BOARD OF SCHOOL COMMISSIONERS OF MOBILE COUNTY

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1 NEW ISSUE-BOOK ENTRY ONLY OFFICIAL STATEMENT S&P: AA- Moody s: A1 See RATING herein In the opinion of Maynard, Cooper & Gale, P.C., Bond Counsel, under existing law and upon the conditions and under the circumstances described herein under "TAX MATTERS," interest on the Warrants (i) is presently excludable from gross income for federal income tax purposes if the Board complies with all requirements of the Internal Revenue Code that must be satisfied subsequent to the issuance of the Warrants in order that interest thereon be and remain excludable from gross income, and (ii) will not be an item of tax preference for purposes of the federal alternative minimum tax on individuals and corporations. Bond Counsel is also of the opinion that, under existing law, interest on the Warrants will be exempt from State of Alabama income taxation. See "TAX MATTERS" herein for further information and certain other federal tax consequences arising with respect to the Warrants. BOARD OF SCHOOL COMMISSIONERS OF MOBILE COUNTY $54,855,000 PUBLIC SCHOOL REFUNDING WARRANTS (1.0 AND 2.5 MILL TAXES) SERIES 2016-A $80,825,000 PUBLIC SCHOOL REFUNDING WARRANTS (4.0 AND 12.0 MILL TAXES) SERIES 2016-B Dated: Date of Delivery Due: March 1 as shown on inside front cover The Warrants do not constitute (i) general obligations of the Board or (ii) an indebtedness, pecuniary liability, or charge against the general credit or taxing power of, the State of Alabama or any political subdivision therein or thereof, including without limitation Mobile County, Alabama. The Series 2016-A Warrants are payable solely from and are secured by a pledge of the Pledged 1/2.5 Mill Taxes on an equal and proportionate basis and parity of lien with the pledge thereof for the benefit of any Additional 1/2.5 Mill Parity Obligations hereafter issued by the Board in compliance with law and the provisions of the Series 2016-A Warrants Resolution with respect thereto. The Series 2016-B Warrants are payable solely from and are secured by a pledge of the Pledged 4/12 Mill Taxes on an equal and proportionate basis and parity of lien with the pledge thereof for the benefit of the Outstanding 4/12 Mill Parity Obligations and any Additional 4/12 Mill Parity Obligations hereafter issued by the Board in compliance with law and the provisions of the Series 2016-B Warrants Ordinance with respect thereto. See SOURCE OF PAYMENT; SECURITY FOR WARRANTS. The principal of the Warrants is payable on March 1 in years and principal amounts as set forth on the inside front cover. The interest on the Warrants is payable on March 1 and September 1 in each year, first interest payable September 1, The Warrants are subject to redemption prior to maturity (in whole or in part) as herein provided. The Warrants are initially issuable as fully registered warrants without coupons in denominations of $5,000 and any integral multiple thereof pursuant to a book-entry only system to be administered by The Depository Trust Company, New York, New York, or any successor or assign thereof or substitute therefor as such securities depository and, when issued, will be registered in the name of and held by Cede & Co., as nominee. The manner and terms upon which the payment of principal of, premium, if any, and interest on the Warrants, and the purchase and transfer of the Warrants or beneficial interests therein, shall be made when the book-entry only system is in effect for the Warrants, and with respect to the Warrants in certificated form when the book-entry only system is not in effect for the Warrants, are described herein under THE WARRANTS and Appendix F - Book-Entry Only System. Regions Bank shall act as the Paying Agent and Warrant Registrar for the Warrants. FOR MATURITIES, AMOUNTS, INTEREST RATES, PRICES, & CUSIP NUMBERS, SEE INSIDE COVER. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THE WARRANTS. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO AN INFORMED INVESTMENT DECISION. The Warrants are offered when, as and if issued, subject to prior sale, withdrawal or modification of the offer without notice, the approval of legality by Maynard, Cooper & Gale, P.C., Mobile, Alabama, Bond and Disclosure Counsel, and certain other conditions. Delivery of the Warrants is expected to be made on March 2, 2016 through the facilities of the Securities Depository, against payment therefor. Certain legal matters will be passed upon for the Underwriter by its counsel, Balch & Bingham, LLP. Dated: February 10,

2 BOARD OF SCHOOL COMMISSIONERS OF MOBILE COUNTY $54,855,000 PUBLIC SCHOOL REFUNDING WARRANTS (1.0 AND 2.5 MILL TAXES) SERIES 2016-A Dated: Date of Delivery Due: March 1 as shown below Year of Maturity Principal Amount Maturing Interest Rate Yield CUSIP 1 Year of Maturity Principal Amount Maturing Interest Rate Yield 2 CUSIP $2,370, % 0.720% ST $3,765, % 2.060% TB ,405, SU ,970, TC ,830, SV ,190, TD ,930, SW ,420, TE ,045, SX ,665, TF ,200, SY ,920, TG ,380, SZ ,200, TH ,565, TA4 BOARD OF SCHOOL COMMISSIONERS OF MOBILE COUNTY PUBLIC SCHOOL REFUNDING WARRANTS $80,825,000 (4.0 AND 12.0 MILL TAXES) SERIES 2016-B Dated: Date of Delivery Due: March 1 as shown below Year of Maturity Principal Amount Maturing Interest Rate Yield CUSIP 1 Year of Maturity Principal Amount Maturing Interest Rate Yield 2 CUSIP $3,130, % 1.100% TJ $5,575, % 2.320% TS ,970, TK ,855, TT ,170, TL ,150, TU ,380, TM ,450, TV ,595, TN ,770, TW ,825, TP ,110, TX ,065, TQ ,465, TY ,315, TR7 [1] CUSIP is a registered trademark of the American Bankers Association. CUSIP data contained herein is provided by Standard & Poor s, CUSIP Service Bureau, a division of the McGraw Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. [2] Those of the Warrants having stated maturities on and after March 1, 2027 are priced at the stated yields to the March 1, 2026 optional redemption date at a redemption price of 100%

3 BOARD OF SCHOOL COMMISSIONERS OF MOBILE COUNTY PRESIDENT Mr. Douglas Harwell, Jr. COMMISSIONERS Dr. Reginald A. Crenshaw Dr. William Foster Mr. Robert Battles Mr. Don Stringfellow COUNTY SUPERINTENDENT OF EDUCATION Ms. Martha L. Peek CHIEF SCHOOL FINANCIAL OFFICER Ms. Dinish P. Simpson BOND COUNSEL Maynard, Cooper & Gale, P.C. Mobile, Alabama UNDERWRITER Stifel, Nicolaus & Company, Inc. UNDERWRITER'S COUNSEL Balch & Bingham LLP

4 USE OF THIS OFFICIAL STATEMENT This Official Statement is not to be construed as a contract or agreement between the Board of School Commissioners of Mobile County (the Board ) and the purchasers or owners of the Warrants. No dealer, broker, salesman or other person has been authorized by the Board to give any information or to make any representation other than as contained in this Official Statement, and, if given or made, such other information or representation must not be relied upon as having been authorized by the Board or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Warrants by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information in this Official Statement is provided as of the date of this Official Statement. Nothing contained in this Official Statement shall under any circumstances create an implication that there has been no change in such information after the date of this Official Statement. The information set forth in this Official Statement has been obtained from the sources which are deemed to be reliable but is not guaranteed as to accuracy or completeness. All estimates and assumptions contained herein are believed to be reliable, but no representation is made that such estimates or assumptions are correct or will be realized. All quotations from and summaries and explanations of provisions of laws and documents in this Official Statement do not purport to be complete, and reference is made to such laws and documents for full and complete statements of their provisions. In connection with this offering the Underwriter may engage in transactions that stabilize, maintain or otherwise affect the price of the Warrants. Such transactions may include purchases of the Warrants for the purpose of maintaining the price of the Warrants. Such transactions, if commenced, may be discontinued at any time. The order and placement of material in this Official Statement, including its appendices, are not to be deemed a determination of relevance, materiality or importance, and all material in this Official Statement, including its appendices, must be considered in its entirety. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. This Official Statement is being provided to prospective purchasers either in bound printed format or in electronic format. This Official Statement may be relied upon only if it is in its bound printed format or as printed in its entirety in such electronic format. In making an investment decision, investors must rely on their own examination of the terms of the offering, including the merits and risks involved

5 TABLE OF CONTENTS Page INTRODUCTION AND DEFINITION OF TERMS... 1 SPECIAL QUALIFICATIONS... 7 THE BOARD... 8 THE WARRANTS... 9 SOURCE OF PAYMENT; SECURITY FOR WARRANTS LITIGATION; TORT LIABILITY LEGAL MATTERS THE UNITED STATES BANKRUPTCY CODE TAX MATTERS EXPLANATION OF RATINGS LEGAL INVESTMENT STATUS FINANCIAL ADVISOR UNDERWRITER CONTINUING DISCLOSURE UNDERTAKING WARRANTHOLDER RISKS APPENDICES FORWARD-LOOKING STATEMENTS CERTIFICATE Appendix A: Board of School Commissioners of Mobile County Appendix B: General Information about Mobile County, Alabama Appendix C: Financial Statements of the Board for the Fiscal Year ending September 30, 2014 Appendix D-1: Summary of Series 2016-A Warrants Resolution Appendix D-2: Summary of Series 2016-B Warrants Resolution Appendix E: Continuing Disclosure Agreement Appendix F: Book-Entry Only System Appendix G-1: Proposed Opinion of Bond Counsel regarding Series 2016-A Warrants Appendix G-2: Proposed Opinion of Bond Counsel regarding Series 2016-B Warrants

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7 OFFICIAL STATEMENT Regarding BOARD OF SCHOOL COMMISSIONERS OF MOBILE COUNTY $54,855,000 PUBLIC SCHOOL REFUNDING WARRANTS (1.0 AND 2.5 MILL TAXES) SERIES 2016-A $80,825,000 PUBLIC SCHOOL REFUNDING WARRANTS (4.0 AND 12.0 MILL TAXES) SERIES 2016-B INTRODUCTION AND DEFINITION OF TERMS General This Official Statement, including the cover page and appendices, is furnished in connection with the offering by the Board of School Commissioners of Mobile County (the Board ) of the above referenced warrants (the Warrants ). Source of Payment; Security for Warrants The Warrants do not constitute (i) general obligations of the Board or (ii) an indebtedness, pecuniary liability, or charge against the general credit or taxing power of, the State of Alabama or any political subdivision therein or thereof, including without limitation Mobile County, Alabama. The Series 2016-A Warrants are payable solely from and are secured by a pledge of the Pledged 1/2.5 Mill Taxes on an equal and proportionate basis and parity of lien with the pledge thereof for the benefit of any Additional 1/2.5 Mill Parity Obligations hereafter issued by the Board in compliance with law and the provisions of the Series 2016-A Warrants Resolution with respect thereto. The Series 2016-B Warrants are payable solely from and are secured by a pledge of the Pledged 4/12 Mill Taxes on an equal and proportionate basis and parity of lien with the pledge thereof for the benefit of the Outstanding 4/12 Mill Parity Obligations and any Additional 4/12 Mill Parity Obligations hereafter issued by the Board in compliance with law and the provisions of the Series 2016-B Warrants Ordinance with respect thereto. See SOURCE OF PAYMENT; SECURITY FOR WARRANTS. Purpose of Warrants The Series 2016-A Warrants are issued for the purposes of (a) current refunding the Limited Obligation Bonds, Series 2006-A heretofore issued by the Public Educational Building Authority of the City of Mobile for the exclusive benefit of the Board and (b) paying the costs of issuance of the Series 2016-A Warrants. The Series 2016-B Warrants are issued for the purposes of (a) advance refunding the Limited Obligation Bonds, Series 2009-A and Limited Obligation Bonds, Series 2009-B heretofore issued by the Public Educational Building Authority of the City of Mobile for the exclusive benefit of the Board and (b) paying the costs of issuance of the Series 2016-B Warrants. See THE WARRANTS ; Use of Warrant Proceeds. Investment Risks The purchase of the Warrants involves certain risks. See WARRANTHOLDER RISKS hereinafter

8 Further Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Definitions For purposes of this Official Statement the following terms have the following meanings: 1 Mill Special Ad Valorem School Tax means (a) the special ad valorem school tax of ten cents ($0.10) levied on each one hundred dollars ($100) of taxable property in the County for providing suitable houses, libraries and apparatus for the use of public schools without express limit as to duration pursuant to the provisions of an act adopted by the General Assembly of Alabama on February 9, 1866 and proceedings taken under relevant provisions of the Constitution of Alabama of 1901, as amended, with respect thereto, and (b) any tax that may be levied in continuation or in lieu thereof or in substitution therefor. 2.5 Mill Special Ad Valorem School Tax means (a) the special ad valorem school tax of twenty five cents ($0.25) on each one hundred dollars ($100) of taxable property in the County levied and collected for public school purposes without express limit as to duration pursuant to (i) Amendment No. 16 to the Constitution of Alabama of 1901, as amended, and proceedings taken under relevant provisions of the Constitution of Alabama of 1901, as amended, with respect thereto, and (ii) the elections held in Mobile County, Alabama on November 4, 1924, and (b) any tax that may be levied in continuation or in lieu thereof or in substitution therefor. 4 Mill Special Ad Valorem School Tax means (a) the special ad valorem school tax of forty cents ($0.40) on each one hundred dollars ($100) of taxable property (except for any private passenger automobiles or motor trucks of the type commonly known as "pickups" or "pickup trucks" owned and operated by an individual for personal or private use and not for hire, rent or compensation) in that part of the County located outside the corporate limits of the cities of Mobile and Prichard, levied and collected for public school purposes without express limit as to duration pursuant to (i) Amendment No. 706 to the Constitution of Alabama of 1901, as amended, and (ii) the elections held in Mobile County, Alabama on May 15, 2001, and (b) any tax that may be levied in continuation or in lieu thereof or in substitution therefor. 12 Mill Special Ad Valorem School Tax means (a) the special ad valorem school tax of one dollar and twenty cents ($1.20) on each one hundred dollars ($100) of taxable property (except for any private passenger automobiles or motor trucks of the type commonly known as "pickups" or "pickup trucks" owned and operated by an individual for personal or private use and not for hire, rent or compensation) in that part of the County located within the corporate limits of the cities of Mobile and Prichard, levied and collected for public school purposes without express limit as to duration pursuant to (i) Amendment No. 706 to the Constitution of Alabama of 1901, as amended, and (ii) the elections held in Mobile County, Alabama on May 15, 2001, and (b) any tax that may be levied in continuation or in lieu thereof or in substitution therefor. Additional 1/2.5 Mill Parity Obligations means all obligations issued by the Board, subsequent to the issuance of the Series 2016-A Warrants, in compliance with law and payable solely from and secured by a pledge of the Pledged 1/2.5 Mill Taxes on an equal and proportionate basis and parity of lien with the pledge thereof for the Series 2016-A Warrants in compliance with the provisions of the Series 2016-A Warrants Resolution with respect thereto

9 Additional 4/12 Mill Parity Obligations means all obligations issued by the Board, subsequent to the issuance of the Series 2016-B Warrants, in compliance with law and payable solely from and secured by a pledge of the Pledged 4/12 Mill Taxes on an equal and proportionate basis and parity of lien with the pledge thereof for the Outstanding 4/12 Mill Parity Obligations and the Series 2016-B Warrants in compliance with the provisions of the Series 2016-B Warrants Resolution with respect thereto. Authority means Public Educational Building Authority of the City of Mobile, and any successor thereto. Authorized Denomination means with respect to all Warrants the amount of $5,000 and any integral multiple thereof for each maturity. Beneficial Owners means the registered owners of beneficial interests in the Warrants. Board means the Board of School Commissioners of Mobile County and its successors and assigns. Book-Entry System means a book-entry only system of evidence of purchase and transfer of beneficial ownership interests in the Warrants. Business Day means a day, other than a Saturday or a Sunday, on which commercial banking institutions are open for business in the state where the principal corporate office of the Paying Agent is located and a day on which the payment system of the Federal Reserve System is operational. Code means the Internal Revenue Code of 1986, as amended, and all references to specific sections of the Code shall be deemed to include any and all respective successor provisions to such sections. County means Mobile County, Alabama. Direct Participant means securities brokers and dealers, banks, trust companies, clearing corporations and other financial institutions which have access to the Book Entry System. Enabling Law shall mean Article 14 of Chapter 13 of Title 16 of the Code of Alabama Federal Securities means direct general obligations of, or obligations the payment of which is unconditionally guaranteed by, the United States of America. Fiscal Year means the period beginning on October 1 of one calendar year and ending on September 30 of the next succeeding calendar year or such other Fiscal Year as may hereafter be adopted by the Board. Holder when used with respect to any Warrant means the person in whose name such Warrant is registered in the Warrant Register. Indirect Participant means a broker, dealer, bank or other financial institution for which the Securities Depository holds Warrants as securities depository through a Direct Participant. Interest Payment Date shall mean each March 1 and September 1, beginning September 1,

10 Letter of Representation means and includes (i) the Letter of Representation with respect to the Warrants by the Board to the Securities Depository and (ii) any other or subsequent agreement by whatever name or identification with respect to the Warrants by said parties from time to time in effect. Outstanding 4/12 Mill Parity Obligations means, collectively: (1) The Outstanding Series 2009 Bonds; and (2) Capital Outlay Warrants, Series 2009-TC, dated December 15, 2009, which warrants are secured by a pledge of the 4 Mill Special Ad Valorem School Tax and the 12 Mill Special Ad Valorem School Tax; and (3) Capital Outlay School Warrants, Series 2012, dated September 1, 2012, which warrants are secured by a pledge of the 4 Mill Special Ad Valorem School Tax and the 12 Mill Special Ad Valorem School Tax. Outstanding Series 2009 Bonds means, collectively: (1) Those of the Series 2009-A Bonds having stated maturities in 2017 and 2018; and (2) Those of the Series 2009-B Bonds having stated maturities in 2017, 2018 and Parity Obligations shall mean, collectively, the Additional 1/2.5 Mill Parity Obligations and the Additional 4/12 Mill Parity Obligations. Paying Agent means Regions Bank, and its successors and assigns, as paying agent and registrar for the Warrants. Pledged 1/2.5 Mill Taxes means, collectively: 1) the Board s apportioned share of the following ad valorem school taxes: (a) 1.0 Mill Special Ad Valorem School Tax; and (b) 2.5 Mill Special Ad Valorem School Tax; and (2) any valid tax or taxes which the Board shall, under the Enabling Law, validly pledge for the benefit of the Series 2016-A Warrants, subsequent to the issuance thereof, in connection with the issuance of any Additional 1/2.5 Mill Parity Obligations

