full Implementation ,923 $6,639 $9, ,071 7,482 9, ,352 8,553 9, ,616 9,090 9, ,266 9,374 9,706 1 Funded ADA is the greater of current year P-2 ADA and prior year P-2 ADA. 2 Represents average LCFF funding per ADA across grade spans. 3 Based on the fiscal year second interim report. Funding of the District s revenue limit and LCFF is accomplished by a mix of a) local taxes (composed predominantly of property taxes, and including miscellaneous taxes and community redevelopment funds, if any) and b) State apportionments. The majority of the District s revenue limit / LCFF funding comes from State apportionments. LCFF revenues were 76.9 percent of General Fund revenues in fiscal year , were 81.0 percent of General Fund revenues in fiscal year , and are estimated to be 80.1 percent of General Fund revenues in fiscal year as of the second interim report. Federal Revenues. The federal government provides funding for several District programs. These federal revenues, most of which historically have been restricted, were 6.1 percent of General Fund revenues in fiscal year , were 5.2 percent of General Fund revenues in fiscal year , and are estimated to be 7.9 percent of General Fund revenues in fiscal year as of the second interim report. Other State Revenues. In addition to apportionment revenues, the State provides funding to the District for categorical programs. Many categorical programs previously classified as other State revenues were incorporated under LCFF in fiscal year , causing a reduction in other State revenues. These other State revenues were 11.4 percent of General Fund revenues in fiscal year , were 8.8 percent of General Fund revenues in fiscal year , and are estimated to be 8.1 percent of General Fund revenues in fiscal year as of the second interim report. Included in other State revenues are proceeds received from the State from the State lottery. The District is projected to receive $998,595 in pass-through payments from the dissolution of redevelopment agencies in fiscal year as of the second interim report. Other Local Revenues. Revenues from other local sources were 5.5 percent of General Fund revenues in fiscal year , were 4.9 percent of General Fund revenues in fiscal year , and are estimated to be 3.9 percent of General Fund revenues in fiscal year as of the second interim report. Expenditures The largest components of a school district s general fund expenditures are certificated and classified salaries and employee benefits. Changes in salary and benefit expenditures from year to year are generally based on changes in staffing levels, negotiated salary increases, and the overall cost of employee benefits. Even with no negotiated salary increases or changes in staffing levels, normal step and column advancements on the salary scale result in increased salary expenditures. Employee salaries and benefits were 78.6 percent of General Fund expenditures in fiscal year , were 79.2 percent of General Fund expenditures in fiscal year , and are estimated to be 76.5 percent of General Fund expenditures in fiscal year as of the second interim report

43 Short-Term Borrowings The District has no short-term debt outstanding. The District has in the past issued short-term tax and revenue anticipation notes. Proceeds from the issuance of notes by the District have been used to reduce inter-fund dependency and to provide the District with greater overall efficiency in the management of its funds. The District has never defaulted on any of its short-term borrowings. Capitalized Lease Obligations The District has made use of various capital lease arrangements in the past under agreements that provide for title of items and equipment being leased to pass to the District upon expiration of the lease period. As of June 30, 2017, the District had $444,565 in outstanding capital lease arrangements. The District s outstanding certificates of participation are set forth in the following table. Outstanding Certificates of Participation Visalia Unified School District Issue Date Issued Final Maturity Principal Amount Issued Principal Outstanding as of March 31, 2018 Debt Service in Fiscal Year Refunding June 25, 2015 September 1, 2038 $18,435,000 $16,765,000 $1,120,113 Long-Term Borrowings On April 1, 2010, the District issued the 2010 General Obligation Refunding Bonds (the 2010 Refunding Bonds ) in the aggregate principal amount of $16,685,000 to refund general obligation bonds previously issued pursuant to an election held in the District in The 2010 Refunding Bonds were fully repaid in August On November 6, 2012 (the 2012 Election ), more than 55 percent of voters in the District voting on the proposition approved the issuance by the District of not-to-exceed $60.1 million of general obligation bonds to improve school facilities. On April 25, 2013, the District issued the Visalia Unified School District (Tulare County, California) General Obligation Bonds, Election of 2012, Series 2013 (the 2013 Bonds ) in the aggregate principal amount of $33,999,971. On June 18, 2015, the District issued the Visalia Unified School District (Tulare County, California) General Obligation Bonds, Election of 2012, Series 2015 (the 2015 Bonds ) in the aggregate principal amount of $26,100,000. There is less than $30 remaining authorization from the 2012 Election

44 The following table summarizes the District s outstanding long-term indebtedness as of March 31, Outstanding General Obligation Bonds Visalia Unified School District Authorization Issue Final Maturity Principal Amount Issued Principal Outstanding as of March 31, Debt Service in Fiscal Year Refunding 2010 Refunding August 1, 2017 $16,685,000 $0 $846, Election Series 2013 August 1, ,999,971 30,864,971 1,512, Election Series 2015 August 1, ,100,000 24,695,000 2,165,175 1 Excludes accreted value of capital appreciation bonds. Total $55,559,971 $4,524,038 The District has never defaulted on the payment of principal of or interest on any of its long-term indebtedness. Direct and Overlapping Bonded Debt The statement of direct and overlapping bonded debt relating to the District, which is set forth in the following table, has been prepared by California Municipal Statistics, Inc. The table has been included for general information purposes only. The District has not independently verified and does not guaranty the accuracy of the information in such table. Contained within the District s boundaries are numerous overlapping local entities providing public services which may have outstanding long-term obligations in the form of general obligation, lease revenue and special assessment bonds. Such obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. The following table generally includes long-term obligations sold in the public credit markets by the public agencies listed. The first column in the table names each public agency which has outstanding debt as of April 1, 2018, and whose territory overlaps the District in whole or in part. The second column shows the percentage of each overlapping agency s assessed value located within the boundaries of the District. This percentage, multiplied by the total outstanding debt of each overlapping agency (not shown) produces the amount shown in the third column, which is the apportionment of each overlapping agency s outstanding debt to taxable property in the District. Property owners within the District may be subject to other special taxes and assessments levied by other taxing authorities providing services within the District. Such non-ad valorem special taxes and assessments (which are not levied to fund debt service) are not represented in the statement of direct and overlapping bonded debt

45 Statement of Direct and Overlapping Bonded Debt (As of April 1, 2018) Visalia Unified School District Assessed Valuation: $12,558,592,973 Percent Debt as of Applicable April 1, 2018 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: College of the Sequoias Visalia School Facilities Improvement District % $20,683,657 Visalia Unified School District ,559,971 Kaweah Delta Hospital District ,698,523 City of Visalia 1915 Act Bonds ,000 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $120,039,151 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Tulare County Certificates of Participation % $12,588,524 Tulare County Office of Education Certificates of Participation ,336,114 College of Sequoias Certificates of Participation ,220,253 Visalia Unified School District Certificates of Participation ,765,000 1 City of Visalia Certificates of Participation ,386,278 TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $65,296,169 OVERLAPPING TAX INCREMENT DEBT: $1,815,000 COMBINED TOTAL DEBT $187,150,320 2 Ratios To Assessed Valuation: DIRECT DEBT ($55,559,971) 0.44% Total Direct and Overlapping Tax and Assessment Debt. 0.96% Combined Direct Debt ($72,324,971) % Combined Total Debt 1.49% Ratios to Redevelopment Incremental Valuation ($1,044,879,908): Total Overlapping Tax Increment Debt.0.17% 1 Excludes the Certificates to be sold. 2 Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Source: California Municipal Statistics, Inc. PROPERTY TAXATION SYSTEM The obligation of the District to make Rental Payments does not constitute an obligation of the District for which the District is obligated to levy or pledge any form of taxation. Neither the Certificates nor the obligation of the District to make Rental Payments under the Facilities Lease constitutes a debt or indebtedness of the Corporation, the District, the State of California or any political subdivision thereof within the meaning of any Constitutional or statutory debt limitation or restriction or an obligation for which the Corporation or the District is obligated to levy or pledge any form of taxation. See THE CERTIFICATES herein. The State Constitution permits the levy of an ad valorem tax on taxable property not to exceed one percent of the full cash value of the property, a portion of which is provided to local school districts for general operating purposes. The levy of special ad valorem property taxes in excess of the one percent levy is permitted as necessary to provide for debt service payments on school bonds and other voter-approved indebtedness. Various County officers are responsible for the performance of each function in the property taxation system. Property tax revenues result from the application of the appropriate tax rate to the total net assessed value of taxable property in the District. All property, including real, personal and intangible property, is taxable, unless granted an exemption by the State Constitution or United States law. Under the State Constitution, exempt classes of property include household and personal

46 effects, intangible personal property (such as bank accounts, stocks and bonds), business inventories, and property used for religious, hospital, scientific and charitable purposes. The California Legislature (the State Legislature ) may create additional exemptions for personal property, but not for real property. Taxes on property in a school district with boundaries extending into more than one county are administered separately by each county in which the property is located (the District is located solely in the County). Taxes on real property located within the District are assessed and collected by the County in the same manner, at the same time, and in the same installments as other ad valorem taxes on real property located in the County. Such taxes have the same priority, become delinquent at the same times and in the same proportionate amounts, and bear the same proportionate penalties and interest after delinquency, as do the other ad valorem taxes on real property located in the County. See Assessed Valuation of Property, Tax Rates, and Tax Collections and Delinquencies herein. Assessed Valuation of Property The Tulare County Assessor (the County Assessor ) must annually assess all taxable property in the County (except for utility property, assessed by the State) to the person, business or legal entity owning, claiming, possessing or controlling the property on January 1, the lien date. Property assessed by the County Assessor is subject to the reappraisal provisions set forth in the State Constitution. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND EXPENDITURES Article XIIIA of the State Constitution herein. The duties of the County Assessor are to discover all assessable property, to inventory and list all taxable property, to value the property, and to enroll the property on the local assessment roll. Locally assessed taxable property is classified as either secured or unsecured and is listed accordingly on separate parts of the assessment roll. The secured roll contains real property sufficient, in the opinion of the County Assessor, to secure the payment of the taxes as a lien on real property. All other property is unsecured and assessed on the unsecured roll. The District can make no predictions as to the changes in assessed values that might result from pending or future appeals of assessed valuation by taxpayers or temporary reductions in assessed valuation allowed under the State Constitution. Any refund of paid taxes triggered by a successful assessment appeal will be debited by the County Treasurer against all taxing agencies receiving tax revenues, including the District. The secured roll also includes the utility roll, a property tax assessment roll for property (also referred to as unitary property) located in the County but assessed by the State Board of Equalization (the SBE ) rather than by the County Assessor. Such property includes property owned or used by State-regulated transportation and communications utilities such as railways, telephone and telegraph companies, companies transmitting or selling gas or electricity, and pipelines, flumes, canals and aqueducts lying within two or more counties. Property assessed by the SBE is not subject to the provisions of Proposition 13 (1978) and is annually reappraised at its market value as of January 1 and then allocated by formula among all the taxing jurisdictions in the County, including the District. The growth or decline in the assessed valuation of utility property is shared by all jurisdictions in the County. The District can make no predictions regarding the impact of the reorganization of regulated utilities and the transfer of electricity-generating property to non-utility companies on the amount of tax revenue collected. In general, the transfer of State-assessed property located in the District to non-utility companies will increase the assessed value of property in the District, since the property s value will no longer be divided among taxing jurisdictions in the County; the transfer of property located and taxed in the District to a State-assessed utility will, in general, reduce the assessed value in the District, as the value is shared among the other jurisdictions in the County

47 Shown in the following table are 10 years of the District s historical assessed valuation. Total secured assessed value includes net local secured, secured homeowner exemption and utility value. Total unsecured assessed value includes net local unsecured and unsecured homeowner exemption value. Historical Total Secured and Unsecured Assessed Valuation Visalia Unified School District Year Ended Total Secured Total Unsecured Total Percentage June 30 Assessed Value Assessed Value Assessed Value Change 2009 $10,057,819,840 $570,218,386 $10,628,038, ,551,004, ,062,631 10,148,067,399 (4.52)% ,561,855, ,247,410 10,169,102, ,459,419, ,086,719 10,095,505,751 (0.72) ,207,968, ,370,512 9,858,338,895 (2.35) ,636,274, ,355,076 10,254,629, ,211,839, ,617,759 10,878,457, ,788,743, ,866,519 11,455,609, ,349,348, ,411,336 12,029,759, ,833,733, ,131,982 12,596,865, Source: Tulare County Assessor. The remaining tables under this caption PROPERTY TAXATION SYSTEM have been prepared by California Municipal Statistics, Inc. They have been included for general information purposes only. The District has not independently verified and does not guaranty the accuracy of the information in such tables. Shown in the following table is the distribution of total assessed value among the cities and unincorporated areas encompassed by the District for fiscal year Assessed Valuation by Jurisdiction Visalia Unified School District Assessed Valuation Percent of Assessed Valuation Percent of Jurisdiction Jurisdiction: in District District of Jurisdiction in District City of Farmersville $992, % $309,368, % City of Visalia 10,823,050, ,867,532, Unincorporated Tulare County 1,734,550, ,764,661, Total District $12,558,592, % Tulare County $12,558,592, % $33,345,259, % Source: California Municipal Statistics, Inc

48 Shown in the following table is a distribution of taxable real property located in the District by principal purpose for which the parcels are used along with the local secured assessed valuation (excludes homeowners exemption) and number of parcels for each use for fiscal year Assessed Valuation and Parcels by Land Use Visalia Unified School District Percent of Number of Percent of Non-Residential: Assessed Valuation 1 Total Parcels Total Agricultural $652,337, % 1, % Commercial 1,885,173, , Vacant Commercial 124,529, Industrial 570,567, Vacant Industrial 88,989, Recreational 40,301, Government/Social/Institutional 67,500, Miscellaneous 117,176, Subtotal Non-Residential $3,546,576, % 5, % Residential: Single Family Residence $7,319,040, % 38, % Condominium/Townhouse 220,974, , Mobile Home 42,210, Mobile Home Park 37,379, Residential Units 299,407, , Residential Units/Apartments 243,796, Vacant Residential 122,363, , Subtotal Residential $8,285,172, % 43, % Total $11,831,749, % 48, % 1 Local secured assessed valuation, excluding tax-exempt property. Source: California Municipal Statistics, Inc. Tax Rates The State Constitution permits the levy of an ad valorem tax on taxable property not to exceed one percent of the property s full cash value, plus the amount necessary to make annual payments due on general obligation bonds or other indebtedness incurred prior to July 1, 1978, any bonded indebtedness for the acquisition or improvement or real property approved by a two-thirds majority of voters on or after July 1, 1978, and certain bonded indebtedness for school facilities approved by 55 percent of the voters. The Tulare County Auditor-Controller (the County Auditor-Controller ) computes the additional rate of tax necessary to pay such scheduled debt service and presents the tax rates for all taxing jurisdictions in the County to the County Board of Supervisors (the County Board ). The more property (by assessed value) that is owned by a single taxpayer, the more tax collections are exposed to weakness in the taxpayer s financial situation and their ability or willingness to pay property taxes. In fiscal year , no single taxpayer owned more than 1.51 percent of the total secured taxable property in the District. The 20 taxpayers in the District with the greatest combined secured assessed valuation of taxable property on the fiscal year tax roll own property that comprises 6.87 percent of the local assessed valuation of secured property in the District. These taxpayers, ranked by aggregate assessed value of taxable property as shown on the fiscal year secured tax roll and the amount of each owner s assessed valuation for all taxing jurisdictions within the District are shown in the following table

49 Each taxpayer listed is a unique name on the tax rolls. The District cannot determine from assessment records whether individual persons, corporations or other organizations are liable for tax payments with respect to multiple properties held in various names that in aggregate may be larger than is suggested by the list of largest taxpayers identified in the following table. Largest Taxpayers Visalia Unified School District Percent of Property Owner Primary Land Use Assessed Valuation Total 1 1. California Dairies Inc. Industrial $178,140, % 2. Visalia Mall LP Shopping Center 53,612, California Water Service Company Water Company 45,225, Perfection Pet Foods LLC Industrial 43,225, Ventura Coastal LLC Industrial 42,905, Western Milling LLC Industrial 42,284, Target Corporation Shopping Center 36,907, VWR International LLC Industrial 36,895, Cottonwood Fresno Holdings LLC Warehouse 36,500, Darlene & Jay Te Velde Jr., Trustees Agricultural/Dairy 36,092, Blam Jade LP Commercial 30,064, Lowes HIW Inc. Shopping Center 29,829, Stag Visalia LP (LSR) Warehouse 29,709, Donahue Schriber Realty Group LP Shopping Center 29,412, Wal-Mart Real Estate Business Trust Commercial 28,629, Crystal J LP Warehouse 26,875, Advanced Food Products LLC Industrial 22,759, Costco Wholesale Corporation Shopping Center 22,585, Fairway Properties Northside LLC Shopping Center 22,068, RREF II-WG Visalia Financed Parcels LLC Commercial 19,554, Fiscal year local secured assessed valuation: $11,831,749,577. Source: California Municipal Statistics, Inc. $813,276, % Tax Collections and Delinquencies Property taxes are levied for each fiscal year on taxable real and personal property situated in the taxing jurisdiction assessed as of January 1, at which time the tax lien attaches. The Tulare County Tax Collector (the County Tax Collector ) is presented with a tax roll created from the combined rolls of the County Assessor and the SBE. The County Tax Collector prepares and mails tax bills to taxpayers and collects the taxes. Property taxes on the regular secured roll are due in two equal installments. The first installment is due on November 1 and is delinquent at 5:00 p.m. on December 10, after which a 10 percent penalty is assessed. The second installment is due on February 1 of the following year and is delinquent at 5:00 p.m. on April 10, after which a 10 percent penalty and a $10 cost are assessed. Tax bills unpaid by the due date are subject to delinquent penalty of 10 percent and a $15 cost. If taxes remain unpaid for five years or more, the County Tax Collector may sell tax-defaulted property that is not redeemed; proceeds from such sale are applied to the payment of the delinquent taxes. Property taxes on the unsecured roll are due annually. The single installment is due on August 31. Taxes on the unsecured roll as of July 31 if unpaid are delinquent at 5:00 p.m. on August 31 and thereafter are subject to a delinquent penalty of 10 percent. Taxes added to the unsecured roll after July 31 if unpaid as of 5:00 p.m. on the last day of the month succeeding the month of enrollment, are delinquent and subject to a 10 percent penalty. Additional collection costs on delinquent taxes may

50 be collected. Upon delinquency, the County Tax Collector may enforce collection by various measures including filing of liens, filing of summary judgments, seizure and sale of unsecured property, bank account levies. The following table shows a five-year history of real property tax collections and delinquencies in the District. Secured Tax Charges and Delinquencies Visalia Unified School District Fiscal Secured Amount Delinquent Percent Delinquent Year Tax Charge 1 As of June 30 As of June $2,612, $55, % ,834, , ,026, , ,399, , ,025, , General obligation bond debt service levy of the District only. Source: California Municipal Statistics, Inc. Alternative Method of Tax Apportionment Under the Alternative Method of Distribution of Tax Levies and Collections and of Tax sale Proceeds (the Teeter Plan ) as provided for in Sections 4701 through 4717 of the State s Revenue & Taxation Code, each participating local agency levying property taxes, including school districts, receives from its county 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 to the local agency. The County discontinued the use of the Teeter Plan in fiscal year Consequently, the District will receive ad valorem property taxes (including penalties and interest) based on actual collections for that purpose, rather than the amount levied. In order to ensure the timely payment of general obligation bond debt service secured by ad valorem property taxes, the County maintains a reserve for each general obligation bond issuance within the County. The reserve is funded over a period of years from property taxes collected over and above that necessary to pay debt service on the general obligation bond issuance. The County has several methods of determining the size of the reserve as well as the number of years over which the reserve will be funded. The County has historically maintained a reserve for the District s general obligation bonds in an amount equal to the following fiscal year s debt service. CITY AND COUNTY ECONOMIC PROFILE The information in this section concerning the economy of the City and County is provided as supplementary information only, and is not intended to be an indication of security for the Certificates. The Certificates evidence and represent direct, undivided fractional interests of the Registered Owners thereof in Rental Payments to be made by the District as the rental for the use and possession of the Facilities, described herein, leased from the Corporation pursuant to the Facilities Lease. The District will covenant to pay Rental Payments from any source of legally available funds for the use and possession of the Facilities, which amounts are sufficient in both time and aggregate amount to pay the principal and interest payable with respect to the Certificates and to make all Additional Payments as necessary. See THE CERTIFICATES herein. General Information The County, incorporated in 1852, is located in the central region of the State, in the southern region of the San Joaquin Valley. Situated in a geographically diverse region, with Sierra Nevada Range mountains in the County s eastern portion. A principal feature of the County is its diverse agricultural production. Ranked number one in the nation in agricultural value,

51 many varieties of both row and specialty crops are grown; milk products, cattle and citrus the top commodities in the County. Comprised of approximately 4,840 square miles, the County has eight incorporated cities. Based on data compiled by CoreLogic, Inc., the median sale price of a single-family home in the County was $219,500 in February 2018, an increase of approximately 7.1 percent from $205,000 in February The City, founded in 1852, is the County seat of government. Comprised of approximately 38 square miles located in the center of the State, the City is the principal trading center for the County, one of the most productive agricultural counties in the United States. Based on data compiled by CoreLogic, Inc., the median sale price of a single-family home in the City was $250,000 in February 2018, an increase of approximately 11.1 percent from $225,000 in February Population The following table displays estimated population data as of January 1 for the past five years for the City, County and State. Historical Population City of Visalia, County of Tulare and the State of California City of Visalia 127, , , , ,151 County of Tulare 455, , , , ,842 State of California 38,238,492 38,572,211 38,915,880 39,189,035 39,523,613 Source: State Department of Finance. Personal Income Total personal income includes income from all sources including net earnings, dividends, interest and rent, and personal current transfer receipts received by residents in the region. Per capita personal income ( PCPI ) was $37,717 in the County in 2016, an increase of 2.9 percent from 2015 levels, compared to an increase of 3.0 percent Statewide and 1.6 percent nationally. The following table shows PCPI for the County as well as for the State and the United States for the past five years for which data is available. Per Capita Personal Income County of Tulare, the State of California and the United States County of Tulare 31,957 33,571 36,560 36,621 37,717 State of California 48,369 48,570 51,344 54,718 56,374 United States 44,282 44,493 46,494 48,451 49,246 Source: U.S. Department of Commerce, Bureau of Economic Analysis

52 Labor Force and Employment The following table contains a summary of the City s historical unemployment data for the past four years and for the most recent month available in the current year, not seasonally adjusted. Historical Unemployment City of Visalia Annual Annual Annual Annual February Total Labor Force 59,900 61,800 62,700 59,800 60,600 Number of Employed 53,400 56,000 57,100 55,100 57,700 Number of Unemployed 6,400 5,800 5,600 4,700 3,000 Unemployment Rate 10.7% 9.4% 8.9% 7.9% 4.9% 1 Preliminary. Source: State Employment Development Department. The following table contains a summary of the County s historical unemployment data for the past four years and for the most recent month available in the current year, not seasonally adjusted. Historical Unemployment County of Tulare Annual Annual Annual Annual February Total Labor Force 198, , , , ,600 Number of Employed 172, , , , ,300 Number of Unemployed 26,300 23,700 22,600 21,400 22,300 Unemployment Rate 13.2% 11.7% 11.0% 10.4% 11.3% 1 Preliminary. Source: State Employment Development Department

53 Employment by Industry The following table shows the County s labor patterns by type of industry from 2013 through 2017 by annual average, not seasonally adjusted, in the Visalia-Porterville Metropolitan Statistical Area. 1 Historical Employment by Industry Visalia-Porterville Metropolitan Statistical Area Total, All Industries 149, , , , ,400 Total Farm 35,100 34,900 39,100 38,800 38,100 Total Nonfarm 114, , , , ,400 Total Private 84,600 86,300 89,500 90,800 93,600 Goods Producing 15,800 16,500 17,200 18,200 18,400 Mining, Logging, and Construction 4,200 4,500 4,900 5,300 5,700 Manufacturing 11,600 12,000 12,300 12,800 12,700 Service Providing 98,800 99, , , ,000 Private Service Providing 68,800 69,800 72,300 72,600 75,200 Trade, Transportation & Utilities 26,700 27,100 28,100 27,100 27,400 Information ,000 1, Financial Activities 3,800 3,900 4,000 4,100 4,100 Professional & Business Services 10,900 10,300 10,900 11,100 12,400 Educational & Health Services 13,300 13,700 13,800 14,400 15,400 Leisure & Hospitality 10,000 10,600 11,100 11,500 11,700 Other Services 3,200 3,300 3,400 3,500 3,500 Government 30,000 29,500 30,300 31,300 31,700 Federal Government 1,100 1,000 1,000 1,000 1,000 State & Local Government 1,700 1,700 1,700 1,800 1,800 Local Government 27,200 26,800 27,500 28,500 28,900 1 The Visalia-Porterville Metropolitan Statistical Area is comprised of Tulare County. Figures may not total due to rounding. Source: State Employment Development Department

54 Major Employers The following table provides a list of the 10 largest employers, corresponding number of employees and percent of total employment in the City for fiscal year Major Employers City of Visalia Rank Employer Number of Employees Percent of Total City Employment 1 County of Tulare 4, % 2 Visalia Unified School District 2, Kaweah Delta Healthcare 2, College of the Sequoias 1, CIGNA Health Care City of Visalia VF Outdoor Inc Walmart International Paper Jostens Total 188, % Source: City of Visalia, Comprehensive Annual Financial Report for the Year Ended June 30, The following table provides a list of the 10 largest employers, corresponding number of employees and percent of total employment in the County for fiscal year Major Employers County of Tulare Rank Employer Number of Employees Percent of Total County Employment 1 County of Tulare 4, % 2 Kaweah Delta Health Care District 2, Sierra View District Hospital 1, Ruiz Foods Products, Inc. 1, Wal-Mart Distribution Center 1, Porterville Development Center 1, College of the Sequoias 1, Jostens CIGNA HealthCare Monrovia Nursery Company Land O Lakes, Inc Saputo Cheese USA, Inc Total 17, % Source: County of Tulare, Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, Commercial Activity Total taxable sales reported during calendar year 2016 in the City were $2,720,119,000, a 4.4 percent increase from the total taxable sales of $2,604,693,000 reported during calendar year Data for calendar year 2017 is not yet available

55 The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions in the City for the past five years for which data is available is presented in the following table. Taxable Retail Sales City of Visalia Sales Tax Permits 2,748 2,740 2,785 n/a 1 n/a 1 Taxable Sales (000 s) $2,281,600 $2,449,280 $2,534,004 $2,604,693 $2,720,119 1 Beginning in 2015, the reporting criteria for the number of permits/outlets changed, making the data not comparable to prior years. Source: State Board of Equalization. Total taxable sales reported during calendar year 2016 in the County were $6,688,260,000, a 6.6 percent increase from the total taxable sales of be $6,275,433,000 reported during calendar year Data for calendar year 2017 is not yet available. The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions in the County for the past five years for which data is available is presented in the following table. Taxable Retail Sales County of Tulare Sales Tax Permits 8,525 8,334 8,351 n/a 1 n/a 1 Taxable Sales (000 s) $5,499,361 $5,788,584 $6,150,669 $6,275,433 $6,688,260 1 Beginning in 2015, the reporting criteria for the number of permits/outlets changed, making the data not comparable to prior years. Source: State Board of Equalization. Construction Activity Estimated new privately owned residential housing units authorized by building permits and total construction costs in the County for the past five years are shown in the following table. Data for calendar year 2017 is not yet available. New Residential Building Permits County of Tulare Single-Family Residential Units ,129 1,190 Multi-Family Residential Units Total New Building Permits ,092 1,275 1,316 Total Construction Costs $102,371,663 $185,623,847 $200,612,718 $257,547,592 $266,645,872 Source: U.S. Bureau of the Census, Building Permit Estimates

56 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND EXPENDITURES Background From the Separation of Sources Act (1910) until Proposition 13 (1978), local governments had control over property tax rates and revenues within their jurisdiction. Voter approval was not required for most taxes, charges or fees imposed by local governments. Each school district in the State raised revenue by taxing local property owners according to a tax rate established by its governing board, subject to voter approval, and received some supplemental funds from the State. The State s role in providing for public education and education facilities was limited during this time. Local school districts relied largely on general obligation bonds as the primary source of funding for school facilities. The passage of Proposition 13 brought this local property tax system to an end, fundamentally changing local government finance. Local government entities are no longer authorized to levy a general tax rate. Instead, they share in the revenues generated by Proposition 13 s countywide tax rate. In the year following the passage of Proposition 13, local property tax revenue across the State fell approximately 60 percent. In order for school districts to continue operating, the State had to assume primary responsibility for public school funding, replacing the lost property tax revenue with moneys from the State general fund. As a result of Proposition 13, control over revenues shifted away from local school districts to the State government. Proposition 13 also eliminated the ability of school districts to issue bonds; for a decade, the State provided some of the cost of school facilities projects until the passage of Proposition 46 (1986) restored the ability of school districts to issue such bonds. Article XIIIA of the State Constitution Article XIIIA, added to the State Constitution by Proposition 13 and amended over time, limits the ad valorem tax rate that can be levied on real property to one percent of its full cash value except to pay debt service, discussed below. Full cash value is defined as the property s assessed value as of the fiscal year tax bill, annually increased by the lesser of either two percent or the rate of inflation. Subsequently, the property is reappraised for tax purposes upon a change in ownership or new construction. Several types of changes in ownership and construction have been exempted from the reassessment requirement by amendment, including improvements for seismic retrofit, solar energy, fire prevention, disability access, certain purchases of replacement dwellings for persons over age 55 and by property owners whose original property is destroyed in a declared disaster, and certain transfers of property between family members. In most years, the market value of a property increases at a rate greater than the maximum two percent increase a county is allowed to calculate. As amended by Proposition 8 (1978), Article XIIIA allows for a county to temporarily reduce the assessed value to current market value when the market value of the property falls below the property s adjusted acquisition value due to an economic recession, natural disaster or other cause of damage. In years in which reduced reassessments are widespread, property tax revenue available to local governments such as school districts is reduced. Pursuant to interpretation of the Revenue and Taxation Code and upheld by State courts, once the market has rebounded or the property has been repaired to substantially its original condition, a county may increase the assessed value of the property at a rate greater than two percent annually until it has reached the property s pre-decline assessed value. As a result of these laws, real property that has been owned by the same taxpayer for many years can have an assessed value that is much lower than the market value of the property and of similar properties more recently sold. Likewise, changes in ownership of property and reassessment of such property to market value commonly lead to increases in aggregate assessed value even when the rate of inflation or consumer price index would not permit the full two percent increase on any property that has not changed ownership. Any increase or decrease in assessed valuation is allocated among the various jurisdictions. The one percent tax is levied and collected by each county, and the revenue is apportioned by the county to each local government agency in the taxing area roughly in proportion to the relative shares of taxes as levied prior to Local government agencies, including school districts, may not directly levy any ad valorem tax, unless the tax is levied to pay debt service (interest and redemption charges) on a local government s indebtedness approved by voters prior to July 1, 1978 or thereafter, as amended by Proposition 46 (1986), bonded indebtedness for the acquisition or improvement of real property approved by a two-thirds majority. In addition, Proposition 39 (2000) added a provision allowing for a lowered voter approval rate specifically for bonds to fund school facilities projects. A school district or community college district may levy ad valorem taxes in excess of one percent with 55 percent voter approval if the bonds will be used for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities. The measure must include the specific list of projects to be funded and certification that the school district s governing board

57 has evaluated safety, class size reduction, and information technology needs in developing the list, and must conduct annual, independent financial and performance audits until all bond funds have been spent to ensure that the bond funds have been used only for the projects listed in the measure. Pursuant to legislation, the projected tax rate per $100,000 of taxable property value levied as the result of any single election may be no more than $60 in a unified school district, $30 in a high school or elementary school district, or $25 in a community college district. Article XIIIB of the State Constitution Article XIIIB, added to the State Constitution by Proposition 4 (1979) (the Gann Limit ), amended by Proposition 111 (1990), limits the amount of certain funds, including tax revenues, that may be annually appropriated by the State and local governments, including school districts, to the amount appropriated the prior year, adjusted to reflect the rate of economic growth by measuring the change in per capita personal income and population. Certain payments are exempt from the appropriations limit calculation, including debt service payments; certain benefit payments, mandated expenses, State payments to school districts and community college districts, increases in revenues gained from fuel, vehicle and tobacco taxes, emergency appropriations; and qualified capital outlay projects (projects involving fixed assets such as land or construction that have an expected life of more than 10 years and a value greater than $100,000). Tax revenues in excess of the appropriation limit are shared between increased education funding and taxpayer rebates. Calculated over two years, half of any excess is transferred to K-14 school districts and half is returned to taxpayers through a revision of tax rates within two fiscal years. Any such excess revenues transferred to K-14 school districts are not counted as part of the school districts base expenditures for calculating their entitlement for State aid in the next year, nor is the State s appropriations limit increased by this amount. If a K-14 school district s revenues exceed its appropriations limit, the school district may increase its appropriations limit to equal its spending by borrowing from the State s appropriations limit. Articles XIIIC and XIIID of the State Constitution Articles XIIIC and XIIID, added to the State Constitution by Proposition 218 (1996) and amended over time, limit the ability of local governments, including school districts, to levy and collect non-ad valorem taxes, assessments, fees and charges. The law establishes that a tax must be either a general tax, requiring the approval of a simple majority of voters, the proceeds of which can only be used for general government purposes, or a special tax, requiring the approval of two-thirds of voters, the proceeds of which are used for a specific purpose, or if the tax is levied by a special-purpose government agency, including a school district. Any tax levied on property, other than the ad valorem tax governed by Article XIIIA, is a special tax, requiring the approval of two-thirds of voters. Special-purpose government agencies, such as a school district, cannot levy general taxes. Article XIIIC also provides that the initiative power shall not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. A portion of the District s revenues are received annually from property taxes. The State Constitution and the laws of the State impose a mandatory, statutory duty on the Treasurer to levy a property tax sufficient to pay debt service on the Bonds coming due in each year. There is no court case which directly addresses whether the initiative power may be used to reduce or repeal the ad valorem taxes pledged to repay general obligation bonds. In the case of Bighorn-Desert View Water Agency v. Virjil (Kelley) (the Bighorn Decision ), the California Supreme Court held that water service charges may be reduced or repealed through a local voter initiative subject to Article XIIIC. The Supreme Court did state that it was not holding that the initiative power is free of all limitations. Such initiative power could be subject to the limitations imposed on the impairment of contracts under the contract clause of the United States Constitution. Legislation adopted in 1997 provides that Article XIIIC shall not be construed to mean that any owner or beneficial owner of a municipal security assumes the risk of or consents to any initiative measure that would constitute an impairment of contractual rights under the contracts clause of the United States Constitution. The initiative power can be used to reduce or repeal most local taxes, assessments, fees and charges. Article XIIID deals with assessments and property-related fees and charges and expressly cautions that its provisions shall not 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 available to repeal or reduce developer and mitigation fees imposed by the District. The District has no power to impose taxes except those property taxes associated with a general obligation bond election, following approval by 55 percent or two-thirds of the District s voters, depending upon the legal authority for the issuance of such bonds