11 Pledged 4/12 Mill Taxes means, collectively: (1) the 12 Mill Special Ad Valorem School Tax; (2) the Board s apportioned share of the 4.0 Mill Special Ad Valorem School Tax; and (3) any valid tax or taxes which the Board shall, under the Enabling Law, validly pledge for the benefit of the Series 2016-B Warrants, subsequent to the issuance thereof, in connection with the issuance of any Additional 4/12 Mill Parity Obligations. Pledged Taxes shall mean, collectively, the Pledged 1/2.5 Mill Taxes and the Pledged 4/12 Mill Taxes. Principal Office of the Paying Agent means the office where the Paying Agent maintains its designated trust office for purposes of the Series 2016 Warrants Resolution, or such other office as shall be designated by the Paying Agent by written notice to the Board and the Holders. Qualified Investments means: (1) Federal Securities or a trust or fund consisting of Federal Securities, or (2) A certificate of deposit or time deposit issued by (i) the Paying Agent, or (ii) any other bank organized under the laws of the United States of America or any state thereof with capital, surplus and undivided profits of not less than $50,000,000, provided in each case such deposit is insured by the Federal Deposit Insurance Corporation or such deposit is collaterally secured by the issuing bank by pledging Federal Securities having a market value (exclusive of accrued interest) not less than the face amount of such certificate less the amount of such deposit insured by the Federal Deposit Insurance Corporation. Record Date means, with respect to the Warrants, the 15 th day of the month, whether or not a Business Day, next preceding any Interest Payment Date. Refunded Series 2009 Bonds means, collectively: (1) Those of the Series 2009-A Bonds having stated maturities in 2019 and thereafter; and (2) Those of the Series 2009-B Bonds having stated maturities in 2020 and thereafter. Securities Depository means The Depository Trust Company, a limited purpose trust company organized under the laws of the State of New York, and the successors and assigns thereof, and any substitute securities depository therefor that maintains a Book-Entry System for the Warrants. Securities Depository Nominee means the Securities Depository or the nominee of such Securities Depository in whose name there shall be registered on the Warrant Register the Warrants to be delivered to such Securities Depository during the period in which the Warrants are held pursuant to the Book-Entry System

12 Series 2006-A Bonds means the Limited Obligation Bonds, Series 2006-A, of the Authority heretofore issued for the exclusive benefit of the Board. Series 2009-A Bonds means the Limited Obligation Bonds, Series 2009-A, issued by the Authority for the exclusive benefit of the Board. Series 2009-B Bonds means the Limited Obligation Bonds, Series 2009-B, issued by the Authority for the exclusive benefit of the Board. Series 2016 Warrants Resolution means, collectively, the Series 2016-A Warrants Resolution and the Series 2016-B Warrants Resolution. Series 2016-A Warrants Resolution means the resolution of the Board authorizing the issuance of the Series 2016-A Warrants. Series 2016-B Warrants Resolution means the resolution of the Board authorizing the issuance of the Series 2016-B Warrants. Warrant Register means the register or registers for the registration and transfer of Warrants maintained by the Board pursuant to the Series 2016 Warrant Resolution. Warrants means, collectively, the Series 2016-A Warrants and the Series 2016-B Warrants

13 SPECIAL QUALIFICATIONS General So far as any statements are made in this Official Statement involving matters of opinion, projection or estimates, whether or not expressly so stated, they are set forth as such, made in good faith and not as representations of fact, and no representation is made nor assurance given that any such projections or estimates will be realized. The information contained in this Official Statement does not purport to be comprehensive or definitive. All references to the Constitution and laws of the State of Alabama and to summaries of the Series 2016 Warrants Resolution, the Warrants, contracts, documents, or official acts are qualified by the exact terms of such Constitution, laws, the Series 2016 Warrants Resolution, the Warrants, contracts, documents or acts, each being an item of public record. Neither this Official Statement nor any statement herein should be construed as a contract with the registered owners of the Warrants. The Board has furnished all information in this Official Statement relating to the Board and has obtained all other information from sources which are considered reliable and which are customarily relied upon in the preparation of similar official statements. No Federal or State Registration The Warrants have not been and will not be registered under the Securities Act of 1933, as amended, or any state securities laws, and neither the Securities and Exchange Commission nor any federal, state or other governmental regulatory agency will approve or confirm the accuracy, completeness or adequacy of this Official Statement. The Series 2016 Warrants Resolution has not been qualified under the Trust Indenture Act of 1939, as amended. Any representation of any of the foregoing to the contrary is a criminal offense

14 THE BOARD The Board is an agency and instrumentality of the State of Alabama in which the general administration and supervision of the public schools and educational interests of Mobile County, Alabama (outside the school districts of the cities of Chickasaw, Saraland and Satsuma) are presently vested. The Board is composed of five members who are elected from single-member districts by the qualified electors thereof for staggered six-year terms. The Board has no taxing power. General information with respect to the Board is set forth in Appendix A hereto. The audited financial statements of the Board for the fiscal year September 30, 2014 are set forth in Appendix C. The audited financial statements of the Board for each fiscal year shall be made available each year as provided in the Continuing Disclosure Agreement of the Board attached hereto as Appendix E

15 THE WARRANTS General Description The Warrants will be issued in fully registered form, without coupons, payable to the respective registered owners thereof, or registered assigns, in Authorized Denominations, and shall be numbered for identification as determined by the Paying Agent. Paying Agent Regions Bank shall be the depository, paying agent and registrar for the Warrants and is herein referred to as the Paying Agent. Authority for Issuance The Warrants are issued by the Board under the authority of the Constitution and laws of the State of Alabama, including particularly the Enabling Law, and the Series 2016 Warrants Resolution. Prior to the issuance of any warrants under the Enabling Law, a board of education must file an application for approval of such issue with the State Superintendent of Education. The written approval of the State Superintendent of Education of the amount and general purpose of such warrants is deemed a sufficient approval of the issue. The Board, in accordance with the Enabling Law, shall obtain the written approval of the State Superintendent of Education for the Warrants prior to the issuance thereof. Payment of Principal of and Interest on the Warrants The Warrants shall be dated the date of delivery and will bear interest from that date, or the most recent date to which interest shall have been paid or duly provided for, until the principal thereof shall become due and payable, at the applicable per annum rates of interest set forth on the inside cover of this Official Statement. Interest on the Warrants is payable semiannually on each Interest Payment Date to the person in whose name the Warrant is registered at the close of business on the Record Date for such interest. The principal of the Warrants will mature on the dates and in the principal amounts set forth on the inside cover of this Official Statement

16 The principal of and interest on the Warrants shall be payable in lawful money of the United States of America, without deduction for exchange, fees or expenses, by the Board through the Paying Agent. During a period in which the Book-Entry System is not in effect for the Warrants: (1) payment of interest on the Warrants shall be made by check or draft mailed by the Paying Agent to the Holders in whose names the Warrants are registered in the Warrant Register maintained by the Paying Agent at close of business on the Record Date (such payments to be deemed timely made if so mailed on the interest payment date or, if such interest payment date is not a Business Day, on the Business Day next following such interest payment date); (2) payment of the principal of (and premium, if any, on) the Warrants shall be made to the Holders only upon surrender of the Warrants at the Principal Office of the Paying Agent; and (3) all such payments of principal of, premium (if any) and interest on the Warrants on behalf of the Board or the Paying Agent shall be valid and effectual to satisfy and discharge the liability of the Board and the Paying Agent to the extent of the amounts so paid. During a period in which the Book-Entry System is in effect for the Warrants: (1) payments of principal, interest, and redemption premium, if any, with respect to the Warrants will be paid by the Paying Agent directly to the Securities Depository, or the Securities Depository Nominee, as Holder; provided, that payment of the principal of (and premium, if any, on) such Warrants due at final maturity or upon redemption in whole of any of such Warrants shall be made only upon surrender thereof at the Principal Office of the Paying Agent; (2) the Securities Depository and the Direct Participants and the Indirect Participants shall be responsible for the disbursement of such payments to the Beneficial Owners; and (3) all such payments to the Securities Depository or the Securities Depository Nominee, as Holder, of principal of, premium (if any) and interest on such Warrants on behalf of the Board or the Paying Agent shall be valid and effectual to satisfy and discharge the liability of the Board and the Paying Agent to the extent of the amounts so paid, and the Board and the Paying Agent shall not be responsible or liable for payment to any Beneficial Owner by the Securities Depository or by any Direct Participant or by any Indirect Participant, or for sending transaction statements or for maintaining, supervising or reviewing records maintained by the Securities Depository or Direct Participants or Indirect Direct Participants. If any payment on the Warrants is due on a day which is not a Business Day, such payment shall be made on the first succeeding day which is a Business Day with the same effect as if made on the day such payment was due. The Board, the Paying Agent and any agent of the Board or the Paying Agent may treat the person in whose name any Warrant is registered as the owner of such Warrant for the purpose of receiving payment of principal of, premium (if any) and interest on such Warrant and for all other purposes whatsoever whether or not such Warrant be overdue, and, to the extent permitted by law, neither the Board, the Paying Agent nor any such agent shall be affected by notice to the contrary

17 Registration, Transfer, Exchange; Book Entry System The Warrants are initially issued pursuant to the Book-Entry System to be administered by the Securities Depository and registered in the name of and held by the Securities Depository Nominee. During the period in which the Securities Depository Nominee is the registered owner of the Warrants, purchases and transfers of ownership of beneficial interests in the Warrants will be evidenced by book-entry only, as more particularly provided in the Series 2016 Warrants Resolution and described under Book-Entry Only System in Appendix F hereto. The Securities Depository may determine to discontinue the Book-Entry System with respect to the Warrants at any time upon notice to the Board and the Paying Agent and upon discharge of its responsibilities under applicable law. Upon such notice and compliance with law the Book-Entry System for the Warrants will be discontinued unless a successor securities depository is appointed by the Board. In the event the Book-Entry System for the Warrants is discontinued, Warrants in certificated form in Authorized Denominations will be physically distributed to the owners of beneficial interests in the Warrants, the Warrants will be registered in the names of the owners thereof on the registration books of the Paying Agent pertaining thereto, and the following provisions with respect to registration, transfer and exchange of the Warrants by the registered owners thereof shall apply, subject to the further conditions set forth in the Series 2016 Warrants Resolution with respect thereto: (a) The Warrants may be transferred by the registered owner in person or by authorized attorney, only on the Warrant Register maintained by the Paying Agent and only upon surrender of the Warrant to the Paying Agent for cancellation with a written instrument of transfer acceptable to the Paying Agent executed by the registered owner or his duly authorized attorney, and upon any such transfer, a new Warrant of like tenor shall be issued to the transferee in exchange therefor. (b) The registered owner of any Warrant in a face amount of more than the smallest Authorized Denomination may surrender the same in exchange for more than one Warrant, each in the principal amount which is an integral multiple of an Authorized Denomination, having the same year of maturity as the Warrant so surrendered and the same aggregate principal amount. The registered owner of two or more Warrants having the same principal maturity may surrender the same in exchange for a single Warrant in the aggregate principal amount of the Warrants so surrendered. (c) The Paying Agent shall not be required to transfer or exchange any Warrant during the period from the Record Date and the then next succeeding Interest Payment Date; and in the event that any Warrant (or any part thereof) is duly called for redemption, the Paying Agent shall not be required to register or transfer any such Warrant during the period of forty-five (45) days next preceding the date fixed for such redemption. No charge shall be made for the privilege of transfer or exchange, but the registered owner of any Warrant requesting any such transfer or exchange shall pay any tax or other governmental charge required to be paid with respect thereto. The registered owner of any Warrant will be required to pay any expenses incurred in connection with the replacement of a mutilated, lost, stolen or destroyed Warrant. The Series 2016 Warrants Resolution provides that each registered owner of the Warrants, by receiving or accepting the Warrant, consents and agrees and is estopped to deny that, insofar as the Board and the Paying Agent are concerned, the Warrant may be transferred only in accordance with the provisions of the Series 2016 Warrants Resolution

18 Redemption Notice of Redemption of Warrants Any notice of call for optional redemption of any of the Warrants will be given by United States registered or certified mail, postage prepaid, mailed not less than 30 days prior to the date fixed for redemption, to each registered owner of Warrants (or portion thereof) to be redeemed at his address appearing in the Warrant Register. For so long as the Securities Depository or its nominee is the registered owner of any Warrant to be redeemed, notice of redemption will be given to the Securities Depository or its nominee as the registered owner of such Warrant. Any failure on the part of the Securities Depository or failure on the part of a nominee of a Beneficial Owner (having received notice from the Securities Depository Participant or otherwise) to notify the Beneficial Owner of any Warrant to be redeemed shall not affect the validity of the redemption of such Warrant. Selection of Warrants for Redemption If less than all Warrants outstanding are to be redeemed, the particular Warrants to be optionally redeemed may be specified by the Board by written notice to the Paying Agent, or, in the absence of timely receipt by the Paying Agent of such notice, shall be selected by the Paying Agent by lot or by such other method as the Paying Agent shall deem fair and appropriate; provided, however, that (i) the principal amount of such Warrants of each maturity to be redeemed must be a multiple of the smallest Authorized Denomination of such Warrants and (ii) if less than all such Warrants with the same stated maturity are to be redeemed, the Warrants of such maturity to be redeemed will be selected by lot by the Paying Agent. During the period the Warrants are registered in the name of the Securities Depository or its nominee, the Board and the Paying Agent will select Warrants or portions thereof for redemption in accordance with the preceding paragraph, and the Securities Depository will select for redemption the Direct Participants interests in the Warrants. The Direct Participants and Indirect Participants will select for redemption the particular Beneficial Owners interests in the Warrants. Neither the Board nor the Paying Agent will have any responsibility for selecting for redemption any Beneficial Owners interest in the Warrants. See Book-Entry Only System on Appendix F hereto. Any Warrant which is to be redeemed only in part shall be surrendered at the principal office of the Paying Agent (with, if the Board or the Paying Agent so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Board and the Paying Agent duly executed by, the holder thereof or his attorney duly authorized in writing), and the Board shall execute and the Paying Agent shall authenticate and deliver to the holder of such Warrant, without service charge, a new Warrant or Warrants, of the same series and maturity and of any Authorized Denomination or Denominations, as requested by such holder in an aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Warrant so surrendered

19 Warrants Payable on Redemption Date; Interest to Cease to Accrue after Redemption Date Notice of redemption having been given as aforesaid, the Warrants to be redeemed will, on the redemption date, become due and payable at the redemption price therein specified, and from and after such date (unless the Board shall default in the payment of the redemption price) such Warrants will cease to bear interest. Installments of interest due prior to the redemption date will be paid to the registered holders of the Warrants on the relevant Record Date. Redemption of Series 2016-A Warrants Optional Redemption The Series 2016-A Warrants having a stated maturity on or after March 1, 2027 will be subject to prior redemption at the option and direction of the Board, as a whole or in part in integral multiples of $5,000, on March 1, 2026 or any date thereafter, in such order and amounts of maturity or maturities as the Board may determine and by lot within a maturity, at a redemption price for each Series 2016-A Warrant redeemed equal to the principal amount thereof to be redeemed plus accrued interest to the redemption date, without premium or penalty. Redemption of Series 2016-B Warrants Optional Redemption The Series 2016-B Warrants having a stated maturity on or after March 1, 2027 will be subject to prior redemption at the option and direction of the Board, as a whole or in part in integral multiples of $5,000, on March 1, 2026 or any date thereafter, in such order and amounts of maturity or maturities as the Board may determine and by lot within a maturity, at a redemption price for each Series 2016-B Warrant redeemed equal to the principal amount thereof to be redeemed plus accrued interest to the redemption date, without premium or penalty

20 Use of Warrant Proceeds Series 2016-A Warrants Sources: Par Amount of the Warrants Net Original Issue Premium $54,855, ,009, Total Sources $64,864, Uses: Refunding of Series 2006-A Bonds Cost of Issuance $64,601, [1] 263, [2] Total Uses $64,864, [1] The proceeds of the Series 2016-A Warrants allocable to the refunding of the Series 2006-A Bonds shall be held in trust and applied, together with all investment income therefrom, to the payment, redemption, and retirement of the Series 2006-A Bonds. The proceeds of the Series 2016-A Warrants held in trust for the benefit of the Series 2006-A Bonds shall not secure, or be available for payment of, the Series 2016-A Warrants. [2] Includes without limitation underwriter s compensation, fees and expenses of bond counsel, ratings, printing, accounting services, and similar costs

21 Series 2016-B Warrants Sources: Par Amount of the Warrants Net Original Issue Premium Contribution by Board $80,825, ,692, ,701, Total Sources $100,218, Uses: Refunding of Refunded Series 2009 Bonds Cost of Issuance Capital Improvements $97,127, [1] 387, [2] 2,702, Total Uses $100,218, [1] The proceeds of the Series 2016-B Warrants allocable to the refunding of the Refunded Series 2009 Bonds shall be held in trust and applied, together with all investment income therefrom, to the payment, redemption, and retirement of the Refunded Series 2009 Bonds. The proceeds of the Series 2016-B Warrants held in trust for the benefit of the Refunded Series 2009 Bonds shall not secure, or be available for payment of, the Series 2016-B Warrants. [2] Includes without limitation underwriter s compensation, fees and expenses of bond counsel, ratings, printing, accounting services, and similar costs

22 SOURCE OF PAYMENT; SECURITY FOR WARRANTS General The Warrants do not constitute (i) general obligations of the Board or (ii) an indebtedness, pecuniary liability, or charge against the general credit or taxing power of, the State of Alabama or any political subdivision therein or thereof, including without limitation Mobile County, Alabama. The Series 2016-A Warrants are payable solely from and are secured by a pledge of the Pledged 1/2.5 Mill Taxes on an equal and proportionate basis and parity of lien with the pledge thereof for the benefit of any Additional 1/2.5 Mill Parity Obligations hereafter issued by the Board in compliance with law and the provisions of the Series 2016-A Warrants Resolution with respect thereto. The Series 2016-B Warrants are payable solely from and are secured by a pledge of the Pledged 4/12 Mill Taxes on an equal and proportionate basis and parity of lien with the pledge thereof for the benefit of the Outstanding 4/12 Mill Parity Obligations and any Additional 4/12 Mill Parity Obligations hereafter issued by the Board in compliance with law and the provisions of the Series 2016-B Warrants Ordinance with respect thereto. The purchase of the Warrants involves certain risks. See WARRANTHOLDER RISKS hereinafter. Receipts of Pledged Taxes Pledged 1/2.5 Mill Taxes The proceeds of the Pledged 1/2.5 Mill Taxes received by the Board, as set forth on the audited financial statements of the Board for the fiscal years 2010 through 2014, inclusive, are set forth in Appendix A hereto under Major Sources of Revenue; Pledges to Long Term Debt. Pledged 4/12 Mill Taxes The proceeds of the Pledged 4/12 Mill Taxes received by the Board, as set forth on the audited financial statements of the Board for the fiscal years 2010 through 2014, inclusive, are set forth in Appendix A hereto under Major Sources of Revenue; Pledges to Long-Term Debt