58 As amended by Proposition 26 (2010), the law defines any levy, charge, or exaction of any kind imposed by a local government as a tax requiring voter approval. The following exceptions do not require voter approval: a reasonable charge for a specific benefit, privilege, product or service that is received only by the payor of the charge; a reasonable charge for regulatory costs of issuing a license or permit, performing an inspection or audit, or enforcing an order; a charge for use, rental, or purchase of government property; a charge, fine or penalty for violation of law; and assessments and propertyrelated fees imposed as a condition of property development. Although such fees and charges levied by one taxing jurisdiction do not directly impact the amount of revenue available to another taxing jurisdiction from ad valorem property taxes, if the ability to impose the fee or charge is restricted, it could indirectly impact such revenues. Minimum Guarantee of State Funding for Education Proposition 98 (1988), added Article XVI to the State Constitution, requiring that from all State revenues there shall first be set apart the moneys to be applied by the State for support of the public school system and higher education. Known as the minimum guarantee, funding for K-14 school districts, made up of a combination of State general fund income tax revenues and local property tax revenues, must be the greater of either the same percentage of State general fund revenues as was appropriated in fiscal year , or the amount actually appropriated to such districts from the State general fund in the previous fiscal year, adjusted for increases in enrollment and changes in the cost of living. The minimum guarantee allocated each year, determined by a set of tests, is approximately 40 percent or more of State general fund revenues. The amount of the minimum guarantee is not finalized until the final economic analysis is completed for a fiscal year; if the revisions result in a higher minimum guarantee than was budgeted, the State makes a one-time settle-up payment and uses the increased minimum to calculate the subsequent year s funding, as described below. If the revised minimum guarantee is lower than budgeted, the State can use the higher level or make mid-year adjustments to reduce funding. Test 1 (share of the State general fund) allocates approximately 41 percent of the State general fund revenue to K-14 school districts. Test 1, in which the amount of the minimum guarantee is based on the share of the State general fund revenue spent on K-14 education funding in fiscal year , only applies if Test 2 or Test 3 (described below) does not result in additional funding for K-14 school districts. Test 1 has been used four times in the last 29 years, including fiscal year Test 2 (change in per capita personal income) provides that K-14 school districts receive the same amount of funding received in the prior year, adjusted for year-over-year statewide changes in K-12 attendance and per capita personal income. Test 2 is used if it results in more funding for K-14 school districts than Test 1 (unless Test 3 applies instead). Test 2 has been used in 14 of the past 29 years, including fiscal year Test 3 (change in general fund revenue) provides that K-14 school districts receive the same amount of funding received in the prior year, adjusted for year-over-year statewide changes in K-12 attendance and general fund revenue; this calculation is only used if the percentage change in per capita State general fund revenue is less than the change in per capita personal income. Test 3 has been used in nine of the past 29 years, including fiscal years and In years of economic hardship, the State Legislature can suspend the minimum guarantee for a year by a two-thirds vote, which also triggers the maintenance factor obligation, to be restored in later years. Such suspension has only occurred twice, in fiscal years and The State creates a maintenance factor obligation when Test 3 is operative or when the minimum guarantee is suspended. In any year in which Test 3 is used, the difference between the actual amount of funding provided and the amount that would have been appropriated, under the larger amount of either Test 1 or Test 2, is considered a maintenance factor credit to K-14 school districts, to be restored in future years when State revenue growth rebounds to exceed personal income. The State constitution requires the maintenance factor be paid off in annual amounts determined by formula, with stronger revenue growth generally requiring larger payments. The State Legislature has the authority to spend more than the minimum guarantee, although any increase creates a higher minimum floor for the following year; this has occurred from time to time. At times, the State also has had outstanding onetime Proposition 98 obligations known as settle-up obligations. A settle-up obligation is created when the minimum guarantee increases midyear and the State does not make an additional payment within that fiscal year to meet the higher guarantee. The increased amount is used as the base for the following year s minimum guarantee. Settle-up funds can be used for any educational purpose, including paying off other state one-time obligations, such as deferrals and mandates

59 Community Redevelopment and Revitalization Beginning with the Community Redevelopment Act (1945) under Article XVI of the State Constitution, amended over time, until the termination and dissolution of the program in 2011, a local government could improve an economically depressed area by creating a redevelopment agency (an RDA ) to pay for development projects with the future increase in property tax revenue, or tax increment, attributable to the growth in assessed value of taxable property within the project area when the project was complete. However, the allocation of the tax increment to the local RDA caused a reduction in the one percent countywide property tax levy for other local taxing agencies, including school districts, although ad valorem property taxes in excess of the one percent property tax levy collected for payment of debt service on school district bonds were not affected. Although a school district could negotiate with the RDA for pass-through payments of local tax revenues, because the State was replacing the school district s lost tax revenue, there was little incentive for most school districts to negotiate for greater amounts of pass-through from the RDAs. The State s share of reimbursements to such school districts soared into the hundreds of millions of dollars per year. Facing economic crisis, Assembly Bill, First Extended Session 26 ( AB1X 26 ) (2011), upheld by the State Supreme Court in California Redevelopment Association v. Matosantos (2011), was enacted to dissolve the more than 400 RDAs in the State to preserve funding for core public services at the local level. Successor agencies were established to facilitate the management of projects underway, making payments on enforceable obligations, and disposing of assets and properties. Senate Bill 107 (2015) streamlined the dissolution process and expanded the types of loans for which cities and counties can seek reimbursement. Some school districts receive pass-through payments during the dissolution process. See DISTRICT FINANCIAL INFORMATION Revenues herein. Assembly Bill 2 ( AB2 ) (2015), the result of several legislative efforts to replace the redevelopment law in order to provide local government options for sustainable community economic development, is a limited version of the former law, targeting only the State s most impoverished areas. AB2 allows a local government to create a community revitalization investment area ( CRIA ) if several conditions are met, including measures of unemployment, crime, and dilapidated infrastructure and residential structures, which are required to insure that the CRIA process is actually used for the intended purpose of alleviating blight. Significantly, school districts are prohibited from participating in the CRIA; because schools may not contribute their share of the tax increment to the project area, the funding impact to schools and the State is avoided. Assembly Bill 2492 (2016) was enacted that clarified implementation issues of AB2. Limits on State Authority Over Local Tax Revenues State and local governments funding and responsibilities are interrelated. Both levels of government share revenues raised by certain taxes such as sales and fuel taxes, and both also share in the costs for some programs such as health and social services. Although the State does not receive local property tax revenue, it has had authority over the distribution of these revenues among local agencies and school districts. Under Article XIIIA, the State had the authority to permanently shift property taxes among local governments. At times, the State fulfilled some portion of the Proposition 98 minimum guarantee by shifting some of the property tax revenues share belonging to cities, counties, other special districts and redevelopment agencies to K-14 school districts through an Educational Revenue Augmentation Fund ( ERAF ) established in each county. Proposition 1A (2004) amended Articles XI and XIII of the State Constitution to require two-thirds approval of the State Legislature to shift property tax revenues allocation between local governments, preventing the State from reducing the property tax share allocated to cities, counties, and special districts. However, the State could still transfer property tax revenues to schools in the case of severe fiscal hardship and two-thirds approval of the State Legislature. Proposition 22 (2010) amended Articles XIII and XIX of the State Constitution to further restrict the State s control over local property taxes in order to stabilize local government revenue sources. Even during times of severe fiscal hardship, the State could not take revenue derived from locally imposed taxes, such as parcel taxes, hotel taxes, utility taxes, and sales taxes, for State purposes, nor could the State delay distribution of tax revenues to local governments, redirect redevelopment agency property tax revenue to other local governments such as school districts, or shift money to the school districts under an ERAF. As a result, the State would have to take other actions to balance its budget in some years, such as reducing State spending or increasing State taxes. Proposition 22 s restriction of the State s ability to shift local funds made K-14 school districts more directly dependent on the State general fund for Proposition 98 funding

60 Temporary State Tax Increases From 2008 to 2012, the State eliminated more than $56 billion from State and local funding for local services including education, police, fire, and health care. Proposition 30 (2012) allows the State to levy a temporary sales tax (lasting four years) and income tax on high-income earners (lasting seven years), the revenues of which are dedicated to increased education funding and to balance the State budget. Existing law requires that in years in which the State s general fund revenues grow by a large amount, funding for education must also be increased by a large amount. The tax revenues allocated to education as part of the minimum guarantee are deposited into the Education Protection Account ( EPA ), recalculated and distributed quarterly to K-14 school districts (89 percent to K-12 school districts and 11 percent to community college districts) as a continuing appropriation not subject to budget adoption. The funds are distributed in the same manner as existing unrestricted per-student funding. The Proposition 30 tax revenue is included in the Proposition 98 calculation, raising the guarantee by billions each year. The remaining Proposition 30 tax revenues will be used to balance the budget. Proposition 55 (2016) extends the income tax increase on high-income taxpayers through the year Approximately half of the revenue raised by this measure is allocated to K-14 school districts. The measure also directs half of any excess revenues, up to a maximum of $2 billion, for additional funding for Medi-Cal, if revenues exceed the constitutionally required education spending and the costs of government programs in place as of January 1, A portion would also be saved in reserves and spent on debt payments. Any remaining revenues would be available for any State purpose. Enacted Budget Required for Disbursement of State Funds In years in which the State Legislature has not enacted a budget by the required deadline, the fiscal year begins without an enacted budget, and the State has, in some cases, issued registered warrants or IOUs, to pay certain State employees wages and State debts. In 1988, during such a budgetary impasse, a taxpayers association argued that such warrants were not authorized without an enacted budget. In the case, known as Jarvis v. Connell, the State Court of Appeal held that without an enacted budget, State funds may not be disbursed unless the payment is authorized by the State Constitution, as a continuing appropriation, or by federal mandate. This could affect school district budgets to the extent that, if there is neither an enacted budget nor emergency appropriation, State payments owed to school districts could be delayed unless they are required as a continuing appropriation or federal mandate. State and School District Budgetary Reserves Proposition 58 (2004) amended Article IV of the State Constitution to require the State to enact a balanced budget, in which estimated revenues would meet or exceed estimated expenditures in each year, and that mid-year adjustments be made if the budget fell out of balance. The law established the Budget Stabilization Account (the BSA ) in the State s general fund, which required a deposit of three percent of the State general fund each year. Proposition 2 (2014) addressed the need for long-term financial stability in the State in the face of economic volatility by dedicating funds to pay down the State s debt, changing the State s reserve policies, and creating a separate budget reserve for K-14 school districts called the Public School System Stabilization Account (the PSSSA ). The law reduced legislative discretion over the timetable for the repayment of State debts and required that 1.5 percent of the State general fund be deposited into the BSA annually, plus an additional amount when the State experiences spikes in capital gains tax revenue in excess of eight percent of State general fund revenues. The PSSSA, also funded with capital gains spikes, is drawn upon when the Proposition 98 minimum guarantee exceeds available State general fund and property tax revenues. Through 2030, half of the funds deposited each year into the BSA must be used to pay fiscal obligations such as budget loans and unfunded State level pension plans. Funds may be withdrawn from BSA only for a disaster or if, over three years, spending does not rise above the highest level of spending. In the case of a recession, only half of the funds can be withdrawn. As a result, a large amount of incremental gains in the State s general fund revenues are allocated to building reserves and repaying debt. The State has a constitutional obligation to ensure that school districts continue to operate even in times of financial difficulty so that the education of students in the State is not disrupted. The State requires school districts to maintain a minimum reserve in their general fund s reserve for economic uncertainties to help school districts manage cash flow, address unexpected costs, save for large purchases, reduce costs of borrowing money, and mitigate the volatility in funding produced by the reliance on tax revenue funding sources. The minimum reserve amount required depends on the size of the school district s enrollment. Smaller school districts are required to keep a higher percentage of reserves because they are more easily overwhelmed by unexpected costs, such as a single major facility repair, which could deplete most of its reserves in a single year. School districts with enrollment of 300 or fewer students, which represent 25 percent of school districts in the

61 State, must keep a minimum reserve of five percent of expenditures. School districts with enrollment of 301 to 1,000 students, which represent 17 percent of school districts in the State, must keep a minimum reserve of four percent. School districts with enrollment of 1,001 to 30,000 students, which represent 55 percent of school districts in the State, must keep a minimum reserve of three percent. School districts with enrollment of 30,001 to 400,000 students, which represent three percent of school districts in the State, must keep a minimum reserve of two percent. The one school district in the State with an enrollment of 400,001 or more students must keep a minimum reserve of one percent. Many school districts attempt to keep their reserve levels higher than State minimum requirements. Senate Bill 858 (2014), enacted as trailing legislation to the fiscal year State budget, required K-12 school districts, in the event of a deposit by the State to the PSSSA, to reduce total assigned and unassigned reserves in the following year to no more than twice its minimum reserve for economic uncertainties, ranging from one to five percent of expenditures depending on the size of the school district. Senate Bill 751 (2018), signed into law on October 11, 2017 and effective January 1, 2018, makes certain changes to the cap on school district reserves, increasing both the State PSSSA deposit amount required to trigger the reserve cap (to three percent of State general fund revenues appropriated for K-12 school districts), and increasing the cap on individual school district reserves (to 10 percent of combined assigned and unassigned ending general fund balances). In addition, basic aid school districts and small school districts with fewer than 2,501 students are exempted from the cap. County education officials can exempt a school district from the cap if the school district demonstrates extraordinary fiscal circumstances, including undertaking multi-year infrastructure or technology projects. A smaller reserve could affect the school district s financial condition in the event of an economic downturn. The District cannot predict when a deposit to the PSSSA might occur or whether future legislation will be enacted that changes this requirement. School Facilities Funding The Leroy F. Greene School Facilities Act (1998) established the State Facilities Program ( SFP ) to allocate funding grants based on proposals submitted by school districts for the new construction of or the modernization of existing school facilities, although the program has evolved to allow funding for other types of school facility needs including facility hardship, seismic mitigation, charter school facilities, relief of overcrowding, career technical education facilities, incentives for energy efficiency and high-performance architectural attributes, and joint-use programs with other government entities. Funding for SFP grants comes from statewide general obligation bonds approved by the voters in the State. The State retires these bonds by making annual debt service payments. In fiscal year , the State paid $2.4 billion in debt service on previously issued K-12 facilities bonds and $300 million in debt service on community college facilities bonds. Proposition 1A (1998) provided $9.2 billion ($6.7 billion for K-12 facilities), Proposition 47 (2002) provided $13.2 billion ($11.4 billion for K-12 facilities), Proposition 55 (2004) provided $12.3 billion ($10 billion for K-12 facilities), Proposition 1D (2006) provided $10.4 billion ($7.3 billion for K-12 facilities), and Proposition 51 (2016), the first initiative facilities bond measure, provides $9 billion ($6 billion for K-12 facilities). Proposition 51 amends the Education Code, prescribing the fiscal allocation and purpose of the $9 billion bond and establishing the 2016 State School Facilities Fund and the 2016 California Community College Capital Outlay Bond Fund in the State Treasury. Of the total amount, $6 billion is allocated to K-12 facilities (half for new construction and half for modernization), $500 million for charter schools, $500 million for career technical education programs, and $2 billion to community colleges. In most cases, K-12 school and community college districts that receive funding for approved projects must match the funding with local funding according to the type of project. Projects for the purchase of land and new construction are matched evenly. Modernization projects require a match of 40 percent local funding to 60 percent State funding. If no local funding is available, the school district can apply for additional grant funding. Community college projects do not have a specified contribution model and are determined individually. K-12 school and community college districts may sell local general obligation bonds to cover the school district s share of the cost of facility projects. K-12 school districts may also raise funds for facilities by charging fees on new development (community college districts may not). Both K-12 school and community college districts may also raise funds by parcel taxes and other methods used less frequently. Impact of Future Legislation Laws affecting school district funding and the power of State and local governments to raise and spend revenue have been subject to many changes as voters and lawmakers react to economic and political cycles. The complex patchwork of the many different provisions at times results in uncertainty regarding their operation or interpretation. Many of the laws discussed

62 above were enacted through the State s initiative process. Initiative constitutional amendments may be changed only by another statewide initiative. Legislative constitutional provisions may be changed by a majority vote of both houses of the State Legislature and approval by the Governor of California (the Governor ), if the change furthers the purposes of the provision. The District cannot predict whether or when the voters in the State or the State Legislature will approve further legislation that could restrict the District s sources of revenue or its ability to spend that revenue, or require the District to appropriate additional revenue. FUNDING OF PUBLIC EDUCATION IN THE STATE Sources of Revenue for Public Education There are four general sources of funding for K-12 public education in the State: the federal government, local property taxes, other local funding sources and State funding, the principal source of funding for most school districts. Proposition 13 eliminated the possibility of raising additional ad valorem property taxes above one percent for general-purpose school support, and the courts have declared that school districts may not charge fees for school-related activities, unless the charge is specifically authorized by law for a particular program or activity. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND EXPENDITURES herein. State Funding. Many school districts in the State receive the majority of their funds from the State. State funding accounted for approximately 62 percent of the State s K-12 public education funding in fiscal year and approximately 61 percent in fiscal year , and is budgeted to account for approximately 61 percent of funding in fiscal year There are three sources of State funds for K-12 public education: the Proposition 98 minimum guarantee, comprised of a combination of State general fund revenues and local property tax revenues, representing the majority (85 percent in fiscal year ) of State funding; additional State funds for targeted programs such as facilities and remaining categorical programs such as special education, nutrition, afterschool programs, and home-to-school transportation; and State lottery funds, a portion of which may only be used for instructional purposes. The Proposition 98 guaranteed minimum amount is set forth each year in the State budget. See The State Budget and The Proposed State Budget herein. More than 60 percent of the State s general fund revenue comes from personal income taxes, with capital gains taxes representing more than 10 percent of the State s general fund revenue, so a downturn in the stock market may significantly impact the State s general fund. Because funding for education in the State depends on the amount of money available in the State general fund, the linkage can result in significant volatility in education funding. For instance, during the recent recession in fiscal year , State general fund revenues available for education funding were approximately eight percent less than the amount available four years prior. Provisions added to the State Constitution and statutes in 2013 and 2014 attempt to provide funding stability to public education by capturing spikes in capital gains revenue to use for paying down debts and obligations and to create reserves. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND EXPENDITURES herein. The State Revenue Limit was instituted in fiscal year to provide a mechanism to calculate the total amount of general-purpose revenue a school district, community college district or county office of education is entitled to receive from combined State and local sources per average daily attendance, known as its revenue limit, and the funding from this calculation formed the bulk of school districts income, and was annually increased to adjust for changes in the cost of living. The revenue limit for each school district or county office of education was funded first by the property tax revenue available to that entity, with the remaining balance filled by State funds. Community-funded districts whose local property tax revenues exceeded their calculated revenue limit did not receive State revenue limit funding, although such districts did receive the constitutionally required minimum funding, or basic aid per pupil, and categorical State and federal aid that was restricted to specific programs and purposes. In landmark legislation, the fiscal year State budget replaced revenue limit funding with the LCFF. The LCFF transfers control over spending decisions to local authorities, requiring community input about those spending decisions along with increased transparency and accountability for the outcomes of those decisions. The general-purpose funds for school districts are now funneled through LCFF, and funds received through categorical programs are greatly reduced. As under the revenue limit system, the amount a school district is entitled to receive for general-purpose LCFF funds is financed through the local property tax revenue available to the school district, with the remaining balance funded by the State. Most public education funding from the State is provided through the LCFF, including approximately 80 percent of Proposition 98 funding for K-12 public education. As under the revenue limit system, school districts continue to receive

63 funds based on the greater of prior year or current year ADA figures. Under LCFF, school districts across the State receive the same base grants for each grade span, based on ADA. In fiscal year , the base grants are $7,941 for kindergarten through third grade, $7,301 for fourth through sixth grade, $7,518 for seventh through eighth grade, and $8,937 for ninth through twelfth grade. These figures include increases for class size reduction for kindergarten through third grade and career technical education for ninth through twelfth grade. School districts receive a supplemental grant of 20 percent of the base grant for each student in the school district who is lowincome, English-learner, or foster youth. Enrollment counts are unduplicated, such that students may not be counted as both English-learner and low-income (foster youth automatically meet the eligibility requirements for free or reduced-price meals, and are therefore not discussed separately). School districts with more than 55 percent enrollment of unduplicated students receive a concentration grant, an additional 50 percent of the base grant for each unduplicated student above the threshold, intended to address the additional academic challenges faced by such students when their peers are similarly disadvantaged. The supplemental and concentration grants are allocated so that as a school district s proportion of unduplicated students increases, so does its total funding allocation. A school district in which 100 percent of enrollment is unduplicated students will receive 42.5 percent more total funding than a school district with no unduplicated students. The supplemental and concentration grant amounts are based on the unduplicated count of pupils divided by the total enrollment in the school district, based on the fall P-1 certified enrollment report. School districts have broad discretion to decide how to spend the base grant. The supplemental and concentration grants must be used to increase or improve services to the population they are intended to serve, although some services may be provided district- or site-wide. The implementation of LCFF began in fiscal year , with full implementation planned by fiscal year Until full implementation has occurred, the difference between the actual amount districts receive in a year and the target amount they will receive as of full implementation is referred to as the funding gap. The funding gap is determined by the difference between the funding floor, or amount of funding a school district received the prior year, and the target amount of funding the school district will receive at full implementation. The funding floor consists of fiscal year s deficited revenue limit divided by ADA multiplied by current year ADA, plus the sum of any categorical funding. Sufficient funding was available to fund 12 percent of the funding gap in fiscal year , 33 percent of the gap in fiscal year , 53 percent of the gap in fiscal year , 57 percent of the gap in fiscal year , and 43 percent of the gap in fiscal year , the fifth year of implementation of LCFF, bringing LCFF to 97 percent of full implementation. Under the hold harmless provision, no school district will receive less State aid than it received in fiscal year Most districts will receive more funding at full implementation of LCFF than they did previously under the revenue-limit system. For some school districts, their per-pupil undeficited fiscal year funding was higher than their LCFF entitlement at full implementation. Such districts will have their undeficited funding level restored through a supplemental ERT add-on payment. School districts that are eligible for ERT funding will receive the difference between their LCFF target and their LEA s fiscal year undeficited funding, adjusted for cost-of-living increases. Community-funded districts continue to receive at least the amount of State funding they received in fiscal year Although community-funded districts do not receive LCFF funding grants, they must comply with the regulations and accountability requirements of LCFF. Community-funded districts also continue to receive the constitutionally guaranteed $120 per-pupil minimum as well the $200 per-pupil minimum from the EPA pursuant to Proposition 30 as additional revenue. The District is not a community-funded district. The State funds school districts in monthly installments based on calculations made in a series of three apportionments throughout the fiscal year. Each apportionment includes funding for the LCFF and for other State programs. The amount of each apportionment is based on calculations made by each school district and reviewed by its county office of education. The Advance Principal Apportionment ( Advance Apportionment ), certified by July 20, sets forth the amount the school district will receive for the year, paid in a series of installments from August through January. The First Principal Apportionment ( P-1 Apportionment ), certified by February 20, set forth a new calculation based on the school district s first period ADA determined as of December, for installments that will be paid to the school district from February through June. The Second Principal Apportionment ( P-2 Apportionment ), certified July 2, based on second period ADA determined as of April, recalculates the amount of the final installment for the fiscal year paid to the school district in July. At the close of the fourth quarter, a final annual recalculation ( Annual Apportionment ) provides an updated estimate of the prior year s adjustment. In addition, school districts receive a quarterly allocation of the tax revenue deposited in the EPA from the temporary tax increases associated with Proposition 30 and extended under Proposition 55. The funds in the EPA are allocated between K- 12 school districts and community college districts by 89 percent and 11 percent, respectively, and entitlements are calculated based on the adjusted LCFF entitlement of the district. The EPA funds received by an LCFF-funded school district count towards the district s LCFF funding entitlement; community-funded districts also receive the $200 per-pupil EPA funding

64 See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND EXPENDITURES herein. The LCFF requires each school district to demonstrate that its spending decisions are producing the desired results of increased student performance as stated in each school district s own LCAP. Each school district must create its own annually updated LCAP with input from teachers, parents and the community, including the parents or guardians of unduplicated students. School districts must review and share the results to determine whether spending achieved the goals stated in the LCAP, for each school site and for the school district as a whole. All school districts must use the State s LCAP template beginning fiscal year The LCAP must include a description of the annual goals to be achieved for each student group for each State priority, including the content standards adopted by the State Board of Education. The LCAP of each school district is overseen and approved by the county superintendent. Charter schools must comply with LCFF and receive mostly the same funds as public schools, although calculation of targeted disadvantaged students differs somewhat to prevent abuse of the system. There are also differences in the process of LCAP adoption and assessment. In the case of a charter school that fails to perform according to its LCAP, the State is not required to provide the same support that a public school district or county office of education receives, and its charter can be revoked. Federal Funding. Federal revenue accounted for approximately nine percent of the State s K-12 public education funding in fiscal years and , and is budgeted to account for approximately nine percent of funding in fiscal year Most of these funds are designated for particular purposes. There are no unfunded federal education mandates; each is conditioned on a state s voluntary decision to accept federal program funds. The primary source of federal supplemental education funding is the Elementary and Secondary Education Act ( ESEA ) (1965), enacted to address inequality in education. The previous authorization of ESEA, the No Child Left Behind Act ( NCLB ) (2001), expanded the federal government s role and increased testing requirements to measure improvement. Most recently reauthorized under the Every Student Succeeds Act ( ESSA ) (2015), responsibility for school improvement has been shifted to the states. ESSA provides funding through six programs: Title I grants, tied to student assessment, to assist economically disadvantaged children; Title II grants for professional development; Title III grants for ancillary student services; Title IV grants for research and training; Title V grants for state departments; and Title VI grants for special education. Another significant source of federal funding for school districts is the Education for All Handicapped Children Act ( EHA ) (1975), enacted to support special education and related services, reauthorized by the Individuals with Disabilities Education Act ( IDEA ) (1990). The largest of the law s three sections, Part B, authorizes grants to states and local school districts to offset special education costs. As of fiscal year 2014, IDEA federal funding covered 16 percent of the estimated excess cost of educating students with disabilities; the shortfall is assumed by states and local school districts. Local Property Tax Revenue. Local property taxes revenue accounted for approximately 24 percent of the State s K-12 public education funding in fiscal year and approximately 25 percent of funding in fiscal year , and is budgeted to account for approximately 25 percent of funding in fiscal year Property taxes are constitutionally limited to one percent of the property s value, except to repay voter-approved debt. Other Local Funds. Local miscellaneous revenue accounted for approximately five percent of the State s K-12 public education funding in fiscal years and , and is budgeted to account for approximately five percent of funding in fiscal year There are several types of revenue a school district may receive from other local sources, including developer fees, parcel taxes, property lease revenues, and private donations. A school district may levy developer fees on new residential or commercial development within the school district s boundaries to finance the construction or renovation of school facilities. A school district may, with two-thirds approval from local voters, levy special taxes on parcels to fund specific programs within the school district. A school district may lease or sell its unused sites or facilities as another source of revenue. A school district may also seek contributions, sometimes channeled through private foundations established to solicit donations from local families and businesses. The State Budget Process Under the State Constitution, money may be drawn from the California Centralized Treasury System (the State Treasury ) only by an appropriation authorized by law. The primary source of annual appropriations authorizations is the budget act approved by the State Legislature and signed by the Governor (the Budget Act ), which can provide for projected expenditures only to the amount of projected revenues and balances available from prior fiscal years. The annual budget cycle begins when the Governor releases a proposed budget in January for the next fiscal year, which starts each July 1 and ends June 30. The Governor releases a revised budget in May based on new projections regarding State

65 revenues and feedback from the State Legislature and other constituents. The State Constitution requires that the State Legislature pass the Budget Act by June 15 by majority approval from both Houses. 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 may also be included in legislation other than the Budget Act. Bills containing appropriations (including for K-14 education) must be approved by a majority vote in each House of the State Legislature, unless such appropriations require tax increases, in which case they must be approved by a two-thirds vote of each House of the State Legislature, and be signed by the Governor. The State Constitution or a State statute may also provide for continuing appropriations that are available without regard to fiscal year. 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. The State Budget On June 27, 2017, the Governor signed the 2017 Budget Act and associated trailer bills to enact the fiscal year State budget (the State Budget ), a $180 billion total spending plan representing an increase of seven percent over revised levels for fiscal year The State Budget estimates that State general fund revenues exceed total general fund expenditures. The State Budget projects State general fund revenues and transfers to total $125.9 billion, an increase of six percent over revised estimates. The State s largest three sources of general fund tax revenue personal income taxes, sales and use taxes, and corporate taxes are projected to increase five percent. State general fund expenditures are projected to be $125.1 billion, an increase of $3.7 billion (3.0 percent) over revised levels. The State s general fund balance is budgeted to be $2.4 billion at the end of fiscal year State special fund expenditures are increased by $8.5 billion (18 percent) over revised levels, largely due to increased special fund spending on transportation and Medi-Cal. The State Budget provides for year-end total reserves of $9.9 billion, comprised of $1.4 billion in the discretionary Special Fund for Economic Uncertainties (SFEU) reserve and $8.5 billion in the Proposition 2 mandatory Budget Stabilization Account reserve fund. The State Budget includes $3.1 billion in additional funding for a total of $74.5 billion in K-14 education funding as required by Proposition 98, including $1.4 billion additional funds for LCFF, bringing its implementation to 97 percent; increased funding for transportation and infrastructure projects from revenues from fuel and vehicle-related taxes and fees; expansion of State earned-income tax credit to approximately one million additional low-wage families; increased funding for Medi-Cal provider rates and growth in Medi-Cal program from Proposition 56 tobacco tax revenues; increased funding to counties for cost sharing agreement for provision of in-home supportive services; increased funding for public universities and student financial aid; and increased funding for child care and preschool. In addition, the State Budget provides for a $6 billion pension loan from the State s cash balances (from the Surplus Money Investment Fund) to PERS, based on estimates that such action will save $11 billion over the next two decades and stabilize the State s contributions to PERS

66 The following table identifies historical and budgeted State general fund revenues, expenditures and fund balances. State General Fund State Budget Revised Revised Budget (Millions) (Millions) (Millions) Prior-year Fund Balance $3,508 $4,504 $1,622 Revenues and Transfers 115, , ,880 Expenditures 113, , ,096 Ending Fund Balance $5,024 $1,622 $2,406 Encumbrances Special Fund for Economic Uncertainties 4, ,426 Reserves Special Fund for Economic Uncertainties $4,044 $642 $1,426 Budget Stabilization Account 3,529 6,713 8,486 Total Reserves $7,574 $7,355 $9,912 Source: The State Legislative Analyst s Office. Education Funding. The Proposition 98 minimum guarantee for K-14 education funding continues to increase after reaching a low of $47.3 billion in fiscal year The State Budget provides for funding at the minimum guarantee level of $74.5 billion for fiscal year , an increase of $3.1 billion (4.4 percent) over the three-year fiscal period of through , combined with revisions and adjustments of the minimum guarantee for fiscal years and , in investment in K-14 education across all segments. The $3.1 billion increase is required due to the spending levels provided in the past two budget years exceeding the minimum guarantee, as spending above the minimum guarantee in one year becomes part of the base calculation of the minimum guarantee for the following year. The Proposition 98 maintenance factor, created in years in which State general fund revenue growth is slow or decreases compared to growth in per capita personal income, is calculated as the difference between the funding level that would have been budgeted had revenue growth been stronger and the lesser amount that is actually budgeted. The maintenance factor is carried over from year to year until the State s economy is strong enough to restore the difference by accelerating Proposition 98 funding. The maintenance factor was approximately $11 billion in fiscal year Fiscal year is a Test 2 year (since the increase in the minimum guarantee is due to a 3.7 percent increase in per capita personal income and a 0.05 percent decline in K-12 attendance) which results in funding at the minimum guarantee level with a maintenance factor payment of $536 million. The projected year-end outstanding maintenance factor obligation is $900 million. Of the total Proposition 98 spending budgeted for fiscal year , $52.6 billion is State general fund and $21.9 billion is local property tax revenue. The State Budget includes a $603 million settle-up payment to K-14 educational agencies (allocated to LCFF and Career Technical Education ( CTE ) funding), considered as a Proposition 98 debt repayment, reducing the State s outstanding settle-up obligation from over $1 billion to $440 million. For K-12 education specifically, the State budget provides $64.7 billion in Proposition 98 funds, $2.7 billion (4.3 percent) more than the revised level, and $2.2 billion (3.6 percent) more than the enacted fiscal year level. The State Budget increases per-pupil funding by $450 (4.3 percent) from the enacted fiscal year level, bringing total Proposition 98 per-pupil funding to $10,863. This total funding includes $2.4 billion in adjustments to K-12 education funding, of which $1.5 billion is for on-going increases, $933 million is for one-time initiatives, and $328 million is for one-time initiatives funded from other sources. The State Budget also authorizes $593 million in bond issuance from Proposition 51 general obligation bonds proceeds for school facilities. The State Budget provides an additional $1.4 billion in funding to school districts and charter schools for LCFF, bringing total LCFF spending to $57.4 billion in fiscal year (a 2.7 percent increase over the revised level), bringing the LCFF target level to approximately 97 percent of full implementation. The State Budget provides for certain adjustments in education spending, including the following:

67 Per-Pupil Discretionary Grants: One-time funding of $877 million that local educational agencies may use for any educational purpose, distributed based on average daily attendance; reduces the mandates backlog to $799 million at the end of fiscal year Cost-of-Living-Adjustment: Additional ongoing funding of $65 million to provide for a 1.56 percent cost-of-living adjustment ( COLA ) for mandates block grants to K-14 educational agencies ($3.5 million for K-12 and $500,000 for community colleges) and $61 million to provide for the 1.56 percent COLA for certain categorical programs, including special education, child nutrition, foster youth services, and American Indian education. After School and Education Safety (ASES) Program: Additional ongoing funding of $50 million, bringing total spending for ASES to $600 million, for increased provider reimbursement rates, implementation of new minimum wage obligations. Classified Employee Teacher Certification: One-time funding of $25 million in grants to support up to 1,250 classified employees in completing teacher certification education. CTE Pathways: Additional ongoing funding of $15 million to support efforts linking secondary and postsecondary CTE; $200 million for the third and final year of CTE incentive grant program as required by legislation. Refugee Student Support: One-time funding of $10 million for supportive services to refugee students transitioning to new learning environments, to be allocated over the next three fiscal years by the California Department of Social Services to school districts impacted by significant numbers of refugee students. Mandated Reporter Training: Additional ongoing funding of $8.5 million to add mandated reporter training on the detection and reporting of child abuse to the K-12 mandates block grant. County Offices of Education: Additional ongoing funding of $7 million to increase LCFF funding to county offices of education for school district services. Bilingual Teacher Training: One-time funding of $5 million in Proposition 98 funds to provide professional development for bilingual teachers. Online Educational Resources: Additional ongoing funding of $3 million to fund online educational resources. California-Grown Fresh School Meals Grants: One-time funding of $1.5 million in grants to local educational agencies with high proportions of low-income or English-learner students, for the purchase of food grown in the State and expand the number of freshly prepared meals using State-grown ingredients. Proposition 56 Tobacco Prevention: Funding of $32 million in new cigarette tax revenue to support the tobacco use prevention education in schools as statutorily required. Proposition 39 Energy Efficiency: Funding of $423 million for energy efficiency projects at K-14 schools as statutorily required for the fifth and final year of such funding, with trailing legislation extending the grant opportunity for an additional year

68 The following table identifies Proposition 98 budgeted funding levels for fiscal year , revised levels for fiscal year , and final levels for fiscal year , both by segment of educational level and by source of funding. Proposition 98 Funding State Budget Final Revised Enacted (Millions) (Millions) (Millions) By Segment K-12 Schools General Fund $43,074 $43,955 $45,763 Local Property Tax Revenue 17,047 18,133 18,981 Subtotal $60,121 $62,089 $64,745 Community Colleges General Fund $5,384 $5,473 $5,654 Local Property Tax Revenue 2,631 2,768 2,911 Subtotal $8,016 $8,242 $8,565 Preschool $885 $975 $1,122 Other Agencies Total $69,103 $71,390 $74,523 By Fund Source General Fund $49,425 $50,488 $52,631 Local Property Tax Revenue 19,678 20,902 21,892 Source: The State Legislative Analyst s Office. Total $69,103 $71,390 $74,523 The Proposed State Budget On January 10, 2018, the Governor released the proposed State budget for fiscal year (the Proposed State Budget ), a $190.3 billion spending proposal comprised of $131.7 billion from the State general fund, $56.2 billion from special funds and $2.5 billion from bond funds. General fund revenues, including transfers, are projected to be $129.8 billion for fiscal year , an increase of $2.5 billion from revised fiscal year levels, due largely to the projected $4.2 billion (4.7 percent) increase in personal income taxes. Revised State general fund revenues for fiscal years and are projected to be $1.2 billion higher than projected in the State Budget. The Proposed State Budget projects that the top three sources of revenue for the State s general fund will consist of $93.6 billion in personal income taxes, $26.2 billion in sales and use taxes, and $11.2 billion in corporation taxes. Under the Proposed State Budget, the Budget Stabilization Account is projected to have a fiscal year ending balance of $8.4 billion, 65 percent of the target established by Proposition 2 (2014). The Proposed State Budget would deposit the constitutionally required $1.5 billion to the reserve in fiscal year along with an additional $3.5 billion supplemental deposit, which would bring the Budget Stabilization Account to the maximum level allowed by the State Constitution, 10 percent of the State s general fund. The Proposed State Budget would deliver a fiscal year total reserve ending balance of $15.7 billion, comprised of $13.5 billion in the Budget Stabilization Account and $2.3 billion in the discretionary Special Fund for Economic Uncertainties

69 The following table from the State Legislative Analyst s Office identifies historical and budgeted State general fund revenues and expenditures. State General Fund Proposed State Budget Revised Revised Budget (Millions) (Millions) (Millions) Prior-year Fund Balance $5,029 $4,610 $5,351 Revenues and Transfers 118, , ,791 Expenditures 119, , ,690 Ending Fund Balance $4,610 $5,351 $3,452 Encumbrances 1,165 1,165 1,165 Special Fund for Economic Uncertainties 3,445 4,186 2,287 Reserves Special Fund for Economic Uncertainties $3,445 $4,186 $2,287 Budget Stabilization Account 6,713 8,411 13,461 Total Reserves $10,158 $12,597 $15,748 Source: The State Legislative Analyst s Office. Education Funding. The Proposed State Budget contains a total of $6.3 billion in new Proposition 98 spending proposals for K-12 education, community colleges, and preschool compared to the State Budget. Of the increase, $3.9 billion constitutes ongoing expenditures while $2.4 billion constitutes one-time expenditures. For fiscal year , the Proposed State Budget increases the Proposition 98 minimum guarantee to $75.2 billion, an increase of $687 million from the State Budget. For fiscal year , the Proposed State Budget projects a Proposition 98 minimum guarantee of $78.3 billion, an increase of $3.1 billion (4 percent) from revised fiscal year levels and an increase of $31 billion (66 percent) from fiscal year levels. Another $2.2 billion in Proposition 98 spending results from the expiration of various one-time initiatives, with the associated funding repurposed for new commitments in fiscal year Proposition 98 spending is budgeted to account for more than 53 percent of total State general fund spending in fiscal year Proposition 98 K-12 per-pupil expenditures are proposed to be $11,628 in fiscal year , an increase of $463 (4.1 percent) per-pupil from revised fiscal year levels. Community college per-pupil spending per full-time equivalent student are proposed to be $8,099 in fiscal year , an increase of $475 (6.2 percent) from revised fiscal year levels. K-12 per-pupil spending from all funds in the Proposed State Budget is $15,654 in fiscal year and $16,085 in fiscal year Significant proposals regarding K-12 education funding contained in the Proposed State Budget include: Local Control Funding Formula: A $2.9 billion increase to LCFF sufficient to bring LCFF to full implementation two years ahead of schedule and provide a 2.51 percent cost-of-living adjustment. One-Time Discretionary Funding: An increase of $1.8 billion in one-time Proposition 98 funding for school districts, charter schools and county offices of education to use at local discretion. All of the funds provided would offset any applicable mandate reimbursement claims for these entities. K-12 Component of the Strong Workforce Program: An increase of $212 million in Proposition 98 funding for K-12 Career Technical Education (CTE) administered through the community college Strong Workforce Program in consultation with the State Department of Education. Cost-of-Living-Adjustments: An increase of $133.5 million in Proposition 98 funding to support a 2.51 percent cost-of-living adjustment for categorical programs that remain outside of LCFF

70 Special Education: An increase of $125 million in Proposition 98 funding and $42.2 million in federal Temporary Assistance for Needy Families (TANF) funding on a one-time basis for competitive grants to expand inclusive care and education settings for 0-5 year olds and improve school readiness and long-term academic outcomes for low-income children and children with exceptional needs; an increase of $10 million in Proposition 98 funding for special education local plan areas to support county offices of education in providing technical assistance to local educational agencies through the State system of support; and a decrease of $10.2 million in Proposition 98 funding to reflect a projected decrease in special education average daily attendance. State System of Support: An increase of $59.2 million in Proposition 98 funding for county offices of education to provide technical assistance to local educational agencies and improve student outcomes. California Collaborative for Educational Excellence: An increase of $6.5 million in Proposition 98 funding for the California Collaborative for Educational Excellence to help build capacity within county offices of education to provide technical assistance and improve student outcomes. County Offices of Education: An increase of $6.2 million in Proposition 98 funding for county offices of education to reflect a 2.51 percent cost-of-living adjustment and average daily attendance changes applicable to the LCFF. Local Property Tax Adjustments: A decrease of $514 million in Proposition 98 funding for school districts and county offices of education in fiscal year as a result of higher offsetting property tax revenues, and a decrease of $1.1 billion in Proposition 98 funding for school districts and county offices of education in fiscal year as a result of increased offsetting property taxes. School District Average Daily Attendance: A decrease of $183.1 million in fiscal year for school districts as a result of a decrease in projected average daily attendance from the State Budget, and a decrease of $135.5 million in fiscal year for school districts as a result of further projected decline in average daily attendance for fiscal year

71 The following table from the State s Legislative Analyst s Office identifies historical and budgeted Proposition 98 funding. Proposition 98 Funding Proposed State Budget Revised Revised Proposed (Millions) (Millions) (Millions) Funding By Segment K-12 Education $62,048 $65,340 $67,695 Community Colleges 8,283 8,654 9,207 Preschool $975 1,122 1,338 1 Other Agencies Total $71,390 $75,211 $78,324 Funding By Source General Fund $49,993 52,741 $54,564 Local Property Tax Revenue 21,397 22,470 23,761 Total $71,390 $75,211 $78,324 Enrollment K-12 Average Daily Attendance 5,960,037 5,961,253 5,944,090 Community College FTE 1,134,809 1,135,081 1,136,813 Funding Per Student K-12 Education 2 $10,588 $11,165 $11,628 California Community Colleges 7,299 7,624 8,099 1 Includes $125 million for one-time grants to fund the expansion of early education programs, including preschool. Excluding this amount, the increase from fiscal year is $91 million (8.1 percent). 2 Per-pupil amount combines funding for K-12 education, preschool, and other agencies. Figures may not total due to rounding. Source: The State Legislative Analyst s Office. Future Budgets The District cannot predict what actions will be taken in the future by the State Legislature and the Governor to address changing State revenues and expenditures or the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and State economic conditions and other factors over which the District will have no control. Certain actions could result in a significant shortfall of revenue and cash, and could impair the State s ability to fund schools as budgeted. State budget shortfalls in future fiscal years could have an adverse financial impact on the District. For more information on the State budget, please refer to the State Department of Finance s website at and to the State Legislative Analyst s Office s website at The District takes no responsibility for the continued accuracy of these Internet addresses or for the accuracy, completeness or timeliness of the information presented therein, and such information is not incorporated herein by such reference

72 LEGAL MATTERS No Litigation There is no action, suit or proceeding known to be pending or threatened that seeks to restrain or enjoin the execution or delivery of the Certificates or the Legal Documents or in any way contesting or affecting the validity of the foregoing or any proceeding of the District taken with respect to the foregoing. There are no lawsuits or claims pending against the District that would impair the ability of the District to make Rental Payments or otherwise meet its outstanding lease or debt obligations. Legal Opinion Parker & Covert LLP, Special Counsel, will render its opinion with respect to the validity and enforceability of the Legal Documents. Copies of such approving opinion will be available at the time of delivery of the Certificates. The form of the legal opinion to be delivered by Special Counsel is included in this Official Statement. See APPENDIX D FORM OF OPINION OF SPECIAL COUNSEL attached hereto. The opinion is based on existing laws, regulations, rulings and court decisions. Special Counsel has not undertaken a review of this Official Statement on behalf of Certificate owners and makes no representation as to the accuracy or completeness hereof. Tax Matters In the opinion of Parker & Covert LLP, Special Counsel, based on an analysis of existing statutes, regulations, rulings, and court decisions and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, the portion of the Rental Payments designated as and constituting interest paid by the District under the Facilities Lease and received by the owners of the Certificates is excludable from gross income for federal income tax purposes and is exempt from State personal income taxes. Special Counsel is also of the opinion that such interest is not an item of tax preference for purposes of the federal individual alternative minimum taxes. A complete copy of the proposed opinion of Special Counsel is included in this Official Statement. See APPENDIX D FORM OF OPINION OF SPECIAL COUNSEL attached hereto. The Internal Revenue Code of 1986, as amended (the Code ) imposes various restrictions, conditions, and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Facilities Lease. The District has covenanted to comply with certain restrictions designed to assure that the interest portion of the Rental Payments evidenced and represented by the Certificates will not be included in federal gross income. Failure to comply with these covenants may result in such interest s being included in federal gross income, possibly from the date of initial delivery of the Certificates. The opinion of Special Counsel assumes compliance with these covenants. Special Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of initial delivery of the Certificates may affect the value of, or the tax status of interest evidenced and represented by, the Certificates. Although Special Counsel has rendered an opinion that the interest portion of the Rental Payments to be paid by the District under the Facilities Lease and received by the owners of the Certificates is excludable from gross income for federal income tax purposes and is exempt from State personal income taxes, the ownership or disposition of Certificates or the accrual or receipt of such interest may otherwise affect an owner s federal or state tax liability. The nature and extent of these other tax consequences will depend upon the owner s particular tax status or the owner s other items of income or deduction. Special Counsel expresses no opinion regarding any such other tax consequences. Special Counsel has expressed no opinion regarding any pending or proposed tax legislation or regulation. The complete text of the opinion that Special Counsel expects to deliver upon the delivery of the Certificates is set forth in APPENDIX D FORM OF OPINION OF SPECIAL COUNSEL. Legality for Investment Under provisions of the California Financial Code, the Certificates are legal investments for commercial banks in the State to the extent that the Certificates, in the informed opinion of the investing bank, are prudent for the investment of funds of

73 depositors. Under provisions of the Government Code, the Certificates are eligible to secure deposits of public moneys in the State. RATINGS S&P Global Ratings ( S&P ) is expected to assign a municipal bond rating of AA to the Certificates with the understanding that upon delivery of the Certificates, the Bond Insurance Policy insuring the payment when due of the principal of and interest with respect to the Certificates will be issued by AGM. See BOND INSURANCE herein. S&P has assigned an underlying municipal bond rating of A+ to the Certificates. Such ratings reflect only the views of S&P and an explanation of the significance of such ratings may be obtained from S&P. S&P may have obtained and considered information and material which has not been included in this Official Statement. Generally, rating agencies base their ratings on information and material so furnished and on investigations, studies and assumptions made by them. The ratings are not recommendations to buy, sell or hold the Certificates. There is no assurance that any such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by S&P if, in the judgment of S&P, circumstances so warrant. The District has not undertaken any responsibility to assure the maintenance of any rating or to oppose any such revision or withdrawal. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Certificates. MUNICIPAL ADVISOR Government Financial Strategies inc. has been employed by the District to perform municipal advisory services in relation to the sale and delivery of the Certificates. Government Financial Strategies inc., in its capacity as Municipal Advisor, has prepared this Official Statement. Government Financial Strategies inc. has not, however, independently verified nor confirmed all of the information contained within this Official Statement. Government Financial Strategies inc. will not participate in the underwriting of the Certificates. Fees charged by Government Financial Strategies inc. are not contingent upon the sale of the Certificates. INDEPENDENT AUDITOR The financial statements of the District as of and for the year ending June 30, 2017, have been audited by Crowe Horwath LLP, Sacramento, California. The audited financial statements of the District as of and for the year ended June 30, 2017, are set forth in APPENDIX B THE FINANCIAL STATEMENTS OF THE DISTRICT AS OF AND FOR THE YEAR ENDING JUNE 30, 2017 attached hereto. The District has not requested nor did the District obtain permission from the Auditor to include the audited financial statements as an appendix to this Official Statement. The Auditor has not been engaged to perform and has not performed, since the date of its report attached hereto, any procedures on the financial statements addressed in that report. The Auditor also has not performed any procedures relating to this Official Statement. UNDERWRITING AND INITIAL OFFERING PRICE Following a competitive sale process, the Certificates will be purchased by Fidelity Capital Markets (the Underwriter ) pursuant to a certificate purchase agreement (the Purchase Agreement ) by and between the District and the Underwriter at a price of $59,020, (equal to the principal amount of the Certificates of $59,780,000.00, plus a net original issue premium of $34,179.70, less an underwriting discount of $793,202.34). The Underwriter s obligation to purchase the Certificates is subject to certain terms and conditions set forth in the Purchase Agreement. The Underwriter intends to offer the Certificates to the public at the initial offering prices and yields stated on the inside cover page hereof. The Underwriter may offer and sell the Certificates to certain dealers and others at prices lower than such public offering prices. The offering prices may be changed from time to time by the Underwriter

74 CONTINUING DISCLOSURE The District will covenant for the benefit of the holders and Beneficial Owners of the Certificates to annually provide certain financial information and operating data relating to the District (the Annual Report ) by not later than nine and one-half months after the end of the fiscal year, commencing with the report for fiscal year (which is due no later than April 15, 2019), and to provide notices of the occurrence of certain enumerated events. The Annual Report and notices of certain enumerated events will be filed by the District with EMMA. The specific nature of the information to be contained in the Annual Report and the enumerated events for which notice will be given is specified in APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE attached hereto. These covenants are being made in order to assist the Underwriter in complying with SEC Rule 15c2-12(b)(5) (the Rule ). In the past five years, the District has not complied in all respects with its previous undertakings made pursuant to the Rule. The following annual reports were not filed in accordance with their requirements in the past five years: The annual reports for the 2013 Bonds for fiscal year due March 31, 2014 and for fiscal year due March 31, 2015 were filed in a timely manner but without the required top ten taxpayer information. Supplemented annual reports containing the required top ten taxpayer information along with notices of the failure to file the complete annual reports were posted on EMMA on April 20, The annual report for the Visalia Unified School District 2015 Certificates of Participation (Refunding and Capital Projects) for fiscal year due April 15, 2017 was filed in a timely manner but with an incorrect version of the most recent interim financial report. The fiscal year second interim report satisfying the requirement was posted to EMMA on April 27, The notice of the failure to file the complete annual report was posted on EMMA on April 24, As of the date of this Official Statement, the District has made all required filings in the past five years for currently outstanding issues in connection with prior undertakings under the Rule. ADDITIONAL INFORMATION Additional information concerning the District, the Certificates or other matters concerning the sale and delivery of the Certificates may be obtained by contacting Visalia Unified School District, 5000 West Cypress Avenue, Visalia, California 93277, telephone (559) , Attention: Assistant Superintendent, Administrative Services, or by contacting the Municipal Advisor, Government Financial Strategies inc., 1228 N Street, Suite 13, Sacramento, California , telephone (916) All of the preceding summaries of the Certificates, the Legal Documents and other documents are made subject to the provisions of such documents respectively, and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the District for further information in connection therewith. Further, this Official Statement does not constitute a contract with the purchasers of the Certificates, and any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. The execution and delivery of this Official Statement by the District has been duly authorized by the District Board. Visalia Unified School District By: /s/ Todd Oto, Ed.D. Todd Oto, Ed.D. Superintendent

75 APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

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77 APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS Page DEFINITIONS... A-2 GROUND LEASE... A-10 FACILITIES LEASE... A-10 General... A-10 Term... A-10 Substitution... A-11 Rental Payments; Additional Payments... A-12 Allocation of Rental Payments... A-12 Fair Rental Value... A-12 Covenant to Budget and Appropriate... A-13 No Offsets; Net Lease... A-13 Abatement of Rental... A-13 Prepayment... A-13 Covenants of the District... A-14 Insurance... A-15 Eminent Domain... A-17 Events of Default... A-17 Remedies on Default... A-18 TRUST AGREEMENT... A-19 General... A-19 Assignment... A-19 Establishment of Funds and Accounts... A-19 Redemption; Selection of Certificates for Redemption... A-21 Events of Default; Remedies of Owners... A-21 Amendment of Trust Agreement... A-23 Discharge of Trust Agreement... A-25 Consent of Insurer... A-26 A-1

78 The following are summaries of selected provisions of certain legal documents that are not described elsewhere in this Official Statement. These summaries do not purport to be comprehensive, and reference should be made to the Ground Lease, the Facilities Lease, and the Trust Agreement, for full and complete statements of their provisions. All capitalized terms not defined in this Official Statement have the meanings set forth in the Trust Agreement. DEFINITIONS Additional Payments means the additional payments payable by the District under and pursuant to the Facilities Lease Annual Debt Service means for each Bond Year the aggregate amount (without duplication) of principal and interest scheduled to become due (either at maturity or by mandatory prepayment) and sinking fund payments (or lease or installment purchase payments with separately designated interest and principal components) required to be paid in that Bond Year on all Outstanding Certificates. Applicable Environmental Laws means any local, state, and/or federal laws or regulations, whether currently in existence or enacted later, that govern (1) the existence, cleanup, and/or remedy of contamination on property; (2) the protection of the environment from spilled, deposited, or otherwise emplaced contamination; (3) the control of hazardous wastes; or (4) the use, generation, transport, treatment, removal, or recovery of Hazardous Substances, including building materials. Board means the Board of Education of the District. Bond Year or Year means the period ending on May 1 of each year, with the first Bond Year beginning on the Closing Date and ending on May 1, 2019, and the last Bond Year ending on the date on which none of the Certificates remain outstanding. Business Day means a day other than a Saturday, a Sunday or a day on which banks in the city in which the Corporate Trust Office of the Trustee is located are authorized or obligated by law or executive order to close. Certificate Reserve Requirement means, as of any date of calculation, an amount equal to the least of (i) Maximum Annual Debt Service on all Certificates then Outstanding; (ii) 125% of average Annual Debt Service on all Certificates then Outstanding; and (iii) 10% of the aggregate principal amount of the Certificates executed and delivered on the Closing Date (or, if the Certificates were sold with more than a de minimis amount of original issue discount or premium, the issue price of the Certificates (excluding pre-issuance accrued interest), as those terms are defined in the Code). Certificates or Certificates of Participation means the Visalia Unified School District, 2018 Certificates of Participation, authorized by, and at any time Outstanding pursuant to, the Trust Agreement. Closing Date means the date of delivery of the Certificates to the initial purchaser. A-2

79 Code means the Internal Revenue Code of 1986, as amended, and the regulations applicable to or issued thereunder. Corporation means The Visalia Financing Corporation, a nonprofit public benefit corporation duly established and validly existing under and by virtue of the laws of the State of California. Costs of Issuance means all items of expense directly or indirectly payable by or reimbursable to the District and related to the authorization, execution and delivery of the Facilities Lease, the Ground Lease, and the Trust Agreement and the related sale of the Certificates, including, but not limited to, costs of preparation and reproduction of documents, costs of rating agencies and costs to provide information required by rating agencies, filing and recording fees, initial fees, legal fees and charges of the Trustee, legal fees and charges, fees and disbursements of consultants and professionals, premiums, fees, legal fees and expenses of municipal bond insurers, surety bond providers and letter of credit banks, fees and charges for preparation, execution and safekeeping of the Certificates and any other cost, charge or fee in connection with the original execution and delivery of the Certificates. Defeasance Securities means (i) non-callable direct obligations of the United States of America ( Treasuries ); (ii) evidences of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to whom the custodian may be obligated; (iii) pre-refunded municipal obligations rated AAA and Aaa by S&P and Moody s, respectively; (iv) securities eligible for AAA defeasance under then existing S&P or any combination thereof; (v) any combination of the foregoing; or (vi) any other securities the Insurer approves. District means the Visalia Valley Unified School District, Tulare County, State of California, a school district duly organized and existing under the Constitution and laws of the State. Facilities means the real property described in Exhibit A attached to the Facilities Lease and all improvements located thereon. Hazardous Substance means any substance that shall, at any time, be listed as hazardous or toxic in any Applicable Environmental Law or that has been or shall be determined at any time by any agency or court to be a hazardous or toxic substance regulated under Applicable Environmental Laws; and also means, without limitation, raw materials, building components, the products of any manufacturing, or other activities on the Facilities, wastes, petroleum, and source, special nuclear, or by-product material as defined by the Atomic Energy Act of 1954, as amended (42 USC Sections 3011 et seq.). Interest Payment Date means May 1 and November 1 in each year, commencing November 1, A-3

80 Investment Securities means the following: 1. (a) Direct obligations (other than an obligation subject to variation in principal repayment) of the United States of America ( U.S. Treasury Obligations ), (b) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America, (c) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of America when such obligations are backed by the full faith and credit of the United States of America, or (d) evidences of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated. 2. Federal Housing Administration debentures. 3. The listed obligations of government-sponsored agencies, which are not backed by the full faith and credit of the United States of America: (a) Federal Home Loan Mortgage Corporation (FHLMC) senior debt obligations and Participation certificates (excluded are stripped mortgage securities that are purchased at prices exceeding their principal amounts); (b) Farm Credit System (formerly Federal Land Banks, Federal Intermediate Credit Banks and Banks for Cooperatives) consolidated system-wide bonds and notes; (c) Federal Home Loan Banks (FHL Banks) consolidated debt obligations; or (d) Federal National Mortgage Association (FNMA) senior debt obligations and mortgage-backed securities (excluded are stripped mortgage securities that are purchased at prices exceeding their principal amounts). 4. Unsecured certificates of deposit, time deposits, and bankers acceptances (having maturities of not more than 180 days or no more than 40% of the District's money invested under this Trust Agreement) of any bank the short-term obligations of which are rated A-1+ or better by Standard & Poor s and Prime-1 by Moody s. Additionally, no more that 30% of the District s money invested under this Trust Agreement may be invested in bankers acceptances of any one commercial bank. 5. Deposits the aggregate amount of which is fully insured by the Federal Deposit Insurance Corporation, in banks which have capital and surplus of at least $15 million or collateralized by Defeasance Securities for amounts in excess of insurance. 6. Commercial paper (having original maturities of not more than 270 days) rated A-1+ by Standard & Poor s and Prime-1 by Moody s. Entities that may issue commercial paper shall be consistent with California Government Code section or its equivalent. A-4

81 7. Money market funds rated Aam or AAm-G by Standard & Poor s, or better and if rated by Moody s rated Aa2 or better, including funds for which the Trustee or an affiliate provides services but excluding funds with a floating net asset value. 8. The Local Agency Investment Fund referred to in Section of the California Government Code. 9. State Obligations which means: (a) Direct general obligations of any state of the United States of America or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated at least A3 by Moody s and at least A- by Standard & Poor s, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated. (b) Direct general short-term obligations of any state agency or subdivision or agency thereof described in (a) above and rated A-1+ by Standard & Poor s and MIG-1 by Moody s. (c) Special Revenue Bonds (as defined in the United States Bankruptcy Code) of any state or state agency described in (b) above and rated AA- or better by Standard & Poor s and Aa3 or better by Moody s. 10. Pre-refunded municipal obligations rated AAA by Standard & Poor s and Aaa by Moody s meeting the following requirements: (a) the municipal obligations are (1) not subject to redemption prior to maturity or (2) the trustee for the municipal obligations has been given irrevocable instructions concerning their call and redemption and the issuer of the municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions; (b) the municipal obligations are secured by cash or U.S. Treasury Obligations that may be applied only to payment of the principal of, interest and premium on such municipal obligations; (c) the principal of and interest on the U.S. Treasury Obligations (plus any cash in the escrow) has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest, and premium, if any, due and to become due on the municipal obligations ( Verification Report ); (d) the cash or U.S. Treasury Obligations serving as security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations; (e) no substitution of a U.S. Treasury Obligation shall be permitted except with another U.S. Treasury Obligation and upon delivery of a new Verification Report; and A-5

82 (f) the cash or U.S. Treasury Obligations are not available to satisfy any other claims, including those by or against the trustee or escrow agent. 11. Repurchase agreements: with (1) any domestic bank, or domestic branch of a foreign bank, the long-term debt of which is rated at least A- by Standard & Poor s and A3 Moody s; or (2) any broker-dealer with retail customers or a related affiliate thereof which broker-dealer has, or the parent company (that guarantees the provider) of which has, long-term debt rated at least A- by Standard & Poor s and A3 by Moody s, which broker-dealer falls under the jurisdiction of the Securities Investors Protection Corporation; or (3) any other entity rated at least A- by Standard & Poor s and A3 Moody s and acceptable to the Insurer (each an Eligible Provider ), provided that: (a) (i) permitted collateral shall include U.S. Treasury Obligations, or senior debt obligations of GNMA, FNMA or FHLMC (no collateralized mortgage obligations shall be permitted for these providers), and (ii) collateral levels must be at least 102% of the total principal when the collateral type is U.S. Treasury Obligations, 103% of the total principal when the collateral type is GNMA s and 104% of the total principal when the collateral type is FNMA and FHLMC ( Eligible Collateral ); (b) the Trustee or a third party acting solely as agent therefor or for the District (the Custodian ) has possession of the collateral or the collateral has been transferred to the Custodian in accordance with applicable state and federal laws (other than by means of entries on the transferor s books) and such collateral shall be marked to market; (c) the collateral shall be marked to market on a daily basis and the provider or the Custodian shall send monthly reports to the Trustee, the District, and the Insurer setting forth the type of collateral, the collateral percentage required for that collateral type, the market value of the collateral on the valuation date and the name of the Custodian holding the collateral; (d) the repurchase agreement (or guaranty, if applicable) may not be assigned or amended without the prior written consent of the Insurer; (e) the repurchase agreement shall state and an opinion of counsel shall be rendered at the time such collateral is delivered that the Custodian has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof; (f) the repurchase agreement shall provide that if during its term the provider s rating by either Moody s or Standard & Poor s is withdrawn or suspended or falls below A- by Standard & Poor s or A3 by Moody s, as appropriate, the provider must, notify the District, the Trustee, and the Insurer within five (5) days of receipt of such notice. Within ten (10) days of receipt of such notice, the provider shall either: (i) provide a written guarantee acceptable to the Insurer, (ii) post Eligible Collateral, or (iii) assign the agreement to an Eligible Provider. If the provider does not perform a remedy within ten (10) business days, the provider shall, at the direction of the Trustee A-6

83 (who shall give such direction if so directed by the Insurer) repurchase all collateral and terminate the repurchase agreement, with no penalty or premium to the District or the Trustee. 12. Investment agreements: with a domestic or foreign bank or corporation the longterm debt of which, or, in the case of a guaranteed corporation the long-term debt, or, in the case of a monoline financial guaranty insurance company, claims-paying ability, of the guarantor is rated at least AA- by Standard & Poor s and Aa3 by Moody s and acceptable to the Insurer (each an Eligible Provider ); provided that: (a) interest payments are to be made to the Trustee at times and in amounts as necessary to pay debt service on the Certificates; (b) the invested funds are available for withdrawal without penalty or premium, at any time upon not more than seven (7) days prior notice; the District and the Trustee hereby agree to give or cause to be given notice in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid; (c) the provider shall send monthly reports to the Trustee, the District, and the Insurer setting forth the balance the District or the Trustee has invested with the provider and the amounts and dates of interest accrued and paid by the provider; (d) the investment agreement shall state that it is an unconditional and general obligation of the provider, and is not subordinated to any other obligation of, the provider thereof or, if the provider is a bank, the agreement or the opinion of counsel shall state that the obligation of the provider to make payments thereunder ranks pari passu with the obligations of the provider to its other depositors and its other unsecured and unsubordinated creditors; (e) the investment agreement (or guaranty, if applicable) may not be assigned or amended without the prior written consent of the Insurer; (f) the District, the Trustee and the Insurer shall receive an opinion of domestic counsel to the provider that such investment agreement is legal, valid, binding and enforceable against the provider in accordance with its terms; (g) the District, the Trustee and the Insurer shall receive an opinion of foreign counsel to the provider (if applicable) that (i) the investment agreement has been duly authorized, executed and delivered by the provider and constitutes the legal, valid and binding obligation of the provider, enforceable against the provider in accordance with its terms, (ii) the choice of law of the state set forth in the investment agreement is valid under that country s laws and a court in such country would uphold such choice of law, and (iii) any judgment rendered by a court in the United States would be recognized and enforceable in such country; (h) the investment agreement shall provide that if during its term: A-7