23 Warrant Funds Series 2016-A Warrants The Series 2016-A Warrants Resolution requires the Board to deposit in the Warrant Fund thereunder for the Series 2016-A Warrants, in each Fiscal Year, when and as received, all proceeds of the Pledged 1/2.5 Mill Taxes until there are sufficient funds on deposit therein to pay the principal of and interest on the Series 2016-A Warrants becoming due and payable in such Fiscal Year. Any proceeds of the Pledged 1/2.5 Mill Taxes remaining after such deposits may be used by the Board for any lawful purpose. See Summary of Series 2016-A Warrants Resolution" in Appendix D-1. Series 2016-B Warrants The Series 2016-B Warrants Resolution requires the Board to deposit in the Warrant Fund thereunder for the Series 2016-B Warrants, in each Fiscal Year, when and as received, all proceeds of the Pledged 4/12 Mill Taxes until there are sufficient funds on deposit therein to pay the principal of and interest on the Series 2016-B Warrants becoming due and payable in such Fiscal Year. Any proceeds of the Pledged 4/12 Mill Taxes remaining after such deposits may be used by the Board for any lawful purpose. See Summary of Series 2016-B Warrants Resolution" in Appendix D-2. Warrants are Preferred Claims against Pledged Taxes Series 2016-A Warrants The Enabling Law and the Series 2016-A Warrants Resolution provide that the Series 2016-A Warrants shall constitute a preferred claim against the proceeds of the Pledged 1/2.5 Mill Taxes and shall have preference over claims for salaries or other operating expenses, or any other purpose whatsoever. Series 2016-B Warrants The Enabling Law and the Series 2016-B Warrants Resolution provide that the Series 2016-B Warrants shall constitute a preferred claim against the proceeds of the Pledged 4/12 Mill Taxes and shall have preference over claims for salaries or other operating expenses, or any other purpose whatsoever

24 Priority of Pledged Taxes; Issuance of Parity Obligations Series 2016-A Warrants The Series 2016-A Warrants Resolution provides that the pledge of the Pledged 1/2.5 Mill Taxes for the benefit of the Series 2016-A Warrants will be, except with respect to the pledge thereof for the Additional 1/2.5 Mill Parity Obligations, as hereinafter described, prior and superior to any pledge or agreement respecting the proceeds of the Pledged 1/2.5 Mill Taxes for the benefit of or with respect to any obligations or securities that may, subsequent to the issuance of the Series 2016-A Warrants, be issued or any contract that may be made, or any charge or use to which the proceeds of either of the Pledged 1/2.5 Mill Taxes is authorized to be devoted. In the Series 2016-A Warrants Resolution the Board has reserved the right to issue Additional 1/2.5 Mill Parity Obligations for any lawful purpose and without limit as to aggregate principal amount. Prior to the issuance of any Additional 1/2.5 Mill Parity Obligations, the Board must file with the Paying Agent a certificate of the Chief School Finance Officer (a) setting forth (i)the amount of proceeds of the Pledged 1/2.5 Mill Taxes received by the Board during the Fiscal Year next preceding the issuance of the Additional 1/2.5 Mill Parity Obligations proposed to be issued and (ii) the maximum amount payable annually in the then current and all succeeding Fiscal Years of the Board as principal of and interest on the Series 2016-A Warrants, the Additional 1/2.5 Mill Parity Obligations, if any, then outstanding, and the Additional 1/2.5 Mill Parity Obligations proposed to be issued; and (b) demonstrating that the amount of the proceeds of the Pledged 1/2.5 Mill Taxes so received by the Board in such Fiscal Year is no less than one and one-fourth (1.25) times the maximum amount payable annually in any such Fiscal Year as principal of and interest on the Series 2016-A Warrants, the Additional 1/2.5 Mill Parity Obligations, if any, then outstanding, and the Additional 1/2.5 Mill Parity Obligations proposed to be issued. Series 2016-B Warrants The Series 2016-B Warrants Resolution provides that the pledge of the Pledged 4/12 Mill Taxes for the benefit of the Series 2016-B Warrants will be, except with respect to the pledge thereof for the Outstanding 4/12 Mill Parity Obligations and the Additional 4/12 Mill Parity Obligations, as hereinafter described, prior and superior to any pledge or agreement respecting the proceeds of the Pledged 4/12 Mill Taxes for the benefit of or with respect to any obligations or securities that may, subsequent to the issuance of the Series 2016-B Warrants, be issued or any contract that may be made, or any charge or use to which the proceeds of either of the Pledged 4/12 Mill Taxes is authorized to be devoted. In the Series 2016-B Warrants Resolution the Board has reserved the right to issue Additional 4/12 Mill Parity Obligations for any lawful purpose and without limit as to aggregate principal amount. Prior to the issuance of any Additional 4/12 Mill Parity Obligations, the Board must file with the Paying Agent a certificate of the Chief School Finance Officer (a) setting forth (i)the amount of proceeds of the Pledged 4/12 Mill Taxes received by the Board during the Fiscal Year next preceding the issuance of the Additional 4/12 Mill Parity Obligations proposed to be issued and (ii) the maximum amount payable annually in the then current and all succeeding Fiscal Years of the Board as principal of and interest on the Outstanding 4/12 Mill Parity Obligations, the Series 2016-B Warrants, the Additional 4/12 Mill Parity Obligations, if any, then outstanding, and the Additional 4/12 Mill Parity Obligations proposed to be issued; and (b) demonstrating that the amount of the proceeds of the Pledged 4/12 Mill Taxes so received by the Board in such Fiscal Year is no less than one and onefourth (1.25) times the maximum amount payable annually in any such Fiscal Year as principal of and interest on the Outstanding 4/12 Mill Parity Obligations, the Series 2016-B Warrants, the Additional 4/12 Mill Parity Obligations, if any, then outstanding, and the Additional 4/12 Mill Parity Obligations proposed to be issued

25 General Remedies The Warrants constitute orders on the County Superintendent of Education and the Chief School Financial Officer of the Board to pay, out of the Pledged Taxes, the principal of and interest on the Warrants when and as due. The Warrants (as distinguished from the Series 2016 Warrants Resolution) do not contain a contractual promise on the part of the Board to pay such principal or interest out of such proceeds and revenues to the holders of the Warrants, and therefore the Board itself is not subject to suit on the Warrants in the event that it defaults in payment of such principal or interest. The Series 2016 Warrants Resolution specifies that its provisions constitute a contract between the Board and the holders of the Warrants (to the extent that such holders are directly affected by such provisions). As the Alabama Supreme Court has held that a county board of education, such as the Board, has the same sovereign immunity as does the State of Alabama under Section 14 of the Constitution of Alabama of 1901(Ex parte Hale County Board of Education, 14 So. 3d 844 (Ala. 2009), the Board is not subject to suit on the contract evidenced by the Series 2016 Warrants Resolution. The Series 2016 Warrants Resolution authorizes and directs the County Superintendent of Education and the Chief School Financial Officer to deposit into the Warrant Fund proceeds of the Pledged Taxes, when and as received in each Fiscal Year, until there are funds on deposit therein in amounts sufficient to pay the principal of and interest on the Warrants becoming due and payable in such Fiscal Year. The existing laws of the State of Alabama (including particularly the Enabling Law) provide that the County Superintendent of Education, and the Chief School Financial Officer, are each subject to mandamus in the event such officers do not, as required by the Series 2016 Warrants Resolution, deposit into the Warrant Fund proceeds of the Pledged Taxes, when and as required by the Series 2016 Warrants Resolution in each Fiscal Year, and apply such proceeds (and investment earnings thereon) to the payment of the principal of and interest on the Warrants when and as the same become due and payable in each Fiscal Year in amounts sufficient for such purposes. The Enabling Law provides further that any court having jurisdiction shall issue mandamus for the payment of the principal of and interest on the Warrants, when and as the same becomes due and payable, upon proper proof of nonpayment thereof, or noncompliance with the provisions of law with respect thereto, being furnished by or on behalf of any owner of any Warrant

26 The extent of the remedies afforded to the holders of the Warrants by any such mandamus proceeding, and any other remedies available to such holders, are subject to those limitations inherent in the fact that the Warrants are special obligation warrants and may be subject to, among other things, (a) the provisions of the United States Bankruptcy Code (see THE UNITED STATES BANKRUPTCY CODE hereinafter), and (b) the provisions of other statutes that may hereafter be enacted by the Congress of the United States or the Legislature of Alabama extending the time for payment of indebtedness of public bodies such as the Board or imposing other constraints upon the enforcement of rights of holders of securities issued by such public bodies. Prospective purchasers of the Warrants should assume (i) that the Warrants (like most securities that are issued as a medium for investment) are not considered commercial paper within the meaning of Article 3 of the Alabama Uniform Commercial Code ( et seq., of the Code of Alabama 1975, as amended), (ii) that the Warrants may not be considered negotiable investment securities under Article 8 of the Alabama Uniform Commercial Code ( et seq., of the Code of Alabama 1975, as amended), and (iii) that purchasers, transferees and other holders of the Warrants therefore may not be able to acquire the rights conferred by said Article 8 on purchasers or bona fide purchasers, under the circumstances and to the extent provided in said Article 8. The Series 2016 Warrants Resolution does contain specific provisions dealing with the obligations of the Board to the holders of the Warrants in connection with the registration and transfer of the Warrants and the replacement of lost, stolen, destroyed or mutilated Warrants

27 Debt Service on the Series 2016-A Warrants The aggregate amount of principal of and interest on the Series 2016-A Warrants payable in each Fiscal Year is set forth as follows. Period Ending Sept. 30 Series 2016-A Warrants 2016 $1,220, ,800, ,787, ,145, ,159, ,169, ,183, ,199, ,210, ,227, ,239, ,255, ,269, ,287, ,303, ,330, Total $78,788,

28 Debt Service on the Outstanding 4/12 Mill Parity Obligations and the Series 2016-B Warrants The aggregate amount of principal of and interest on the Outstanding 4/12 Mill Parity Obligations and the Series 2016-B Warrants payable in each Fiscal Year is set forth as follows. Period Ending Sept. 30 Outstanding Series 2009 Bonds Series 2009 Tax Credit Warrants Series 2012 Warrants [1] Series 2016-B Warrants Total 2016 $157, $359, $1,627, $2,009, $4,153, ,391, ,585, ,583, ,041, ,601, ,387, ,585, ,586, ,041, ,600, , ,585, ,582, ,093, ,988, ,585, ,593, ,755, ,934, ,585, ,593, ,752, ,930, ,585, ,589, ,748, ,923, ,585, ,586, ,738, ,910, ,465, ,582, ,733, ,782, ,307, ,583, ,726, ,616, ,146, ,578, ,716, ,441, ,577, ,704, ,281, ,573, ,698, ,272, ,569, ,693, ,263, ,539, ,678, ,218, ,531, ,668, ,199, ,530, ,661, ,191, ,551, ,651, ,202, ,547, ,547, ,543, ,543, ,543, ,543, ,535, ,535, ,533, ,533, ,529, ,529, ,529, ,529, ,527, ,527, ,514, ,514, Total $9,665, $15,375, $146,165, $125,111, $296,317, [1] The principal amount of any warrant to be retired in a Fiscal Year pursuant to mandatory redemption provisions is shown as maturing in that Fiscal Year

29 Debt Service Coverage for the Series 2016-A Warrants Coverage of Maximum Annual Debt Service Proceeds of Pledged 1/2.5 Mill Taxes (A) 1 Mill Special Ad Valorem School Tax $4,943,581 (B) 2.5 Mill Special Ad Valorem School Tax $12,358,958 Total $17,302,539 [1] Maximum Annual Debt Service (2031) $5,330,000 [2] Debt Service Coverage Ratio Coverage of Average Annual Debt Service Proceeds of Pledged 1/2.5 Mill Taxes (A) 1 Mill Special Ad Valorem School Tax $4,943,581 (B) 2.5 Mill Special Ad Valorem School Tax $12,358,958 Total $17,302,539 [1] Average Annual Debt Service ( ) $5,171,198 [2] Debt Service Coverage Ratio [1] Based on actual collections for the period October 2013 through September 2014, as set forth under Description of Major Sources of Revenues in Appendix A. [2] See Debt Service on the Series 2016-A Warrants hereinbefore

30 Debt Service Coverage for the Outstanding 4/12 Mill Parity Obligations and the Series 2016-B Warrants Coverage of Maximum Annual Debt Service Proceeds of Pledged 4/12 Mill Taxes (A) 12 Mill Special Ad Valorem School Tax $23,479,835 (B) 4 Mill Special Ad Valorem School Tax 11,012,754 Total $34,492,589 [1] Maximum Combined Annual Debt Service (2017) $15,601,716 Debt Service Coverage Ratio Coverage of Average Annual Debt Service Proceeds of Pledged 4/12 Mill Taxes (A) 12 Mill Special Ad Valorem School Tax $23,479,835 (B) 4 Mill Special Ad Valorem School Tax 11,012,754 Total $34,492,589 [1] Average Combined Annual Debt Service ( ) $14,256,496 Debt Service Coverage Ratio [1] Based on actual collections for the period October 2013 through September 2014, as set forth under Description of Major Sources of Revenues in Appendix A. [2] See Debt Service on the Outstanding 4/12 Mill Parity Obligations and the Series 2016-B Warrants hereinbefore

31 LITIGATION; TORT LIABILITY There is not now pending any litigation restraining, enjoining or in any manner questioning or affecting: the creation, organization or existence of the Board; the title of the present members of the Board to their respective offices; the validity of the Series 2016-A Warrants or the Series 2016-B Warrants; the proceedings and authority under which the Series 2016-A Warrants and the Series 2016-B Warrants are to be issued; the levy and collection of the Pledged 1/2.5 Mill Taxes and the levy and collection of the Serein 2016-B Pledged Taxes; the pledge of the Pledged 1/2.5 Mill Taxes for the benefit of the Series 2016-AWarrants and the pledge of the Pledged 4/12 Mill Taxes for the benefit of the Series 2016-B Warrants; the Series 2006-A Bonds or the Series 2009 Bonds. There are no legal proceedings pending or threatened against the Board which may have a material adverse effect upon the financial condition of the Board. The Supreme Court of Alabama has held, in Ex parte Hale County Board of Education, 14 So. 3d 844 (Ala. 2009), that county boards of education have absolute immunity from suit in both tort and contract, under the provisions of Section 14 of the Constitution of Alabama of 1901, as amended, as local agencies of the State of Alabama. LEGAL MATTERS The legality and validity of the Warrants will be approved by Maynard, Cooper & Gale, P.C., Bond Counsel. Bond Counsel has been employed primarily for the purpose of preparing certain legal documents and supporting certificates, reviewing the transcript of proceedings by which the Warrants have been authorized to be issued, and rendering opinions in conventional form as to the validity and legality of the Warrants and the exemption of interest thereon from federal and Alabama income taxes. Although Bond Counsel assisted in the preparation of certain portions of this Official Statement and is of the opinion that the statements made therein under the captions THE WARRANTS, SOURCE OF PAYMENT; SECURITY FOR WARRANTS, LEGAL MATTERS, and TAX MATTERS and Appendix D fairly summarize the matters therein referred to, Bond Counsel has not been requested to check or verify, has not checked or verified, and will express no opinion with respect to, the adequacy, accuracy, completeness or fairness of any other information contained in this Official Statement. It is anticipated that Bond Counsel will render opinions substantially in the forms attached hereto as Appendix G-1 and Appendix G-2 with respect to the Warrants. Certain legal matters will be passed upon for the Underwriter by its counsel, Balch & Bingham, LLP

32 THE UNITED STATES BANKRUPTCY CODE The rights and remedies of the registered owners of the Warrants are subject to the provisions of Title 11 of the United States Code (Bankruptcy). Provisions of the United States Bankruptcy Code permit, under certain specified circumstances (but only after authorization by the legislature or by a governmental officer or organization empowered by state law to give such authorization), a political subdivision of a state, such as the Board, to file a petition for relief in the Federal Bankruptcy Court if it is insolvent or unable to meet its debts as they mature and if it desires to effect a plan to adjust its debts. One provision of the Bankruptcy Code may be interpreted to deprive holders of securities issued by such a political subdivision of their claim or charge on certain tax proceeds (such as the Pledged Taxes) that are specially pledged therefor and that are collected after the filing by such a political subdivision of a bankruptcy petition. Thus the filing of a bankruptcy petition by the Board could have the result of terminating or releasing the claim or charge of the holders of the Warrants on the Pledged Taxes, in which event such holders would in effect, after the filing of a bankruptcy petition, be general unsecured creditors with respect to such pledged tax proceeds. Bankruptcy proceedings by the Board could have material adverse effects on holders of the Warrants, including (i) delay in the enforcement of their remedies, (ii) subordination of their claims or charges on the Pledged Taxes to claims of those supplying goods and services to the Board after the initiation of bankruptcy proceedings and to the administrative expenses of bankruptcy proceedings or to other claims of creditors of the Board, (iii) subordination of liens; (iv) avoidance of liens or preferential transfers, and (v) imposition without their consent of a reorganization plan reducing or delaying payment on the Warrants. The Bankruptcy Code contains provisions intended to insure that, in any reorganization plan not accepted by the holders of at least a majority in aggregate principal amount of any issue of securities, the holders of such securities will have the benefit of their original claim or charge on any tax proceeds specially pledged therefor or the indubitable equivalent. The effect of these and other provisions of the Bankruptcy Code cannot be predicted with any certainty and may be significantly affected by judicial interpretation. There is no legislation currently in effect in Alabama authorizing county boards of education, such as the Board, to file petitions for relief under the Bankruptcy Code, nor to the knowledge of the Board has any governmental officer or organization been empowered under Alabama law to authorize the filing of such a petition by a county board of education under such Code. There is of course no assurance that legislation authorizing county boards of education to file petitions under the Bankruptcy Code will not be enacted in the future