84 (i) the provider s rating by either Standard & Poor s or Moody s falls below AA- or Aa3, the provider shall, at its option, within ten (10) days of receipt of publication of such downgrade, either (i) provide a written guarantee acceptable to the Insurer, (ii) post Eligible Collateral with the District, the Trustee or a third party acting solely as agent therefore (the Custodian ) free and clear of any third party liens or claims, or (iii) assign the agreement to an Eligible Provider, or (iv) repay the principal of and accrued but unpaid interest on the investment; (ii) the provider s rating by either Standard & Poor s or Moody s is withdrawn or suspended or falls below A- or A3, the provider must, at the direction of the District or the Trustee (who shall give such direction if so directed by the Insurer), within ten (10) days of receipt of such direction, repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the District or the Trustee. (i) if the provider is required to collateralize, permitted collateral shall include U.S. Treasury Obligations, or senior debt obligations of GNMA, FNMA or FHLMC (no collateralized mortgage obligations shall be permitted for these providers) and collateral levels must be 102% of the total principal when the collateral type is U.S. Treasury Obligations, 103% of the total principal when the collateral type is GNMA s and 104% of the total principal when the collateral type is FNMA and FHLMC ( Eligible Collateral ). In addition, the collateral shall be marked to market on a daily basis and the provider or Custodian shall send monthly reports to the Trustee, the District and the Insurer setting forth the type of collateral, the collateral percentage required for that collateral type, the market value of the collateral on the valuation date and the name of the Custodian holding the collateral; (j) the investment agreement shall state and an opinion of counsel shall be rendered, in the event collateral is required to be pledged by the provider under the terms of the investment agreement, at the time such collateral is delivered, that the Custodian has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof; (k) the investment agreement must provide that if during its term: (i) the provider shall default in its payment obligations, the provider s obligations under the investment agreement shall, at the direction of the District or the Trustee (who shall give such direction if so directed by the Insurer), be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the District or the Trustee, as appropriate, and (ii) the provider shall become insolvent, not pay its debts as they become due, be declared or petition to be declared bankrupt, etc. ( event of insolvency ), the provider s obligations shall automatically be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the District or the Trustee, as appropriate. 13. The Tulare County investment pool. A-8

85 14. Any other form of investments approved in writing by the Insurer. Maximum Annual Debt Service shall mean the greatest amount of principal and interest becoming due and payable with respect to all Certificates in any Bond Year including the Bond Year in which the calculation is made or any subsequent Bond Year. Outstanding, when used as of any particular time with reference to Certificates, means all Certificates theretofore, or thereupon being, executed and delivered by the Trustee under the Trust Agreement, including those Certificates which have been paid by the Insurer from draws on the Insurance Policy, except (1) Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Certificates with respect to which all liability of the District shall have been discharged, including Certificates (or portions of Certificates) for which money is held in trust by the Trustee; and (3) Certificates for the transfer or exchange of or in lieu of or in substitution for which other Certificates shall have been executed and delivered by the Trustee pursuant to the Trust Agreement. Permitted Encumbrances means (1) liens for general ad valorem taxes and assessment, if any, not then delinquent, or that the District may, pursuant to the Facilities Lease, permit to remain unpaid; (2) easements, rights of way, mineral rights, drilling rights, and other rights, reservations, covenants, conditions, or restrictions that exist of record as of the date of recordation of the Facilities Lease and that the District certifies in writing will not materially impair the use of the Facilities; (3) the Ground Lease, as it may be amended from time to time; (4) the Trust Agreement, as it may be amended from time to time; (5) any right or claim of any mechanic, laborer, materialman, supplier, or vendor not filed or perfected in the manner prescribed by law; (6) easements, rights of way, mineral rights, drilling rights, and other rights, reservations, covenants, conditions, or restrictions established following the date of recordation of the Facilities Lease and to which the Corporation consents in writing; and (7) liens relating to special assessments levied with respect to the Facilities. Person means an individual, a corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. Principal Payment Date means May 1 in each year, commencing May1, Rating Agency means Moody s, S&P, or any other entity which is nationally recognized as a rating agency for public securities. Redemption Price means, with respect to any Certificate (or portion thereof) the principal amount represented by such Certificate (or portion), plus interest represented thereby accrued to the date fixed for redemption, plus the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such Certificate and this Trust Agreement. Rental Payments means the Rental Payments payable by the District pursuant to the provisions of the Facilities Lease. A-9

86 Reserve Facility means any letter of credit, insurance policy, surety bond, or other credit source deposited with the Trustee pursuant to the Trust Agreement. State means the State of California. Statement, Certificate, Request, Requisition, and Order of the District mean, respectively, a written statement, certificate, request, requisition, or order signed in the name of the District by the Superintendent and/or Assistant Superintendent Administrative Services of the Visalia Unified School District, and/or the President, Secretary, and/or Clerk of the Board of Education, or designee, or any other person authorized by the District to execute such instruments. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion, or representation, and the two or more so combined shall be read and construed as a single instrument, if and to the extent required by provisions of the Trust Agreement. Supplemental Trust Agreement means any trust agreement hereafter duly executed and delivered, supplementing, modifying, or amending the Trust Agreement, but only if and to the extent that such Supplemental Trust Agreement is specifically authorized in the Trust Agreement. Trustee means MUFG Union Bank, N.A., a national banking association, or its successor as Trustee as provided in provisions of the Trust Agreement. GROUND LEASE Under the Ground Lease, the District will lease the Facilities to the Corporation for an advance rental equal to the proceeds of the sale of the Certificates. The term of the Ground Lease will commence on the Closing Date and will terminate on May 1, 2048, unless extended because of rental abatement or sooner terminated because of prepayment of the Certificates. General FACILITIES LEASE Simultaneously with the delivery of the Ground Lease, the Corporation will sublease the Facilities to the District pursuant to the Facilities Lease. Certain of the provisions of the Facilities Lease are summarized below; this summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Facilities Lease. Term The term of the Facilities Lease shall commence on the Closing Date and shall end on May 1, 2048, unless such term is extended or sooner terminated. If on May 1, 2048, the Certificates have not been fully paid, or if the rental payable under the Facilities Lease has been abated at any time and for any reason, then the term of the Facilities Lease will be extended for a period equal to the period of such abatement, up to 10 years. If the Certificates have been fully paid, or provision therefor made, the term of the Facilities Lease shall end 10 days thereafter. A-10

87 Substitution The District and the Corporation may substitute property as part of the Facilities for purposes of the Ground Lease and the Facilities Lease, but only after the District shall have filed with the Trustee all of the following: Documents. Executed copies of the amended Ground Lease and Facilities Lease containing the amended description of the Facilities; Recording. A Statement of the District certifying that the amended Ground Lease and Facilities Lease, or memoranda thereof, and an amended memorandum of the Trust Agreement have been duly recorded in the official records of the county in which the real property is located; Replacement Value. An MAI fair market appraisal demonstrating that the value of the property that will constitute the Facilities after the substitution is greater than the principal amount of Certificates then outstanding, or a Certificate of an Insurance Consultant stating that the replacement value (estimated for casualty insurance purposes) of the property that will constitute the Facilities after such substitution is greater than the principal amount of Certificates then outstanding. Title Insurance. A CLTA leasehold policy or policies or a commitment for such policy or policies or an amendment or endorsement to an existing policy or policies in an amount or amounts such that the amount of title insurance coverage with respect to the Facilities after the substitution is at least equal to the amount of such insurance with respect to the Facilities prior to the substitution. Each such policy or endorsement, when issued, shall name the Trustee as the insured and shall insure the leasehold estate of the Corporation in such substituted property, subject only to the following exceptions: (1) Permitted Encumbrances, and (2) other exceptions that do not substantially interfere with the District s right to use and occupy the substituted property and that will not result in an abatement of Rental Payments. No Effect on Occupancy; Useful Life. A Statement of the District certifying that such substitution, does not adversely affect the District s use and occupancy of the Facilities and that the Facilities, as amended, have a useful life extending at least to the date of termination of the Facilities Lease; No Prior Liens. A Statement of the District certifying that the property that will constitute the Facilities after the substitution is not subject to any liens securing monetary obligations (other than Permitted Encumbrances) unless such liens are subordinate to the interests of the Corporation created by the Facilities Lease; Essential Facilities. A Statement of the District certifying that the property that will constitute the Facilities after the substitution is essential to the fulfillment of the District s governmental purposes; A-11

88 Opinion of Bond Counsel. An Opinion of Bond Counsel stating that amendments to the Ground Lease and the Facilities Lease that implement the substitution are authorized or permitted by and comply with the Constitution and laws of the State of California and the Trust Agreement; upon execution and delivery will be valid obligations of the District and the Corporation; and will not cause the interest component of the Rental Payments to be includable in gross income for federal income tax purposes; and Notice to Rating Agencies. Evidence of delivery of written notice of the proposed substitution to each Rating Agency then rating the Certificates. Upon such substitution, the property released shall be conveyed to the District, and the Corporation shall execute all documents necessary or appropriate to convey or reconvey such property to the District, free of all restrictions and encumbrances imposed or created by the Facilities Lease, the Ground Lease, or the Trust Agreement. Rental Payments; Additional Payments Rental Payments. Under the Facilities Lease, the District will pay Rental Payments for the use of the Facilities. A portion of the Rental Payments will constitute principal components and a portion will constitute interest components. Rental Payments are due on the dates specified on the schedule attached to the Facilities Lease. Additional Payments. The District also promises to pay Additional Payments, which include (i) all costs and expenses incurred by the Corporation or the Trustee in connection with the execution, performance, or enforcement of the Facilities Lease and the Trust Agreement, (ii) amounts required to be paid to the Trustee for deposit in the Certificate Reserve Fund pursuant to the Trust Agreement; (iii) amounts required to be deposited in the Rebate Fund; and (iv) amounts owed to the Insurer under the Facilities Lease or the Trust Agreement. Allocation of Rental Payments All Rental Payments received shall be applied first to the interest components of the Rental Payments due, then to the principal components of the Rental Payments due, then to the replenishment of any draws upon the Certificate Reserve Fund, and thereafter to all Additional Payments due under the Facilities Lease, but no such application of any payments that are less than the total rental due and owing shall be deemed a waiver of any default hereunder. Fair Rental Value The Rental Payments and Additional Payments for each rental period during the term of the Facilities Lease shall constitute the total rental for such rental period. The District has agreed to pay the Rental Payments for and in consideration of the right to possess and to continue to quietly use and enjoy the Facilities. The parties to the Facilities Lease have agreed and determined that the Rental Payments and the Additional Payments represent the fair rental value of the Facilities during each rental period for which such rental is to be paid. In making such determination, consideration has been given to the cost of acquisition, design, construction, and financing of the Facilities, other obligations of the parties under the Facilities Lease, the uses and A-12

89 purposes that may be served by the Facilities, and the benefits therefrom that will accrue to the District and the general public. Covenant to Budget and Appropriate The District covenants and agrees to take such action as may be necessary to include all Rental Payments and Additional Payments due pursuant to the Facilities Lease in its annual budgets and to make the necessary annual appropriations for all such Rental Payments and Additional Payments. Annually within thirty days of the adoption of the budget, the District will furnish to the Trustee a Statement of the District certifying that such budget contains the necessary appropriation for all Rental Payments and Additional Payments. If requested in writing by the Trustee, the District will furnish a copy of such budget. No Offsets; Net Lease The District promises to make all Rental Payments and Additional Payments when due without deduction or offset of any kind, notwithstanding any dispute between the Corporation and the District, and not to withhold any Rental Payments or Additional Payments pending the final resolution of any such dispute. The Facilities Lease will be deemed and construed to be a net-net-net lease and the District agrees that the Rental Payments shall be an absolute net return to the Corporation, free and clear of any expenses, charges, or setoffs whatsoever. Abatement of Rental Except to the extent of amounts held by the Trustee in the Certificate Reserve Fund or in any other funds held by the Trustee under the Trust Agreement otherwise available to the Trustee for payments in respect of the Certificates, Rental Payments and Additional Payments shall be abated proportionately during any period in which, by reason of damage to, destruction of, taking under the power of eminent domain (or sale to any entity threatening the use of such power) of, or title defect with respect to any portion of the Facilities, there is substantial interference with the use and possession of the Facilities or a portion thereof. The amount of abatement shall be such that the resulting Rental Payments and Additional Payments represent fair consideration for the use and possession of the portion of the Facilities not so interfered with. Such abatement shall commence with the date of such interference and shall end only with cure thereof. Any determination of remaining fair rental value will be made with reference to the greater of (i) the District s fair rental value certification as of the date of execution and delivery of the Certificates; or (ii) the fair rental value on the date of determination. Prepayment Casualty/Condemnation. The District will prepay from net insurance proceeds (including title insurance) and eminent domain proceeds, to the extent described below, all or a proportionate amount of each (such that the remaining Rental Payments are substantially equal in each year thereafter) of the principal components of the Rental Payments then unpaid, at a prepayment amount equal to the sum of the principal components prepaid plus the interest component of such Rental Payments accrued to the date of prepayment. A-13

90 Optional Prepayment. The District may prepay, from any source of available funds, such part of the Rental Payments as specified by the District by depositing with the Trustee moneys or securities as provided in the Trust Agreement sufficient to make such Rental Payments when due. The District agrees that, if following such prepayment the Facilities are damaged or destroyed or taken by eminent domain, it is not entitled to, and by such prepayment waives the right of, abatement of such prepaid Rental Payments and shall not be entitled to any reimbursement of such Rental Payments. Any such prepayment shall be applied by the Trustee to pay the principal and interest components of the Certificates and to redeem Certificates if such Certificates are subject to redemption pursuant to the terms of the Trust Agreement. Covenants of the District (a) Maintenance of the Facilities. The District agrees that, at all times during the term of the Facilities Lease, the District will, at the District s own cost and expense, maintain, preserve, and keep the Facilities and every portion thereof in good repair, working order, and condition and that the District will from time to time make or cause to be made all necessary and proper repairs, replacements, and renewals. (b) Taxes and Other Governmental Charges; Utility Charges. If the use, possession, or acquisition by the District or the Corporation of the Facilities is found to be subject to taxation in any form (except for income or franchise taxes of the Corporation), the District will pay during the term of the Facilities Lease, as the same respectively become due, all taxes and governmental charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Facilities, and any equipment or other property acquired by the District in substitution for, as a renewal or replacement of, or a modification, improvement or addition to the Facilities; provided that, with respect to any governmental charges or taxes that may lawfully be paid in installments over a period of years, the District shall be obligated to pay only such installments as are accrued during such time as the Facilities Lease is in effect. The District shall pay or cause to be paid all gas, water, steam, electricity, heat, power, air conditioning, telephone, utility, and other charges incurred in the operation, maintenance, use, occupancy, and upkeep of the Facilities. (c) Liens. In the event the District shall at any time during the term of the Facilities Lease cause any changes, alterations, additions, improvements, or other work to be done or performed or materials to be supplied, in or upon the Facilities, the District shall pay, when due, all sums of money that may become due for, or purporting to be for, any labor, services, materials, supplies, or equipment furnished or alleged to have been furnished to or for the District in, upon or about the Facilities and shall keep the Facilities free of any and all mechanics or materialmen s liens or other liens against the Facilities or the Corporation s interest therein. In the event any such lien attaches to or is filed against the Facilities or the Corporation s interest therein, the District shall cause each such lien to be fully discharged and released at the time the performance of any obligation secured by any such lien matures or becomes due, except that if the District desires to contest any such lien it may do so in good faith. If any such lien is reduced to final judgment and such judgment or such process as may be issued for the enforcement thereof is not promptly stayed, or if so stayed and said stay thereafter expires, the District shall forthwith pay and discharge such judgment. A-14

91 (d) Environmental Covenants. The District and the Corporation will comply with all Applicable Environmental Laws with respect to the Facilities and will not use, store, generate, treat, transport, or dispose of any Hazardous Substance thereon or in a manner that would cause any Hazardous Substance to later flow, migrate, leak, leach, or otherwise come to rest on or in the Facilities. (e) Assignment and Subleasing. Neither the Facilities Lease nor any interest of the District thereunder shall be mortgaged, pledged, assigned, sublet, encumbered (except for Permitted Encumbrances) or transferred by the District by voluntary act or by operation of law or otherwise, except with the prior written consent of the Corporation, which, in the case of subletting, shall not be unreasonably withheld; provided such subletting shall not affect the taxexempt status of the interest components of the Rental Payments payable by the District thereunder. No such mortgage, pledge, assignment, sublease or transfer shall in any event affect or reduce the obligation of the District to make the Rental Payments and Additional Payments required under the Facilities Lease. Insurance (a) Fire and Extended Coverage Insurance. 1. Coverage. The District shall maintain, throughout the term of the Facilities Lease, insurance against loss or damage to the Facilities, and to any structures constituting any part of the Facilities, by fire and lightning, with extended coverage insurance, vandalism, and malicious mischief insurance, and sprinkler system leakage insurance. Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke, and such other hazards as are normally covered by such insurance. 2. Amount. Such insurance shall be in an amount equal to the replacement cost (without deduction for depreciation) of all structures constituting any part of the Facilities, excluding the cost of excavations, of grading and filling, and of the land (except that such insurance may be subject to deductible clauses for any one loss of not to exceed $10,000), or, in the alternative, shall be in an amount and in a form sufficient (together with moneys in the Certificate Reserve Fund) in the event of total or partial loss, to enable all Certificates then Outstanding to be prepaid. The policy shall explicitly waive any co-insurance penalty. 3. Application of Net Proceeds. a. Repair or Replacement of Facilities. In the event of any damage to or destruction of any part of the Facilities caused by the perils covered by such insurance, the District, except as described below, shall cause the proceeds of such insurance to be utilized for the repair, reconstruction, or replacement of the damaged or destroyed item or items to at least the same good order, repair, and condition as they were in prior to the damage or destruction, insofar as the same may be accomplished by the use of said proceeds. b. Prepayment of Lease. Alternatively, the District, at its option, and if the proceeds of such insurance together with any other moneys then available for the purpose are at A-15

92 least sufficient to prepay an aggregate principal amount represented by the Outstanding Certificates plus accrued interest to the prepayment date, equal to the amount of the Outstanding Certificates attributable to the item or items of the Facilities so destroyed or damaged (determined by reference to the proportion that the acquisition and construction cost of such portion of the Facilities bears to the acquisition costs of the Facilities), may elect not to repair, reconstruct, or replace the damaged or destroyed portion of the Facilities and thereupon shall cause said proceeds to be used for the prepayment of Outstanding Certificates. If, however, the District has elected to acquire casualty insurance only in an amount sufficient to prepay all the Certificates Outstanding, the District shall use the proceeds of such insurance (together with amounts available in the Certificate Reserve Fund and the Certificate Fund) to prepay the principal amount represented by the Outstanding Certificates of Participation plus accrued interest to the prepayment date, unless such insurance proceeds are sufficient to fully rebuild or repair the Facilities. 4. Alternative Risk Management. As an alternative to providing a policy of fire and extended coverage insurance, the District may, provide a self-insurance method or plan of protection if and to the extent such self-insurance method or plan of protection shall afford reasonable coverage for the risks required to be insured against, in light of all circumstances, giving consideration to cost, availability, and similar plans or methods of protection adopted by public entities in the State of California other than the District. (b) Public Liability and Property Damage Insurance. Except as described below, the District shall maintain throughout the term of the Facilities Lease a standard comprehensive general liability insurance policy or policies insuring against all direct or contingent loss or liability for damages for personal injury, death, or property damage occasioned by reason of the operation of the Facilities. The minimum liability limits of such insurance shall be $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event and shall be $1,000,000 (subject to a deductible clause of not to exceed $10,000) for damage to property resulting from each accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. As an alternative to providing a policy of public liability and property damage insurance, the District may provide a selfinsurance method or plan of protection if and to the extent such self-insurance method or plan of protection shall afford reasonable coverage for the risks required to be insured against, in light of all circumstances, giving consideration to cost, availability, and similar plans or methods of protection adopted by public entities in the State of California other than the District. (c) Rental Abatement Insurance. The District shall maintain throughout the term of the Facilities Lease rental abatement insurance to cover loss, total or partial, of the Rental Payments due thereunder owing to an abatement of rental as the result of any of the hazards covered by fire and extended coverage insurance. Such insurance shall be maintained in an amount sufficient to pay the Rental Payments during the two-year period in which the total of such Rental Payments is greatest. (d) Workers Compensation Insurance. The District shall maintain workers compensation insurance covering all employees working at the Facilities in the amounts as required by law. Such insurance may be maintained by the District as part of or in conjunction A-16

93 with any other insurance maintained by the District. As an alternative to providing such insurance, the District may file a resolution with the State Department of Industrial Relations, Division of Self-Insurance Plans, declaring the District to be legally self-insured against workers compensation claims and may maintain that status; provided that the District shall annually employ an actuary to review the District s workers compensation claims experience and project future claims exposure. The District covenants to budget the amounts and comply with the other actions recommended by the actuary. The District further agrees to comply with any requirements made by the Division of Self-Insurance Plans as a result of any audit performed by that office. (e) Title Insurance. The District shall provide a title insurance policy in an amount equal to the aggregate principal amount represented by the Certificates. Such title insurance policy shall be payable to the Trustee for the use and benefit of the Owners of the Certificates. Such policy shall be in the form of a CLTA leasehold and an owner s title policy or policies issued by a company of recognized standing duly authorized to issue the same, subject only to Permitted Encumbrances. All proceeds received by the Trustee under said policy shall be applied and disbursed by the Trustee in the same order and priority and for the same purposes as proceeds received in eminent domain proceedings. Eminent Domain So long as any of the Certificates shall be outstanding, any award made in eminent domain proceedings for taking the Facilities or any portion thereof shall be applied to the prepayment of Rental Payments. Any such award made after all of the Certificates have been fully paid and retired shall be paid to the District. If the whole of the Facilities, or so much thereof as to render the remainder unusable for the purposes for which it was used by the District, shall be taken under the power of eminent domain, the term of the Facilities Lease shall cease as of the day that possession shall be so taken. If the award on a partial or complete taking, together with other funds available therefor, is insufficient to prepay all of the Outstanding Certificates, the District shall use all reasonable efforts to appeal such award to obtain an award that will be sufficient in amount to prepay the Certificates in full for a complete taking, or, in the event of a partial taking, an amount sufficient such that remaining Rental Payments will be sufficient to pay the remaining Outstanding Certificates. If less than the whole of the Facilities shall be taken under the power of eminent domain and the remainder is usable for the purposes for which it was used by the District at the time of such taking, then the Facilities Lease shall continue in full force and effect as to such remainder, and the parties waive the benefits of any law to the contrary, and in such event there shall be a partial abatement of rental. Events of Default The following events shall be Events of Default: Payment Default. Failure of the District to pay any Rental Payments payable hereunder when the same become due and payable, time being expressly declared to be of the essence of the Facilities Lease; A-17

94 Breach of Covenant. Failure of the District to keep, observe, or perform any other term, covenant or condition contained in the Facilities Lease or in the Trust Agreement to be kept or performed by the District for a period of 30 days after notice of the same has been given to the District by the Corporation or the Trustee; Transfer of District s Interest. Assignment or transfer of the District s interest in the Facilities Lease or any part thereof without the written consent of the Corporation, either voluntarily or by operation of law or otherwise; Bankruptcy or Insolvency. Institution of any proceeding under the United States Bankruptcy Code or any federal or state bankruptcy, insolvency, or similar law or any law providing for the appointment of a receiver, liquidator, trustee, or similar official of the District or of all or substantially all of its assets, by or with the consent of the District, or institution of any such proceeding without its consent that is not permanently stayed or dismissed within sixty days, or agreement by the District with the District s creditors to effect a composition or extension of time to pay the District s debts, or request by the District for a reorganization or to effect a plan of reorganization, or for a readjustment of the District s debts, or a general or any assignment by the District for the benefit of the District s creditors; Abandonment of the Facilities. Abandonment by the District of any part of the Facilities (except any portion thereof for which a substitution of property has been made). Remedies on Default Upon an Event of Default, the Corporation, in addition to all other rights and remedies it may have at law, shall have the option to do any of the following: Termination of Lease. By written notice to the District, to terminate the Facilities Lease and to re-enter the Facilities and remove all persons in possession thereof and all personal property whatsoever situated upon the Facilities and place such personal property in storage in any warehouse or other suitable place in the county in which the District is located. In the event of such termination, the District has agreed to surrender immediately possession of the Facilities, without let or hindrance, and to pay the Corporation all damages recoverable at law that the Corporation may incur by reason of default by the District, including, without limitation, any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such reentry upon the Facilities and removal or storage of such property by the Corporation or its duly authorized agents. Continuation of Lease; Reletting. Without terminating the Facilities Lease, (a) to collect each installment of rent as it becomes due and enforce any other term or provision thereof to be kept or performed by the District, regardless of whether or not the District has abandoned the Facilities, and/or (b) to enter, retake possession of, and re-let the Facilities. If the Corporation does not elect to terminate the Facilities Lease in the manner described herein, the District agrees to keep or perform all covenants and conditions contained in the Facilities Lease. If the Facilities are not re-let, the District agrees to pay the full amount of the rent to the end of the term of the Facilities Lease; if the Facilities are re-let, the District agrees to pay any deficiency in A-18

95 rent that results therefrom. The District further agrees to pay said rent punctually at the same time and in the same manner as for the payment of rent under the Facilities Lease (without acceleration), notwithstanding the fact that the Corporation may have received in previous years or may receive thereafter in subsequent years rental in excess of the rental specified in the Facilities Lease and notwithstanding any entry or re-entry by the Corporation or proceeding brought by the Corporation to recover possession of the Facilities. No Acceleration. Notwithstanding anything in the Facilities Lease or in the Trust Agreement to the contrary, there shall be no right under any circumstance to accelerate the Rental Payments or otherwise declare any Rental Payments not yet due to be immediately due and payable. TRUST AGREEMENT General The Trust Agreement sets forth the terms of the Certificates, the application of the proceeds of the sale of the Certificates, the nature and extent of the security for the Certificates, various rights of the Owners, and the rights, duties, and immunities of the Trustee. Certain provisions of the Trust Agreement are summarized below. Other provisions are summarized in the Official Statement under the caption THE CERTIFICATES. This summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Trust Agreement. Assignment Under the Trust Agreement, the Corporation assigns to the Trustee, for the benefit of the Owners, certain of its rights and interests under the Facilities Lease, including its right to receive the Rental Payments and the right to enforce the payment of Rental Payments. Establishment of Funds and Accounts The Trust Agreement establishes the Costs of Issuance Fund, the Certificate Fund, the Interest Fund, the Principal Fund, the Certificate Reserve Fund, the Rebate Fund, and the Redemption Fund, which are to be held by the Trustee. (a) Costs of Issuance Fund. The Trustee shall establish a special fund designated as the Costs of Issuance Fund. The amounts in the Costs of Issuance Fund shall be held by the Trustee and applied to the payment of the costs of issuance of the Certificates, upon a Requisition filed with the Trustee. Any amounts remaining in the Costs of Issuance Fund five months following the Closing Date shall be transferred to the Project Fund. (b) Certificate Fund. All Rental Payments will be deposited by the Trustee upon receipt in the Certificate Fund, which fund the Trustee will maintain and apply in accordance with the Trust Agreement. (c) Allocation of Rental Payments. The Trustee will transfer from the Certificate Fund and deposit in the following respective funds the following amounts, the requirements of A-19

96 each such fund at the time of deposit to be satisfied before any deposit is made to any fund subsequent in priority: 1. Interest Fund. On or before each Interest Payment Date, commencing November 1, 2018, the Trustee shall set aside in the Interest Fund an amount equal to the aggregate amount of interest becoming due and payable with respect to the Outstanding Certificates on such Interest Payment Date. No deposit need be made into the Interest Fund if the amount contained therein is at least equal to the interest due and payable on such Interest Payment Date upon all of the Outstanding Certificates. 2. Principal Fund. On or before each Principal Payment Date, commencing May 1, 2019, the Trustee shall deposit in the Principal Fund an amount equal to the aggregate amount of principal becoming due and payable with respect to the Outstanding Certificates. 3. Redemption Fund. The Trustee, on the date specified in a written Request of the District filed with the Trustee, at the time that any prepaid Rental Payment is paid to the Trustee, shall deposit in the Redemption Fund that amount of moneys representing the portion of the Rental Payments designated as prepaid Rental Payments. Any moneys remaining in the Certificate Fund after the foregoing transfers shall be transferred in order of priority, (1) into the Certificate Reserve Fund to the extent that the amount therein is less than the Certificate Reserve Requirement, (ii) into the Rebate Fund if so directed by the District, and (iii) to the District. The District may use and apply any moneys when received by it for any lawful purpose of the District, including the redemption of Certificates upon the terms and conditions set forth in the Trust Agreement and the purchase of Certificates as and when and at such prices as it may determine. (d) Interest Fund. All amounts in the Interest Fund shall be used and withdrawn by the Trustee solely for the purpose of paying interest represented by the Certificates as they shall become due and payable (including accrued interest represented by any Certificates purchased or prepaid prior to maturity pursuant to the Trust Agreement). (e) Principal Fund. All amounts in the Principal Fund shall be used and withdrawn by the Trustee solely for the purposes of paying the principal represented by the Certificates when due and payable. (f) Certificate Reserve Fund. If on any Interest Payment Date or Principal Payment Date the amount on deposit in the Interest Fund or the Principal Fund is insufficient to pay the interest or principal, respectively, evidenced by the Certificates payable on such Interest Payment Date or Principal Payment Date, the Trustee shall transfer from the Certificate Reserve Fun and deposit in the Interest Fund or the Principal Fund, as appropriate, an amount sufficient to make up such deficiency. If the amount on deposit in the Certificate Reserve Fund is not sufficient to make such transfer, the Trustee shall make a claim under any available Reserve Facility, in accordance with the provisions thereof, in order to obtain an amount sufficient to allow the Trustee to make such transfer as and when required. A-20

97 (g) Rebate Fund. The Trustee shall deposit moneys into and disburse moneys from the Rebate Fund pursuant to written directions from the District. (h) Redemption Fund. All amounts deposited in the Redemption Fund shall be used and withdrawn by the Trustee solely for the purpose of redeeming Certificates in the manner, at the times and upon the terms and conditions specified in the Trust Agreement. (i) Investment of Moneys in Funds and Accounts. All moneys in any of the funds and accounts held by the Trustee and established pursuant to the Trust Agreement shall be invested solely as directed by the District, solely in Investment Securities. Moneys in the Certificate Reserve Fund shall be invested in Investment Securities maturing or available on demand within five years of the date of such investment, but in no event later than the final maturity of the Certificates. Moneys in the remaining funds and accounts shall be invested in Investment Securities maturing or available on demand not later than the date on which it is estimated that such moneys will be required by the Trustee. Except as otherwise provided in the Trust Agreement, all interest, profits, and other income received from the investment of moneys in any fund or account held by the Trustee shall be deposited in or charged to the respective fund or account from which such investments were made. Redemption; Selection of Certificates for Redemption The Certificates are subject to redemption in accordance with the terms of the Trust Agreement. Events of Default; Remedies of Owners (a) Events of Default. The following events shall be Events of Default: Payment Default. Default in the due and punctual payment of any Rental Payment when and as the same shall become due and payable; Breach of Covenant. Default by the District in the observance or performance of any covenant, condition, agreement, or provision in the Trust Agreement on its part to be observed or performed, for a period of 30 days after written notice, specifying such failure and requesting that it be remedied, has been given to the District by the Trustee; and Lease. Facilities Lease Default. An event of default as defined under the Facilities (b) Remedies. If an Event of Default shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee or the Owners of not less than a majority in aggregate principal amount represented by the Certificates at the time Outstanding may, upon notice in writing to the District, exercise the remedies provided to the Corporation in the Facilities Lease; provided that nothing shall affect or impair the right of action of any Owner A-21

98 to institute suit directly against the District to enforce payment of the obligation evidenced and represented by such Owner s Certificate. If an Event of Default shall occur, the Trustee shall have the right: Mandamus; Specific Performance. By mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the Corporation or the District or any director, member, officer or employee thereof, and to compel the Corporation or the District or any such director, member, officer or employee to perform or carry out its or his or her duties under law and the agreements required to be performed by it or him or her contained in the Trust Agreement; Injunction. By suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Trustee or any Owner; or Accounting. By suit in equity upon the happening of any event hereunder to require the Corporation and the District and any directors, members, officers and employees thereof to account as the trustee of an express trust. (c) Application of Money Collected. If an Event of Default shall occur and be continuing, the Trustee shall apply all funds then held or thereafter received by the Trustee under any of the provisions of the Trust Agreement (except as otherwise provided in the Trust Agreement) as follows and in the following order: 1. To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the Certificates, including the costs and expenses of the Trustee in declaring such Event of Default, and payment of reasonable fees and expenses of the Trustee (including reasonable fees and disbursements of its counsel and other agents) incurred in and about the performance of its powers and duties under the Trust Agreement; 2. To the payment of the whole amount of principal then due with respect to the Certificates (upon presentation of the Certificates to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Trust Agreement, with interest on such principal, at the rate or rates of interest with respect to the respective Certificates as follows: (a) Unless the principal represented by all of the Certificates shall have become due and payable, to the payment to the persons entitled thereto of all installments of interest then due and the unpaid principal represented by or Redemption Price of any Certificates that shall have become due, whether at maturity or by call for redemption, in the order of their due dates, with interest on the overdue principal at the interest rate with respect to the respective Certificates, and, if the amount available shall not be sufficient to pay in full all the Certificates due on any date, together with such interest, then to the payment thereof ratably, according to the amounts of principal or interest due on such date to the persons entitled thereto, without any discrimination or preference. A-22

99 (b) If the principal represented by all of the Certificates shall have become due and payable, to the payment of the principal and interest then due and unpaid with respect to the Certificates, with interest on the overdue principal and installments of interest represented by Certificates at the interest rate or rates with respect to the respective Certificates, and, if the amount available shall not be sufficient to pay in full the whole amount so due and unpaid, then to the payment thereof ratably, without preference or priority of principal over interest, or of interest over principal, or of any installment of interest over any other installment of interest, or of any Certificate over any other Certificate, according to the amounts due respectively for principal and interest, to the persons entitled thereto without any discrimination or preference. (d) Trustee to Represent Owners. Upon the occurrence and continuance of an Event of Default, the Trustee in its discretion may, and upon the written request of the Owners of not less than 25% in aggregate amount of principal represented by the Certificates then Outstanding (provided that, if more than one such request is received by the Trustee from Owners, the Trustee shall follow the written request executed by the Owners of the greatest percentage of principal represented by the Certificates then Outstanding in excess of 25%), and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus, or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained in the Trust Agreement, or in aid of the execution of any power granted in the Trust Agreement, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Owners under the Trust Agreement or any applicable law. Amendment of Trust Agreement Supplemental Trust Agreements without Consent of Owners. The Trust Agreement and the rights and obligations of the District, of the Trustee, and of the Owners of the Certificates may also be modified or amended from time to time and at any time by a Supplemental Trust Agreement, which the District, the Corporation, and the Trustee may enter into without the consent of any Owners but only to the extent permitted by law and only for any one or more of the following purposes: 1. to add to the covenants and agreements of the District contained in the Trust Agreement other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Certificates (or any portion thereof), or to surrender any right or power reserved to or conferred upon the District in the Trust Agreement; 2. to make such provisions for the purpose of curing any ambiguity, inconsistency, or omission, or of curing or correcting any defective provision, contained in the Trust Agreement, or in regard to matters or questions arising under the Trust Agreement, or to make any other revisions or additions to the Trust Agreement as the District may deem necessary or desirable, and that shall not materially and adversely affect the interests of the Owners of the Certificates; A-23

100 3. to modify, amend, or supplement the Trust Agreement in such manner as to permit the qualification under the Trust Agreement Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions, and provisions as may be permitted by said act or similar federal statute, and that shall not materially and adversely affect the interests of the Owners of the Certificates; 4. to modify or supplement the procedures for giving notice of prepayment of Certificates in order to comply with regulations promulgated by the United States Securities and Exchange Commission; 5. to make modifications or adjustments necessary, appropriate, or desirable to accommodate credit enhancements including letters of credit and insurance policies delivered with respect to the Certificate Reserve Fund; Certificates; 6. to amend, modify, or eliminate the book-entry registration system for the 7. to make such provisions as are necessary or appropriate to ensure the exclusion of interest represented by the Certificates from gross income for purposes of federal income taxation; and 8. for any other purpose that does not materially and adversely affect the interests of the Owners of the Certificates. Supplemental Trust Agreements with Consent of Owners or Credit Enhancers. The Trust Agreement and the rights and obligations of the District, the Owners of the Certificates, and the Trustee may be modified or amended from time to time and at any time by a Supplemental Trust Agreement, which the District, the Corporation, and the Trustee may enter into with the written consent of the Owners of a majority in aggregate amount of principal represented by the Certificates then Outstanding shall have been filed with the Trustee; provided that, if such modification or amendment will, by its terms, not take effect so long as any Certificates of any particular maturity remain Outstanding, the consent of the Owners of such Certificates shall not be required and such Certificates shall not be deemed to be Outstanding for the purpose of any calculation of Certificates Outstanding. The Trust Agreement and the rights and obligations of the District and of the Owners of the Certificates and of the Trustee may also be modified or amended at any time by a Supplemental Trust Agreement entered into by the District, the Corporation, and the Trustee, which shall become binding when the written consents of each provider of a letter of credit or a policy of bond insurance for the Certificates shall have been filed with the Trustee, provided that at such time the payment of all the principal and interest represented by all Outstanding Certificates shall be insured by a policy or policies of municipal bond insurance or payable under a letter of credit the provider of which shall be a financial institution or association having unsecured debt obligations rated, or insuring or securing other debt obligations rated on the basis of such insurance or letters of credit, in one of the two highest Rating Categories of Moody s and Standard and Poor s. A-24

101 No such modification or amendment shall (1) extend the fixed maturity of any Certificate, or reduce the amount of principal represented thereby, or extend the time of payment of any Certificate, or reduce the rate of interest with respect thereto, or extend the time of payment of interest represented thereby, or reduce any premium payable upon the prepayment thereof, without the consent of the Owner of each Certificate so affected, or (2) reduce the aforesaid percentage of principal the consent of the Owners of which is required to effect any such modification or amendment, or permit the creation of any lien on the Rental Payments and other assets pledged under the Trust Agreement prior to or on a parity with the lien created by the Trust Agreement, or deprive the Owners of the Certificates of the lien created by the Trust Agreement on such assets (in each case, except as expressly provided in the Trust Agreement), without the consent of the Owners of all of the Certificates then Outstanding. Discharge of Trust Agreement Discharge of Trust Agreement. Any Certificate may be paid by the District in any of the following ways: 1. by paying or causing to be paid the principal and interest represented by the Certificate, as and when the same become due and payable; 2. by depositing with the Trustee in trust, an escrow agent or other fiduciary, at or before maturity, money or securities in the necessary amount to pay or redeem the Certificate; or 3. by delivering to the Trustee, for cancellation by it, the Certificate. If the District shall pay all Certificates that are Outstanding and also pay or cause to be paid all other sums payable by the District under the Trust Agreement, then and in that case, at the election of the District, evidenced by a Statement of the District filed with the Trustee signifying the intention of the District to discharge all such indebtedness and the Trust Agreement, and notwithstanding that any Certificates shall not have been surrendered for payment, the Trust Agreement, the pledge of assets made thereunder, all covenants and agreements and other obligations of the District under the Trust Agreement, and the rights and interests created thereby (except as to any surviving rights of transfer or exchange of Certificates and rights to payment from moneys deposited with the Trustee) shall cease, terminate, become void, and be completely discharged and satisfied. In such event, upon Request of the District, the Trustee shall cause an accounting for such period or periods as may be requested by the District to be prepared and filed with the District and shall execute and deliver to the District all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign, or deliver to the District all moneys or securities or other property held by it pursuant to the Trust Agreement that, as evidenced by a verification report (upon which the Trustee may conclusively rely) from a firm of certified public accountants, are not required for the payment or redemption of Certificates not theretofore surrendered for such payment or redemption. A-25

102 Discharge of Liability on Certificates. Upon the deposit with the Trustee in trust, escrow agent, or other fiduciary, at or before maturity, of money or Defeasance Securities in the necessary amount to pay or redeem any Outstanding Certificate (whether upon or prior to its maturity or the redemption date of such Certificate), then all liability of the District in respect of such Certificate shall cease, terminate, and be completely discharged, except that thereafter (i) the Owner thereof shall be entitled to payment of the principal, premium, if any, and interest represented by such Certificate by the District and the District shall remain liable for such payment, but only out of such money or Defeasance Securities deposited with the Trustee as aforesaid for their payment, and (ii) the Owner thereof shall retain its rights of transfer or exchange of Certificates. The District may at any time surrender to the Trustee for cancellation by it any Certificates previously executed and delivered, which the District may have acquired in any manner whatsoever, and such Certificates, upon such surrender and cancellation, shall be deemed to be paid and retired. Consent of Insurer So long as the Insurance Policy is in effect and the Insurer is not in default with respect to its payment obligations thereunder, the following provisions shall be in effect: Control of Remedies. Any provision of the Trust Agreement to the contrary notwithstanding, upon the occurrence and continuance of an Event of Default, the Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Owners or the Trustee for the benefit of the Owners under the Trust Agreement; and the Insurer shall also be entitled to approve all waivers of Events of Default concerning the Certificates. Amendments and Supplements. The Insurer s consent shall be required for the execution and delivery of any Supplemental Trust Agreement that requires the consent of the Owners. A-26

103 APPENDIX B THE FINANCIAL STATEMENTS OF THE DISTRICT AS OF AND FOR THE YEAR ENDING JUNE 30, 2017

104 [THIS PAGE INTENTIONALLY LEFT BLANK]

105 VISALIA UNIFIED SCHOOL DISTRICT FINANCIAL STATEMENTS June 30, 2017

106 VISALIA UNIFIED SCHOOL DISTRICT FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION For the Year Ended June 30, 2017 (Continued) CONTENTS INDEPENDENT AUDITOR'S REPORT MANAGEMENT'S DISCUSSION AND ANALySiS BASIC FINANCIAL STATEMENTS: GOVERNMENT-WIDE FINANCIAL STATEMENTS: STATEMENT OF NET POSiTION STATEMENT OF ACTiViTIES FUND FINANCIAL STATEMENTS: BALANCE SHEET - GOVERNMENTAL FUNDS RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET - TO THE STATEMENT OF NET POSiTION STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES - GOVERNMENTAL FUNDS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES - GOVERNMENTAL FUNDS - TO THE STATEMENT OF ACTiViTIES STATEMENT OF NET POSITION - PROPRIETARY FUND - SELF-INSURANCE FUND STATEMENT OF CHANGE IN NET POSITION - PROPRIETARY FUND- SELF-INSURANCE FUND STATEMENT OF CASH FLOWS - PROPRIETARY FUND - SELF-INSURANCE FUND STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES - AGENCY FUNDS NOTES TO FINANCIAL STATEMENTS

107 VISALIA UNIFIED SCHOOL DISTRICT FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION For the Year Ended June 30, 2017 (Continued) CONTENTS REQUIRED SUPPLEMENTARY INFORMATION: GENERAL FUND BUDGETARY COMPARISON SCHEDULE SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB) FUNDING PROGRESS SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY SCHEDULE OF THE DISTRICT'S CONTRIBUTIONS NOTE TO REQUIRED SUPPLEMENTARY INFORMATION SUPPLEMENTARY INFORMATION: COMBINING BALANCE SHEET - ALL NON-MAJOR FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES - ALL NON-MAJOR FUNDS COMBINING STATEMENT OF CHANGES IN ASSETS AND LlABILITIES- ALL AGENCY FUNDS ORGANIZATION SCHEDULE OF AVERAGE DAILY ATTENDANCE SCHEDULE OF INSTRUCTIONAL TIME SCHEDULE OF EXPENDITURE OF FEDERAL AWARDS RECONCILIATION OF UNAUDITED ACTUAL FINANCIAL REPORT WITH AUDITED FINANCIAL STATEMENTS SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS - UNAUDITED SCHEDULE OF CHARTER SCHOOLS NOTES TO SUPPLEMENTARY INFORMATION INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH STATE LAWS AND REGULATIONS... 77

108 VISALIA UNIFIED SCHOOL DISTRICT FI NANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION For the Year Ended June 30, 2017 CONTENTS INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE FINDINGS AND RECOMMENDATIONS: SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS STATUS OF PRIOR YEAR FINDINGS AND RECOMMENDATIONS

109 ~ Crowe Horwath. Crowe Horwath LLP Independent Member Crowe Horwath International INDEPENDENT AUDITOR'S REPORT Board of Education Visalia Unified School District Visalia, 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 Visalia Unified School District, as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise Visalia Unified School 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. 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 entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Visalia Unified School District, as of June 30, 2017, 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. (Continued)

110 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis on pages 4 to 16, the General Fund Budgetary Comparison Schedule, the Schedule of Other Postemployment Benefits (OPEB) Funding Progress, the Schedule of the District's Proportionate Share of the Net Pension Liability, and the Schedule of the District's Contributions on pages 55 to 60 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Visalia Unified School District's basic financial statements. The accompanying schedule of expenditures of federal awards as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and the other supplementary information 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 schedule of expenditure of federal awards and other supplementary information as listed in the table of contents are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information, except for the Schedule of Financial Trends and Analysis, have been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditure of federal awards and other supplementary information as listed in the table of contents, except for the Schedule of Financial Trends and Analysis, are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The Schedule of Financial Trends and Analysis has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. (Continued) 2.

111 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 12, 2017 on our consideration of Visalia Unified School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Visalia Unified School District's internal control over financial reporting and compliance. Sacramento, California December 12, 2017 Crowe Horwath LLP 3.

112 VISALIA UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2017 This section of Visalia Unified School District's (the District) annual financial report presents our discussion and analysis of the District's financial performance during the fiscal year that ended on June 30,2017. Please read it in conjunction with the District's financial statements, which immediately follow this section. OVERVIEW OF THE FINANCIAL STATEMENTS The Financial Statements The financial statements presented herein include all of the activities of the District using the integrated approach as prescribed by Governmental Accounting Standards Board (GASB) Statement Number 34. The 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: District-Wide Statements The District-Wide Financial Statements present the financial picture of the District from the economic resources measurement focus using the accrual basis of accounting, which is intended to be similar to those used by private sector companies. They provide both short-term and long-term information about the District's overall financial status. They present governmental activities and business-type activities separately, though our District does not have any business-type activities at this time. These statements include all assets of the District (including capital assets), as well as all liabilities (including long-term obligations). 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. Additionally, certain eliminations have occurred as prescribed by the statement in regard to interfund activity, payables, and receivables. The District-wide statements report the District's net position and how it has changed. Net position, the difference between the District's assets and deferred outflows of resources less liabilities and deferred inflows of resources, is one way to measure the District's financial health or position. Over time, increases or decreases in the District's net position are an indicator of whether its financial position is improving or deteriorating, respectively. To assess the overall health of the District you need to consider additional non-financial factors such as changes in the District's property tax base and the condition of school buildings and other facilities. In the District-wide financial statements, the District's activities are divided into two categories: Governmental activities - The District's basic services are included here, such as regular and special education, transportation, and administration. Property taxes and State formula aid (Local Control Funding Formula) finance most of these activities. Business-type activities - The District does not have any activities included here, as fees the District may charge to help it cover the costs of certain services it provides (such as specific Adult School classes) do not constitute major reportable activities. Fund Financial Statements The Fund Financial Statements include statements for each of the three categories of activities: governmental (basic services), proprietary (business-type activities), and fiduciary (assets held for 4.

113 others). They focus on individual parts of the District, reporting the District's operations in more detail than the District-wide statements which reports on 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: Some funds are required by State law and by bond covenants. The District establishes other funds to control and manage money for particular purposes (like repaying its long-term obligations) or to show that it is properly using certain revenues (like federal grants). The District has three kinds of funds: Governmental funds - These statements are prepared using the current financial resources measurement focus and modified accrual basis of accounting. They tell how basic services like regular and special education were financed in the short-term as well as what remains for future spending. 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 you 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, we provide additional information at the bottom of the governmental funds statements that explain the relationship (or differences) between them. 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 using the economic resources measurement focus and the accrual basis of accounting. They offer short- and long-term financial information about the activities that the District operates like a business. Our District does not utilize enterprise funds (one type of proprietary fund) at this time, which are the same as business-type activities. We do, however, use internal service funds (the other kind of proprietary fund) 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 employee health and welfare insurance fund. Fiduciary funds - The District is the trustee, or fiduciary, for assets that belong to others, in this case, the student activities (agency) 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, which are the student bodies. All of the District's fiduciary activities are reported in a separate statement of fiduciary net position and a statement of changes in fiduciary net position, which only report a balance sheet and do not have a measurement focus. We exclude these activities from the District-wide financial statements because the District cannot use these assets to finance its operations. The financial statements also include notes that explain some of the information of 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 a comparison of the District's budget for the year. Figure A-1 on the next page shows how the various parts of this annual report are arranged and related to one another. 5.

114 Figure A-1 Organization of the District's Annual Financial Report.--- L _.L- 1~_-.) Management's Discussion and Analysis Basic Financial Statements Required Supplementary Information r District- Wide Financial Statements 1 \ Fund Financial Statements Notes to the Financial Statements SUMMARY DETAIL Reconciliation of the Fund Financial Statements to the Government-Wide Financial Statements is provided to explain the differences created by the integrated approach. FINANCIAL HIGHLIGHTS OF THE PAST YEAR This District continued to implement the changes brought by the Local Control Funding Formula, as well as the accountability provisions of the Local Control Accountability Plan first adopted in the fiscal year. The State budget and economy continues the trend of steady growth and the District continues to restore programs and implement changes to improve achievement for all students. The following factors playa significant role in the economic recovery: o Stable State and Local Unemployment Rates of 4.3% State, 9.4% Tulare County and 7.6% for Visalia, compared to 5.4% State, 10.7% Tulare County and 8.7% Visalia in the previous fiscal year. o Capital gains and personal income tax continue to fuel growth in the California economy and State revenue. o UCLA Anderson forecast for continued slow but steady GDP growth in the US economy, as well as the California economy with employment growth of 1.1 % and personal income growth of 2.0% in 2017 with the projected unemployment rate falling to 4.5% by o Housing continues to rebound with permits and housing valuation up from prior year lows. The District continues to budget using conservative revenue estimates and maintains a reserve and fund balance that enables the District to maintain fiscal solvency. The District maintains a reserve for economic uncertainty of 15% at the close of the fiscal year. 6.

115 The Districts overall financial condition has improved with additional revenues from the new funding formula. State revenues from the LCFF are up $73.6 million from FY , with $34.6 million of those new revenues dedicated to improving services for our most needy students. Pension costs continue to limit the Districts ability to restore and improve programs with $11.4 million in new pension costs since , projected to grow to $20.5 million in new costs by Construction was completed on Ridgeview Middle School and welcome students in August Also, construction was near completion on Riverway Elementary School and preparing for students in August Overall, revenues were $340.2 million for the audit year, as compared to overall revenues of $334.7 million in the prior year, up by $5.5 million or 1.64% due to additional state funding from LCFF as well as Medi-Cal Administrative Activities (MAA) reimbursements, as well as Career Technical Education (CTE) incentive grants. General Fund revenues for the current year exceeded basic expenditures by $18.6 million; $309.7 million in revenues compared to $291 million in basic expenditures with salaries and benefits accounting for 79.2% of basic expenditures. Housing growth in the City of Visalia has shown steady growth in ; which correlates to the increase in the Districts revenues from Developer Fee Funds. The Developer Fee rate for was at the Level 1 rate of $3.36 per square foot from July - November 2016 and Level 2 rate at $3.75 per square foot from December June Revenues are up for the year at $5.4 million compared to $4.8 million in an increase of 12.50%. REPORTING THE DISTRICT AS A WHOLE The Statement of Net Position and the Statement of Activities The Statement of Net Position and the Statement of Activities report information about the District as a whole and about its activities. These statements include all assets and liabilities of the District using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the District's net position and changes in it. Net position is the difference between assets plus deferred outflows of resources less liabilities and deferred inflows of resources, which is one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's net position are one indicator of whether its financial health is improving or deteriorating. Other factors to consider are changes in the District's property tax base and the condition of the District's facilities. The relationship between revenues and expenses is the District's operating results. Since the governing board's responsibility is to provide services to our students and not to generate profit as commercial entities do, one must consider other factors when evaluating the overall health of the District. The quality of the education and the safety of our schools will likely be an important component in this evaluation. In the Statement of Net Position and the Statement of Activities, we report only the District's governmental activities, as the District does not have any business-type activities. All of the District's services are reported in this category, and include the education of kindergarten through grade twelve students, adult education students, the operation of child development activities, and the ongoing effort to improve and maintain buildings and sites. Property taxes; state income taxes; user fees; interest income; federal, state, and local grants; as well as general obligation bonds finance these activities. 7.

116 A more detailed analysis of the District's net position and changes in net position follows: Table A-1 Net Position Total (Amounts in millions) GO\emmental Dollar Percentage Activities Change Change Current and other assets $ $ $ % Capital assets (less depreciation) % --_..._-_ Total Assets % Current liabilities % Long-term liabilities % Total Liabilities % ~-. ~-.. -_...,."" ~,~ ~. ~' Deferred Inflows/Outflows of Resources (49.8) (4.6) (45.2) % Net position Net in\estment in capital assets % Restricted (17.2) % Unrestricted (133.6) (139.5) % Total Net Position $ $ $ %... - Net position. The District's combined net position was $207.9 million for the fiscal year ended June 30, 2016, and $229.3 million for the fiscal year ended June 30, 2017, an increase of $21.4 million (Table A-1). This increase in the District's financial position came from its governmental activities, and was due primarily to the increase in capital assets for Measure E Projects. The results of this year's operations for the District as a whole are reported in the Statement of Activities that can be found in the Basic Financial Statements Section of this document. Table A-2 takes the information from the statement, rounds the numbers, and rearranges them slightly so the reader can see the District's total revenues for the year. 8.

117 Table A-2 Statement of Activities (Amount in millions) Total Total Governmental Dollar Percentage Activities Change Change Revenues General revenues: Federal and State aid not restricted $ $ $ % Changes for services % Operating grants and contributions % Tax revenues % Other local sources (0.7) % Total Revenues % Expenses Instruction-related % Student support services % Admi ni strati on % Maintenance and operations % Other % Total Expenses % Excess of Revenues over Expenses $ 21.4 $ 44.7 $ {23.3} % Changes in net position. The District's total revenues increased from $334.7 million at June 30,2016, to $340.1 million at June 30, 2017, an increase of 1.61 percent (Table A-2). As mentioned earlier, the increase in revenues was primarily due to the increase in revenues received from the State under the LCFF as well as Medi-Cal Administrative Activities (MAA) reimbursements, as well as Career Technical Education (CTE) incentive grants. The total cost of all programs and services increased 9.9 percent from $290.0 million at June 30, 2016, to $318.7 million at June 30, The majority of the District's expenses relate to instruction (72.01 percent). The purely administrative activities of the District accounted for just 4.5 percent of total costs. Overall, total revenues surpassed expenses, increasing net position $21.4 million, a decrease of $23.3 million over last year's increase. With the cyclical challenges of the State's finances, the District will continue to work to strengthen our fiscal foundation for the years when budget reductions may be necessary and deficits may decrease the District's net position. In Table A-3 below, the net cost of each of the District's seven largest functions is presented below. The net cost shows the financial burden that was placed on the District's taxpayers by each of these functions. Providing this information allows our citizens to consider the cost of each function in comparison to the benefits they believe are provided by that function. 9.

118 Table A-3 Net Cost of Governmental Activities (Amounts in millions) Net Cost of Services $ Change % Change Instruction $ $ $ % Instruction-related acti\1ties (supervision, library, and media) % Other pupil services % Food services % Pupil transportation (0.2) -4.08% General administration % Maintenance and operations (plant services) % Other % Totals $ $ $ % REPORTING THE DISTRICT'S MOST SIGNIFICANT FUNDS Fund Financial Statements The fund financial statements provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by State law and by bond covenants. However, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education. Governmental Funds - Most of the District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The differences of results in the governmental fund financial statements to those in the government-wide financial statements are explained in a reconciliation following each governmental fund financial statement. Proprietary Funds - When the District charges users for the services it provides, whether to outside customers or to other departments within the District, these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Fund Net Position. In fact, the District's enterprise funds are the same as the business-type activities we report in the government-wide statements but provide more detail and additional information, such as cash flows, for proprietary funds. We use internal service funds (the other component of proprietary funds) to report activities that provide supplies and services for the District's other programs and activities - such as the District's Self Insurance Fund. The internal service funds are reported with governmental activities in the governmentwide financial statements. 10.

119 THE DISTRICT AS TRUSTEE Reporting the District's Fiduciary Responsibilities The District is the trustee, or fiduciary, for funds held on behalf of others, like our funds for associated student body activities, scholarships, employee retiree benefits, and pensions. The District's fiduciary activities are reported in separate Statements of Fiduciary Net Position. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At June 30, 2016, the total net capital assets totaled $332.5 million. At June 30, 2017, the total net capital assets totaled $357.8 million. This amount represents a net increase (including additions, deductions, and depreciation) of $25.3 million, or 7.61 percent, from last year. In November 2012, the voters of Visalia approved Measure E, a $60.1 million bond issue to fund facility improvements at all of our school sites over 10 years old and build a new middle school. The increase is related to those construction projects and work in progress. Table A-4 Capital Assets at Year-End (Net of depreciation) (Amounts in millions) Total Total Govemmental Dollar Percentage Activities Change Change Land $ 18.3 $ 18.3 $ 0.00% Construction in progress % Buildings and improvements (0.8) -0.32% Equipment % Totals $ $ $ % 11.

120 Long-Term Obligations At June 30, 2016, the District had $293.7 million in long-term obligations outstanding versus $344.5 million at June 30, 2017, an increase of $50.8 million or percent. Direct debt decreased by $1.7 million in aggregate due to regular debt service payments. The Districts liabilities for retiree pensions and health insurance increased by $52.2 million which are attributed increases in the Districts Net Pension Liability. Table A-5 Outstanding Debt at Year-end (Amounts in millions) Total Total GO\emmental Dollar Percentage Activities Change Change ' General obligation bonds $ 65.1 $ 65.9 $ (0.8) -1.21% Certificates of participation (0.4) -2.27% Capitalized lease obligations (0.5) % Loan payable % Other postemployment benefits liability % Net Pension Liability % Compensated Absences % Totals $ $ $ % ~~~~= The District's general obligation bond rating continues to be stable (currently A+). The State limits the amount of general obligation debt that Districts can issue per Education Code Section to 2.5 percent of the assessed value of all taxable property within the District's boundaries. The District's outstanding general obligation debt of $65.1 million is well below the statutorily-imposed limit of approximately $314.9 million. Other obligations include the net pension liability, compensated absences payable, postemployment benefits (not including health benefits), and other long-term obligations. We present more detailed information regarding our long-term liabilities in the Notes to the Financial Statements. 12.

121 STUDENT ENROLLMENT The District continues to experience growth in enrollment in elementary grades; however, with the increase in popularity in charter schools within the District boundary that trend has stabilized. The District recognized a slight enrollment increase of 371 students to 28,557 in , from a total of 28,186 in Additionally, the District's CBEDS to P2 ADA ratio remains above the State average at 96.04%. 29, ,000 27,000 26,000 Enrollment Comparison (CALPADS)./2.Jtt16, ''..." ',~ r" 27,082 27,267 ':;~ 26'728 28,557 28, , 1~4-' 27,6J);;'" 27,430 27:~" 27,974 25,000 24,000 23,000 24,9'y25,258 4.~~ 23,798 23,928 22,000 21,000 ~~~~~~~~~~0~~~v.~~~~~~ ~~~~~~~~~~~~~~~~~~~~~ Fiscal Year 13.

122 SIGNIFICANT ACCOMPLISHMENTS OF FISCAL YEAR ARE NOTED BELOW: School districts continue progress toward full funding under the Local Control Funding Formula (LCFF) model. At the end of the fiscal year, districts, on average were about 94% fully funded. As in prior years, the LCFF gap funding percentage was revised by the state several times during the budget development process. The Governor's January 2016 budget proposal for the year initially proposed closing the gap between the LCFF funding level and full LCFF implementation targets by 49.08%. That figure increased with the May Revise budget proposal to 54.84% and settled slightly lower at 54.18% under the enacted budget signed by the Governor in June The LCFF gap funding percentage continued to fluctuate slightly during the year based on various factors at the state level with the final number for landing at 56.08% at year end. This final change brought Visalia Unified almost 96% of the way toward full LCFF implementation. In the first four years under the new funding formula, revenues have increased substantially from the lows of the Great Recession, but challenges still remain. The passage of Proposition 55 in November 2016 provides an extension of the income taxes approved under Proposition 30 in 2012 and provides some revenue stability for education until However, the flattening of revenues and the increasing costs associated with rising pension and employee costs continue to put pressure on the budget. Once LCFF reaches full funding, increases will be based on inflation and adjusted by the Cost of Living Adjustment (COLA). For the COLA is just 1.56%; however, pension and other costs are increasing at double that rate of over 3%. California State Teachers Retirement System (STRS) and California Public Employees Retirement System (PERS) rates paid by the district in increased over the prior year. The STRS rate increases were implemented by the state to offset shortfalls in the retirement program. The percentage of salary contributed to STRS by the district on-behalf of its teachers rose from 10.73% in to 12.58% in School district STRS contribution rates are expected to climb annually until when they are projected to reach 19.10%. PERS retirement rates for classified staff also grew slightly in going from % in to % in PERS rates are expected to increase to 19.80% by The District has taken actions to mitigate these cost increases, opening a pension trust account with onetime funding in In addition, VUSD maintains a reserve for economic uncertainties at 15% per Board policy. Highlights of Released a Request for Proposal (RFP) for a new Business Information System Grand opening of Ridgeview Middle School Completed Phase III of solar shade canopy installation at 11 sites First Phase of Prop 39 energy efficiency projects were completed at La Joya and Ops I Completed construction on new northwest elementary school, Riverway Received Community Eligibility Provision (CEP) for 27 sites, providing no cost breakfast and lunch to students who attend these schools Completed upgrade of wireless network with approximately 800 access points in service ~ Awarded a five year grant under the Classified Employee Teacher Credential Scholarship Program Opened our own Health & Well ness Clinic serving employees, their dependents, and retirees covered under the District's health insurance plan Green Acres and Divisadero PULSE programs competed in the Tulare County Step UP Youth Challenge, earning 1 st place in their respective divisions and awarded $2,500 to support future community projects Students in grades five, eight, and ten took part in the pilot Science tests that are aligned to the new Science standards 14.

123 Visalia Partners in Education (VPIE) and the community of Visalia made over $718,000 in monetary and in-kind donations to support Linked Learning Academies and CTE Pathways VUSD's CTE Program received the Career Technical Education Incentive Grant from Department of Education totaling $1.7 million to enhance, expand, and improve CTE programs across the district Enrolled over 600 students in our early learning programs Social Emotional Learning Center (SELC) was the recipient of two generous grants from the Visalia Educational Foundation funding an interactive social emotional curriculum and a sensory room Disciplinary incidents that led to suspension have shown a 3% decline from the last school year, with a 49% decline since the school year Incidents that led to expulsion declined by over 10% this past school year, and 53% since the school year Opened a pension trust account with one-time funding in to mitigate the increase in retirement costs Graduation rate remains high, at 98.7% ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES The State Budget continues to fund moderate increases to the Local Control Funding Formula (LCFF)for school districts in California. The Governor's plan for the education budget increases revenues under the LCFF by $1.36 billion bringing total education funding to $74.5 billion from the low of $47.3 billion in , at the depth of the Great Recession. While this is a much needed increase, it does not cover the ongoing annual cost increases from the retirement systems alone. In the first four years of the new funding formula, schools have reached nearly 97% of the target towards full LCFF implementation. The passage of Proposition 30 in 2012 and the extension of the income tax portion of that measure in 2016 under Proposition 55, have generated much of the increases in revenues to expedite the implementation. As a refresher, the LCFF created base, supplemental, and concentration grants in place of most previously existing K-12 funding streams, thus eliminating revenue limits and approximately threequarters of state categorical (restricted) programs. This streamlined funding results in more flexibility for school leaders, with the assistance of parents and other local stakeholders, to determine the local academic priorities and how the state funding will be used to improve student achievement so that they graduate from high school and are college and career ready. As part of this funding model, VUSD is required to develop, adopt, and annually update a three-year Local Control and Accountability Plan or LCAP. The LCAP is required to identify annual goals, specific actions, and measure progress for student subgroups across multiple performance indicators, including student academic achievement, school climate, student access to a broad curriculum, and parent engagement. The recent release of the Dashboard will provide these measurements for success under the new funding formula. Once LCFF reaches full funding, increases are based on the State's Cost of Living Adjustment (COLA). In , the COLA is 1.56%. Programs outside of the LCFF (Adult School, State Preschool and Child Nutrition) will also receive the COLA. Highlights of the VUSD Budget include: Implementation of the Local Control and Accountability Plan using supplemental and concentration (targeted) funds to improve services across the District by expanding student opportunities for learning, after-school enrichment and behavior support and intervention. 15.

124 Continued planning of Measure E modernization projects and opening of Riverway Elementary School as well as funding for modernization and routine maintenance projects throughout the District. Maintenance of the District Reserve for Economic Uncertainty of 13.5% The District continues to budget conservatively and the key assumptions in our revenue forecast are: 1. Regular Average Daily Attendance (ADA) from P-2 K-12 with zero projected growth for is budgeted at 27, Cost of Living Adjustment (COLA) increase of 0.00% on all State programs. 3. State lottery is projected to be $ per ADA, of which $45.00 is restricted to instructional materials, and $ is unrestricted. 4. One-time dollars are not budgeted until received. 5. NCl S is budgeted with a 15% reduction or $1.5 million. Expenditures are based on the following assumptions: 1. Step increases for certificated, management, and classified are budgeted in full at $3.4 million. 2. Health care costs per employee will be shared by the District and employee as negotiated. The annual cost of health care coverage will be $15,702 per certificated employee, $14,526 per management employee, and either $14,126 or $14,546 per classified employee depending on the option selected. The District will pay $13,853 per certificated employee, $13,731 per management employee and $14,126 per classified employee. 3. Routine Restricted Maintenance Account is funded at 3% of total General Fund expenditures. 4. Contributions to restricted programs to cover projected encroachment will be $29.9 million. CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have questions about this report or need any additional financial information, contact Robert Graeber, Assistant Superintendent, Administrative Services, at Visalia Unified School District, 5000 West Cypress Avenue, Visalia, California 93277, or at rgroeber@vusd.org. 16.

125 BASIC FINANCIAL STATEMENTS

126 VISALIA UNIFIED SCHOOL DISTRICT STATEMENT OF NET POSITION June 30, 2017 Governmental Activities ASSETS Cash and investments (Note 2) Receivables Stores inventory Non-depreciable capital assets (Note 4) Depreciable capital assets, net of accumulated depreciation (Note 4) Total assets $ 174,942,916 19,648, ,476 96,143, ,667, ,728,615 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources - pensions (Notes 8 and 9) 56,157,341 LIABILITIES Accounts payable Claims liability (Note 5) Unearned revenue Long-term liabilities: Due within one year (Note 6) Due after one year (Note 6) Total liabilities 11,613,126 5,758,956 11,275,718 3,186, , ,187,295 DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources - pensions (Notes 8 and 9) 6,382,000 NET POSITION Net investment in capital assets Restricted Legally restricted programs Capital projects Debt service Self insurance Unrestricted Total net position 299,619,914 21,908,447 4,423,716 6,548,537 30,464,226 (133,648,179) $ 229,316,661 See accompanying notes to financial statements. 17.