33 TAX MATTERS General; Opinion of Bond Counsel In the opinion of Bond Counsel, under existing law, interest on the Warrants (a) will be excluded from gross income for federal income tax purposes if the Board complies with all requirements of the Code that must be satisfied subsequent to the issuance of the Warrants in order that interest thereon be and remain excludable from gross income; (b) will not be an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, with respect to corporations, such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on such corporations; and (c) will be exempt from State of Alabama income taxation. Bond Counsel will express no opinion regarding other federal or state tax consequences arising with regard to the Warrants other than the opinions referred to in the preceding paragraph. The forms of Bond Counsel s opinions are expected to be substantially as set forth in Appendix G-1 and Appendix G-2 with respect to the Warrants. The opinion on tax matters will be based on and will assume the accuracy of certain representations and certifications, and continuing compliance with certain covenants, of the Board contained in the transcript of proceedings and that are intended to evidence and assure the foregoing, including that the Warrants are and will remain obligations the interest on which is excluded from gross income for federal income tax purposes. Bond Counsel will not independently verify the accuracy of the certifications and representations of the Board or the continuing compliance with the covenants of the Board with respect thereto. The opinion of Bond Counsel is based on current legal authority and covers certain matters not directly addressed by such authority. It represents Bond Counsel s legal judgment as to exclusion of interest on the Warrants from gross income for federal income tax purposes but is not a guaranty of that conclusion. The opinion is not binding on the Internal Revenue Service ( IRS ) or any court. Bond Counsel expresses no opinion about (i) the effect of future changes in the Code and the applicable regulations under the Code or (ii) the interpretation and the enforcement of the Code or those regulations by the IRS

34 Ancillary Tax Matters Under the Code, the exclusion of interest from gross income for federal income tax purposes may have certain adverse federal income tax consequences on items of income, deduction or credit for certain taxpayers, including financial institutions, certain insurance companies, recipients of Social Security and Railroad Retirement benefits, those that are deemed to incur or continue indebtedness to acquire or carry tax-exempt obligations, and individuals otherwise eligible for the earned income tax credit. Payments of interest on tax-exempt obligations, including the Warrants, are generally subject to IRS Form 1099INT information reporting requirements. If an owner of a Warrant is subject to backup withholding under those requirements, then payments of interest will also be subject to backup withholding. Those requirements do not affect the excludability of such interest from gross income for federal income tax purposes. The applicability and extent of these and other tax consequences will depend upon the particular tax status or other tax items of the owner of the Warrants. Bond Counsel will express no opinion regarding those consequences. Interest on the Warrants may be subject to a federal branch profits tax imposed on certain foreign corporations doing business in the United States and to a federal tax imposed on excess net passive income of certain S corporations. Changes in Law and Post Issuance Compliance and Events Legislation affecting tax-exempt obligations is regularly considered by the United States Congress, and legislation affecting the exemption of interest or other income thereon for purposes of state taxation may be considered by the legislative body of the State of Alabama. Court proceedings may also be filed the outcome of which could modify the tax treatment of obligations such as the Warrants. There can be no assurance that legislation enacted or proposed, or actions by a court, after the date of issuance of the Warrants will not have an adverse effect on the tax status of interest or other income on the Warrants or the market value of the Warrants. The Code prescribes a number of qualifications and conditions for the interest on state and local government obligations to be and to remain excluded from gross income for federal income tax purposes, some of which require future or continued compliance after issuance of the obligations. Noncompliance with these requirements by the Board may result in the interest on the Warrants being included in gross income for federal income tax purposes retroactively to the date of issuance of the Warrants. The Board has covenanted to take the actions required of it for the interest on the Warrants to be and to remain excluded from gross income for federal income tax purposes, and not to take any actions that would adversely affect that exclusion. After the date of issuance of the Warrants, Bond Counsel will not undertake to determine (or to so inform any person) whether any actions taken or not taken, or any events occurring or not occurring, or any other matters coming to Bond Counsel s attention, may adversely affect the exclusion from gross income for federal income tax purposes of interest on the Warrants or the market prices of the Warrants. Consultation with Tax Advisors Prospective purchasers of the Warrants should consult their own tax advisors regarding the federal and state consequences of owning and disposing of the Warrants, pending or proposed federal and state tax legislation, and other tax considerations, such as the consequences of market discount, as to all of which Bond Counsel expresses no opinion

35 IRS Audit Program The IRS has a program to audit tax-exempt obligations to determine whether the interest thereon is includible in gross income for federal income tax purposes. If the IRS does audit the Warrants, under current IRS procedures, the IRS will treat the Board as the taxpayer and the beneficial owners of the Warrants will have only limited rights, if any, to obtain and participate in judicial review of such audit. Any action of the IRS, including but not limited to selection of the Warrants for audit, or the course or result of such audit, or an audit of other obligations presenting similar tax issues, may affect the market prices for the Warrants. Bond Counsel s engagement with respect to the Warrants ends with the issuance of the Warrants, and, unless separately engaged, Bond Counsel is not obligated to defend the Board or the beneficial owners regarding the tax status of interest on the Warrants in the event of an audit examination by the IRS. No Redemption or Payment If Warrants are Taxable The Series 2016-A Warrants Resolution does not provide for the redemption of any of the Series 2016-A Warrants, or the payment of any additional interest or penalty, if a determination is made that the Series 2016-A Warrants do not comply with the requirements of the Code or if a subsequent change in law adversely affects the tax-exempt status of the Series 2016-A Warrants or the effect of investing in the Series 2016-A Warrants. The Series 2016-B Warrants Resolution does not provide for the redemption of any of the Series 2016-B Warrants, or the payment of any additional interest or penalty, if a determination is made that the Series B Warrants do not comply with the requirements of the Code or if a subsequent change in law adversely affects the tax-exempt status of the Series 2016-B Warrants or the effect of investing in the Series 2016-B Warrants. Investment Information for Financial Institutions The Board has not designated the Warrants as qualified tax-exempt obligations for purposes of paragraph (3) of subsection (b) of Section 265 of the Code regarding interest incurred to carry tax-exempt obligations. The Warrants are not bank-qualified. Original Issue Discount In the opinion of Bond Counsel, under existing law, the original issue discount in the selling price of a Warrant, to the extent properly allocable to each owner of such obligation, is excluded from gross income for federal income tax purposes with respect to such owner. The original issue discount is the excess of the stated redemption price at maturity of such warrant over the initial offering price to the public, excluding underwriters and other intermediaries, at which price a substantial amount of the warrants of such maturity were sold. Under Section 1288 of the Code, original issue discount on tax-exempt obligations accrues on a compound basis. The amount of original issue discount that accrues to an owner of a Warrant during any accrual period generally equals (i) the issue price of such obligation plus the amount of original issue discount accrued in all prior accrual periods, multiplied by (ii) the yield to maturity of such obligation (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), less (iii) any interest payable on such obligation during such accrual period. The amount of original issue discount so accrued in a particular accrual period will be considered to be received ratably on each day of the accrual period,

36 will be excluded from gross income for federal income tax purposes, and will increase the owner s tax basis in such obligation. Any gain realized by an owner from a sale, exchange, payment or redemption of a Warrant will be treated as gain from the sale or exchange of such Warrant. Original Issue Premium An amount equal to the excess of the purchase price of a Warrant over its stated redemption price at maturity constitutes premium on such Warrant. A purchaser of a Warrant must amortize any premium over the term thereof using constant yield principles, based on the purchaser s yield to maturity. As premium is amortized, the purchaser s basis in such Warrant is reduced by a corresponding amount, resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Warrant prior to its maturity. Even though the purchaser s basis is reduced, no federal income tax deduction is allowed. Purchasers of any Warrants at a premium, whether at the time of initial issuance or subsequent thereto, should consult with their own tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to state and local tax consequences of owning such Warrants. EXPLANATION OF RATINGS Moody s Investors Service, Inc. ( Moody s ) has assigned a rating of A1 to the Warrants. Standard & Poor s Financial Services, LLC, a division of The McGraw-Hill Companies, Inc. ( S&P ), has assigned a rating of AA- to the Warrants. The rating by each such rating agency reflects only the views thereof at the time such rating is given, and the Board makes no representation as to the appropriateness of any rating. The rating is not a recommendation to buy, sell or hold Warrants and should be evaluated independently. There is no assurance that any rating will continue for any given period of time or that any rating may not be suspended, lowered or withdrawn entirely by a rating agency if, in its judgment, circumstances so warrant. Any such downward change in or withdrawal of a rating may have an adverse effect on the secondary market of the Warrants. Neither the Board nor the Underwriter has undertaken any responsibility after the issuance of Warrants to assure maintenance of any rating or to oppose any such revision or withdrawal. Due to the ongoing uncertainty regarding the economy and debt of the United States of America, including, without limitation, political and economic developments that may affect the financial condition of the United States government, the United States debt limit, and the bond ratings of the United States and its instrumentalities, obligations issued by state and local governments, such as the Warrants, could be subject to a rating downgrade. Additionally, if a significant default or other financial crisis should occur in the affairs of the United States or of any of its agencies or political subdivisions, then such event could also adversely affect the market for and ratings, liquidity, and market value of outstanding debt obligations, including the Warrants. Any explanation of the significance of a rating may be obtained from Moody s or S&P. LEGAL INVESTMENT STATUS The Warrants are legal investments for executors, administrators, paying agents, and other fiduciaries in Alabama

37 FINANCIAL ADVISOR In connection with the issuance and sale of the Warrants, Rice Advisory LLC, Montgomery, Alabama, is serving as Financial Advisor to the Alabama State Department of Education. The Financial Advisor has not assisted in the preparation of this Official Statement nor has it participated in other matters relating to the planning, structuring and issuance of the Warrants. The Financial Advisor is a financial advisory firm regularly engaged in the business of providing financial and advisory services. The Financial Advisor will not participate in underwriting any of the Warrants. UNDERWRITER Series 2016-A Warrants Stifel, Nicolaus & Company, Inc. (the "Underwriter") has purchased the Series 2016-A Warrants from the Board for a purchase price of $64,703,037.15, being the principal amount of $54,855, plus net original issue premium of $10,009, and less underwriting discount of $161, The initial public offering price for the Series 2016-A Warrants may be changed by the Underwriter. The Underwriter may offer and sell the Series 2016-A Warrants to certain dealers (including dealers depositing Series 2016-A Warrants in investment trusts) and others at prices lower than the public offering prices set forth on the inside cover page of this Official Statement. Series 2016-B Warrants Stifel, Nicolaus & Company, Inc. (the "Underwriter") has purchased the Series 2016-B Warrants from the Board for a purchase price of $97,278,674.05, being the principal amount of $80,825, plus net original issue premium of $16,692, and less underwriting discount of $238, The initial offering price for the Series 2016-B Warrants may be changed by the Underwriter. The Underwriter may offer and sell the Series 2016-B Warrants to certain dealers (including dealers depositing the Series 2016-B Warrants in investment trusts) and others at prices lower than the public offering prices set forth on the inside cover page of this Official Statement. General As of the date of this Official Statement the Board has not contracted with the Underwriter to provide ongoing secondary market disclosure regarding its operations and financial affairs. CONTINUING DISCLOSURE UNDERTAKING General In accordance with Rule 15c2-12 of the Securities and Exchange Commission (the Rule ), the Board will enter into a continuing disclosure agreement (the 2016 CDA ) for the benefit of the owners of the Warrants, meeting the requirements for such agreements set forth in the Rule. The proposed form of the 2016 CDA is attached as

38 Appendix E. The 2016 CDA will require the Board to provide only limited information at specified times, and such information may not constitute all information necessary to determine the value at any time of the Warrants. The terms under which the 2016 CDA may be amended are set forth therein. The Board may, in its discretion, file additional information, but it is not obligated to provide such additional information for the benefit of the owners of the Warrants. The 2016 CDA provides the Board will file the information required to be filed by the 2016 CDA with the Municipal Securities Rulemaking Board s Electronic Municipal Market Access System ( EMMA ). Failure of the Board to comply with the 2016 CDA does not constitute an event of default, but the 2016 CDA does provide that in the event of a failure to perform the 2016 CDA, the registered owners and Beneficial Owners of the Warrants have the right to seek a court order directing the Board to perform its obligations thereunder. Disclosure Dissemination Agent Agreement with Digital Assurance Certification, L.L.C. The Board has entered into a Disclosure Dissemination Agent Agreement ( Disclosure Dissemination Agreement ) with Digital Assurance Certification, L.L.C. ( DAC ) as its Disclosure Dissemination Agent for the purpose of assisting it with the above-described filings and ensuring ongoing compliance with its continuing disclosure filing requirements. DAC provides its clients with automated filing of rating events, templates consolidating all outstanding filing requirements that accompany reminder notices of annual mandatory filings, review of all template filings by professional accountants, as well as a time and date stamp record of each filing along with the unique ID from EMMA accompanying the copy of the actual document filed. DAC also offers its clients a series of training webinars each year qualified for NASBA certified CPE credits, as well as model secondary market compliance policies and procedures. Prior Undertakings; Failure to File Required Information The Board has heretofore delivered continuing disclosure agreements with respect to the long-term obligations of the Board pursuant to the Rule as in effect on the respective dates of delivery of such agreements (collectively, the Existing CDA Agreements ). Pursuant to the Existing CDA Agreements the Board covenanted to file the annual audited general purpose financial statements of the Board and other general financial and operating information of the Board set forth in the various official statements with respect to such outstanding obligations. During the past five years the Board has failed to comply with the Existing CDA Agreements in that the Board (i) has failed to file the audited financial statements of the Board within the time period required by the Existing CDA Agreements, (ii) has failed to file the financial information and operating data set forth in an official statement with respect to outstanding obligations of the Board in form and of content, and within the time period, required by the Existing CDA Agreements, and (iii) has failed to file certain event notices, including without limitation failure to provide" notices stating that certain audited financial statements were not filed when required, and that certain financial information and operating data were not filed in time, form and content as required by the Existing CDA Agreements. The Board made remedial filings of missing financial information and operating data in August 2012, February 2014 and January

39 WARRANTHOLDER RISKS Limited Obligations of Board The Warrants do not constitute (i) general obligations of the Board or (ii) an indebtedness, pecuniary liability, or charge against the general credit or taxing power of, the State of Alabama or any political subdivision therein or thereof, including without limitation Mobile County, Alabama. The Series 2016-A Warrants are payable solely from and are secured by a pledge of the Pledged 1/2.5 Mill Taxes on an equal and proportionate basis and parity of lien with the pledge thereof for the benefit of any Additional 1/2.5 Mill Parity Obligations hereafter issued by the Board in compliance with law and the provisions of the Series 2016-A Warrants Resolution with respect thereto. The Series 2016-B Warrants are payable solely from and are secured by a pledge of the Pledged 4/12 Mill Taxes on an equal and proportionate basis and parity of lien with the pledge thereof for the benefit of the Outstanding 4/12 Mill Parity Obligations and any Additional 4/12 Mill Parity Obligations hereafter issued by the Board in compliance with law and the provisions of the Series 2016-B Warrants Ordinance with respect thereto. The sufficiency of the Pledged Taxes to pay debt service on the Warrants may be adversely affected by events and conditions relating generally to, among other things, the value of taxable property in the County; the volume of retail sales in the County, population trends and overall economic development. The exact nature and extent of all these conditions are not presently determinable. Annexation of Territory Formerly Served by the Board Alabama law provides that when any territory in which there is located a school under the supervision and control of a county board of education is annexed into a city having an independent city board of education, the county board of education shall retain (1) supervision and control of such school, and (2) the same control of such territory and revenues exercised by it prior to such annexation, until the county board of education, the city board of education and the annexing city have entered into an agreement with reference to (a) existing indebtedness, and (b) the provision, for the children in that part of the territory in the school district not so annexed to the city, of the same or equivalent school facilities as were afforded by the school located in the annexed territory. Further, current Alabama law provides that if no such agreement is reached within thirty (30) days after such an annexation the matter must be referred for final disposition to the three-member Board of Arbiters consisting of one member selected by the county board of education, one by the city board of education, and the third by the first two members of such Board of Arbiters. Annexation of territory now under control of the Board by a city with an independent board of education (whether as a result of annexation of formerly unincorporated areas or as a result of a merger of an incorporated municipality not then having an independent city school board into a city with an independent board of education) may result in the apportionment or allocation to such city board of education of a portion of the Pledged Taxes theretofore allocated to the Board

40 Proration of State Appropriations The Alabama Constitution effectively prohibits the State from engaging in deficit financing. Therefore state expenditures during any fiscal year may not exceed available revenues. State law provides procedures for delaying or, if necessary, reducing or prorating appropriations of state revenues in order to maintain and enforce the constitutional ban on deficit financing. As noted below, the Board receives the largest share of its annual revenue from the State. The postponement or reduction of State appropriations to the Board as a consequence of proration may therefore result in reductions of expenditures by the Board for certain budget items other than salaries (e.g., instructional materials, supplies and maintenance). The following table sets forth the years in which proration has been enforced since 1985 and the amounts of such prorations: Year Proration Percentage % The Board cannot predict whether or to what extent State revenues appropriated to the Board will be subject to proration in future years. However, the State does have two reserve funds with which to mitigate the effects of budget proration. The primary reserve fund (commonly called the Proration Prevention Account) is funded with tax revenue and operates like a savings account. The Proration Prevention Account is currently depleted. The secondary reserve fund (commonly called the Rainy Day Account established on June 4, 2002) operates like a line of credit, and permits the State to temporarily transfer money from the $3,000,000,000 Alabama Trust Fund (which relies on oil and gas royalties due from natural gas producers in the Gulf of Mexico). The Alabama Trust Fund made an initial deposit of $2,200,000,000 to the Rainy Day Account during As originally enacted, the State was only permitted to borrow a maximum of $248,000,000, or 6.5% of the budget for fiscal year , from the Alabama Trust Fund for the benefit of the Rainy Day Account. It was necessary for the State to borrow $180,000,000 from such Rainy Day Account to mitigate the effect of budget proration in In anticipation of future budget prorations, Alabama voters passed Amendment One at the November 4, 2008 general election in order to increase the amount that the State may temporarily borrow from the Alabama Trust Fund to $437,000,000, or 6.5% of then current year s budget, and increased to six years the amount of time that the State has to repay the money. Although the primary reserve fund is depleted, the Rainy Day Account should mitigate the effects of budget proration to a certain extent. Education Accountability Plan Chapter 6B of Title 16 of the Code of Alabama 1975 requires the State Board of Education to require, approve and audit budgets, financial statements and other reports necessary to assess the financial stability of each local board. If a local board is determined to have submitted a fiscally unsound budget, the State Board must provide assistance to complete a revised budget. If the State Board determines that the local board is in an unsound fiscal position, a person or persons must be appointed by the State Superintendent to advise the day-to-day financial operations of the local board. If after a reasonable period of time, the State Superintendent determines that the local board is still in an unsound fiscal position, the Superintendent must request approval from the