127 VISALIA UNIFIED SCHOOL DISTRICT STATEMENT OF ACTIVITIES For the Year Ended June 30, 2017 Program Revenues Operating Charges Grants and For Contri- Expenses Services butions Capital Grants and Contributions Net (Expense) Revenue and Change in Net Position Governmental Activities Governmental activities: Instruction Instruction-related services: Supervision of instruction Instructional library, media and technology School site administration Pupil services: Home-to-school transportation Food services All other pupil services General administration: Data processing All other general administration Plant services Ancillary services Enterprise activities Other outgo Interest on long-term liabilities Total governmental activities $ 185,528,772 $ 439,651 $ 31,838,655 12,672, ,137 4,704,951 2,679, ,664 28,625,335 2,761,960 4,672,915 12,242,260 1,563,210 8,604,769 13,730,683 43,700 2,104,542 4,296,328 6,462 9,910, ,227 1,450,952 30,079,443 4,385,320 5,191,023 8,264,911 3,496,445 28,587 2,741, , ,475 3,245,157 ~ 318,718,992 ~ 7,796,300 ~ 60,740,898 General revenues: Taxes and subventions: Taxes levied for general purposes Taxes levied for debt service Taxes levied for other specific purposes Federal and state aid not restricted to specific purposes Interest and investment earnings Interagency revenues Miscellaneous Total general revenues Change in net position Net position, July 1,2016 Net position, June 30,2017 $ $ (153,250,466) (7,678,667) (2,504,321 ) (25,863,375) (4,672,915) (2,074,281) (11,582,441 ) (4,289,866) (8,355,014) (20,503,100) (4,768,466) (28,587) (1,365,138) (3,245,157) ~ (250,181,794) 38,482,301 2,748,391 1,046, ,776, ,549 1,341,253 3,478, ,611,675 21,429, ,886,780 $ 229,316,661 See accompanying notes to financial statements. 18.

128 VISALIA UNIFIED SCHOOL DISTRICT BALANCE SHEET GOVERNMENTAL FUNDS June 30, 2017 General Fund Special Reserve for Capital Outlay Projects Fund All Non-Major Funds Total Governmental Funds ASSETS Cash and investments: Cash in County Treasury Cash on hand and in banks Cash in revolving fund Cash with Fiscal Agent Receivables Due from other funds Stores inventory $ 91,865,433 $ 22,182,911 8,495 33,564 8,820,926 16,828, ,000 2,839,878 3,000, ,328 $ 15,774,714 37,584 2,524,927 29, ,148 $129,823,058 46,079 33,564 8,820,926 19,643,058 5,869, Total assets $120,543,755 $ ,911 $ 18, $164,562,163 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 7,897,944 $ 2,312,693 Unearned revenue 11,154,954 Due to other funds 4,947, Total liabilities 23,999,969 2,312,935 Fund balances: Nonspendable 180,892 Restricted 15,279,705 23,159,976 Assigned 36,029,412 Unassigned 45,053,777 Total fund balances 96,543,786 23,159,976 Total liabilities and fund balances ~120,543,755 ~ 25,472,911 $ 523, , ,564, ,148 16,801,833 16,980,981 ~ 18,545,497 $ 10,733,917 11,275,718 5,867,785 27, ,040 55,241,514 36,029,412 45,053, , ~164,562,163 See accompanying notes to financial statements, 19.

129 VISALIA UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION June 30, 2017 Total fund balances - Governmental Funds $ 136,684,743 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used for governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of the assets is $520,978,922 and the accumulated depreciation is $163,167,867 (Note 4). 357,811,055 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 June 30, 2017 consisted of (Note 6): General Obligation Bonds Unamortized premiums Accreted Interest Certificates of Participation Capitalized lease obligation State school building loan Net pension liability (Note 8 and 9) Other postemployment benefits (Note 10) Compensated absences $ (57,984,971) (4,876,568) (2,199,053) (17,215,000) (444,565) (210,000) (247,343,000) (13,009,918) ( ) (344,539,495) In the governmental funds, interest on long-term liabilities is not recognized until the period in which it matures and is paid. In the government-wide statement of activities, it is recognized in the period that it is incurred. (879,209) In government funds, deferred outflows and inflows of resources relating to pensions are not reported because they are applicable to future periods. In the statement of net position, deferred outflows and inflows of resources relating to pensions are reported (Note 8 and 9). Deferred outflows of resources relating to pensions Deferred inflows of resources relating to pensions Internal service funds are used to conduct certain activities for which costs are charged to other funds. Assets and liabilities are reported within the governmental activities in the Statement of Net Position. Total net position - governmental activities $ 56,157,341 ( ) 49,775, ,226 $ ,661 See accompanying notes to financial statements. 20.

130 VISALIA UNIFIED SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES GOVERNMENTAL FUNDS For the Year Ended June 30, 2017 Special Reserve for Capital All General Outlay Projects Non-Major Fund Fund Funds Revenues: Local Control Funding Formula (LCFF): State apportionment $ 213,705,331 $ $ Local sources 37,242,906 Total LCFF 250,948,237 Federal sources 16,256,180 8,982,913 Other state sources 27,148,012 7,691,013 Other local sources 15,311, ,098 10,815,357 Total revenues 309,663, ,098 27,489,283 Expenditures: Current: Certificated salaries 121,589,551 2,660,627 Classified salaries 38,204,652 5,933,560 Employee benefits 70,734,373 4,109,172 Books and supplies 18,515,932 23,260 5,617,952 Contract services and operating expenditures 27,288, ,471 1,632,938 Other outgo 2,634,114 Capital outlay 11,636,180 14,778,227 11,730,392 Debt service: Principal retirement 415,435 1,665,000 Interest 16,087 2,852,251 Total expenditures 291,034,959 14,969,958 36,201,892 Excess (deficiency) of revenues over (under) expenditures 18,628,539 ( 14,044,860) (8,712,609) Other financing (uses) sources: Transfers in 855,411 3,000,000 1,228,300 Transfers out (4,228,300) (855,411) Total Governmental Funds $ 213,705,331 37,242, ,948,237 25,239,093 34,839,025 27,051, ,077, ,250,178 44,138,212 74,843,545 24,157,144 29,090,044 2,634,114 38,144,799 2,080,435 2,868, ,206,809 (4,128,930) 5,083,711 (5,083,711 ) Total other financing (uses) sources (3,372,889) 3,000, ,889 Change in fund balances 15,255,650 (11,044,860) (8,339,720) Fund balances, July 1, ,288,136 34,204,836 25,320,701 Fund balances, June 30, 2017 $ 96,543,786 ~ 23,159,976 ~ 16,980,981 (4,128,930) 140,813,673 ~ 136,684,743 See accompanying notes to financial statements. 21.

131 VISALIA UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES - GOVERNMENTAL FUNDS- TO THE STATEMENT OF ACTIVITIES For the Year Ended June 30, 2017 Net change in fund balances - Total Governmental Funds Amounts reported for governmental activities in the statement of activities are different because: Acquisition of capital assets is an expenditure in the governmental funds, but increases capital assets in the statement of net position (Note 4). Depreciation of capital assets is an expense that is not recorded in the governmental funds (Note 4). The proceeds from disposal of capital assets are reported as revenue in the governmental funds, but only the resulting gain or loss is reported in the statement of activities. Repayment of principal on long-term liabilities is an expenditure in the governmental funds, but decreases the long-term liabilities in the statement of net position (Note 6). In governmental funds, debt issued at a premium is recognized as an other financing source. In the government-wide statements debt issued at a premium is amortized as interest over the life of the debt (Note 6). Accreted interest is an expense that is not recorded in the governmental funds (Note 6). In governmental funds, interest on long-term liabilities is recognized in the period that it becomes due. In the government-wide statement of activities, it is recognized in the period that it is incurred. In government funds, OPEB costs are recognized when employer contributions are made. In the statement of activities, OPEB costs are recognized on the accrual basis (Note 6). In government funds, pension costs are recognized when employer contributions are made. In the statement of activities, pension costs are recognized on the accrual basis. This year, the difference between accrual-basis pension costs and actual employer contributions was: In the statement of activities, expenditures related to compensated absences are measured by the amounts earned during the year. In the governmental funds, expenditures are measured by the amount of financial resources used (Note 6). Internal service funds are used to conduct certain activities for which costs are charged to other funds on a full cost recovery basis. The change in net position for the Self-Insurance Fund was: Change in net position of governmental activities $ (4,128,930) 38,298,377 (12,976,370) (9,966) 2,080, ,742 (622,832) 23,271 (244,829) (6,894,629) (1 97,559) 5,880,171 $ ,881 See accompanying notes to financial statements. 22.

132 VISALIA UNIFIED SCHOOL DISTRICT STATEMENT OF NET POSITION - PROPRIETARY FUND SELF-INSURANCE FUND June 30, 2017 ASSETS Current assets: Cash and investments: Cash in County Treasury Cash with Fiscal Agent Receivables Total current assets $ 16,652,016 "19,567,273 5, ,399 LIABILITIES Current liabilities: Claims payable Due to other funds Total liabilities 5,758, ,760,173 NET POSITION Restricted for Self-Insurance $ 30,464,226 See accompanying notes to financial statements. 23.

133 VISALIA UNIFIED SCHOOL DISTRICT STATEMENT OF CHANGE IN NET POSITION - PROPRIETARY FUND SELF-INSURANCE FUND For the Year Ended June 30, 2017 Operating revenues: Self-insurance premiums Other local revenues Total operating revenues Operating expenses: Classified salaries Employee benefits Books and supplies Contract services Total operating expenses Operating income Non-operating income: Interest income Change in net position Total net position, July 1, 2016 Total net position, June 30, 2017 $ 42,151,783 26,029 42,177, , , , ,814 5,731, ,173 5,880,171 24,584,055 $ 30,464,226 See accompanying notes to financial statements. 24.

134 VISALIA UNIFIED SCHOOL DISTRICT STATEMENT OF CASH FLOWS - PROPRIETARY FUND SELF-INSURANCE FUND For the Year Ended June 30, 2017 Cash flows from operating activities: Cash received from self-insurance premiums Cash paid for employee claims benefits Cash paid for salaries and related benefits Cash paid for other expenses Net cash provided by operating activities Cash flows provided by investing activities: Interest income received Increase in cash and investments Cash and investments, July 1,2016 Cash and investments, June 30, 2017 Reconciliation of operating income to net cash provided by operating activities: Operating income Adjustments to reconcile operating income to net cash provided by operating activities: Decrease in: Receivables Increase in: Claims liability Due to other funds Total adjustments Net cash provided by operating activities $ 43,345,971 (32,025,432) (415,248) (4,003,917) 6,901, ,173 7,049,547 29,169,742 $ $ 5,731,998 50,328 '1,1 17, ,169,376 $ 6,901,374 See accompanying notes to financial statements, 25.

135 VISALIA UNIFIED SCHOOL DISTRICT STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES AGENCY FUNDS June 30,2017 Agency Funds ASSETS Cash in county treasury Cash on hand and in banks (Note 2) Total assets $ 7,028, ,581 $ 8,005,119 LIABILITIES Due to other Due to student groups Total liabilities 6,498,230 1,506,889 $ 8,005,119 See accompanying notes to financial statements. 26.

136 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Visalia Unified School District (the "District") accounts for its financial transactions in accordance with the policies and procedures of the California Department of Education's California School Accounting Manual. The accounting policies of the District conform to accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board. The following is a summary of the more significant policies: Reporting Entity: The Board of Education is the level of government which has governance responsibilities over all activities related to public school education in the District. The Board is not included in any other governmental "reporting entity" as defined by the Governmental Accounting Standards Board since Board members have decision-making authority, the power to designate management, the responsibility to significantly influence operations and primary accountability for fiscal matters. The District receives funding from local, state and federal government sources and must comply with all of the requirements of these funding source entities. The District and the Visalia Unified School District Financing Corporation (the "Corporation") have a financial and operational relationship which meets the reporting entity definition criteria of the Codification of Governmental Accounting and Financial Reporting Standards, Section 2100, for inclusion of the Corporation as a blended component unit of the District. Accordingly, the financial activities of the Corporation have been included in the basic financial statements of the District. The following are those aspects of the relationship between the District and the Corporation which satisfy Codification of Governmental Accounting and Financial Reporting Standards, Section 2100, as amended: A - Manifestation of Oversight The Corporation's Board of Directors were appointed by the District's Board of Education. The Corporation has no employees. The District's Superintendent and Assistant Superintendents function as agents of the Corporation. Neither receives additional compensation for work performed in this capacity. The District exercises significant influence over operations of the Corporation as it is anticipated that the District will be sole lessee of all facilities owned by the Corporation. B - Accounting for Fiscal Matters o All major financing arrangements, contracts, and other transactions of the Corporation must have the consent of the District. Any deficits incurred by the Corporation will be reflected in the lease payments of the District. Any surpluses of the Corporation revert to the District at the end of the lease period. It is anticipated that the District's lease payments will be the sole revenue source of the Corporation. The District has assumed a "moral obligation," and potentially a legal obligation, for any debt incurred by the Corporation. (Continued) 27.

137 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C - Scope of Public Service and Financial Presentation The Corporation was created for the sole purpose of financially assisting the District. The Corporation is a nonprofit, public benefit corporation incorporated under the laws of the State of California and recorded by the Secretary of State. The Corporation was formed to provide financing assistance to the District for construction and acquisition of major capital facilities. Upon completion the District intends to occupy all Corporation facilities. When the Corporation's Certificates of Participation have been paid with state reimbursements and the District's developer fees, title of all Corporation property will pass to the District for no additional consideration. The Corporation's financial activity is included in the basic financial statements as the Capital Facilities and Debt Service Funds. Certificates of Participation issued by the Corporation are included in the government-wide financial statements. Basis of Presentation - Financial Statements: The basic financial statements include a Management's Discussion and Analysis (MD & A) section providing an analysis of the District's overall financial position and results of operations, financial statements prepared using full accrual accounting for all of the District's activities, including infrastructure and a focus on the major funds. Basis of Presentation - Government-Wide Financial Statements: The Statement of Net Position and the Statement of Activities displays information about the reporting government as a whole. Fiduciary funds are not included in the government-wide financial statements. Fiduciary funds are reported only in the Statement of Fiduciary Assets and Liabilities. The Statement of Net Position and the Statement of Activities are prepared using the economic resources measurement focus and the accrual basis of accounting. Revenues, expenses, gains, losses, assets and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. Revenues, expenses, gains, losses, assets and liabilities resulting from nonexchange transactions are recognized in accordance with the requirements of Governmental Accounting Standards Board Codification Section (GASB Cod. Sec.) N Program revenues: Program revenues included in the Statement of Activities derive directly from the program itself or from parties outside the District's taxpayers or citizenry, as a whole; program revenues reduce the cost of the function to be financed from the District's general revenues. Allocation of indirect expenses: The District reports all direct expenses by function in the Statement of Activities. Direct expenses are those that are clearly identifiable with a function. Depreciation expense is specifically identified by function and is included in the direct expense of each function. Interest on general long-term liabilities is considered an indirect expense and is reported separately on the Statement of Activities. Basis of Presentation - Fund Accounting: The accounts of the District are organized on the basis of funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. District resources are allocated to and accounted for in individual funds based upon the purpose for which they are to be spent and the means by which spending activities are controlled. (Continued) 28.

138 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 3D, 2017 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) A - Major Funds General Fund - The General Fund is the general operating fund of the District and accounts for all revenues and expenditures of the District not encompassed within other funds. All general tax revenues and other receipts that are not allocated by law or contractual agreement to some other fund are accounted for in this fund. General operating expenditures and the capital improvement costs that are not paid through other funds are paid from the General Fund. Special Reserve for Capital Outlay Projects Fund - The Special Reserve for Capital Outlay Projects Fund is a capital projects fund used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for capital outlay purposes. B - Other Funds Special Revenue Funds - Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. This classification includes the Adult Education, Child Development and Cafeteria Funds. Capital Projects Funds - Capital Projects Funds are used to account for resources used for the acquisition or construction of capital facilities by the District. This classification includes the Building, Capital Facilities, and the County School Facilities Funds. Debt Service Funds - Debt Service Funds are used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest, and related costs. This classification includes the Bond Interest and Redemption and Debt Service Funds. Self-Insurance Fund - The Self-Insurance Fund is a proprietary fund used to account for the District's selfinsured health and welfare plan. Agency Funds - Agency Funds are Fiduciary Funds which are used to account for assets of others, for which the District has an agency relationship with the activity of the fund. This classification consists of the Warrant/Pass-Through and the Associated Student Body (ASB) Funds. Basis of Accounting: Basis of accounting refers to when revenues and expenditures or expenses are recognized in the accounts and reported in the basic financial statements. Basis of accounting relates to the timing of the measurement made, regardless of the measurement focus applied. Accrual: Governmental activities in the government-wide financial statements and the proprietary and fiduciary fund financial statements are presented on the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when incurred. Modified Accrual: The governmental funds financial statements are presented on the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual; i.e., both measurable and available. "Available" means collectible within the current period or within 60 days after year end. Expenditures are generally recognized under the modified accrual basis of accounting when the related liability is incurred. The exception to this general rule is that principal and interest on general obligation long-term liabilities, if any, is recognized when due. (Continued) 29.

139 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30,2017 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Budgets and Budgetary Accounting: By state law, the Board of Education must adopt a final budget by July 1. A public hearing is conducted to receive comments prior to adoption. The Board of Education complied with these requirements. Receivables: Receivables are made up principally of amounts due from the State of California. The District has determined that no allowance for doubtful accounts was necessary as of June 30,2017. Stores Inventory: Inventories in the General and Cafeteria Funds are valued at average cost. Inventory recorded in the General and Cafeteria Funds consists mainly of school supplies and consumable supplies. Inventories are recorded as an expenditure at the time the individual inventory items are transferred from the warehouse to schools and offices. Capital Assets: The District maintains a capitalization threshold of an original cost of $5,000 for equipment and $15,000 for buildings and improvements. When purchased, such assets are recorded at historical cost or estimated historical cost. Contributed assets are reported at acquisition value for the contributed asset. Additions, improvements and other capital outlay that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. Depreciation of capital assets is computed and recorded using the straight-line method. Estimated useful lives for the various classes of depreciable capital assets are as follows: buildings, 20 to 50 years; improvements,s to 50 years; equipment 2 to 15 years. Compensated Absences: Compensated absences totaling $1,256,420 are recorded as a liability of the District. The liability is for the earned but unused benefits. Accumulated Sick Leave: Sick leave benefits are not recognized as liabilities of the District. The District's policy is to record sick leave as a operating expenditure or expense in the period taken since such benefits do not vest nor is payment probable; however, unused sick leave is added to the creditable service period for calculation of retirement benefits for certain STRP and PERF B employees, when the employee retires. Unearned Revenue: Revenue from federal, state, and local special projects and programs is recognized when qualified expenditures have been incurred. Funds received but not earned are recorded as unearned revenue until earned. Interfund Activity: Interfund activity is reported as either loans, services provided, reimbursements or transfers. Loans are reported as interfund receivables and payables as appropriate and are subject to elimination upon consolidation. Services provided, deemed to be at market or near market rates, are treated as revenues and expenditures/expenses. Reimbursements are when one fund incurs a cost, charges the appropriate benefiting fund and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers between governmental or proprietary funds are netted as part of the reconciliation to the government-wide financial statements. Custodial Relationships: The Agency Funds represent the assets and liabilities of various student organizations within the District. As the funds are custodial in nature, no measurement of operating results is involved. (Continued) 30.

140 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Deferred Outflowsllnflows of Resources: In addition to assets, the Statement of Net Position includes a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s), and as such will not be recognized as an outflow of resources (expense/expenditures) until then. The District has recognized a deferred outflow of resources related to the recognition of the pension liability reported in the statement of net position. In addition to liabilities, the statement of net position reports a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and as such, will not be recognized as an inflow of resources (revenue) until that time. The District has recognized a deferred inflow of resources related to the recognition of the pension liability reported which is in the Statement of Net Position. Pensions: For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions. and pension expense, information about the fiduciary net position of the State Teachers' Retirement Plan (STRP) and Public Employers Retirement Fund 8 (PERF 8) and additions to/deductions from STRP's and PERF 8's fiduciary net position have been determined on the same basis as they are reported by STRP and PERF 8. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Certain investments are reported at fair value. Investments are reported at fair value. The following is a summary of pension amounts in aggregate: STRP PERF 8 Total Deferred outflows of resources ~ 35,465,634 ~ 20,691,707 56,157,341 Deferred inflows of resources $ 4,529,000 1,853,000 6,382,000 Net pension liability ~185,666,OOO 61,677, ,343,OOO Pension expense ~ 27,949,642 9,035,486 ~ 36,985,128 Net Position: Net position is displayed in three components: 1. Net Investment in Capital Assets: Consist of capital assets, net of accumulated depreciation, reduced by outstanding related debt and adjusted for unspent debt proceeds and deferred outflows/inflows resulting from refunding debt instruments. 2. Restricted Net Position: Restrictions of the ending net position indicate the portions of net position not appropriable for expenditure or amounts legally segregated for a specific future use. The restriction for legally restricted programs represents the portion of net position restricted to specific program expenditures. The restriction for debt service represents the portion of net position which the District plans to expend on debt repayment. The restriction for capital projects represents the portion of net position restricted for capital projects. The restriction for self-insurance represents the portion of net position restricted for self-insurance payments. It is the District's policy to first spend restricted net position when allowable expenditures are incurred. 3. Unrestricted Net Position: All other net position that do not meet the definitions of "restricted" or "net investments in capital assets". (Continued) 31.

141 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30,2017 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fund Balance Classifications: Governmental Accounting Standards Board Codification Sections 1300 and 1800, Fund Balance Reporting and Governmental Fund Type Definitions (GASB Cod. Sec and 1800) implements a five-tier fund balance classification hierarchy that depicts the extent to which a government is bound by spending constraints imposed on the use of its resources. The five classifications, discussed in more detail below, are nonspendable, restricted, committed, assigned and unassigned. A - Nonspendable Fund Balance: The nonspendable fund balance classification reflects amounts that are not in spendable form, such as revolving fund cash, prepaid expenditures and stores inventory. B - Restricted Fund Balance: The restricted fund balance classification reflects amounts subject to externally imposed and legally enforceable constraints. Such constraints may be imposed by creditors, grantors, contributors, or laws or regulations of other governments, or may be imposed by law through constitutional provisions or enabling legislation. These are the same restrictions used to determine restricted net position as reported in the government-wide, proprietary fund and fiduciary fund statements. C - Committed Fund Balance: The committed fund balance classification reflects amounts subject to internal constraints self-imposed by formal action of the Board of Education. The constraints giving rise to committed fund balance must be imposed no later than the end of the reporting period. The actual amounts may be determined subsequent to that date but prior to the issuance of the financial statements. Formal action by the Board of Education is required to remove any commitment from any fund balance. At June 30, 2017 there were no committed fund balances. D - Assigned Fund Balance: The assigned fund balance classification reflects amounts that the District's Board of Education has approved to be used for specific purposes, based on the District's intent related to those specific purposes. The Board of Education can designate personnel with the authority to assign fund balances. At June 30, 2017, the Board of Education has designated the Chief Financial Officer with the authority to assign fund balances. E - Unassigned Fund Balance: In the General Fund only, the unassigned fund balance classification reflects the residual balance that has not been assigned to other funds and that is not restricted, committed, or assigned to specific purposes. In any fund other than the General Fund, a positive unassigned fund balance is never reported because amounts in any other fund are assumed to have been assigned, at least, to the purpose of that fund. However, deficits in any fund, including the General Fund that cannot be eliminated by reducing or eliminating amounts assigned to other purposes are reported as negative unassigned fund balance. (Continued) 32.

142 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30,2017 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fund Balance Policy: The District has an expenditure policy relating to fund balances. For purposes of fund balance classifications, expenditures are to be spent from restricted fund balances first, followed in order by committed fund balances (if any), assigned fund balances and lastly unassigned fund balances. While GASB Cod. Sec and 1800 do not require districts to establish a minimum fund balance policy or a stabilization arrangement, GASB Cod. Sec and 1800 do require the disclosure of a minimum fund balance policy and stabilization arrangements, if they have been adopted by the Board of Education. At June 30, 2017, the District has not established a minimum fund balance policy nor has it established a stabilization arrangement. Propertv Taxes: Secured property taxes are attached as an enforceable lien on property as of January 1. Taxes are due in two installments on or before November 15 and March 15. Unsecured property taxes are due in one installment on or before August 31. The County of Tulare bills and collects taxes for the District. Tax revenues are recognized by the District when received. Encumbrances: Encumbrance accounting is used in all budgeted funds to reserve portions of applicable appropriations for which commitments have been made. Encumbrances are recorded for purchase orders, contracts, and other commitments when they are written. All encumbrances are liquidated as of June 30. Eliminations and Reclassifications: In the process of aggregating data for the Statement of Net Position and the Statement of Activities, some amounts reported as interfund activity and balances in the funds were eliminated or reclassified. Interfund receivables and payables were eliminated to minimize the "grossing up" effect on assets and liabilities within the governmental activities column. Estimates: The preparation of basic financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Accordingly, actual results may differ from those estimates. (Continued) 33.

143 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 2 - CASH AND INVESTMENTS Cash and investments at June 30, 2017 are reported at fair value and consisted of the following : Governmental Proprietary Fiduciary Funds Fund Activities Pooled Funds: Cash in County Treasury $ 129,823,058 $ 16,652,016 $ 7,028,538 Deposits: Cash on hand and in banks 46, ,581 Cash in revolvi ng fund 33,564 Investments: Cash with Fiscal Agent 8,820,926 19,567,273 Total cash and investments $ 138,723,627 m 36, m 8,005,119 Pooled Funds: In accordance with Education Code Section 41001, the District maintains substantially all of its cash in the interest bearing Tulare County Treasurer's Pooled Investment Fund. The District is considered to be an involuntary participant in an external investment pool. The fair value of the District's investment in the pool is reported in the financial statements at amounts based upon the District's prorata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis. In accordance with applicable state laws, the Tulare County Treasurer may invest in derivative securities. However, at June 30, 2017, the Tulare County Treasurer has represented that the Treasurer's pooled investment fund contained no derivatives or other investments with similar risk profiles. Deposits - Custodial Credit Risk: The District limits custodial credit risk by ensuring uninsured balances are collateralized by the respective financial institution. Cash balances held in banks are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) and are collateralized by the respective financial institution. At June 30, 2017, the carrying amount of the District's accounts was $1,056,224 and the bank balance was $1,194,059. The total uninsured bank balance at June 30,2017 was $287,495. Investments: The Cash with Fiscal Agent in the General Fund represents funds held for future Pension costs. These amounts are held in a trust administered by the Public Agency Retirement Services ("PARS") and have been recorded on the amortized cost basis. The Cash with Fiscal Agent in the Proprietary Fund represents cash segregated for the future payment of self-insured benefits. These amounts are held by a third party custodian in the District's name, and are recorded on the amortized cost basis. Interest Rate Risk: The District does not have a formal investment policy that limits cash and investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. At June 30, 2017, the District had no significant interest rate risk related to cash and investments held. Credit Risk: The District does not have a formal investment policy that limits its investment choices other than the limitations of state law. Concentration of Credit Risk: The District does not place limits on the amount it may invest in anyone issuer. At June 30, 2017, the District had no concentration of credit risk. (Continued) 34.

144 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 3 - INTERFUND TRANSACTIONS Interfund Activity: Transactions between funds of the District are recorded as interfund transfers, except for the Self-Insurance Fund activity which is recorded as income and expenditures of the Self-Insurance Fund and the funds which incur payroll costs, respectively. The unpaid balances at year end, as a result of such transactions, are shown as due to and due from other funds. Interfund Receivables/Payables: Individual interfund receivable and payable balances at June 30, 2017 were as follows: Interfund Receivables Interfund Payables Major Funds: General Special Reserve for Capital Outlay Projects $ 2,839,878 3,000,000 $ 4,947, Non-Major Funds: Adult Education Child Development Cafeteria 29, , , ,077 Proprietary Funds: Self-Insurance 1,217 Totals $ 5,869,002 $ 5,869,002 Transfers: Transfers consist of operating transfers from funds receiving revenue to funds through which the resources are to be expended. Transfers for the fiscal year were as follows: Transfer from the General Fund to the Special Reserve for Capital Outlay Projects Fund to support construction costs. Transfer from the General Fund to the Debt Service Fund for Certificate of Participation payment. Transfer from the Cafeteria Fund to the General Fund for indirect costs support. Transfer from the Adult Education Fund to the General Fund for indirect costs support. Transfer from the General Fund to the Cafeteria Fund for nutritional services support. Transfer from the Child Development Fund to the General Fund for indirect costs support. $ 3,000,000 1,082, , , , $ 5,083,711 (Continued) 35.

145 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 4 - CAPITAL ASSETS A schedule of changes in capital assets for the year ended June 30, 2017 is shown below: Governmental Activities Balance July 1, 2016 Additions Transfers and Deductions Balance June 30, 2017 Non-depreciable: Land $ 18,255,539 $ 75,488 Work-in-process 51,984,347 27,953,634 Depreciable: Buildings and improvements 381,632,802 8,236,957 Furniture and equipment 31,837,426 2,032,298 $ (2,125,894) 2,125,894 (1,029,569) $ 18,331,027 77,812, ,995,653 32,840,155 Totals, at cost 483,710,114 38,298,377 (1,029,569) 520,978,922 Less accumulated depreciation: Buildings and improvements (129,027,256) (11,163,004) Furniture and equipment (22,183,844) (1,813,366) 1,019,603 (140,190,260) (22,977,607) Total accumulated depreciation (151,211,100) (12,976,370) 1,019,603 (163,167,867) Capital assets, net $ 332,499,014 ~ 25,322,007 Depreciation expense was charged to governmental activities as follows: Instruction Instruction supervision and administration Instruction library, media, and technology School site administration Home-to-school transportation Food services All other pupil services Ancillary services Enterprise activities All other general administration Data processing Plant services Total depreciation expense ~ (9,966) $ l2 ~ 357,811,055 8,295, , ,359 1,065, , , , ,601 16, , ,988 1,665,689 12,976,370 (Continued) 36.

146 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 5 - RISK MANAGEMENT/CLAIMS LIABILITY The District's risk management activities for employee health benefits are recorded in the Self-Insurance Fund. District exposure to workers' compensation claims and propertylliability are provided for through the purchase of insurance from a joint powers entity, Self-Insured Schools of California III (see Note 11). The District records an estimated liability for health care. Health and welfare liabilities are based on estimates of the ultimate cost of reported claims including future claim adjustment expenses and an estimate for claims incurred but not reported based on historical experience. The Self-Insurance fund establishes a liability for both reported and unreported events, which includes estimates of both future payments of losses and related claim adjustment expenses. Coverage amounts over property and liability, $250,000,000 and $50,000,000 respectively, have remained unchanged. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. The liabilities for unpaid claims and claim adjustment expenses are as follows: June 30, June 30, Unpaid claim and claim adjustment expenses, beginning of year $ 4,641,125 $ 5,214,094 Total incurred claims and claim adjustment expenses 37,144,480 35,100,544 Total payments (36,026,649) (35,673,513) Total unpaid claims and claim adjustment expenses at end of year $ 5,758,956 $ 4,641,125 NOTE 6 - LONG-TERM LIABILITIES General Obligation Bonds: On April 1, 2010, the District issued 2010 General Obligation Refunding Bonds totaling $16,685,000. The proceeds from the 2010 Refunding Bonds were used to advance refund the District's Election of 1999 Series A, Election of 1999 Series B, and Election of 1999 Series C General Obligation Bonds. As a result of the refunding, certain maturities of the Series A, Series B and Series C GO Bonds, totaling $7,710,000, $4,210,000, and $5,475,000, respectively, were considered to be defeased. As of June 30, 2017, no amounts of the refunded bonds remain outstanding. The 2010 Refunding Bonds bear interest at rates ranging from 2.0% to 4.0% and are scheduled to mature through August 2017 as follows: Year Ended June 30, 2018 Principal $ 830,000 $ Interest 16,600 =$ ====8:=46=,6::0:=0 (Continued) 37.

147 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 6 - LONG-TERM LIABILITIES (Continued) On April 25, 2013, the District issued Election of 2012, Series 2013 General Obligation Bonds totaling $33,999,971. The Bonds were comprised of $22,725,000 which were issued as Current Interest Bonds, and $11,274,971 which were issued as Capital Appreciation Bonds. The proceeds of the Bonds are being used to update and construct District facilities. The Bonds bear interest at rates ranging from 4.00% to 5.35% and mature through August 2043, as follows: Year Ended June 30, Principal Interest Total 2018 $ 550,000 $ 962,263 $ 1,512, , ,763 1,224, , ,263 1,005, ,170, ,013 2,086, ,170, ,513 2,027, ,674,535 5,100,503 10,775, ,041,616 7,773,384 11,815, ,619,103 10,235,897 13,855, ,344,717 5,932,083 15,276, ,470, ,500 5,856,500 $ 31,414,971 ~ 34,019,182 ~ 65,434,153 On June 18, 2015, the District issued Election of 2012, Series 2015 General Obligation Bonds, totaling $26,100,000. The proceeds of the Bonds are being used to fund the modernization of existing schools and construction of new facilities. The bonds bear interest at rates ranging from 4.00% to 5.00% and are scheduled to mature through August 2040, as follows: Year Ended June 30, Principal Interest Total 2018 $ 1,045,000 $ 1,120,175 $ 2,165, ,350,000 1,060,300 2,410, ,000 1,009,050 1,709, , ,925 1,405, , ,050 1,526, ,595,000 4,286,875 7,881, ,110,000 3,202,375 8,312, ,365,000 1,972,700 8,337, ,580, ,800 7,131,800 $ 25,740,000 $ 15,140,250 ~ 40,880,250 (Continued) 38.

148 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 6 - LONG-TERM LIABILITIES (Continued) Certificates of Participation: In June 2015, the District issued Certificates of Participation (2015 COPs) in the amount of $18,435,000. The 2015 COPs bear interest at rates ranging from 3.0% to 5.0% and mature through September 1, Proceeds from the issuance of the 2015 COPs were used for the acquisition and improvement of District property and facilities and to refund on a current basis, the outstanding balance of the 2005 COPs and the remaining capitalized lease obligation for the Visalia Charter Independent School building. Scheduled payments for the 2015 COPs are as follows: Year Ending June 30, Total payments Less amount representing interest Net present value of minimum payments COPs Payments $ 1,120,113 1,163,163 1,206,463 1,252,063 1,291,288 6,718,538 5,852,534 4,718,069 1,426,600 24,748,831 (7,533,831 ) 17,215,000 Capitalized Lease Obligations: The District leases a building, print shop, and buses under agreements which provide either (a) for title to pass upon expiration of the lease period or (b) provide the District with a purchase agreement upon the expiration of the lease period. As of June 30, 2017, the historical cost of capital assets acquired in connection with the leases totaled $719,782 and the accumulated depreciation was $6,049. Future yearly payments on the capitalized lease obligations are as follows: Year Ending June 30, Total payments Less amount representing interest Net present value of minimum lease payments $ Lease Payments 153, , , ,045 ( ) 444,565 (Continued) 39.

149 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 6 - LONG-TERM LIABILITIES (Continued) Schedule of Changes in Long-Term Liabilities: A schedule of changes in long-term liabilities for the year ended June 30, 2017 is shown below: Amounts Balance Balance Due Within Ju l ~ 1, 2016 Additions Deductions June 3D, 2017 One Year Governmental activities: General ObHgation Bonds $ 59,249,971 $ $ 1,265,000 $ 57,984,971 $ 2,425,000 Unamortized premiums 5,099, ,742 4,876, ,105 Accreted interest 1,576, ,832 2,199,053 Certificates of Participation 17,615, ,000 17,215, ,000 Capitalized lease obligations 860, , , ,105 State school building loan 210, ,000 Net pension liability (Note 8 & 9) 195,322,000 52,021, ,343,000 Other postemployment benefits (Note 10) 12,765,089 8,213,772 7,968,943 13,009,918 Compensated absences 1,058,86'1 197,559 1,256,420 $ 293,756,452 ~ 61,055,163 m 10,272,120 ~ 344,539,495 3,186,210 Payments on the General Obligation Bonds are made from the Bond Interest and Redemption Fund. Payments on the Certificates of Participation are made from the Debt Service Fund. Payments on the capitalized lease obligations and the state school building loan are made from the General Fund. Payments on other postemployment benefits, net pension liability and compensated absences are made from the fund for which the related employee worked. (Continued) 40.

150 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 7 - FUND BALANCES Fund balances, by category, at June 30, 2017 consisted of the following: General Fund Special Reserve for Capital Outlay Projects Fund All Non-Major Funds Total Nonspendable: Revolving cash fund $ 33,564 $ Stores inventory 147,328 Subtotal nonspendable 180,892 Restricted: Legally restricted programs 15,279,705 Capital projects 23,159,976 Debt service Subtotal restricted 15,279,705 23,159,976 Assigned: Other postemployment benefits 16,113,555 Pension trust account 6,535,200 Reserve for Local Control Accountability Plan 3,590,970 Capital projects 1,807,865 Site level programs 1,563,501 Charter schools 1,272,377 Reserve for textbooks adoption/library 1,250,000 Reserve for anticipated Federal program reductions 1,200,000 Other assignments 2,695,944 Subtotal assigned 36, Unassigned: DeSignated for economic uncertainty 44,440,410 Undesignated 613,367 Subtotal unassigned 45,053,777 Total fund balances $ 96,543,786 m 23,159,976 $ $ 33, , , ,040 6,449,594 21,729,299 3,803,702 26,963,678 6,548,537 6,548,537 16,801,833 55,241,514 16,113,555 6,535,200 3,590,970 1,807,865 1,563,501 1,272,377 1,250,000 1,200,000 2,695,944 36, ,440, ,367 45,053,777 m 16,980,981 m 136,684,743 (Continued) 41,

151 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 8 - NET PENSION LIABILITY - STATE TEACHERS' RETIREMENT PLAN General Information about the State Teachers' Retirement Plan Plan Description: Teaching-certified employees of the District are provided with pensions through the State Teachers' Retirement Plan (STRP) - a cost-sharing multiple-employer defined benefit pension plan administered by the California State Teachers' Retirement System (CaISTRS). The Teachers' Retirement Law (California Education Code Section et seq.), as enacted and amended by the California Legislature, established this plan and CalSTRS as the administrator. The benefit terms of the plans may be amended through legislation. CalSTRS issues a publicly available financial report that can be obtained at Benefits Provided: The STRP Defined Benefit Program has two benefit formulas: CalSTRS 2% at 60: Members first hired on or before December 31, 2012, to perform service that could be creditable to CaISTRS. CalSTRS 2% at 62: Members first hired on or after January 1, 2013, to perform service that could be creditable to CaISTRS. The Defined Benefit Program provides retirement benefits based on members' final compensation, age and years of service credit. In addition, the retirement program provides benefits to members upon disability and to survivors/beneficiaries upon the death of eligible members. There are several differences between the two benefit formulas which are noted below. Ca/STRS 2% at 60 CalSTRS 2% at 60 members are eligible for normal retirement at age 60, with a minimum of five years of credited service. The normal retirement benefit is equal to 2.0 percent of final compensation for each year of credited service. Early retirement options are available at age 55 with five years of credited service or as early as age 50 with 30 years of credited service. The age factor for retirements after age 60 increases with each quarter year of age to 2.4 percent at age 63 or older. Members who have 30 years or more of credited service receive an additional increase of up to 0.2 percent to the age factor, known as the career factor. The maximum benefit with the career factor is 2.4 percent of final compensation. CalSTRS calculates retirement benefits based on a one-year final compensation for members who retired on or after January 1, 2001, with 25 or more years of credited service, or for classroom teachers with less than 25 years of credited service if the employer elected to pay the additional benefit cost prior to January 1, One-year final compensation means a member's highest average annual compensation earnable for 12 consecutive months calculated by taking the creditable compensation that a member could earn in a school year while employed on a fulltime basis, for a position in which the person worked. For members with less than 25 years of credited service, final compensation is the highest average annual compensation earnable for any three consecutive years of credited service. (Continued) 42.

152 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 8 - NET PENSION LIABILITY - STATE TEACHERS' RETIREMENT PLAN (Continued) Ca/STRS 2% at 62 CalSTRS 2% at 62 members are eligible for normal retirement at age 62, with a minimum of five years of credited service. The normal retirement benefit is equal to 2.0 percent of final compensation for each year of credited service. An early retirement option is available at age 55. The age factor for retirement after age 62 increases with each quarter year of age to 2.4 percent at age 65 or older. All CalSTRS 2% at 62 members have their final compensation based on their highest average annual compensation earnable for three consecutive years of credited service. Contributions: Required member, employer and state contribution rates are set by the California Legislature and Governor and detailed in Teachers' Retirement Law. Contribution rates are expressed as a level percentage of payroll using the entry age normal actuarial cost method. A summary of statutory contribution rates and other sources of contributions to the Defined Benefit Program are as follows: Members - Under CalSTRS 2% at 60, the member contribution rate was percent of applicable member earnings for fiscal year Under CalSTRS 2% at 62, members contribute 50 percent of the normal cost of their retirement plan, which resulted in a contribution rate of percent of applicable member earnings for fiscal year In general, member contributions cannot increase unless members are provided with some type of "comparable advantage" in exchange for such increases. Under previous law, the Legislature could reduce or eliminate the 2 percent annual increase to retirement benefits. As a result of AB 1469, effective July 1, 2014, the Legislature cannot reduce the 2 percent annual benefit adjustment for members who retire on or after January 1, 2014, and in exchange for this "comparable advantage," the member contribution rates have been increased by an amount that covers a portion of the cost of the 2 percent annual benefit adjustment. Effective July 1, 2014, with the passage of AB 1469, member contributions for those under the 2% at 60 benefit structure increase from 8.0 percent to a total of percent of applicable member earnings, phased in over the next three years. For members under the 2% at 62 benefit structure, contributions will increase from 8.0 percent to percent of applicable member earnings, again phased in over three years, if there is no change to normal cost. Employers percent of applicable member earnings. In accordance with AB 1469, employer contributions will increase from 8.25 percent to a total of 19.1 percent of applicable member earnings phased in over seven years starting in The new legislation also gives the board limited authority to adjust employer contribution rates from July 1, 2021 through June 2046 in order to eliminate the remaining unfunded actuarial obligation related to service credited to members prior to July 1,2014. The board cannot adjust the rate by more than 1 percent in a fiscal year, and the total contribution rate in addition to the 8.25 percent cannot exceed 12 percent. (Continued) 43.

153 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 8 - NET PENSION LIABILITY - STATE TEACHERS' RETIREMENT PLAN (Continued) The CalSTRS employer contribution rate increases effective for fiscal year through fiscal year are summarized in the table below: Effective Date July 01, 2016 July 01, 2017 July 01, 2018 July 01, 2019 July 01,2020 July 01, 2046 Prior Rate 8.25% 8.25% 8.25% 8.25% 8.25% 8.25% Increase 4.33% 12.58% 6.18% 14.43% 8.03% 16.28% 9.88% 18.13% 10.85% 19.10% Increase from prior rate ceases in The District contributed $15,332,634 to the plan for the fiscal year ended June 30, State percent of the members' creditable earnings from the fiscal year ending in the prior calendar year. Also as a result of AB 1469, the additional state appropriation required to fully fund the benefits in effect as of 1990 by 2046 is specific in subdivision (b) of Education Code Section The increased contributions end as of fiscal year The CalSTRS state contribution rates effective for fiscal year and beyond are summarized in the table below. As shown in the subsequent table, the state rate will increase to percent on July 1, 2017, to continue paying down the unfunded liabilities associated with the benefits structure that was in place in 1990 prior to certain enhancements in benefits and reductions in contributions. AB 1469 Increase For Total State Base 1990 Benefit SBMA Appropriation Effective Date Rate Structure Funding(1) to DB Program July 01, % 4.311% 2.50% 8.828% July 01, % 4.811%(2) 2.50% 9.328% July 01,2018 to June 30, % (3) 2.50% (3) July 01,2046 and thereafter 2.017% (3) 2.50% 4.517%(3) (1) This rate does not include the $72 million reduction in accordance with Education Code Section (2) During its April 2017 meeting, the board of CalSTRS exercised its limited authority to increase the state contribution rate by 0.5 percent of the payroll effective July 1,2017. (3) The CalSTRS board has limited authority to adjust state contribution rates from July 1, 2017, through June 30, 2046 in order to eliminate the remaining unfunded actuarial obligation associated with the 1990 benefit structure. The board cannot increase the rate by more than 0.50 percent in a fiscal year, and if there is no unfunded actuarial obligation, the contribution rate imposed to pay for the 1990 benefit structure would be reduced to 0 percent. Rates in effect prior to July 1, 2014, are reinstated if necessary to address any remaining 1990 unfunded actuarial obligation from July 1, 2046, and thereafter. (Continued) 44.

154 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 8 - NET PENSION LIABILITY - STATE TEACHERS' RETIREMENT PLAN (Continued) Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2017, the District reported a liability for its proportionate share of the net pension liability that reflected a reduction for State pension support provided to the District. The amount recognized by the District as its proportionate share of the net pension liability, the related State support, and the total portion of the net pension liability that was associated with the District were as follows: District's proportionate share of the net pension liability State's proportionate share of the net pension liability associated with the District Total $ 185,666, ,706,000 $ 291,372,000 The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of June 30, The District's proportion of the net pension liability was based on the District's share of contributions to the pension plan relative to the contributions of all participating school Districts and the State. At June 30, 2016, the District's proportion was percent, which was an increase of percent from its proportion measured as of June 30, For the year ended June 30,2017, the District recognized pension expense of $27,949,642 and revenue of $8,991,156 for support provided by the State. At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Difference between expected and actual experience Net differences between projected and actual earnings on investments Changes in proportion and differences between District contributions and proportionate share of contributions Contributions made subsequent to measurement date Total Deferred Outflows of Resources $ 14,760,000 5,373,000 15,332,634 $ ,634 Deferred Inflows of Resources $ 4,529,000 $ 4,529,000 (Continued) 45.

155 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 8 - NET PENSION LIABILITY - STATE TEACHERS' RETIREMENT PLAN (Continued) $15,332,634 reported as deferred outflows of resources related to pensions resulting from contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Years Ended June 30, 2018 $ 499, $ 499, $ 8,671, $ 5,685, $ 149, $ 98,500 Differences between expected and actual experience and changes in proportion are amortized over a closed period equal to the average remaining service life of plan members, which is 7 years as of the June 30, 2016 measurement date. Deferred outflows and inflows related to differences between projected and actual earrings on plan investments are netted and amortized over a closed 5-year period. Actuarial Methods and Assumptions: The total pension liability for the STRP was determined by applying update procedures to a financial reporting actuarial valuation as of June 30, 2015, and rolling forward the total pension liability to June 30, The financial reporting actuarial valuation as of June 30, 2014, used the following actuarial methods and assumptions, applied to all prior periods included in the measurement: Valuation Date Experience Study Actuarial Cost Method Investment Rate of Return Consumer Price Inflation Wage Growth Post-retirement Benefit Increases June 30, 2015 July 1, 2006 through June 30, 2010 Entry age normal 7.60% 3.00% 3.75% 2.00% simple for DB Not applicable for DBS/CBB CalSTRS uses custom mortality tables to best fit the patterns of mortality among its members. These custom tables are based on RP2000 series tables adjusted to fit CalSTRS experience. RP2000 series tables are an industry standard set of mortality rates published by the Society of Actuaries. See CalSTRS July 1, June 30, 2010 experience analysis and June 30, 2015 Actuarial Program Valuations for more information. (Continued) 46.

156 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 8 - NET PENSION LIABILITY - STATE TEACHERS' RETIREMENT PLAN (Continued) The long-term expected rate of return on pension plan investments was determined using a buildingblock method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. The best estimate ranges were developed using capital market assumptions from CalSTRS general investment consultant as an input to the process. The actuarial investment rate of return assumption was adopted by the board in 2012 in conjunction with the most recent experience study. For each future valuation, CalSTRS consulting actuary reviews the return assumption for reasonableness based on the most current capital market assumptions. Best estimates of 20-year geometric real rates of return and the assumed asset allocation for each major asset class used as input to develop the actuarial investment rate of return are summarized in the following table: Asset Class Global Equity Private Equity Real Estate Inflation Sensitive Fixed Income Absolute Return/Risk Mitigating Strategies Cash / Liquidity * 20-year geometric average Assumed Asset Allocation 47% Long-Term* Expected Real Rate of Return 6.30% (1.00) Discount Rate: The discount rate used to measure the total pension liability was 7.60 percent. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and employers will be made at statutory contribution rates in accordance with the rate increase per Assembly Bill Projected inflows from investment earnings were calculated using the long-term assumed investment rate of return (7.60 percent) and assuming that contributions, benefit payments, and administrative expense occur midyear. Based on those assumptions, the STRP's fiduciary net position was projected to be available to make all projected future benefit payments to current plan members. Therefore, the long-term assumed investment rate of return was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the District's Proportionate Share of the Net Pension Liability to Changes in the Discount Rate: The following presents the District's proportionate share of the net pension liability calculated using the discount rate of 7.60 percent, as well as what the District's proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.60 percent) or 1-percentage-point higher (8.60 percent) than the current rate: 1% Decrease (6.60%) Current Discount Rate (7.60%) 1% Increase (8.60%) District's proportionate share of the net pension liability $267,215,000 $185,666,000 $117,936,000 Pension Plan Fiduciarv Net Position: Detailed information about the pension plan's fiduciary net position is available in the separately issued CalSTRS financial report. (Continued) 47.

157 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 9 - NET PENSION LIABILITY - PUBLIC EMPLOYER'S RETIREMENT FUND B General Information about the Public Employer's Retirement Fund B Plan Description: The schools cost-sharing multiple-employer defined benefit pension plan Public Employer's Retirement Fund B (PERF B) is administered by the California Public Employees' Retirement System (CaIPERS). Plan membership consists of non-teaching and non-certified employees of public schools (K-12), community college districts, offices of education, charter and private schools (elective) in the State of California. The Plan was established to provide retirement, death and disability benefits to non-teaching and noncertified employees in schools. The benefit provisions for Plan employees are established by statute. CalPERS issues a publicly available financial report that can be obtained at https :// gov/docs/forms-pu bl ications/cafr pdf. Benefits Provided: The benefits for the defined benefit plans are based on members' years of service, age, final compensation, and benefit formula. Benefits are provided for disability, death, and survivors of eligible members or beneficiaries. Members become fully vested in their retirement benefits earned to date after five years (10 years for State Second Tier members) of credited service. Contributions: The benefits for the defined benefit pension plans are funded by contributions from members and employers, and earnings from investments. Member and employer contributions are a percentage of applicable member compensation. Member contribution rates are defined by la\ol and depend on the respective employer's benefit formulas. Employer contribution rates are determined by periodic actuarial valuations or by state statute. Actuarial valuations are based on the benefit formulas and employee groups of each employer. Employer contributions, including lump sum contributions made when agencies first join the PERF, are credited with a market value adjustment in determining contribution rates. The required contribution rates of most active plan members are based on a percentage of salary in excess of a base compensation amount ranging from zero dollars to $863 monthly. Required contribution rates for active plan members and employers as a percentage of payroll for the year ended June 30, 2017 were as follows: Members - The member contribution rate was 6.0 or 7.0 percent of applicable member earnings for fiscal year Employers - The employer contribution rate was percent of applicable member earnings. The District contributed $5,766,707 to the plan for the fiscal year ended June 30, Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2017, the District reported a liability of $61,677,000 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The District's proportion of the net pension liability was based on the District's share of contributions to the pension plan relative to the contributions of all participating school Districts. At June 30, 2016, the District's proportion was percent, which was an increase of percent from its proportion measured as of June 30, (Continued) 48.

158 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 9 - NET PENSION LIABILITY - PUBLIC EMPLOYER'S RETIREMENT FUND B (Continued) For the year ended June 30, 2017, the District recognized pension expense of $9,035,486. At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ 2,653,000 $ Changes of assumptions 1,853,000 Net differences between projected and actual earnings on investments 9,570,000 Changes in proportion and differences between District contributions and proportionate share of contributions 2,702,000 Contributions made subsequent to measurement date 5,766,707 Total $ 20,691,707 $ 1,853,000 $5,766,707 reported as deferred outflows of resources related to pensions resulting from contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year' ended June 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Years Ended June 30, $ 2,705,074 $ 2,675,074 $ 5,194,052 $ 2,497,800 Differences between expected and actual experience, changes in assumptions, and changes in proportion are amortized over a closed period equal to the average remaining service life of plan members, which is 4 years as of the June 30, 2016 measurement date. Deferred outflows and inflows related to differences between projected and actual earnings on plan investments are netted and amortized over a closed 5-year period. (Continued) 49.

159 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 9 - NET PENSION LIABILITY - PUBLIC EMPLOYER'S RETIREMENT FUND B (Continued) Actuarial Methods and Assumptions: The total pension liability for the Plan was determined by applying update procedures to a financial reporting actuarial valuation as of June 30, 2015, and rolling forward the total pension liability to June 30, The financial reporting actuarial valuation as of June 30, 2015, used the following actuarial methods and assumptions, applied to all prior periods included in the measurement: Valuation Date Experience Study Actuarial Cost Method Investment Rate of Return Consumer Price Inflation Wage Growth Post-retirement Benefit Increases June 30, 2015 July 1, 1997 through June 30, 2011 Entry age normal 7.65% 2.75% Varies by entry age and service Contract COLA up to 2.00% until Purchasing Power Protection Allowance Floor on Purchasing Power applies 2.75% thereafter The mortality table used was developed based on CalPERS specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB. For more details on this table, please refer to the 2014 experience study report. All other actuarial assumptions used in the June 30, 2015 valuation were based on the results of an actuarial experience study for the period from 1997 to 2011, including updates to salary increase, mortality and retirement rates. Further details of the Experience Study can be found at CaIPERS' website. The table below reflects long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. Asset Class Global Equity Global Debt Securities Inflation Assets Private Equity Real Estate Infrastructure & Forestland Liquidity * 1 O-year geometric average Long-Term* Assumed. Asset Allocation 51% Expected Real Rate of Return 5.25% (0.55) Discount Rate: The discount rate used to measure the total pension liability was 7.65 percent. A projection of the expected benefit payments and contributions was performed to determine if assets would run out. The test revealed the assets would not run out. Therefore the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability for the Plan. The results of the crossover testing for the Plan are presented in a detailed report that can be obtained at CaIPERS' website. (Continued) 50.

160 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 9 - NET PENSION LIABILITY - PUBLIC EMPLOYER'S RETIREMENT FUND B (Continued) The long-term expected rate of return on pension plan investments was determined using a buildingblock method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected cash flows of the Plan. Such cash flows were developed assuming that both members and employers will make their required contributions on time and as scheduled in all future years. Using historical returns of all the Plan's asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated. The expected rate of return was set by calculating' the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. Sensitivity of the District's Proportionate Share of the Net Pension Liability to Changes in the Discount Rate: The following presents the District's proportionate share of the net pension liability calculated using the discount rate of 7.65 percent, as well as what the District's proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.65 percent) or 1-percentage-point higher (8.65 percent) than the current rate: 1% Current 1% Decrease Discount Increase (6.65%) Rate (7.65%) (8.65%) District's proportionate share of the net pension liability $ ,000 $ ,000 ~ 36, Pension Plan Fiduciarv Net Position: Detailed information about the pension plan's fiduciary net position is available in the separately issued CalPERS financial report. NOTE 10 - OTHER POSTEMPLOYMENT BENEFITS In addition to the pension benefits described in Note 8 and 9, the District provides post-employment health care benefits to all employees who retire from the District on or after attaining age 55 with at least 15 years of service, in accordance with contracts between the District and employee groups. The District's contribution is the amount contributed on behalf of the active member, excluding life insurance, and ending at age 65. Currently, 311 active employees meet those eligibility requirements. Certificated unit members working at least 50% of full-time are not entitled to District-paid retiree benefits. For this amount is $1,030 per year plus $760 per year for a covered spouse plus $190 per covered dependent for a maximum of three dependents. Management retirees pay $555 per year. Classified unit members working at least 3 hours but less than 4 hours per day received a 25% District contribution upon retirement; those working at least 4 hours but less than 5 hours per day received a 50% District contribution; and those working at least 5 hours but less than 6 hours per day received a 75% contribution upon retirement. For , classified retirees selecting to buy up the more expensive option ("Option B") must pay $408 per year towards their health benefits. The OPEB plan is currently operated as a single employer pay-as-you-go plan and does not issue stand-alone financial statements. (Continued) 51.

161 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 10 OTHER POSTEMPLOYMENT BENEFITS (Continued) The District's annual other postemployment benefit (OPES) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of Cod. Sec. P 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 liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the District's annual OPES cost for the year, the amount actually contributed to the plan, and changes in the District's net OPES obligation: Annual required contribution $ 8,157,885 Interest on net OPES obligation 638,254 Adjustment to annual required contribution (582,367) Annual OPES cost (expense) 8,213,772 Contributions made (7,968,943) Increase in net OPES obligation 244,829 Net OPES obligation - beginning of year 12,765,089 Net OPES obligation - end of year $ 13,009,918 The District's annual OPES cost, the percentage of annual OPES cost contributed to the plan, and the net OPES obligation for the year ended June 30, 2017 and preceding two years were as follows: Percentage of Annual Fiscal Year Annual OPES Cost Net OPES Ended OPES Cost Contributed Obligation June 30, 2015 $ 9,028, % $ 11,808,139 June 30, 2016 $ 9,014, % $ 12,765,089 June 30, 2017 $ 8,213, % $ 13,009,918 As of July 1, 2016, the most recent actuarial valuation date, the plan was 2.2 percent funded. The actuarial accrued liability for benefits was $91.6 million, and the actuarial value of assets was $2.0 million, resulting in an unfunded actuarial accrued liability (UAAL) of $89.6 million. The covered payroll (annual payroll of active employees covered by the Plan) was $141 million, and the ratio of the UAAL to the covered payroll was 63.7 percent. 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, mortality, and the healthcare cost trend. Amounts determined regarding the fu nded 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. (Continued) 52.

162 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 10 - OTHER POSTEMPLOYMENT BENEFITS (Continued) 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 July 1, 2016 actuarial valuation, the entry age actuarial cost method was used. The actuarial assumptions included a 5 percent investment rate (net of administrative expenses), which is a blended rate of the expected long-term investment returns on plan assets and on the employer's own investments calculated based on the funded level of the plan on the valuation date, and an annual healthcare cost trend rate of 8 percent. Both rates included a 2.75 percent inflation assumption. The actuarial value of assets was determined using techniques that spread the effects of short-term volatility in the market value of investments over a five-year period. The UAAL is being amortized as a level percentage of projected payroll on an open basis. The remaining amortization period at June 30, 2017, was 30 years. NOTE 11 - JOINT POWERS AUTHORITIES The District is a member of the Schools Excess Liability Fund (SELF), Self-Insured Schools of California III (SISC III), Tulare County Schools Insurance Group (TCSIG), the Tulare County School District's Self Insurance Authority (TCSDIA), the Protected Insurance Program for Schools (PIPS), and Nor-Cal Relief (NCR) public entity risk polls. The District pays an annual premium to each entity for its excess health, worker's compensation, and' property liability coverage. The relationship between the District and the pools is such that they are not component units of the District for financial reporting purposes. The District is also a member of the Visalia Civic Facilities Authority Joint Powers Authority (VCFJPA). No audited financial information is available for the VCFJPA as of June 30, 2017 however the financial activity of the JPA is not expected to be significant to the District. There have been no significant reductions in insurance coverage from coverage provided in the prior year. Condensed audited financial information for the District's JPAs at June 30,2017 for NCR, June 30, 2016 (most recent information available) for SELF, TCSIG, TCSDSIA, PIPS, and September 30, 2016 (most recent information available) for SISC III are as follows: SELF SISCIII TCSIG TCSDSIA PIPS NCR Total assets $ 138,820,266 $ 430,046,455 $ 2,819,058 $ 1,549,565 $ 117,633,714 $ 75,820,380 Deferred outflows of resources $ 266,414 $ $ $ $ $ Total liabilities $ 117,306,926 $ 167,458,724 $ 1,556,138 $ 530,752 $ 104,282,740 $ 59,774,301 Deferred inflows of resources $ 245,133 $ $ $ $ $ Net position $ 21,534,621 $ 262,587,731 $ 1,262,920 $ 1,018,813 $ 13,350,974 $ 16,046,079 Total revenues $ 13,898,598 $1,902,860,920 $ 18,832,757 $ 3,042,855 $ 265,453,036 $ 53,217,025 Total expenses $ 24,553,606 $1,837,098,521 $ 19,084,115 $ 2,772,146 $ 262,540,194 $ 52,877,526 Change in net position $ (10,655,008) $ 65,762,399 $ (251,358) $ 270,709 $ 2,912,842 $ 339,499 (Continued) 53.

163 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE 12 - COMMITMENTS AND CONTINGENCIES The District is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position or results of operations of the District. The District has received federal and state funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could result in expenditure disallowances under terms of the grants, it is management's opinion that any required reimbursements of future revenue offsets subsequently determined will not have a material effect on the District's financial position or results of operations. Construction Commitments: As of June 30, 2017, the District has $5.3 million in outstanding commitments on construction contracts. 54.

164 REQUIRED SUPPLEMENTARY INFORMATION

165 VISALIA UNIFIED SCHOOL DISTRICT GENERAL FUND BUDGETARY COMPARISON SCHEDULE For the Year Ended June 30, 2017 Original Budget Final Actual Variance Favorable (Unfavorable) Revenues: Local Control Funding Formula (LCFF): State apportionment $ 216,261,685 $ 213,705,331 Local sources 31,871,268 37,242,906 Total LCFF 248,132, ,948,237 $ 213,705,331 37,242, ,948,237 $ Federal sources 18,207,070 16,450,264 Other state sources 21,021,993 27,148,012 Other local sources 11,381,630 15,116,978 Total revenues 298,743, ,663,491 Expenditures: Current: Certificated salaries 123,228, ,589,551 Classified salaries 38,576,579 38,204,652 Employee benefits 71,598,631 70,734,373 Books and supplies 24,350,207 18,515,932 Contract services and operating expenditures 24,232,096 27,288,635 Other outgo 2,707,489 1,778,703 Capital outlay 4,171,525 11,636,180 Debt service: Principal retirement 531, ,435 Interest 100,372 16,087 Total expenditures 289,496, ,179,548 Excess of revenues over expenditures 9,246,691 19,483,943 Other financing (uses) sources: Transfers in 695,781 1,861,555 Transfers out (1,134,637) (6,089,854) Total other financing (uses) sources (438,856) (4,228,299) Change in fund balance 8,807,835 15,255,644 Fund balance, July 1, ,288,136 81,288,136 Fund balance, June 30, 2017 ~ 90,095,971 ~ 96,543,780 16,256,180 27,148,012 15,311, ,663, ,589,551 38,204,652 70,734,373 18,515,932 27,288,635 2,634,114 11,636, ,435 16, ,034,959 18,628, ,411 (4,228,300)!3,372,889) 15,255,650 81,288,136 i 96,543,786 (194,084) 194,091 7 (855,411 ) (855,411 ) (855,404) (1,006,144) 1,861, ,410 6 ~ 6 See accompanying note to required supplementary information. 55.

166 VISALIA UNIFIED SCHOOL DISTRICT SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB) FUNDING PROGRESS For the Year Ended June 30, 2017 Actuarial Valuation Date July 1, 2008 July 1, 2010 July 1, 2012 July 1, 2014 July 1, 2016 Schedule of Funding Progress Unfunded Actuarial Actuarial Actuarial Accrued Accrued Value of Liability Liability Funded Covered Assets (AAL) (UAAl) Ratio Payroll $ $ 58,891,761 $ 58,891,761 0% $ 112,489,000 $ $ 66,291,096 $ 66,291,096 0% $ 107,044,000 $ $ 69,837,766 $ 69,837,766 0% $ 113,378,000 $ 2,064,156 $ 78,543,166 $ 76,479, % $ 130,681,000 $1,999,584 $ 91,575,718 $ 89,576, % $ 140,542,000 UAAL as a Percentage of Covered Payroll 52.4% 61.9% 61.6% 58.5% 63.7% Schedule of EmQloyer Contributions Actuarial Valuation Date Annual Required Contribution Contributions Percentage of ARC Contributed July 1, 2008 July 1, 2010 July 1, 2012 July 1, 2014 July 1, 2016 $ 7,338,233 $ 3,172,610 $ 7,636,350 $ 6,490,518 $ 8,125,805 $ 8,419,051 $ 9,191,936 $ 8,057,254 $ 8,157,885 $ 7,968,943 43% 85% 104% 88% 98% See accompanying note to required supplementary information. 56.

167 VISALIA UNIFIED SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY For the Year Ended June 30, 2017 State Teachers' Retirement Plan Last 10 Fiscal Years 2015 District's proportion of the net pension liability 0.220% % % District's proportionate share of the net pension liability $128,708,000 State's proportionate share of the net pension liability associated with the District 77,720,000 Total net pension liability $ ,000 District's covered payroll $ 98,100,000 District's proportionate share of the net pension liability as a percentage of its covered payroll % Plan fiduciary net position as a percentage of the total pension liability 76.52% $151,391,000 80,069,000 $ ,000 $104,372, % 74.02% $185,666, ,706,000 $291,372,000 $114,403, ,29% 70.04% The amounts presented for each fiscal year were determined as of the year-end that occurred one year prior. All years prior to 2015 are not available. (Continued) 57.

168 VISALIA UNIFIED SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY For the Year Ended June 30, 2017 Public Employer's Retirement Fund B Last 10 Fiscal Years District's proportion of the net pension liability 0.285% District's proportionate share of the net pension liability $ 32,390, % $ 43,931, % $ 61,677,000 District's covered payroll $ 29,950,000 $ 32,996,000 $ 37,465,000 District's proportionate share of the net pension liability as a percentage of its covered payroll % % % Plan fiduciary net position as a percentage of the total pension liability 83.38% 79.43% 73.89% The amounts presented for each fiscal year were determined as of the year-end that occurred one year prior. All years prior to 2015 are not available. See accompanying note to required supplementary information, 58.

169 VISALIA UNIFIED SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S CONTRIBUTIONS For the Year Ended June 30, 2017 State Teachers' Retirement Plan Last 10 Fiscal Years Contractually required contribution $ 9,268,239 $ 12,275,486 $ 15,332,634 Contributions in relation to the contractually required contribution ( ) ( ) ( ) Contribution deficiency (excess) $ $ $ District's covered payroll $104,372,000 $114,403,000 $121,881,000 Contributions as a percentage of covered payroll 8.88% 10.73% 12.58% All years prior to 2015 are not available. (Continued) 59.

170 VISALIA UNIFIED SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S CONTRIBUTIONS For the Year Ended June 30, 2017 Public Employer's Retirement Fund B Last 10 Fiscal Years Contractually required contribution $ 3,883,945 Contributions in relation to the contractually required contribution (3,883,945) Contribution deficiency (excess) $ District's covered payroll $ 32,996,000 Contributions as a percentage of covered payroll 11.77% $ 4,438,484 ( ) $ $ 37,465, % $ 5,766,707 (5,766,707) $ $ 41,523,000 '1 3.89% All years prior to 2015 are not available. See accompanying note to required supplementary information, 60.