41 State Board to take direct control of the fiscal operation of the local board. Upon approval by the State Board, the State Superintendent must appoint an individual to be chief financial officer to manage the fiscal operation of the local board. Communication with, and Payments to, the Beneficial Owners When Book-Entry System Is in Effect The Board, the Paying Agent and the Underwriter will not have any responsibility or obligation to any Direct Participant, Indirect Participant or any Beneficial Owner or any other person with respect to: (1) the accuracy of any records maintained by the Securities Depository or any Direct Participant or Indirect Participant; (2) the payment by the Securities Depository, any Direct Participant or Indirect Participant, of any amount due to any Beneficial Owner in respect of the principal or redemption price, premium, if any, and interest on the Warrants; (3) the delivery or timeliness of delivery by the Securities Depository, any Direct Participant or Indirect Participant of any notice to any Beneficial Owner which is required or permitted under the terms of the Series 2016 Warrants Resolution to be given to Beneficial Owners; or (4) any consent given or other action taken by the Securities Depository or the Securities Depository Nominee, as owner. The Board, the Paying Agent and the Underwriter cannot and do not give any assurances that any Direct Participant or Indirect Participant will distribute to the Beneficial Owners of the Warrants (1) payments of principal or redemption price, premium, if any, or interest on, the Warrants, (2) certificates representing an ownership interest or other confirmation of beneficial ownership interests in the Warrants, or (3) redemption or other notices sent to the Securities Depository or the Securities Depository Nominee, as the registered owner of the Warrants, or that they will do so on a timely basis, or that the Securities Depository or the Securities Depository Nominee, or any Direct Participant or Indirect Participant will serve and act in the manner described in this Official Statement. State Legislative Control The Board, like most other agencies of local government in Alabama, is subject to the virtually plenary powers of the Legislature of Alabama. Thus there can be no assurance, for example, that the Legislature will not in the future make changes that could adversely affect the Board, such as increasing teachers salaries or other expenses. Enforceability of Remedies The remedies available to the owners of the Warrants are discussed hereinbefore under SOURCE OF PAYMENT; SECURITY FOR WARRANTS ; Remedies. The remedies available to the registered owners of the Warrants are in many respects dependent upon regulatory and judicial actions, and enforcement thereof may be limited or restricted by laws relating to bankruptcy and rights of creditors and by application of general principles of equity applicable to the availability of specific performance. Under existing law and judicial decisions, the remedies may not be readily available, or may be limited, or may be substantially delayed in the event of litigation or statutory remedy procedures. The Supreme Court of Alabama has held, in Ex parte Hale County Board of Education, 14 So. 3d 844 (Ala. 2009), that county boards of education have absolute immunity from suit in both tort and contract, under the provisions of Section 14 of the Constitution of Alabama of 1901, as amended, as local agencies of the State of Alabama

42 Qualification of Legal Opinions The various legal opinions to be delivered concurrently with delivery of the Warrants (1) will be qualified as to enforceability of the various legal instruments by limitations imposed by bankruptcy, reorganization, insolvency, or other similar laws affecting the rights of creditors generally, by the exercise of judicial discretion, by equitable remedies and proceedings generally, and the constitutional immunity from suit conferred on the Board, as a local agency of the State of Alabama, and (2) will express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. By rendering a legal opinion, the opinion giver does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or the future performance of parties to the transaction, and the rendering of an opinion does not guarantee the outcome of any legal dispute that may arise out of the transaction. Tax-Exempt Status of the Warrants See TAX MATTERS hereinbefore. The Warrants are being sold on the basis that interest on such obligations is excluded from the gross income of the owners thereof for federal income tax purposes as of the date of issuance. Bond Counsel is delivering opinions with respect to certain aspects of the tax status of the Warrants in substantially the forms attached to this Official Statement as Appendix G-1 and Appendix G-2, which should be read in their entirety for a complete understanding of the scope of the opinions and the conclusions expressed. A legal opinion is only an expression of professional judgment and does not constitute a guaranty with respect to the matters covered. In addition, the opinion of Bond Counsel speaks only as of its date and Bond Counsel does not undertake to advise Warrantholders about subsequent developments. The tax status of the Warrants could be affected by post-issuance events. There are various requirements of the Code that must be observed or satisfied after the issuance of the Warrants in order for the interest on the Warrants to qualify for, and retain, its exclusion from gross income for federal income tax purposes. These requirements include use of the proceeds of the Warrants, use of the facilities financed by the Warrants and investment of proceeds of the Warrants, the rebate of excess arbitrage earnings. Compliance with post-issuance requirements is the responsibility of the Board. The Internal Revenue Service conducts an audit program to examine compliance with the requirements regarding tax-exempt status of the Warrants. If the Warrants are examined, under current IRS procedures, in the initial stages of an audit with respect to the Warrants the Board would be treated as the taxpayer, and the owners of the Warrants may have limited rights, if any, to participate in the audit process. The initiation of an audit with respect to the Warrants could adversely affect the market value and liquidity of the Warrants, even though no final determination about the tax-exempt status thereof shall have been made. If an audit results in a final determination that the interest on the Warrants is not excluded from gross income for federal income tax purposes, such a determination could be retroactive in effect to the date of issuance of the Warrants. In addition to post-issuance compliance, a change in law after the date of issuance of the Warrants could affect the tax-exempt status of the Warrants or the effect of investing in the Warrants. For example, Congress could reduce or eliminate the exemption for interest on the Warrants for some or all taxpayers, or it could reduce or eliminate the federal income tax, or it could adopt a so-called flat tax

43 The Series 2016 Warrants Resolution does not provide for the redemption of any of the Warrants, or the payment of any additional interest or penalty, if a determination is made that the Warrants do not comply with the requirements of the Code or if a subsequent change in law adversely affects the tax-exempt status of the Warrants or the effect of investing in the Warrants. APPENDICES THE ATTACHED APPENDICES ARE INTEGRAL PARTS OF THIS OFFICIAL STATEMENT AND MUST BE READ TOGETHER WITH ALL OF THE FOREGOING STATEMENTS. FORWARD-LOOKING STATEMENTS Certain statements contained in this Official Statement including, without limitation, statements containing the words estimates, believes, anticipates, expects, and words of similar import, constitute forwardlooking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Board, other entities to which the forward-looking statements relate to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial, and other governmental authorities and officials. Assumptions to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Board. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement will prove to be accurate. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. The Board and the Underwriter disclaim any obligation to update any such factors or to publicly announce the results of any revision to any of the forward-looking statements contained herein to reflect future events or developments

44 CERTIFICATE This Official Statement has been approved and deemed final by the Board within the meaning of Rule 15c2-12 of the Securities and Exchange Commission. BOARD OF SCHOOL COMMISSIONERS OF MOBILE COUNTY By /s/ Douglas Harwell, Jr. President

45 APPENDIX A Board of School Commissioners of Mobile County

46

47 THE BOARD General The Board is an agency and instrumentality of the State of Alabama in which the administration and supervision of the public schools and educational interests of the County are vested (excluding the public schools served by the respective boards of education of the cities of Chickasaw, Saraland and Satsuma). The Board is composed of five members who are elected from single-member districts in the County by the qualified electors thereof for six-year staggered terms. Name and Office Date of Ending of Current Term Present Occupation Douglas Harwell, Jr. November 2018 Businessman Dr. Reginald A. Crenshaw November 2018 College Administrator Dr. William Foster November 2016 Retired Principal Robert Battles November 2016 Retired Don Stringfellow November 2016 Retired Teacher The County Superintendent of Education serves as ex officio Secretary of the Board. The present Superintendent is Ms. Martha L. Peek. The Chief School Financial Officer, Ms. Dinish P. Simpson, of the County is appointed by the Board and serves at the Board s pleasure. The Board formulates school polices and, upon the written recommendation of the County Superintendent, appoints principals, teachers, clerical and professional assistants of the Board, prescribes the course of study and approves contracts. The Board delegates to the County Superintendent as its executive officer and her staff the responsibility for administering the polices of the Board in the operation of the schools. School System The Board currently maintains an approximately 24 to 1 pupil-teacher ratio. The Board operates 53 elementary schools, 17 middle schools, 12 high schools, and 8 specialized schools Appendix A - 1

48 Enrollment The following set forth total enrollment in the school system of the Board for the years shown: Year Total Enrollment , , , , , , , , , , ,037 Employees and Employee Relations The Board now employs approximately 7,411 persons, of whom approximately 3,442 work in the instructional program of the schools. No employees of the Board are represented by labor unions or similar employee organizations. The Board does not bargain collectively with any labor union or employee organization. The Board has never experienced a strike, boycott, or other work stoppage and no such work stoppage is threatened. Approximately 70% of all personnel employed by the Board are members of the Alabama Education Association (AEA). AEA represents individual teachers in tenure and contract disputes with the Board, but does not bargain with the Board on behalf of teachers with respect to salaries or compensation; however, AEA does actively represent teachers at the State level, where minimum salaries are determined. Retirement System Employees of the Board are participants of the Teachers Retirement System of Alabama, which was established by act of the Alabama Legislature. The Board is required to deduct from each employee s paycheck an amount or percentage specified by the State Board of Control, which administers the Retirement System, and to transmit to the Board of Control each month the amount deducted. The State of Alabama by annual appropriation by the Legislature contributes a like amount. The Board is not required to make contributions to the retirement system on the employee s behalf Appendix A - 2

49 General Financial Information General The Board operates on a Fiscal Year beginning October 1 and ending September 30. At the beginning of each Fiscal Year the Board is required to submit a proposed budget for approval by the State Department of Education. The Board does not expect any significant adverse change in total budgeted receipts and expenditures. At the end of each Fiscal Year the Board is required to file an unaudited financial statement with the State Department of Education on forms provided by the State Board. Under Alabama law the Board is audited by the Department of Examiners of Public Accounts of the State of Alabama and has no authority to obtain an audit by an independent accountant. The last audit for the Board was for Fiscal Year A copy of the last audit is attached hereto as Appendix C. Financial Statements of Board The financial statements of the Board have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The statement of net assets and the statement of activities display information about the Board and is most closely related to a balance sheet. These statements include the financial activities of the overall government, except for fiduciary activities. Eliminations are made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The statement of activities presents a comparison between direct expenses and program revenues for each function of the Board s governmental activities and is most closely related to an income statement. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. The Board does not allocate indirect expenses to the various functions. Program revenues include (a) charges to customers or applicants who purchase, use or directly benefit from goods, services, or privileges provided by a given function or program and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. The fund financial statements provide information about the Board s funds, including fiduciary funds. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Separate statements for each fund category-governmental and fiduciary-are presented in the Board s financial statements. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as non-major funds in the other governmental funds column. The Board reports the following major governmental funds: General Fund. The general fund is the primary operating fund of the Board. It is used to account for all financial resources except those required to be accounted for in another fund. The Board primarily receives revenues from the State of Alabama Education Trust Fund (ETF) and local taxes. Amounts appropriated from the ETF were allocated to the school board on a formula basis. Special Revenue Fund. This fund is used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. Various federal and local funding sources are included in this fund. Some of the significant federal funding sources include the federal funds that are received for Special Education, Title I, State Fiscal Stabilization, Education Jobs and the Child Nutrition Program in addition to various smaller grants, which are required to be spent for the purposes of the applicable federal grants. Also included in this fund are the public and non-public funds received by the local schools which are generally not considered restricted or committed. Capital Projects Fund. This fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlay, including the acquisition or construction of capital facilities and other capital assets. The Appendix A - 3

50 proceeds from the county sales tax that are to be used exclusively for capital improvement, capital construction and maintenance purposes are also accounted for and reported in this fund. Some of the significant funding sources include the funds that are received for capital projects such as the Public School Fund - Capital Outlay, State Paid on Behalf, Fleet Renewal, and Special County Ad Valorem sources. The Board reports the following fund types in the Other Governmental Funds column: Governmental Fund Types Debt Service Fund. This fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest and the accumulation of resources for principal and interest payments maturing in future years. The Board reports the following fiduciary fund type: Fiduciary Fund Type Agency Funds. These funds are used to report assets held by the Board in a purely custodial capacity. The Board collects these assets and transfers them to the proper individual, private organizations, or other government. Basis of Accounting The government-wide financial statements are reported using the economic resources measure focus and the accrual basis of accounting, as are the fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of the timing of related cash flows. Nonexchange transactions, in which the Board gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Revenue from property taxes is recognized in the fiscal year for which the taxes are levied. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Board considers revenues to be available if they are collected within sixty (60) days of the end of the current fiscal year. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general longterm debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. General long-term debt issued and acquisitions under capital leases are reported as other financing sources. Under the terms of grant agreements, the Board funds certain programs by a combination of specific cost reimbursement grants, categorical block grants, and general revenues. Thus, when program expenses are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the Board s policy to first apply cost reimbursement grant resources to such programs, followed by categorical block grants and then by general revenues. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in the government-wide financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board Appendix A - 4

51 Major Sources of Revenue; Pledges to Long-Term Debt Annual Receipts [1] FY FY FY FY FY Pledge [2] State Revenues $310,646,917 $308,451,652 $301,925,985 $284,198,224 $281,328,576 N/A Federal Revenues 119,066, ,872,206 87,156,546 80,111,326 81,885,570 N/A 12-mill (Am. 706) 23,034,171 22,696,931 22,757,647 22,843,211 23,479,835 (a) Outstanding 4/12 Mill Parity Obligations (b) The Series 2016-B Warrants 4-mill (Am. 706) 8,253,992 9,112,083 11,496,296 10,973,402 11,012,754 (a) Outstanding 4/12 Mill Parity Obligations (b) The Series 2016-B Warrants 3.5-mill Co. (Am. 3/373) 15,268,667 16,066,880 29,588,632 17,339,411 17,302,541 None 3.5-mill Dt. (Am. 3/373) 15,087,512 15,877,950 18,000,433 17,636,890 17,856,067 None 6-Mill (Am. 179/373) 26,175,339 27,413,636 30,850,674 29,724,704 29,661,498 None 2.5-Mill (Am. 16/373) 10,906,191 11,476,343 12,854,447 12,385,294 12,358,958 The Series 2016-A Warrants 1-Mill (1856 Act) 4,362,476 4,568,939 5,141,781 4,954,119 4,943,581 None 1-Mill (1866 Act) 4,361,995 4,568,939 5,141,781 4,954,119 4,943,581 The Series 2016-A Warrants Sales and Use Tax (Am. 706) [3] 15,226,494 9,021,060 7,572,892 7,067,569 7,866,543 The Series 2010 Warrants [1] [2] [3] This data was extracted from the audited financial statements of the Board for Fiscal Years , inclusive. The annual indebtedness on long-term obligations of the Board is set forth hereinafter under Indebtedness of the Board. The Board received higher amounts of sales and use taxes during fiscal years 2010 and 2011 due in part to the construction of a large steel mill (including hot rolling, cold rolling and coating lines) for the production of high-quality carbon steels by ThyssenKrupp Steel Americas, LLC, in northern Mobile County during those years and due in part to higher retail activity in Mobile County resulting from an increase in the non-resident population in Mobile County attributive to work on large oil spills in the Gulf of Mexico Appendix A - 5

52 State Revenues The Board receives the largest share of its annual revenue from the State of Alabama. The Alabama Legislature makes an annual appropriation of funds for education purposes in the State. These funds are distributed from the Foundation Program Fund by calculating the total cost of the Foundation Program for each local board of education and subtracting the local effort required of each board from such total cost. For details on the Foundation Program Fund, see Distribution of Ad Valorem School Taxes and School Sales Tax; The Foundation Program Fund hereinafter. The total cost of each Board s Foundation Program is calculated by adding the total cost of teachers salaries, fringe benefits, classroom instructional support and other current expenses. Foundation Program funds are restricted for instructional programs, but the State periodically makes special grants from annual State revenues or State bond issues for capital improvement purposes. None of the State revenues are available to pay debt service on long-term obligations of the Board. In order to participate in the Foundation Program, under which the majority of State revenues are distributed, the Board must receive local taxes equivalent to 10 mills of ad valorem taxes. The Board presently meets this requirement. During a number of prior years, state appropriations for educational purposes have been projected to exceed state revenues dedicated for this purpose, and the Governor has ordered a prorated reduction in the distribution to each school system. No assurance may be given that proration will not continue in future fiscal years. See WARRANTHOLDER RISKS hereinafter. Federal Revenues The Board receives Federal money each year for various education programs. Most of these programs are for vocational or special education purposes, and the Federal funds are restricted to the designated purpose Appendix A - 6

53 Local Revenues General The Board receives each fiscal year the proceeds of, or its apportioned share of the proceeds of, the following taxes as described below in Distribution of Ad Valorem School Taxes and School Sales Tax; The Foundation Program : (a) (b) (c) (d) 12 Mill Special Ad Valorem School Tax; 4.0 Mill Special Ad Valorem School Tax; 2.5 Mill Special Ad Valorem School Tax; 1.0 Mill Special Ad Valorem School Tax; (e) 3.5 mill county ad valorem school tax levied at the rate of thirty-five cents ($0.35) on each one hundred dollars ($100) of taxable property in the County for public school purposes in each fiscal year until and including the fiscal year ending September 30, 2031 pursuant to Amendment No. 3 to the Constitution of Alabama of 1901, as amended, and proceedings taken under certain relevant provisions thereof, and resolutions and orders of the governing body of the County and the elections held in the County with respect thereto, which levy of such tax beyond the current term thereof shall be made only upon the majority vote in favor thereof by the electors of the County voting at an election therefor as provided by law; (f) 3.5 mill district ad valorem school tax levied at the rate of thirty-five cents ($0.35) on each one hundred dollars ($100) of taxable property in the school district of the County (which district consists of the entire County) for public school purposes in each fiscal year until and including the fiscal year ending September 30, 2031 pursuant to Amendment No. 3 to the Constitution of Alabama of 1901, as amended, and proceedings taken under certain relevant provisions thereof, and resolutions and orders of the governing body of the County and the elections held in the County with respect thereto, which levy of such tax beyond the current term thereof shall be made only upon the majority vote in favor thereof by the electors of the County voting at an election therefor as provided by law; (g) 6 mill county ad valorem school tax levied at the rate of sixty cents ($0.60) on each one hundred dollars ($100) of taxable property in the County for public school capital outlay purposes in each fiscal year until and including the fiscal year ending September 30, 2031 pursuant to Amendment No. 179 to the Constitution of Alabama of 1901, as amended, and proceedings taken under certain relevant provisions thereof, and resolutions and orders of the governing body of the County and the elections held in the County with respect thereto, which levy of such tax beyond the current term thereof shall be made only upon the majority vote in favor thereof by the electors of the County voting at an election therefor as provided by law; (h) 1 mill ad valorem school tax levied at the rate of ten cents ($0.10) on each one hundred dollars ($100) of taxable property in the County for public school purposes without express limit as to duration pursuant to act of the Legislature of Alabama adopted on February 15, 1855 and proceedings taken under certain relevant provisions of the Constitution of Alabama of 1901, as amended, with respect thereto; (i) Sales and use tax levied at the rate of one-half of one percent against gross sales or gross receipts, or the use or consumption, of tangible personal property, in that part of the County outside the corporate limits of the cities of Mobile and Prichard, for public school purposes without express limit as to duration pursuant to Amendment No. 706 to the Constitution of Alabama of 1901, as amended, and an election held in the County with respect thereto Appendix A - 7

54 Distribution of Ad Valorem School Taxes and School Sales Tax; The Foundation Program Fund The proceeds of ad valorem school taxes and privilege license and excise school taxes are distributed among the Board and city boards of education in the County on the same basis as state educational funds received from the State Foundation Program Fund, as discussed below. For recent fiscal years, the State Superintendent of Education advised that the percentage distribution of county-wide school taxes is to be 92.8% to the Board and 1.25% to the Chickasaw City Board of Education and 3.75% to the Saraland City Board of Education and 2.18% to the Satsuma City Board of Education. While the Board has no way of predicting with certainty its percentage share of the county-wide taxes in the future, the Board does not expect its percentage share to vary significantly unless additional territory is annexed into a municipality with its own city school system, or unless other municipalities having the right to do so, establish their own city school systems. The Foundation Program Fund was established by the Alabama Legislature for the purpose of equalizing educational opportunities in the various school systems of the State. Pursuant to a complex formula established by statute and regulations of the State Board of Education, State educational funds are distributed to the various counties in amounts needed to fund the costs of establishing a foundation program of teacher s salaries, transportation, current expenses and capital outlay in each county for a standard school term. The amount allocated to each county is based on the particular needs of such county determined in part by the number of students enrolled and the relative financial ability of such county to provide such a foundation educational program. In general, the allocation of State funds to a particular county will increase as the relative number of students enrolled increases or as the relative financial ability of such county decreases. In counties where city school systems are operating, the funds allocated for such counties are distributed among the county and city school systems on the same basis or formula as funds are distributed by the State among the various counties Appendix A - 8

55 Ad Valorem Taxation There follows general information on ad valorem taxation in the County and the State of Alabama. General The levy and collection of ad valorem taxes in Alabama are subject to the Alabama Constitution, which, among other things, fixes the percentages of market value at which property can be assessed for taxation, limits the tax rates that can be levied against property and places a ceiling on the aggregate ad valorem taxes that can be levied by all taxing authorities on any property in any tax year. The amount of an ad valorem tax in Alabama is computed by multiplying the applicable tax rate by the assessed value of the taxable property. The assessed value of taxable property is a specified percentage (the assessment ratio ) of its fair and reasonable market value or, in certain circumstances, its current use value. Ad valorem tax rates are stated in terms of mills per dollar of assessed value. Each mill represents a tax equal to one-tenth of one percent of the assessed value of such property. Classification of Taxable Property Amendment No. 373 to the Alabama Constitution divides all taxable property into the following four classes valued for taxation according to the assessment ratios shown below: Class I All property owned by utilities 30% Class II All property not otherwise classified 20% Class III Class IV All agricultural, forest and single-family, owner-occupied residential property and historic buildings and sites 10% Private passenger automobiles and pickup trucks owned and operated by an individual for personal or private use 15% Amendment No. 373 permits the owner of Class III property to elect to have such property appraised at its current use value rather than its fair and reasonable market value. Current use value has been defined statutorily as the value of such property based on the use being made of it on September 1 of the preceding year, without taking into consideration the prospective value such property might have it if were put to some other possible use. Assessment Ratio Adjustment The Alabama Legislature has no power to adjust assessment ratios pertaining to local (as distinguished from state) taxes but does have the power to approve or disapprove an adjustment proposed by a local taxing authority. The governing body of any county, municipality or other local taxing authority may increase or decrease the assessment ratio with respect to any class of property subject to the following conditions: (i) the governing body of such county, municipality or other taxing authority must hold a public hearing on the proposed adjustment before authorizing the adjustment, (ii) the Legislature must adopt an act approving the adjustment, and (iii) a majority of the electors of such county, municipality or other taxing authority must approve the adjustment in a special election. In addition, the Legislature has placed the following restrictions on the adjustment of assessment ratios: (1) If the total assessed value of all property of a single class located within a taxing authority s jurisdiction exceeds 50% of the total assessed value of all taxable property located within the jurisdiction of such authority, then the assessment ratio with respect to that class of property may be decreased by no more than 5% from the ratio otherwise prescribed for such class; (2) If the total assessed value of all properties of a single class located within the jurisdiction of a local taxing authority is less than 20% of the total assessed value of all taxable property located within such jurisdiction, then the assessment ratio with respect to that class of property may be increased by no more than 5% from the ratio otherwise prescribed for such class; and Appendix A - 9

56 (3) If the total assessed value of all property of a single class located within the jurisdiction of a local taxing authority exceeds 75% of the total assessed value of all taxable property located within such jurisdiction, then (i) the assessment ratio with respect to that class of property may be decreased by no more than 5% from the ratio otherwise prescribed for such class, and (ii) the prospective assessment ratio for all other classes of property may be increased by no more than 5% from the ratio otherwise prescribed for such classes. The governing body of the Board has not sought to adjust the assessment ratio applicable to any class of taxable property nor does the Board have any present plan for any such adjustment. Rate Adjustments Amendment No. 373 authorizes any county, municipality or other local taxing authority to decrease any ad valorem tax at any time, provided that such decrease does not jeopardize the payment of any bonded indebtedness secured by such tax. Amendment No. 373 also permits a county, municipality or other local taxing authority to increase the rate at which any ad valorem tax is levied, but only if (i) the governing body of such county, municipality or other taxing authority holds a public hearing on the proposed increase before authorizing the increase, (ii) the Legislature adopts an act approving the increase, and (iii) a majority of the electors of such county, municipality or other taxing authority subsequently approves the increase in a special election. Ceiling on Ad Valorem Taxes Amendment No. 373 also limits the total amount of state, county, municipal and other ad valorem taxes that may be imposed on any class of property in any one tax year. This limitation is expressed in terms of a specific percentage of the fair and reasonable market value of such property. The applicable percentages to the four classes of property are as follows: Class I - 2% Class II - 1.5% Class III - 1% Class IV % If the total amount of tax otherwise payable with respect to a class of property would exceed the maximum tax limit, the millage rate of each separate tax to which such property is subject must be reduced in the same proportion that the millage levied by or for the benefit of each taxing authority bears to the total millage levied by or for the benefit of all applicable taxing authorities. This provision becomes operative as to the several classes of property only if the total tax rate exceeds the following: Class I - Class II - Class III - Class IV - 66 mills 75 mills 100 mills 83 mills Appendix A - 10

57 Homestead Exemption Prior to 1982, Alabama law did not provide a homestead exemption which reduced the assessed valuation of owner-occupied, single-family residential property for purposes of municipal taxation, except in the case of persons who were totally disabled or who were 65 years of age or older and had an annual taxable income of $7,500 or less. Reacting to the increase in ad valorem taxes which was anticipated to result from the statewide property reappraisal program conducted during 1982, the Legislature of Alabama in 1982 enacted a law which authorized the governing body of any municipality, county or other local taxing authority to grant by resolution or ordinance a homestead exemption which, when added to any other homestead exemption applicable to the same ad valorem tax levy, will not exceed $4,000 in assessed value or 160 acres in area. Since no other homestead exemptions for purposes of municipal taxation are provided by existing law except in the special cases of persons who are totally disabled or who are 65 years of age or older, the effect of this law was to empower the governing body of any county to reduce at any time the assessed value of owner-occupied, single-family residential property located in such municipality by up to $4,000 per housing unit. Significant Property Tax Litigation The levy, assessment and collection of ad valorem taxes in the State of Alabama have, since 1970, been subject to significant litigation, which has resulted in substantial changes in Alabama s property tax system affecting ad valorem tax receipts of the various taxing authorities and districts. Mobile County is not now a party to any such litigation that relates to ad valorem taxes levied by the County, as distinguished from litigation that relates to ad valorem taxes levied by counties generally. There can be no assurance, however, that other litigation concerning the Alabama property tax system in general, or that of Mobile County in particular, will not be initiated or resolved in such a manner as to affect adversely the levy or collection of ad valorem taxes by Mobile County. Assessment and Collection Ad valorem taxes on taxable properties, public utility properties, are assessed and collected by the Mobile County Revenue Commissioner. Ad valorem taxes on public utility properties are assessed by the State Department of Revenue and collected by the Mobile County Revenue Commissioner. Ad Valorem Tax Collections The Mobile County Revenue Commissioner has consistently collected a high percentage of ad valorem taxes due. The Revenue Commissioner estimates that in the last five Fiscal Years, the percentage of billings collected has not been less than 98% Appendix A - 11

58 Assessed Valuations of Taxable Property The assessed valuations of the taxable property in the cities of Mobile and Prichard, and that part of the County outside the corporate limits of such cities for ad valorem school taxation purposes, have been as follows for the fiscal years shown: Fiscal Years Ending Sept. 30 City of Mobile and City of Prichard [1] County outside Mobile and Prichard [2] Total of Mobile County [3] 2015 $2,417,111,160 $2,385,186,840 $4,802,298, ,364,466,420 2,340,156,760 4,704,623, ,221,040,920 2,431,052,580 4,652,093, ,214,248,680 2,468,267,960 4,682,516, ,197,084,680 2,452,493,980 4,649,578,660 [1] [2] [3] The 12 Mill Special Ad Valorem School Tax is levied within Mobile County within the corporate limits of the cities of Mobile and Prichard. The 4 Mill Special Ad Valorem School Tax is levied within Mobile County outside the corporate limits of the cities of Mobile and Prichard. See Appendix B, "Assessed Valuations," for the total assessed values of the taxable property in Mobile County, Alabama. Source: Mobile County Revenue Commissioner and Mobile County License Commissioner Appendix A - 12

59 Historical Revenues and Expenditures The following comparative statements of revenues and expenditures from the General Fund of the Board have been extracted from financial statements and records of the Board audited by the State Examiners for fiscal years ended September 30, 2012 through 2014 and 2015 (unaudited): Revenues (unaudited) State Sources 301,925, ,198, ,328, ,359, Federal Sources 44, , , , Local Sources 110,448, ,105, ,291, ,247, Other 541, ,542, , , Total Revenues 412,960, ,888, ,097, ,079, Expenditures Instructional Services 238,191, ,627, ,574, ,380, Instructional Support Services 61,669, ,080, ,595, ,128, Operation and Maintenance Services 51,406, ,713, ,070, ,114, Auxiliary Services 26,023, ,336, ,508, ,883, General Admin Services 19,268, ,938, ,404, ,940, Special Revenue Outlay General Service 46, , , Other Expenditures 2,283, ,993, ,239, ,834, Total Expenditures 398,889, ,739, ,394, ,359, Other Financing Sources (Uses) Other Financing Sources 20,125, ,706, ,195, ,334, Other Financing Uses 27,849, ,158, ,633, ,497, Total Other Financing Sources (Uses) (7,724,286.41) (4,451,888.28) (1,438,155.76) (3,162,810.24) Excess Revenue over Expenditures 6,347, (5,303,660.42) 2,264, , Beginning Fund Balance - Oct 1 26,287, ,020, ,508, ,571, Ending Fund Balance 32,634, ,716, ,773, ,128, Appendix A - 13

60 Indebtedness of the Board Under authority of a number of acts of the Alabama Legislature, the Board may incur long-term and short-term indebtedness, without express limit as to principal amount, for capital and working capital purposes. As the Board does not have the authority to levy taxes of any kind or nature, the Board generally cannot (and expressly cannot under many authorizing acts) issue debt as a general obligation of the Board. The following sets forth the indebtedness of the Board as of the date hereof. The dedicated sources of payment of the indebtedness of the Board are set forth hereinbefore under "Major Sources of Revenue; Pledges to Long-Term Debt". No Defaults on Indebtedness The Board has never defaulted in the payment of debt service on its indebtedness. The Board has no short-term indebtedness outstanding. Short Term Debt The Board has no authorized but unissued debt outstanding. Anticipated Indebtedness Long-Term Debt. The following chart sets forth the annual payments of principal of and interest on the long-term indebtedness of the Board that will be outstanding upon the issuance of the Warrants. For purposes of such chart: [1] The Board has committed to leverage funds to be received from the State of Alabama Public School Fund for capital purposes by virtue of loan agreements entered into with the Public School and College Authority (the PSCA). The PSCA has issued its Capital Improvement Pool Bonds and Warrants to make such loans to local school boards in Alabama. The Board entered into loan agreements and received bond proceeds from the PSCA issues, which proceeds have been, or will be, used to fund a portion of the Board s capital plan. The warrants of the Board evidencing the PSCA loans are payable solely from and secured by the leveraged funds. [2] The Outstanding Series 2009 Bonds have been issued by the Authority for the benefit of the Board. The Board has agreed to pay the principal of and interest on such bonds in each year pursuant to lease agreements with the Authority with respect to the facilities financed by such bonds. [3] The principal amount of bonds or warrants to be retired in a fiscal year pursuant to mandatory redemption provisions is shown as maturing in that fiscal year Appendix A - 14

61 Year Obligations for 2009 Pool Bonds [1] Outstanding Series 2009 Bonds [2] QZAB s Series 2009 Tax Credit Warrants 2010 QSCB Series 2012 Warrants [3] Series 2016 Warrants Total Debt Service 2016 $2,281, $157, $991, $359, $1,107, $1,627, $3,229, $9,753, ,282, ,391, , ,585, ,107, ,583, ,841, ,782, ,282, ,387, , ,585, ,107, ,586, ,828, ,769, ,301, , , ,585, ,107, ,582, ,238, ,534, , ,585, ,107, ,593, ,915, ,192, , ,585, ,107, ,593, ,921, ,198, , ,585, ,107, ,589, ,932, ,205, , ,585, ,107, ,586, ,938, ,208, , ,426, ,107, ,582, ,944, ,051, , ,267, ,107, ,583, ,953, ,903, , ,106, ,107, ,578, ,955, ,739, ,107, ,577, ,959, ,643, ,107, ,573, ,968, ,649, ,569, ,981, ,551, ,539, ,981, ,521, ,531, ,998, ,529, ,530, ,661, ,191, ,551, ,651, ,202, ,547, ,547, ,543, ,543, ,543, ,543, ,535, ,535, ,533, ,533, ,529, ,529, ,529, ,529, ,527, ,527, ,514, ,514, Appendix A - 15

62

63 APPENDIX B Economic and Demographic Information Related to the City of Mobile and Mobile County, Alabama

64

65 ECONOMIC AND DEMOGRAPHIC INFORMATION RELATED TO THE SERVICE AREA OF THE BOARD General The service area of the Board includes all of the territory within the corporate limits of the City of Mobile, Alabama, and certain surrounding areas in Mobile County, Alabama. The City of Mobile, and the service area of the Board, are located entirely within Mobile County, Alabama. The following information is presented solely in order to give prospective purchasers of the Series 2016 Bonds certain economic and demographic information about the service area of the Board, and is therefore presented on the basis of information about Mobile County, Alabama. The Series 2016 Bonds are not an obligation (whether direct, indirect, or contingent) of the City of Mobile, Alabama or Mobile County, Alabama. History and Background Mobile County, Alabama was established in 1812 by Proclamation of Governor David Holmes while it was still under the control of the Spanish. Mobile, named after the Mauvilla Indians, had been established as a French colonial capital, frontier trading center and military outpost in From 1763 to 1813 political control fluctuated from French to British to Spanish and finally to the United States of America during the War of The County was a part of the Alabama Territory until the State of Alabama was admitted to the Union in Mobile County is located in the extreme southwestern portion of the State. It has a total area of 1,644 square miles. Its population in 1990 was 378,643 (U.S. Census), in 2000, the population was 399,843 (U.S. Census), in 2010, the population was 412,992 (U.S. Census) and in 2014, the estimated population was 415,123 (American Community Survey). The City of Mobile, the county seat, is one of ten incorporated municipalities in the County. Approximately 50% of the County's population resides in the City of Mobile. It is the third largest metropolitan area in Alabama and the State's major port. Mobile is heavily industrialized. Basic industries at the two-digit Standard Industrial Classification level are: agriculture, forestry and fisheries; contract construction; transportation, communication and utilities; wholesale trade; retail trade; and services. Within the manufacturing sector basic industries are lumber and wood; paper and allied; chemicals and allied; petroleum and coal; computer hardware/software; fabricated metals; seafood processing; and transportation equipment. Oil and gas development is also a basic industry. Shipping activities in the Port of Mobile contribute to the area's economy, as does tourism Appendix B - 1

66 Population The population of the Mobile MSA grew approximately 58% in the past forty years. The following table summarizes historical population growth for the City, the County, the Mobile MSA and the State of Alabama. Year City of Mobile Mobile County Mobile MSA State of Alabama , , ,389 3,266, , , ,690 3,444, , , ,536 3,894, , , ,923 4,040, , , ,258 4,447, , , ,257 4,779, * 194, , ,234 4,849,377 Source: U.S. Bureau of the Census. *Estimate. Assessed Valuations The total assessed valuations of taxable property in Mobile County have been as follows for the periods indicated: Fiscal Year Ending September 30 Real and Personal Property Assessed Value Motor Vehicles Assessed Value Total County Assessed Value 2015 $4,201,971,000 $600,327,000 $4,802,298, ,117,498, ,125,160 4,704,623, ,060,293, ,799,680 4,652,093, ,122,131, ,384,860 4,682,516, ,119,936, ,642,240 4,649,578, ,039,997, ,452,480 4,528,450,140 Sources: Mobile County Revenue Commissioner and Mobile County License Commissioner Appendix B - 2