171 VISALIA UNIFIED SCHOOL DISTRICT NOTE TO REQUIRED SUPPLEMENTARY INFORMATION For the Year Ended June 30, 2017 NOTE 1 - PURPOSE OF SCHEDULES A - Budgetary Comparison Schedule The District employs budget control by object codes and by individual appropriation accounts. Budgets are prepared on the modified accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board. The budgets are revised during the year by the Board of Education to provide for revised priorities. Expenditures cannot legally exceed appropriations by major object code. The originally adopted and final revised budgets for the General Fund are presented as Required Supplementary Information. The basis of budgeting is the same as accounting standards generally accepted in the United States of America (GAAP). B - Schedule of Other Postemployment Benefits Funding Progress The Schedule of Funding Progress presents multi-year trend information which compares, over time, the actuarially accrued liability for benefits with the actuarial value of accumulated plan assets. C - Schedule of the District's Proportionate Share of the Net Pension Liability The Schedule of the District's Proportionate Share of the Net Pension Liability is presented to illustrate the elements of the District's Net Pension Liability. There is a requirement to show information for 10 years. However, until a full 1 O-year trend is compiled, governments should present information for those years for which information is available. D - Schedule of the District's Contributions The Schedule of the District's Contributions is presented to illustrate the District's required contributions relating to the pensions. There is a requirement to show information for 10 years. However, until a full 10- year trend is compiled, governments should present information for those years for which information is available. E - Changes of Benefit Terms There are no changes in benefit terms reported in the Required Supplementary Information. F - Changes of Assumptions The discount rate for Public Employer's Retirement Fund B was 7.50, 7.65 and 7.65 percent in the June 30, 2013, 2014 and 2015 actuarial reports, respectively. There are no changes in assumptions reported for the State Teachers' Retirement Plan. 61.

172 SUPPLEMENTARY INFORMATION

173 VISALIA UNIFIED SCHOOL DISTRICT COMBINING BALANCE SHEET ALL NON-MAJOR FUNDS June 30, 2017 Adult Education Fund Child Development Fund Capital Cafeteria Building Facilities Fund Fund Fund County Bond School Interest and Debt Facilities Redemption Service Fund Fund Fund Total ASSETS Cash in County Treasury Cash on hand and in banks Receivables Store inventory Due from other funds $ 4,807,886 $ 183,660 8, , ,869 $ 558,340 $ 432,227 $ 3,040,549 29,450 1,296, , ,148 29,124 $ 203,515 $ 6,548,537 $ $ 15,774,714 37,584 2,524, ,148 29,124 Total assets $ 5,119,503 $ 602,529 $ 2,092,554 $ 432,227 $ 3,546,632 $ 203,515 $ 6,548,537 $ $ ,497 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable Unearned revenue Due to other funds $ 73,847 $ 23, , , ,870 $ 47,065 $ 75,176 $ 303, ,077 $ $ $ $ 523, , ,472 Total liabilities 306, , ,142 75, ,496 1,564,516 Fund balances: Nonspendable Restricted 4,813, , ,148 1,294, ,051 3,243, , ,515 6,548,537 16,801,833 Total fund balances 4,813, ,199 1,473, ,051 3,243, ,515 6,548,537 16,980,981 Total liabilities and fund balances $ 5,119,503 $ 602,529 $ 2,092,554 $ 432,227 $ 3,546,632 $ 203,515 $ 6,548,537 $ $ 18,545,497 62,

174 VISALIA UNIFIED SCHOOL DISTRICT COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES ALL NON-MAJOR FUNDS For the Year Ended June 30, 2017 Child County Bond Adult Develop- Capital School Interest and Debt Education ment Cafeteria Building Facilities Facilities Redemption Service Fund Fund Fund Fund Fund Fund Fund Fund Total Revenues: Federal sources $ 535,679 $ $ 8,447,234 $ $ $ $ $ 8,982,913 Other state sources 5,278,101 1,902, ,745 7,691,013 Other local sources 836,460 12,581 1,695,006 28,704 5,419,527 2,523 2,820,556 10,815,357 Total revenues 6,650,240 1,914,748 10,652,985 28,704 5,419,527 2,523 2,820,556 27, Expenditures: Current: Certificated salaries 2,483, ,088 2,660,627 Classified salaries 703,982 1,088,364 4,141,214 5, Employee benefits 1,328, ,217 2,430,390 4,109,172 Books and supplies 486,691 57,059 5,063,128 11,074 5,617,952 Contract services and operating expenditures 841,346 66, , , ,116 1,632,938 Capital outlay 127,120 3,200 14,067 4,477,314 7,107, ,730,392 Debt service: Principal retirement 1,265, ,000 1,665,000 Interest 2,169, ,863 2,852,251 Total expenditures 5, , Excess (deficiency) of revenues over (under) expenditures 678, ,413 (1,177,780) (4,718,787) (1,972,530) 1,773 (613,832) (1,082,863) (8,712,609) Other financing (uses) sources: Transfers in 145,437 1,082,863 1,228,300 Transfers out ( ) (82,212) (559,998) (855,411) Total other financing (uses) sources (213,201 ) (82,212) (414,561) Net change in fund balances 465,796 90,201 (1,592,341) (4,718,787) (1,972,530) 1,773 (613,832) (8,339,720) Fund balances, July 1, ,347, Fund balances, June 30, 2017 $ 4,813,131 $ 342,199 $ 1,473,41~ $ 357,05,l $ 3,243,1 ~ $ $ $ $ "-"._".. 63.

175 VISALIA UNIFIED SCHOOL DISTRICT COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES ALL AGENCY FUNDS For the Year Ended June 30,2017 Balance July 1, 2016 Additions Deductions Balance June 30, 2017 Student Body Funds Elementary Schools Assets: Cash in County Treasury $ 243,969 $ 216,396 $ 231,628 $ Cash on hand and in banks 8,567 10,788 11,833 Total assets $ 252,536 $ 227,184 $ 243,461 $ Liabilities: Due to student groups $ 252,536 $ 227,184 $ 243,461 $ 228,737 7, , Middle Schools Assets: Cash in County Treasury $ 273,394 $ 455,310 $ 477,935 $ Cash on hand and in banks Total assets ~ 273,394 ~ 455, ,935 ~ Liabilities: Due to student groups 273, , , , , ,769 High Schools Assets: Cash in County Treasury $ 52,327 $ 100,187 $ 101,712 $ Cash on hand and in banks 978,307 3,395, Total assets 1,030,634 3,495,433 m 3,506,206 ~ Liabilities: Due to student groups $ 1,030,634 $ $ 3,506,206 m 50, ,059 1,019,861 1,019,861 Total Student Body Funds Assets: Cash in County Treasury $ 569,690 $ 771,893 $ 811,275 $ Cash on hand and in banks 986,874 3,406,034 3,416,327 Total assets 1,556,564 4,177,927 4,227,602 ~ Liabilities: Due to student groups 1,556,564 ll! 4,177,927 ll! 4,227,602 m 530, ,581 1,506,889 1,506,889 (Continued) 64.

176 VISALIA UNIFIED SCHOOL DISTRICT COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES ALL AGENCY FUNDS For the Year Ended June 30, 2017 Balance July 1, 2016 Additions Deductions Balance June 30, 2017 Warrant/Pass-Through Fund Assets: Cash in County Treasury $ 11,962,598 $ 12,411 $ 5,476,779 $ Cash on hand and in banks Total assets $ 11,962,598 $ $ 5.476,779 $ Liabilities: Due to other funds $ 11,962,598 $ $ 5.476,779 $ 6,498, , ,230 TOTAL AGENCY FUNDS Assets: Cash in County Treasury $ 12,532,288 $ 784,304 $ 6,288,054 $ Cash on hand and in banks 986, , ,327 Total assets $ 13,519,162 $ 4,190,338 $ 9,704,381 $ Liabilities: Due to other funds $ 11,962,598 $ 12,411 $ 5,476,779 $ Due to student groups 1,556,564 4,177,927 4,227,602 Total liabilities ~ 13,519,162 ~ 4,190,338 ~ 9,704,381 ~ 7,028, ,581 8,005,119 6,498,230 1,506,889 8,005,

177 VISALIA UNIFIED SCHOOL DISTRICT ORGANIZATION June 30,2017 Visalia Unified School District was organized in 1885 and consists of an area comprising approximately 177 square miles. The District operates 25 elementary schools, 5 middle schools, 4 high schools, an adult school, a continuation high school, and 4 charter schools. There were no changes in District boundaries during the year. The Board of Education at June 30,2017 was comprised of the following members: GOVERNING BOARD Term Expires Lucia D. Vazquez William A. Fulmer Patricia M. Griswold Juan Guerrero Jim L. Qualls Charles Ulmschneider John L. Crabtree President Clerk Member Member Member Member Member ADMINISTRATION Todd Oto, Ed. D. Superintendent Tamara Ravalin Ed. D. Assistant Superintendent, Human Resources Development Robert Graeber Assistant Superintendent, Administrative Services Melanie Stringer Assistant Superintendent, Instructional Services Nathan Hernandez Chief Financial Officer 66.

178 VISALIA UNIFIED SCHOOL DISTRICT SCHEDULE OF AVERAGE DAILY ATTENDANCE For the Year Ended June 30, 2017 Second Period Report (Original) Second Period Report (Revised)* Annual Report DISTRICT Certificate # 8C C39A D7DD8C52 Elementary: Transitional Kindergarten through Third 8,471 8,472 Sixth 6,401 6,401 Seventh and Eighth 4,103 4,104 Special Education 6 6 Total Elementary 18,981 18,983 Secondary: Ninth through Twelfth 7,346 7,347 Continuation Total Secondary 7,590 7,592 District Totals 26,571 26,575 8,474 6,399 4, ,971 7, ,507 26,478 * Reflects revisions made by the District subsequent to the submission of the original Second Period Report of Attendance, based on an internal review of records. (Continued) 67.

179 VISALIA UNIFIED SCHOOL DISTRICT SCHEDULE OF AVERAGE DAILY ATTENDANCE For the Year Ended June 30, 2017 Second Period Report Annual Report CHARTER SCHOOL CLASSROOM BASED Charter Alternatives Academy Certificate # A329B8CF 8B Fourth through Sixth 1 Seventh and Eighth 10 Ninth to Twelfth 43 Subtotal Charter Alternatives Academy Visalia Technical Early College Certificate # 3624E8CE F6B2EA96 Ninth through Twelfth 260 Total Charter School Classroom Based CHARTER SCHOOL NON CLASSROOM BASED Charter Home School Academy Certificate # BC F8FCECB Transitional Kindergarten through Third 30 Fourth through Sixth 28 Seventh and Eighth 43 Subtotal Charter Home School Visalia Charter Independent Study Certificate # 62EE62CD 49A05FD6 Seventh and Eighth 1 Ninth through Twelfth 494 Subtotal Visalia Charter Independent Study 495 Total Charter School Non-Classroom Based See accompanying notes to supplementary information. 68.

180 VISALIA UNIFIED SCHOOL DISTRICT SCHEDULE OF INSTRUCTIONAL TIME For the Year Ended June 30, 2017 Grade Level DISTRICT Kindergarten Grade 1 Grade 2 Grade 3 Grade 4 Grade 5 Grade 6 Grade 7 Grade 8 Grade 9 Grade 10 Grade 11 Grade 12 CHARTER SCHOOLS Charter Alternatives Academy Grade 6 Grade 7 Grade 8 Grade 9 Grade 10 Grade 11 Grade 12 Visalia Technical Early College Grade 9 Grade 10 Grade 11 Grade 12 Statutory Minutes Number of Days Require- Actual Traditional ment Minutes Calendar 36,000 50, ,400 51, ,400 51, ,400 51, ,000 57, ,000 57,440 '180 54,000 57, ,000 57, ,000 57, ,800 65, ,800 65, ,800 65, ,800 65, ,000 65, ,000 65, ,000 65, ,800 65, ,800 65, ,800 65, ,800 65, ,800 65, ,800 65, ,800 65, ,800 65, Status In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance In Compliance See accompanying notes to supplementary information. 69.

181 VISALIA UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURE OF FEDERAL AWARDS For the Year Ended June 30, 2017 Federal Catalog Number Federal Grantor/Pass-Through Grantor/Program or Cluster Title Pass- Through Entity Identifying Number Federal Expenditures U.S. Degartment of Education - Passed through California Degartment of Education Special Education Cluster: Special Ed: IDEA Basic local Assistance Entitlement, Part B, Sec Special Ed: IDEA Private School local Assistance A Special Ed: IDEA Preschool local Entitlement, Part B, Sec 611 (Age 3-5) Subtotal Special Education Cluster Adult Education Programs: Adult Education: Adult Secondary Education A Adult Education: Adult Basic Education & ESl Adult Education: Institutionalized Adults A Adult Education: English Literacy & Civics Education local Grant Subtotal Adult Education Programs Carl D. Perkins Programs: Carl D. Perkins Career and Technical Education: Secondary, Section 131 (Vocational Education) Carl D. Perkins Career and Technical Education: Adult, Section 132 (Vocational Education) Subtotal Carl Perkins Programs Title I Programs: NClB: Title I, Part C, Migrant Education NClB: Title I, Part C, Migrant Education Summer Program Subtotal Title I Programs $ 3,991,022 6, , , , ,205 14,347 36, , ,603 48, , ,904 97, ,821 (Continued) 70.

182 VISALIA UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURE OF FEDERAL AWARDS For the Year Ended June 30, 2017 Pass- Through Federal Entity Catalog Federal Grantor/Pass-Through Identifying Number Grantor/Program or Cluster Title Number Federal Expenditures U.S. Del2artment of Education - Passed through California Del2artment of Education (Continued) Title III Programs: ESEA: Title III, English Learner Program ESEA: Title III, Immigrant Education Program Subtotal Title III Programs ESEA: Title I, Part A, Basic Grants Low-Income and Neglected ESEA: Title II, Part A Improving Teacher Quality Local Grants ESEA: Title IV, Part B, 21 st Century Community Learning Centers Program Indian Education A Rehabilitation Services: Vocational Rehabilitation Grants * Total U.S. Department of Education $ 632,169 21, ,977 7,119,935 1,345,246 1,370, ,746 30,750 16, U.S. Del2artment of Health and Human Services - Passed through California Del2artment of Education Medicaid Cluster: Medi-Cal Billing Option ,262 U.S. Del2artment of Agriculture -Passed through California Del2artment of Education Child Nutrition Cluster: National School Lunch Program Basic Breakfast Especially Needy Breakfast Subtotal Child Nutrition Cluster Fresh Fruit and Vegetable Program Total U.S. Department of Agriculture Total Federal Programs 6,630,953 12,810 1,653,944 8,297, , ,234 $ 25,693,920 " No pass-through identifying number was available for this program. See accompanying notes to supplementary information. 71.

183 VISALIA UNIFIED SCHOOL DISTRICT RECONCILIATION OF UNAUDITED ACTUAL FINANCIAL REPORT WITH AUDITED FINANCIAL STATEMENTS For the Year Ended June 30, 2017 There were no adjustments proposed to any funds of the District See accompanying notes to supplementary information. 72.

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185 VISALIA UNIFIED SCHOOL DISTRICT SCHEDULE OF CHARTER SCHOOLS For the Year Ended June 30, 2017 Charter Schools Chartered by District Charter Home School Academy Charter Alternatives Academy Visalia Charter Independent Study Visalia Technical Education Center Global Learning Charter School* Included in District Financial Statements, or Separate Report Included in District Report Included in District Report Included in District Report Included in District Report Separate Report *Global Learning Charter School became effective 7/1/2017. See accompanying notes to supplementary information. 74.

186

187 VISALIA UNIFIED SCHOOL DISTRICT NOTES TO SUPPLEMENTARY INFORMATION June 30,2017 NOTE 1 - PURPOSE OF SCHEDULES (Continued) E - Schedule of Financial Trends and Analysis - Unaudited This schedule provides information on the District's financial condition over the past three years and its anticipated condition for the fiscal year, as required by the State Controller's Office. F - Schedule of Charter Schools This schedule provides information for the California Department of Education to monitor financial reporting by Charter Schools. NOTE 2 - EARLY RETIREMENT INCENTIVE PROGRAM Education Code Section required certain disclosure in the financial statements of districts which adopt Early Retirement Incentive Programs pursuant to Education Code Sections and For the fiscal year ended June 30, 2017, the District did not adopt such a program. 76.

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189 We did not perform procedures related to Independent Study because the District did not generate any ADA for this program. We did not perform any procedures related to the Early Retirement Incentive Program because the District did not offer an Early Retirement Incentive Program. We did not perform any procedures related to Juvenile Court Schools because the District did not operate this program. We did not perform any procedures related to Middle or Early College High Schools because the District did not operate this program. We did not perform any procedures related to After School Education and Safety Program: Before School, because the District did not offer a Before School program in the current year. We did not perform procedures related to Course Based Independent Study because the District did not generate any ADA for this program. We did not perform procedures related to Immunization as the District has submitted all required immunization assessment reports to the California Department of Public Health. We did not perform any procedures related to Charter School Facility Grant Program because the District did not operate this program. Management's Responsibility Management is responsible for compliance with the requirements of state laws and regulations, as listed above. Auditor's Responsibility Our responsibility is to express an opinion on Visalia Unified School District's compliance with state laws and regulations as listed above 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 the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting (Audit Guide). Those standards and the Audit Guide require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a material effect on Visalia Unified School District's compliance with the state laws and regulations listed above occurred. An audit includes examining, on a test basis, evidence about Visalia Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance with state laws and regulations. However, our audit does not provide a legal determination of Visalia Unified School District's compliance. Opinion with State Laws and Regulations In our opinion, Visalia Unified School District complied, in all material respects, with the compliance requirements referred to above that are applicable to the state laws and regulations referred to above for the year ended June 30, (Continued) 78.

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194

195 FINDINGS AND RECOMMENDATIONS

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197 VISALIA UNIFIED SCHOOL DISTRICT SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS Year Ended June 30, 2017 SECTION 11- FINANCIAL STATEMENT FINDINGS No matters were reported. (Continued) 85.

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199 VISALIA UNIFIED SCHOOL DISTRICT SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS Year Ended June 30, 2017 SECTION IV - STATE AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. 87.

200 STATUS OF PRIOR YEAR FINDINGS AND RECOMMENDATIONS

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203 APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE

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205 APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE $59,780,000 VISALIA UNIFIED SCHOOL DISTRICT 2018 CERTIFICATES OF PARTICIPATION CONTINUING DISCLOSURE CERTIFICATE Dated: [CLOSING DATE] This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the Visalia Unified School District (the District ) in connection with the execution and delivery of $59,780,000 aggregate principal amount of the Visalia Unified School District, 2018 Certificates of Participation (the Certificates ), pursuant to a trust agreement dated as of May 1, 2018 (the Trust Agreement ), by and among MUFG Union Bank, N.A., as trustee (the Trustee ), the District, and The Visalia Financing Corporation (the Corporation ). In connection therewith, the District covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the Certificateholders, and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth in the Trust Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report means any Annual Report provided by the District pursuant to, and as described in, Sections 3 (Provision of Annual Reports) and 4 (Content of Annual Reports) of this Disclosure Certificate. Beneficial Owner means any person that (a) has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Certificates (including persons holding Certificates through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Certificates for federal income tax purposes. Certificateholders means either the registered owners of the Certificates, or, if the Certificates are registered in the name of The Depository Trust Company or another recognized depository, any Beneficial Owner or applicable participant in its depository system. Dissemination Agent means the District, or any successor Dissemination Agent designated in writing by the District and that has filed with the District a written acceptance of such designation. EMMA or Electronic Municipal Market Access means the centralized online repository for documents filed with the MSRB, such as official statements and disclosure C-1

206 information relating to municipal bonds, notes and other securities as issued by state and local governments. Listed Events means any of the events listed in Section 5(a) (Reporting of Significant Events Listed Events) of this Disclosure Certificate. MSRB means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information, which may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Official Statement means the final Official Statement relating to the Certificates dated April 25, Opinion of Special Counsel means a written opinion of a law firm or attorney experienced in matters relating to obligations the interest on which is excludable from gross income for federal income tax purposes. Participating Underwriter means any of the original underwriters of the Certificates required to comply with the Rule in connection with offering of the Certificates. Repository means MSRB or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Rule means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. State means the State of California. Section 3. Provision of Annual Reports. a. Delivery of Annual Report to Repositories. The District shall, or shall cause the Dissemination Agent to, not later than nine and one-half (9 ½) months after the end of the District s fiscal year (which currently ends on June 30), which date would be April 15, commencing with the report for the Fiscal Year due April 15, 2019, provide to the Repository an Annual Report that is consistent with the requirements of Section 4 (Content of Annual Reports) of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 (Content of Annual Reports) of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. b. Change of Fiscal Year. If the District s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(d) (Notice of Listed Events). C-2

207 c. Delivery of Annual Report to Dissemination Agent. Not later than fifteen (15) Business Days prior to the date specified in Subsection (a) for providing the Annual Report to the Repository, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the District. d. Report of Non-Compliance. If the District is unable to provide an Annual Report by the date required in Subsection (a), the Dissemination Agent shall provide to the MSRB in a timely manner, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A. e. Annual Compliance Certification. The Dissemination Agent shall, if the Dissemination Agent is other than the District, file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided. Section 4. Content of Annual Reports. The District s Annual Report shall contain or include by reference the following: a. Financial Statements. The audited financial statements of the District for the prior fiscal year, prepared in accordance with the generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a) (Delivery of Annual Report to Repositories), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available; b. Annual Budget. The District s approved annual budget for the then-current fiscal year. c. Interim Financial Report. The most recent Interim Financial Report submitted to the District s governing board in accordance with Education Code section (or its successor statutory provision). Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been submitted to the Repository or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The District shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. a. Listed Events. Pursuant to the provisions of this Section, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Certificates: C-3

208 (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 by the Internal Revenue Service with respect to the tax status of the Certificates or other material events affecting the tax-exempt status of the Certificates; (7) modifications to rights of Certificateholders, if material; (8) Certificate calls, if material; (9) tender offers; (10) defeasances; (11) release, substitution, or sale of property securing repayment of the Certificates, if material; (12) rating changes; (13) bankruptcy, insolvency, receivership or similar event of the District; (14) the consummation of a merger, consolidation, or acquisition, or certain asset sales, involving the District, or entry into or termination of a definitive agreement relating to the foregoing, if material; (15) appointment of a successor or additional trustee or paying agent, or the change of name of the trustee or paying agent, if material. b. Determination of Materiality of Listed Events. Whenever the District obtains knowledge of one of the foregoing events, notice of which must be given only if material, the District shall immediately determine if such event would be material under applicable federal securities laws. c. Notice to Dissemination Agent. If the District has determined an occurrence of a Listed Event under applicable federal securities laws, the District shall promptly notify the Dissemination Agent (if other than the District) in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to Subsection (d) (Notice of Listed Events). d. Notice of Listed Events. The District shall file, or cause the Dissemination Agent to file, with the MSRB, in an electronic format prescribed by the MSRB, a notice of the occurrence of a Listed Event to provide notice of specified events in a timely manner not in excess of ten (10) business days after the event s occurrence. Notwithstanding the foregoing, notice of Listed Events described in Subsections (a)(8) (Certificate calls) and (a)(10) C-4

209 (defeasances) need not be given under this subsection any earlier than the notice (if any) given to Certificateholders of affected Certificates, pursuant to the Trust Agreement. Section 6. Identifying Information for Filings with MSRB. All documents provided to the MSRB under this Disclosure Certificate shall be filed in a readable PDF or other electronic format as prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB. Section 7. Termination of Reporting Obligation. The District s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption, or payment in full of all of the Certificates. If such termination occurs prior to the final maturity of the Certificates, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(d) (Notice of Listed Events). Section 8. Dissemination Agent. a. Appointment of Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. If the Dissemination Agent is not the District, the Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be Government Financial Strategies inc. b. Compensation of Dissemination Agent. The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as agreed to between the Dissemination Agent and the District from time to time, and all expenses, legal fees, and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the District, Certificateholders, or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any direction from the District or an opinion of nationally recognized bond counsel. The Dissemination Agent may at any time resign by giving written notice of such resignation to the District. Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: a. if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Certificates, or type of business conducted; b. the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized special counsel, have complied with the requirements of the Rule at the time of the primary offering of the Certificates, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and C-5

210 c. the proposed amendment or waiver either (i) is approved by holders of the Certificates in the manner provided in the Trust Agreement for amendments to the Trust Agreement with the consent of holders; or (ii) does not, in the opinion of nationally recognized special counsel, materially impair the interests of the holders or beneficial owners of the Certificates. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the District to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be filed in the same manner as for a Listed Event under Section 5(d). Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 11. Default. If the District fails to comply with any provision of this Disclosure Certificate, any Certificateholder may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance. Section 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees, and agents, harmless against any loss, expense, and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of C-6

211 liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. The Dissemination Agent shall have no duty or obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the District, the Certificateholders, or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any direction from the District or an opinion of nationally recognized special counsel. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Certificate. Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter, and Certificateholders from time to time of the Certificates, and shall create no rights in any other person or entity. IN WITNESS WHEREOF, the District has caused this Continuing Disclosure Certificate to be executed by its authorized officer as of the date first written above. VISALIA UNIFIED SCHOOL DISTRICT By: Todd Oto, Ed.D., Superintendent C-7

212 EXHIBIT A FORM OF NOTICE TO REPOSITORY OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Name of Issue: Date of Delivery: VISALIA UNIFIED SCHOOL DISTRICT VISALIA UNIFIED SCHOOL DISTRICT 2018 CERTIFICATES OF PARTICIPATION [CLOSING DATE] NOTICE IS HEREBY GIVEN that Visalia Unified School District (the District ) has not provided an Annual Report for the fiscal year ended June 30, with respect to the above-named Certificates as required by a Continuing Disclosure Certificate executed on [CLOSING DATE], with respect to the above-captioned issue of Certificates. The District anticipates that the Annual Report will be filed by. Date: VISALIA UNIFIED SCHOOL DISTRICT By: [SAMPLE ONLY] C-8

213 APPENDIX D FORM OF OPINION OF SPECIAL COUNSEL

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215 APPENDIX D FORM OF OPINION OF SPECIAL COUNSEL Board of Education Visalia Unified School District 5000 West Cypress Avenue Visalia, CA [CLOSING DATE] Re: $59,780,000 Visalia Unified School District 2018 Certificates of Participation Final Opinion of Special Counsel Ladies and Gentlemen: We have acted as special counsel in connection with the execution and delivery of $59,780,000 aggregate principal amount of Visalia Unified School District, 2018 Certificates of Participation (the Certificates ) evidencing and representing proportionate interests of the registered owners thereof in rental payments to be made by the Visalia Unified School District (the District ) pursuant to a facilities lease dated as of May 1, 2018 (the Facilities Lease ), by and between the District and The Visalia Financing Corporation (the Corporation ). The Certificates have been executed and delivered pursuant to a trust agreement dated as of May 1, 2018 (the Trust Agreement ), by and among MUFG Union Bank, N.A., as trustee (the Trustee ), the District, and the Corporation. In connection therewith, the District and the Corporation have also executed and entered into a ground lease dated as of May 1, 2018 (the Ground Lease ). Capitalized terms used herein and not otherwise defined have the meanings ascribed thereto in the Trust Agreement. We have examined the law and such certified proceedings and other documents as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon the representations of the District contained in the Facilities Lease, the Trust Agreement, and the certified proceedings and other certifications of public officials furnished to us. In the course of our representation, nothing has come to our attention that caused us to believe that any of the factual representations upon which we have relied are untrue, but we have made no other factual investigations. Based upon the foregoing, we are of the opinion, under existing law, as follows: 1. The District is duly created and validly existing as a school District under and by virtue of the laws of the State of California with the power to enter into the Ground Lease, the Facilities Lease and the Trust Agreement, and to perform the agreements on its part contained therein. D-1

216 2. The Ground Lease, the Facilities Lease, and the Trust Agreement have been duly authorized, executed, and delivered by the District and assuming due authorization, execution, and delivery by and enforceability against the other parties thereto, constitute valid and binding obligations of the District enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium, or other laws affecting the enforceability of creditors rights generally, by the application of equitable principles, by the possible unavailability of specific performance or injunctive relief, and by the limitations on legal remedies against public agencies in the State of California. 3. Subject to the terms and provisions of the Facilities Lease, the Rental Payments are payable solely from the sources provided therefor in the Facilities Lease and the Trust Agreement. The obligation of the District to make Rental Payments pursuant to the Facilities Lease does not constitute a debt of the District or of the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory debt limitation or restriction, and does not constitute an obligation for which the District is obligated to levy or pledge any form of taxation or for which the District has levied or pledged any form of taxation. 4. Assuming due authorization, execution, and delivery of the Trust Agreement by the Trustee and its enforceability against the Trustee, the owners of the Certificates are entitled to receive their proportionate share of the Rental Payments in accordance with the terms and provisions of the Trust Agreement. 5. The portion of the Rental Payments designated as and constituting interest paid by the District under the Facilities Lease and received by the owners of the Certificates is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals. The opinion set forth in the preceding sentence is subject to the condition that the District comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the delivery of the Certificates in order that such interest be, and continue to be, excludable from gross income for federal income tax purposes. The District has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the interest with respect to the Certificates to be included in gross income for federal income tax purposes retroactively to the date of delivery of the Certificates. We express no opinion regarding other federal tax consequences arising with respect to the accrual or receipt of such interest or the ownership or disposition of the Certificates. 6. The portion of the Rental Payments designated as and constituting interest paid by the District under the Facilities Lease and received by the owners of the Certificates is exempt from State of California personal income taxes. The opinions set forth above are further qualified as follows: a. Our opinions are limited to the matters expressly set forth herein and no opinion is to be implied or may be inferred beyond the matters expressly so stated; D-2

217 b. We are licensed to practice law in the State of California; accordingly, the foregoing opinions only apply insofar as the laws of the State of California and the United States may be concerned, and we express no opinion with respect to the laws of any other jurisdiction; c. We express no opinion as to the state or quality of title to any of the real or personal property described in the Ground Lease or the Facilities Lease, nor do we express any opinion as to the accuracy or sufficiency of the description of any such property contained therein; d. We express no opinion as to the enforceability under certain circumstances of contractual provisions respecting various summary remedies without notice or opportunity for hearing or correction, especially if their operation would work a substantial forfeiture or impose a substantial penalty upon the burdened party; e. We express no opinion as to the effect or availability of any specific remedy provided for in any agreement under particular circumstances, except that we believe such remedies are, in general, sufficient for the practical realization of the rights intended thereby; f. We express no opinion as to the enforceability of any remedies under the Facilities Lease with respect to environmental matters to the extent that the exercise or application of such remedies is inconsistent with or in violation of California Code of Civil Procedure Section or 736 or of California Civil Code Section ; g. We express no opinion as to the enforceability of any indemnification, contribution, choice of law, choice of forum, or waiver provisions contained in the Ground Lease, the Facilities Lease, or the Trust Agreement; h. Certain requirements contained in the Tax Certificate, the Trust Agreement, and the Facilities Lease may be amended and certain actions (including defeasance of the Facilities Lease) may be taken in accordance with the terms of such documents that may affect the exclusion from gross income for federal income tax purposes of the interest component of the Rental Payments; we express no opinion as to such interest if any such amendment is made or action is taken upon the advice of counsel other than ourselves; i. We undertake no responsibility for the accuracy, completeness, or fairness of the Official Statement or any other offering materials relating to the Certificates and express no opinion herein with respect thereto; and j. We disclaim any obligation to update this opinion for events occurring after the date hereof. Very truly yours, PARKER & COVERT LLP D-3

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219 APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY

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

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

223 APPENDIX F DTC BOOK-ENTRY SYSTEM

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225 The following information concerning The Depository Trust Company, New York, New York ( DTC ) and DTC s book-entryonly system has been provided by DTC for use in securities disclosure documents. The District takes no responsibility for the accuracy or completeness thereof. There can be no assurance that DTC will abide by its procedures or that such procedures will not be changed from time to time. The following description includes the procedures and record-keeping with respect to beneficial ownership interests in the Certificates payment of principal and interest, other payments with respect to the Certificates to Direct Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in such Certificates, notices to beneficial owners and other related transactions by and between DTC, the Participants, and the Beneficial Owners. However, DTC, the Participants, and the Beneficial Owners should not rely on the following information with respect to such matters, but should instead confirm the same with DTC or the Direct Participants, as the case may be. DTC will act as securities depository for the Certificates. The Certificates will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for the Certificates, in the aggregate principal amount of such issue, 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 book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC 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 Purchases of the Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC s records. The ownership interest of each actual purchaser of each Certificate ( 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 Certificates 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 the Certificates, except in the event that use of the book-entry system for the Certificates is discontinued. To facilitate subsequent transfers, all Certificates 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 Certificates 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 Certificates; DTC s records reflect only the identity of the Direct Participants to whose accounts such Certificates 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 Certificates may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Certificates, such as prepayments, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates 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 Trustee - F-1 -

226 and request that copies of the notices be provided directly to them. Prepayment notices shall be sent to DTC. If less than all of the Certificates within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Certificates 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 Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). Prepayment proceeds, distributions, and dividend payments on the Certificates 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 Trustee or the District, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Direct and Indirect 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 Direct or Indirect Participant and not of DTC, the Trustee, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of prepayment proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or Trustee, 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 Certificates at any time by giving reasonable notice to the District or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, certificates are required to be printed and delivered. The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, certificated securities representing the Certificates will be printed and delivered. - F-2 -

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