67 Largest Ad Valorem Taxpayers The following are the ten largest ad valorem taxpayers in the County for the fiscal year ending September 30, 2015: Name of Taxpayer Business Total Ad Valorem Taxes Paid Assessed Value of Taxpayer Alabama Power Company Utility $15,880, $303,173,840 ThyssenKrupp Steel USA, LLC Welding & Steel Fabrication 7,431, ,331,600 Outokumpu Stainless USA, LLC Steel Foundries 6,738, ,871,540 AM/NS Calvert, LLC Steel Processing 4,569, ,282,100 ThyssenKrupp Stainless USA, LLC Welding & Stainless Steel Fab. 4,371, ,277,760 Gulfstream Natural Gas System, LLC Natural Gas Transmission 3,566, ,540,000 SSAB Alabama, Inc. Steel Manufacturing 3,512, ,119,320 Evonik Corporation Mfg. Industrial Organic Chemicals 3,504, ,166,300 Florida Gas Transmission Company Natural Gas Transmission 3,054, ,979,060 Kimberly-Clark Corporation Paper Manufacturing 2,459, ,383,560 Source: Mobile County Revenue Commissioner Appendix B - 3

68 Income Levels Per Capita Income "Per Capita Personal Income" is defined as the current income from all sources received by one resident in an area. It is measured before deduction of income and other personal taxes, but after deduction of personal contributions for social security, government retirement, and other social insurance programs. Estimated per capita personal income in Mobile County and the State of Alabama, according to the U.S. Department of Commerce, has been as follows: Year Mobile County State of Alabama 2002 $23,203 $26, ,836 27, ,163 28, ,828 30, ,881 31, ,843 32, ,355 33, ,799 33, ,944 34, ,188 35, ,267 36, ,685 36, ,031 37,512 Source: U.S. Department of Commerce, Bureau of Economic Analysis. Mobile County ranks twentieth in the State in per capita income, having a per capita income as of 2014 that is approximately 93% of the State average and 76% of the national average. Median Family Income The following table sets forth comparative median family income statistics for each of Mobile County, the State of Alabama and the United States for the years indicated * Mobile County 49,500 50,500 51,200 51,900 52,400 53,900 53,300 State of Alabama 53,200 54,100 54,600 55,400 53,600 54,100 55,500 United States 64,000 64,400 64,200 65,000 64,400 63,900 65,800 Source: U.S. Department of Housing and Urban Development Appendix B - 4

69 Poverty Levels The percentage of all ages in Mobile County, the State of Alabama and the United States with income below the poverty level as of 2014 is as follows: Mobile County 19.3% State of Alabama 19.3% United States 15.5% Source: U.S. Census Bureau, 2014 American Community Survey. The percentage of families in Mobile County, the State of Alabama and the United States with income below the poverty level as of 2014 is as follows: Mobile County 15.1% State of Alabama 15.0% United States 11.3% Source: U.S. Census Bureau, 2014 American Community Survey Appendix B - 5

70 Employment Labor Force Estimates The following table sets forth labor force estimates and unemployment rates for Mobile County for the periods shown: Nov. 2015* Civilian Labor Force 187, , , , , , , ,263 Employment 176, , , , , , , ,302 Unemployment 10,643 21,100 21,787 20,946 17,246 15,673 14,186 11,961 Rate 5.7% 11.3% 11.3% 10.8% 9.1% 8.4% 7.7% 6.6% Source: U.S. Department of Labor, Bureau of Labor Statistics. The following table sets forth comparative unemployment rates for Mobile County, the State of Alabama and the United States for the periods shown: Calendar Year Mobile County State of Alabama U.S. National Average % 5.7% 5.8% * Source: U.S. Department of Labor, Bureau of Labor Statistics. *Estimates as of November, Appendix B - 6

71 Major Employers The top ten major governmental and nongovernmental employers in Mobile County, their principal activity and the number of employees of each are as follows: Employer Product/Service Number of Employees Mobile County Public School System Education 7,450 Univ. of So. Alabama & Medical Education/Medical 5,180 Facilities Infirmary Health System Medical 5,100 City of Mobile Government 2,320 Mobile County Government 1,585 Providence Hospital Medical 1,520 AltaPointe Medical 1,300 Springhill Medical Center Medical 1,200 CPSI Medical Software 1,200 G.A. West & Co. Construction 715 The top ten major manufacturing employers in Mobile County, their principal product and the number of employees of each are as follows: Employer Product/Service Number of Employees Austal Shipbuilding 4,275 AM/NS Calvert Steel 1,600 VT MAE Aircraft Refurbishing 1,250 BAE Systems Southeast Shipyards Shipbuilding & Repair 1,000 Outokumpu Stainless Steel 895 UTC Aerospace Systems Aerospace 800 Evonik Chemicals 770 Kimberly Clark Paper Products 604 SSAB Americas Steel 587 Continental Motors Aerospace 440 Source: Mobile Area Chamber of Commerce (Updated 2015) Appendix B - 7

72 Labor Force Characteristics The following table sets forth estimated nonagricultural wage and salary employment statistics for Mobile County for the year Mobile County Nonagricultural Employment by Industry Number Employed % Health Care and Social Assistance 21, Retail Trade 20, Manufacturing 18, Public Administration 15, Accommodation and Food Services 15, Administrative and Waste Services 10, Construction 9, Professional and Technical Services 8, Transportation and Warehousing 7, Wholesale Trade 7, Other Services, Ex. Public Admin. 5, Finance and Insurance 4, Real Estate, Rental and Leasing 2, Educational Services 2, Information 1, Arts, Entertainment and Recreation 1, Utilities Management of Companies and Enterprises Agriculture, Forestry, Fishing & Hunting Mining Total wage and salary employees 156, % Source: Alabama Department of Labor Appendix B - 8

73 Business Indicators Year Lodging Revenues (City) Electrical Customers Retail Sales (000 s) Airline Passengers Port Tonnage Construction City Total ,069, ,415 4,135, ,035 16,692, ,800, ,039, ,268 4,265, ,227 19,616, ,787, ,706, ,798 4,518, ,209 22,076, ,834, ,472, ,577 4,405, ,264 24,415, ,911, ,895, ,679 4,325, ,512 26,887, ,900, ,480, ,200 4,212, ,956 26,438, ,400, ,170, ,700 3,844, ,491 24,382, ,800, ,640, ,300 * 277,232 26,356, ,000, ,370, ,900 * 288,461 25,906, ,400, ,320, ,000 * 277,432 25,067, ,300, * * * 287,661 23,321,218 * 2014 * * * 288,376 29,100,000 * Source: Mobile Area Chamber of Commerce, with the exception of Airline Passengers (Federal Aviation Administration) and Port Tonnage (U.S. Army Corps of Engineers Waterbourne Commerce Statistics and Alabama State Port Authority). *There is no information available for the years noted above. General Housing Characteristics The following table presents certain information regarding housing characteristics in Mobile County: Total housing units 180, , , , ,936 Total occupied housing units 154, , , , ,298 Total owner occupied housing units 102, , ,391 91,513 81,877 Median value of owner occupied units $124,500 $120,700 $80,500 $53,300 $37,500 Sources: U.S. Census Bureau, American Community Survey; U.S. Census Bureau 1980, 1990, 2000 and 2010 Census of Population and Housing Appendix B - 9

74 Mobile County Building Permits Year NEW PRIVATELY-OWNED RESIDENTIAL BUILDING PERMITS MOBILE COUNTY Single-Family Multi-Family (Two or more families) Permits Issued Construction Cost Permits Issued Units Construction Cost ,195 $94,082, $375, , ,906, ,603, , ,453, , ,044, ,931, , ,127, ,316, ,744, ,905, ,445, ,100, ,360, ,741, ,143, ,330, ,048, ,202, ,238, * ,713, ,565,425 Source: U.S. Census Bureau. *YTD November, 2015 The above figures are for the unincorporated areas of the County and do not represent any activity that occurred in the eleven municipalities during the corresponding period. The Mobile County Building Inspectors Department issues Building Permits for new residences, residential additions and repairs, new non-residential buildings, non-residential additions and repairs, swimming pools, electrical heating and air conditioning, mobile homes and trailers, and FHA variances. No attempt has been made to break down each of these categories to reflect the total number of building permits issued by the Mobile County Inspection Department. The City of Mobile, which is the largest municipality in the County had the following in total building permits and construction activity: Appendix B - 10

75 City of Mobile Building Permits Year NEW PRIVATELY-OWNED RESIDENTIAL BUILDING PERMITS CITY OF MOBILE Single-Family Multi-Family (Two or more families) Permits Issued Construction Cost Permits Issued Units Construction Cost $35,278, $408, ,870, ,048, ,493, ,082, ,920, ,358, ,533, ,393, ,431, ,029, ,434, ,531, ,320, ,467, ,263, ,057, ,065, ,239, ,796, ,755, ,235, * 63 16,528, ,800 Source: U.S. Census Bureau. *YTD November, Appendix B - 11

76 Agriculture Area Mobile County Land Area Water Area Total Area 1,229 square miles 415 square miles 1,644 square miles Area City of Mobile Land Area Water Area Total Area 118 square miles 41 square miles 159 square miles Source: U.S. Census Bureau. Tennessee-Tombigbee Waterway The Tennessee-Tombigbee Waterway (the "Tenn-Tom") opened for navigation on June 1, By providing economical barge service between the Tennessee, Mississippi and Ohio river valleys and the Port of Mobile, the Tenn-Tom offers substantial savings to shippers of a variety of commodities. Stretching some 234 miles, the Tenn-Tom Waterway connects the navigable Tennessee River near the Pickwick Lock and Dam with barge traffic on the Warrior-Tombigbee River System near Demopolis, Alabama. The waterway terminates at the deep-water Port of Mobile, Alabama. Thus, the Tenn-Tom serves as a connecting navigational artery between the Ohio, upper Mississippi and Tennessee River systems. The entire system encompasses about 16,000 miles of navigable waterways. This new lane of commerce substantially shortens the barge route distance between numerous inland points and the Port of Mobile where export and import cargoes can be loaded and unloaded on ocean-going vessels. In all, 23 states in the central and southern regions of the nation are impacted by the Waterway. Alabama State Port Authority at the Port of Mobile The Alabama State Port Authority (the "Authority") owns and operates the State of Alabama's only public cargo handling facilities in the Port of Mobile. The Port at Mobile serves containers, breakbulk, dry and liquid bulk and oversized cargo through one of the best transportation grids in the U.S. Southeast. The Authority currently expanded its container operations to include a new 300-acre marine terminal with 2,000 feet of deepwater berths. The terminal opened in late The Port Authority's partner in the terminal is APM Terminals, an independent division of AP Moeller-Maersk Group. The Port Authority's container terminal expansion project also includes a planned near dock rail intermodal facility with added acreage for a distribution and logistics park. The rail intermodal facility and logistics park will be constructed in phases and will be located adjacent to I-10 and minutes from the I-65 exchange via I-10. The Port Authority's bulk cargo facilities boast the nation's most versatile import/export coal handling terminal. The Port Authority recently concluded $110 million expansion program at McDuffie, with an additional $10 million investments underway that will serve the export coal market. The terminals current import and export throughput capacity is 30 million tons annually. McDuffie terminal has three ship berths, one ship loader, three ship unloaders, one rail dump, one tandem, six single stacker/reclaimers, two double stackers, three barge loaders, two barge unloaders, two automatic samplers and other new equipment. The Port Authority is also the largest handler of breakbulk forest products in the nation. The Port Authority's general cargo terminals have over 4.8 million square feet of handling area with modern warehouses and yards to support forest products, iron, steel, aluminum, and other breakbulk commodities. The general cargo areas have added capability to handle blast freezer/cold storage, roll on/roll off and heavy lift/oversized cargoes. The Port Authority recently expanded its general cargo facilities to include a new $100 million steel terminal capable of handling annually 6.2 million tons of semi-finished slab for ThyssenKrupp's $ Appendix B - 12

77 billion steel manufacturing complex in North Mobile County. The Pinto Island Terminal was completed in January 2010 and handled its first shipment in March The new $36 million steel coil handling facility located at the main docks complex was completed in March The container facility at Choctaw Point is currently undergoing a $40 million expansion, which will include the addition of two new super-post Panamax cranes, and increase the container facility by 20 acres. The expansion will complement the $50 million Intermodal Container Transfer Facility currently under construction with a first quarter 2016 completion. The expansion will enable APM Terminals to accommodate increased business from shipping lines and larger vessels following the opening of the expanded Panama Canal locks. The Authority's terminals provide shippers with rail connections to five Class I Railroads (CSXT, Canadian National, Alabama & Gulf Coast Railroad - Burlington Northern/Santa Fe, Norfolk Southern and Kansas City Southern) and to two Class 3 Railroads (ASPA's Terminal Railway and the CG Railway). ASPA's terminals are adjacent to Interstates 10 and 65/165 providing immediate and un-congested truck access to east/west and north/south markets. The State and the port are also served by the second largest inland waterway network east of the Mississippi, via the Tennessee Tombigbee and the U.S. Intracoastal Waterways. The inland waterway network provides efficient access to U.S. Gulf of Mexico ports and to 15,000 Miles of barge lanes serving the Great Lakes, Upper Mississippi, Ohio and Missouri River Systems. Under Alabama law, the Alabama State Port Authority is structured as a professional managing board. The Governor appoints, subject to Alabama Senate confirmation, eight representatives to serve, in staggered five year terms, on the Board of Directors. Two members each represent the Northern, Central and Southern regions of the state, while two represent At-Large seats. A ninth seat is ex officio representing the City of Mobile or County of Mobile serving in alternate years. The Port Authority is self-funded through earnings garnered from operations. The Authority does not receive state appropriations. The Director/CEO submits annual reports on the Authority's financial position to the Offices of the Governor, Director of Finance and the State's Examiners of Public Accounts. Source: Alabama State Port Authority Waterfront Convention Center The Mobile Bay Convention & Visitors Bureau, located on the waterfront in downtown Mobile, opened in September 1993, comprising over 317,000 square feet of meeting and exhibition space. Visitors spend more than $500 million in Mobile Bay annually. Source: Mobile Bay Convention & Visitors Bureau. Oil and Gas By the end of 2014, there are 14 fields (3 onshore and 11 offshore) that are active in Mobile County. In 2014, Chunchula, Citronelle and Hatter's Pond Fields accounted for 95.8% of the 569,198 barrels of oil, 100% of the 586,084 barrels of condensate, and nearly 7.2% of the 76,586,365 Mcf (thousand cubic feet) of gas produced in Mobile County. Development activities in Mobile Bay have continued since production commenced in Offshore production in Mobile County in 2014 was 71,079,289 Mcf or approximately 92.8% of the total county gas production. Four gas plants that cleanse impurities from the gas from offshore have been built in Mobile County. Mobil Oil Exploration and Producing Southeast Inc. operated two plants, the Mary Ann Gas Plant and the Mobil 823 Gas Plant. Initial production at the Mary Ann Gas Plant began in April 1988, with a plant capacity of 180 MMcf/d (million cubic feet per day). Production from the Mobil 823, which primarily processed gas from offshore federal tracts, commenced in November 1996, with a capacity of 300 MMcf/d. As a result of the merger of Mobil and Exxon, both of these plants were mothballed by the end of Shell Offshore, Inc. originally operated the Yellowhammer Gas plant with a capacity of 200 MMcf/d. Production began at the Yellowhammer Gas Plant in December W&T Offshore, Inc. became the operator of the Yellowhammer Plant and the associated offshore wells in September Exxon Mobil Corp. operates the Mobile Bay Treating Facility with a current capacity of 450 MMcf/d. Production commenced from the Mobile Bay Treating Facility in November Appendix B - 13

78 Two natural gas liquids plants were placed into operation in Mobile County during These plants take natural gas from pipelines or directly from gas cleansing plants and extract liquids from the gas. The Duke Plant, operated by Mobile Bay Processing Partners, commenced operations during March The Williams Plant, operated by WFS Liquids Company, began extracting natural gas liquids during July Both plants produce propane, butane, natural gasoline, and other (mixed) natural gas liquids. During 2014, the Duke Plant extracted 2.5 million barrels of liquid, while the Williams Plant extracted more than 5.1 million barrels of liquids. The volumes from these two plants represent 92% of the 6.6 million barrels of natural gas liquids extracted during 2014 in Mobile County. The balance was produced principally from plants in Chunchula and Hatter's Pond Fields. Mobile County Active Oil and Gas Fields Number of onshore fields: 3 Number of offshore fields: 11 Annual Onshore Field Production Field Oil (barrels) Gas (Mcf) Condensate (barrels) Chunchula 0 1,464, ,054 Citronelle 545,165 73,685 0 Hatter s Pond 0 3,969, ,030 Total 545,165 5,507, ,084 County Production of Oil and Gas Oil (barrels) Gas (Mcf) Condensate (barrels) Location Yearly Cumulative Yearly Cumulative Yearly Cumulative Onshore 545, ,065,184 5,507, ,176, , ,312,985 Offshore 24, ,985 71,079,289 3,632,799, Total 569, ,759,169 76,586,365 4,612,975, , ,312,985 Mobile County Gas Plants Plant Date Capacity Status Mary Ann Gas Plant April MMcf/d Mothballed Mobile 823 Gas Plant November MMcf/d Mothballed Yellowhammer Gas Plant December MMcf/d Active Mobile Bay Treating Facility November MMcf/d Active Source: State Oil and Gas Board of Alabama Appendix B - 14

79 Transportation Rail Service. The County is served by five national Class I major railway lines: CSX Transportation, Burlington Northern/Santa Fe, Norfolk-Southern, Canadian National, and Kansas City Southern. All lines provide daily direct freight and intermodal service to the Southeast and connect with other carriers to the Southwest and Midwest. Terminal switching facilities are available at the Alabama State Port Authority. Piggyback loading systems and containerized service are available. An average of 2,500 rail cars pass through Mobile daily. Air. The County is serviced by two (2) municipal airports: Mobile Regional Airport and Mobile Downtown Airport at Brookley Field (known as Mobile Aeroplex at Brookley). With 4 million square feet of industrial space on 1,650 acres, the Mobile Aeroplex at Brookley is one of the largest industrial parks on the Gulf Coast. Over 70 companies are located on site, employing over 3,600 people in a wide range of industries. The Aeroplex is strategically located in the following zones, which allow for enhanced business operations and attractive tax incentives: foreign trade zone number 82 and the renewal community zone. A major component of the Aeroplex is the Mobile Downtown Airport, a general aviation facility that has two (2) paved and lighted runways (9,618 feet and 7,800 feet). Another major component of the Aeroplex is the new $600 million Airbus factory in Mobile that will manufacture and assemble the A319, A320 and A321 aircraft, all part of the Airbus A320 family. It could employ up to 1,000 full-time workers when at full capacity. Construction is scheduled to begin in 2013, with it becoming operable by 2015 and producing 40 to 50 aircraft per year by The Mobile Regional Airport facility, providing terminal, parking areas and eight (8) gates, was completed in December, The facility has two (2) paved and lighted runways (8,502 feet and 4,376 feet), and three (3) helipads, each 100 feet. The County is currently served by four (4) commercial airlines: US Airways Express, Delta Air Lines, American Eagle and United Express which provide approximately 23 daily departures to five (5) of the nation's largest hubs: Atlanta, GA, Charlotte, NC, Chicago, IL, Dallas/Fort Worth, TX and Houston, TX. The following table shows the number of enplaned passengers at Mobile Regional Airport: Year Enplaned Passengers , , , , , , , , , , , ,035 Source: Federal Aviation Administration. Highway System. The County is adequately served by the interstate highway system, with Interstate 10 offering east-west access and Interstate 65, which originates in Mobile, serving northbound traffic. An extension of I-65 connects it with I-10 in downtown Mobile. The County is also served by U.S. Highway 90, U.S. Highway 31, U.S. Highway 43, U.S. Highway 98, and U.S. Highway 45. Freight Carriers. There are over 65 motor freight carriers certified to transport interstate shipments to and/or from the Mobile area. The majority of the carriers have a Mobile area terminal, with many carriers offering container services Appendix B - 15

80 Bus. Greyhound, Trailways and Megabus Bus Lines provide bus services to the County. Water. The Port of Mobile Waterfront facilities are located along the lower five miles of the Mobile River at the head of Mobile Bay. The harbor is situated about thirty miles north of the Bay entrance from the Gulf of Mexico. The present depth-controlling entrance to the inner harbor is 45 feet to the tunnels, and 40 feet in the river harbor. The Port is authorized for 55 feet south of the I-10 tunnel. The Intracoastal Waterway crosses the southern portion of the County from east to west. It is 12 feet deep and accommodates all types of barge traffic. There is a 12 foot channel dredged to the Mobile Aeroplex at Brookley in the southern portion of the City of Mobile. It is authorized to a depth of 27 feet. There is a ship channel cut from the main channel in Mobile Bay 5.3 miles to the shoreline of the County and 2 miles inland into the Theodore Industrial area. The controlling depth is 40 feet. The ship channel terminates in a 42 acre turning basin. A barge canal, 12 feet deep, extends 1.2 miles westward from the turning basin. Education Primary and Secondary Education. The County has the State's largest local education system, with approximately 7,450 employees. The Mobile County Board of School Commissioners is composed of five elected commissioners and directs the work of both the unified County school systems. The City does not have an independent school system. The County has 90 public schools with an enrollment of approximately 58,747 students, and 64 private and parochial schools with an enrollment of approximately 15,485 students. Vocational training is offered in the County's high schools in agribusiness, business and office education, consume home economics, day trades and distributive education. Distributive education and horticulture are offered jointly through the vocational rehabilitation and special education services. The Catholic schools in the City and County are operated by the Catholic Department of Education of the Diocese of Mobile. There are 9 pre/elementary schools and 1 secondary/high school in the County; approximately 4,199 students are enrolled in these Catholic schools. Vocational and Technical Education. S. D. Bishop Community College (primarily at its Carver and Southwest campuses) and South Alabama Skills Center (a Private Industry Council/Governor's Jobs Partnership Act funded facility) serve the Mobile area. The Carver campus of Bishop State was designed to train and prepare high school graduates and other persons sixteen years of age and older for employment in vocational, technical and industrial pursuits. The Southwest campus offers training in technical, mechanical, and non-mechanical occupations. Higher Education The University of South Alabama, chartered in May of 1963 by the Alabama Legislature, is a State-supported coeducational institution of higher learning, located on a 1,200 acre campus in west Mobile. Instruction began with 272 students in a single fourstory combination administration, classroom and laboratory building erected by the Mobile County Foundation for Public Higher Education. The University enrolled approximately 16,462 students for day and evening courses (including students in medical schools) during The University offers programs in arts and science, education, business and management studies, medicine, health professions and engineering. The University also operates a full range clinical and teaching hospital at its Medical center which provided internship, residency and research facilities for numerous medical specialties as well as patient care and full scale surgical and clinical disciplines. The University of Mobile, founded in 1961 and located on an 800 acre campus ten miles from downtown Mobile, is a fouryear coeducational college of arts and sciences sponsored by the Alabama Baptist State Convention. The first classes began in 1963, and Mobile College was accredited by the Southern Association of Colleges and Schools in The University is the only four-year, privately supported college to be founded in Alabama during this century. The University offers programs leading to Bachelor of Arts and Bachelor of Science degrees, as well as pre-professional programs in the arts, Appendix B - 16

81 medicine, dentistry, engineering, medical technology, nursing, law and the ministry. The University enrolled approximately 1,600 students during Spring Hill College, founded in 1830, is the oldest institution of higher learning in Alabama. The College has been operated by the Society of Jesus (the Jesuit Fathers) since 1847 as a fully accredited senior college of arts and sciences, offering Bachelor of Arts, Bachelor of Science, Bachelor of General Studies (nursing) and Bachelor of Science in Commerce degrees. The curriculum also includes a Master of Education degree. The College has been coeducational since The College is located near the geographical center of the City on a 400-acre campus containing a natural spring-fed lake and 18-hole golf course. The College enrolled approximately 1,449 students during S. D. Bishop State Community College is accredited by the Southern Association of Colleges and Schools and confers Associate Degrees in Science, Applied Science and Arts, and Certificates for programs requiring less than two years for completion and for short seminar courses offered as a community service. In addition to technical and vocational training, the two-year courses consist of basic general education courses as well as electives which may meet a portion of the requirements for a four-year degree. The College enrolled approximately 3,896 students during Other Institutions of higher learning serving the health-related professions in the Mobile area are: Mobile Infirmary, School of X-ray Technology, School of Medical Technology, School of Nursing, Providence Hospital, University of South Alabama, College of Medicine, School of Nursing, College of Allied Health. Health Mobile County and the surrounding area is served by five general hospitals, one rehabilitation hospital and one private psychiatric hospital, as well as three local and state-sponsored mental health facilities. The five general hospitals are as follows: (i) USA, a 152-bed women's and children's general hospital; (ii) Mobile Infirmary Medical Center, a non-profit 704-bed general hospital; (iii) Providence Hospital, a non-profit Roman Catholic, 349-bed general hospital facility owned by the Daughters of Charity; (iv) Springhill Medical Center, an investor-owned, 252-bed general hospital; and (v) The University of South Alabama Medical Center, a 406-bed general hospital facility. Knollwood Park Hospital (Infirmary West), a 315-bed general hospital operated in conjunction with the University of South Alabama Medical Center, until it s closure on October 16, The University of South Alabama began developing a regional cancer research and treatment institute in In 2005 the University and Infirmary Health Systems, the operator of the Mobile Infirmary Medical Center, announced plans to cooperate in the development and construction of the institute. In 2006 the institute was formally named the Mitchell Cancer Institute. The $100 million institute opened in With the institute including both treatment and research areas, it is estimated to have a $1 Billion economic impact on the Mobile Bay region over the next decade. It will employ close to 700 professionals and focus on serving the east-west Interstate 10 corridor. It will be the only Stage II and Stage III cancer center between Houston and Tampa. J.L. Bedsole/Rotary Rehabilitation Hospital, a 50-bed facility, affiliated with the Infirmary Health network of hospitals, provides rehabilitation for patients affected by stroke, spinal cord injury, brain injury or other neurological illnesses. Regional mental health facilities include multiple facilities operated by AltaPointe Health Systems, Inc., a public entity serving Mobile and the surrounding counties, and Searcy Hospital, a State-supported 325-bed mental health facility serving the southern half of the State, closed on October 31, Other mental health related clinics serving Mobile include Anchorage-Mobile Mental Health, LeMoyne Program, Lifelines/Family Counseling Center, Mobile Association for Retarded Citizens, Mobile Mental Health Center-Adult Services, and Turning Point. The County has approximately 1,000 practicing physicians and 235 practicing dentists to serve its local needs Appendix B - 17

82 Communications The County is served by a number of telephone systems, including AT&T Company, ATC, Callis Communications, Cellular One Mobile, Comcast Communications, Contel Cellular, Inc., Delta Com, GTE Spirit Communications Corp., Harbor Communications, MCI Telecommunications, Mediacom, Metromedia Communications, Southland Systems, Telecom USA, and UCI Communications. The County has four (4) weekly newspapers and a monthly magazine. Twenty-seven (27) radio stations (10 AM and 17 FM), six (6) television stations (five network affiliates and one public), and several cable companies, both local and national, serve the County. Financial Institutions There are a number of sound financial institutions, both old and new, that help with business growth and the security of Mobile's financial future. The Mobile region's largest banks are BankTrust, BB&T, BBVA Compass Bank, Hancock Bank, PNC Bank, Regions Bank and Wells Fargo. Other banks include: BancorpSouth, Bay Bank, Century Bank, Coastal Bank and Trust, Commonwealth National Bank, Community Bank, First Community Bank, iberiabank, Merchants Bank and SB&T Bank. The County also has more than 33 credit unions that provide a number of valuable services to their members. The majority of these institutions are company operated Appendix B - 1

83 APPENDIX C Financial Statements of the Board for the Fiscal Year ending September 30,

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85 Report on the Mobile County Board of School Commissioners Mobile County, Alabama October 1, 2013 through September 30, 2014 Filed: April 10, 2015 Department of Examiners of Public Accounts 50 North Ripley Street, Room 3201 P.O. Box Montgomery, Alabama Website: Ronald L. Jones, Chief Examiner

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87 Ronald L. Jones Chief Examiner State of Alabama Department of Examiners of Public Accounts P.O. Box , Montgomery, AL North Ripley Street, Room 3201 Montgomery, Alabama Telephone (334) FAX (334) Honorable Ronald L. Jones Chief Examiner of Public Accounts Montgomery, Alabama Dear Sir: Under the authority of the Code of Alabama 1975, Section , we submit this report on the results of the audit of the Mobile County Board of School Commissioners, Mobile County, Alabama, for the period October 1, 2013 through September 30, Sworn to and subscribed before me this the.31!!:_ day of 11J,J..., 20 I r. fn!tl4 Respectfully submitted, ~B.W~ Angela B. Waters Examiner ofpublic Accounts Sworn to~d subscribed before me this the~ day of 1'1/McA., 20 1r. -#.. Ashley T. Carlisle HIJ/ Notary Public Examiner ofpublic Accounts Sworn to,and subscribed before me this the 31.!!:_ day of '11/.:-1., 20 ItS. ~HI~ (/Notary Public ~-n~ John Geary Examiner ofpublic Accounts rb

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89 Table of Contents Page Summary A Contains items pertaining to federal, state and local legal compliance, Board operations, and other matters. Schedule of State and Local Compliance and Other Findings C Contains detailed information about findings pertaining to state and local legal compliance and other findings. Independent Auditor s Report E Reports on whether the financial information constitutes a fair presentation of the financial position and results of financial operations in accordance with generally accepted accounting principles (GAAP). Basic Financial Statements 1 Provides the minimum combination of financial statements and notes to the financial statements that is required for the fair presentation of the Board s financial position and results of operations in accordance with GAAP. Exhibit #1 Statement of Net Position 2 Exhibit #2 Statement of Activities 4 Exhibit #3 Balance Sheet Governmental Funds 6 Exhibit #4 Exhibit #5 Exhibit #6 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position 8 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds 9 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 11 Exhibit #7 Statement of Fiduciary Net Position 13 Notes to the Financial Statements 14 Mobile County Board of School Commissioners

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91 Table of Contents Page Required Supplementary Information 48 Provides information required by the GASB to supplement the basic financial statements. This information has not been audited and no opinion is provided about the information. Exhibit #8 Exhibit #9 Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual General Fund 49 Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual Special Revenue Fund 53 Supplementary Information 57 Contains financial information and notes relative to federal financial assistance. Exhibit #10 Schedule of Expenditures of Federal Awards 58 Notes to the Schedule of Expenditures of Federal Awards 62 Additional Information 63 Provides basic information related to the Board, including reports and items required by generally accepted government auditing standards and/or U. S. Office of Management and Budget (OMB) Circular A-133 for federal compliance audits. Exhibit #11 Exhibit #12 Board Members and Administrative Personnel a listing of the Board members and administrative personnel. 64 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 a report on internal controls related to the financial statements and on whether the Board complied with laws and regulations which could have a direct and material effect on the Board s financial statements. 65 Mobile County Board of School Commissioners

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93 Table of Contents Page Exhibit #13 Exhibit #14 Exhibit #15 Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by OMB Circular A-133 a report on internal controls over compliance with requirements of laws, regulations, contracts, and grants applicable to major federal programs and an opinion on whether the Board complied with laws, regulations, and the provisions of contracts or grant agreements which could have a direct and material effect on each major program. 67 Schedule of Findings and Questioned Costs a schedule summarizing the results of audit findings relating to the financial statements as required by Government Auditing Standards and findings and questioned costs for federal awards as required by OMB Circular A Auditee Response a response by the Board on the results of the audit. 72 Mobile County Board of School Commissioners

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95 Department of Examiners of Public Accounts SUMMARY Mobile County Board of School Commissioners October 1, 2013 through September 30, 2014 The Mobile County Board of School Commissioners (the Board ) is governed by a five-member body elected by the citizens of Mobile County. The members and administrative personnel in charge of governance of the Board are listed in Exhibit 11. The Board is the governmental agency that provides general administration and supervision for Mobile County public schools, preschool through high school, with the exception of schools administered by the Saraland City Board of Education, City of Satsuma Board of Education, and the City of Chickasaw Board of Education. This report presents the results of an audit the objectives of which were to determine whether the financial statements present fairly the financial position and results of financial operations and whether the Board complied with applicable laws and regulations, including those applicable to its major federal financial assistance programs. The audit was conducted 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 as well as the requirements of the Department of Examiners of Public Accounts under the authority of the Code of Alabama 1975, Section An unmodified opinion was issued on the financial statements, which means that the Board s financial statements present fairly, in all material respects, its financial position and the results of its operations for the fiscal year ended September 30, Findings are numbered and reported by the fiscal year in which the finding originally occurred A

96 Instances of noncompliance with state and local laws and regulations and other matters were found during the audit as shown on the Schedule of State and Local Compliance and Other Findings and they are summarized below. CURRENT FINDINGS indicates that multiple schools did not retain adequate documentation for purchases made and expenditures were not properly coded in accordance with the listing of codes provided by the Local School Accounting Department indicates that reports from ticket sales were not properly maintained and utilized. A finding that was presented in prior audits has not been resolved as shown on the Schedule of State and Local Compliance and Other Findings and it is summarized below. UNRESOLVED PRIOR FINDING indicates that multiple schools did not follow proper receipting procedures. The following officials/administrative personnel were invited to an exit conference to discuss the results of the audit: Superintendent: Martha L. Peek; Chief School Financial Officer: Dinish Simpson; and Board Members: Douglas Harwell, Jr., Don Stringfellow, Dr. Reginald Crenshaw, Levon Manzie, Dr. William Foster, and Tracie Roberson. The following individuals attended the exit conference, held at the Board s office: Superintendent: Martha L. Peek; Chief School Financial Officer: Dinish Simpson; Board Members: Douglas Harwell, Jr., Don Stringfellow, and Dr. William Foster; and representatives from the Department of Examiners of Public Accounts: Brian Wheeler, Audit Manager, and Angela Waters, Examiner. The results of the audit were discussed at a later date with Board Members: Dr. Reginald Crenshaw, Tracie Roberson and Levon Manzie B

97 Schedule of State and Local Compliance and Other Findings C

98 Schedule of State and Local Compliance and Other Findings For the Year Ended September 30, 2014 Ref. No. Finding/Noncompliance Finding: The Mobile County Board of School Commissioners Local School Accounting Department requires documentation to be retained to support all purchases made and requires expenditures to be properly coded in accordance with the listing of codes provided by the Local School Accounting Department. Adequate documentation was not retained to support all purchases at Nan Gray Davis Elementary, Calloway Smith Middle and Citronelle High Schools. In addition, expenditures were not properly coded at Calloway Smith Middle School. Recommendation: Adequate documentation should be retained for all purchases and expenditures should be properly coded in accordance with the listing of codes provided by the Local School Accounting Department Finding: The Mobile County Board of School Commissioners Local School Accounting Department requires a Report of Sale of Tickets to be properly completed each time money is collected for athletic events and the revenues collected from ticket sales to be reconciled to the deposits made for ticket sales. Reports of Sales of Tickets for athletic events were not always filled out properly at Calloway Smith Middle School. In addition, the revenues collected from ticket sales were not reconciled to the deposits made for ticket sales. Recommendation: Reports from ticket sales should be filled out properly and revenues collected from ticket sales should be reconciled to the deposits made for ticket sales Finding: The Mobile County Board of School Commissioners Local School Accounting Department requires certain receipting procedures to be followed by all local school personnel. Proper receipting procedures were not followed by various teachers at Citronelle High School. Recommendation: Proper receipting procedures should be followed at all local schools. Mobile County Board of School Commissioners D

99 Independent Auditor s Report E

100 Independent Auditor s Report To: Members of the Mobile County Board of School Commissioners, Superintendent and Chief School Financial Officer Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Mobile County Board of School Commissioners, as of and for the year ended September 30, 2014, and related notes to the financial statements, which collectively comprise the Mobile County Board of School Commissioners basic financial statements as listed in the table of contents as Exhibits 1 through 7. Management s Responsibility for the Financial Statements The management of the Mobile County Board of School Commissioners 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 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 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 F

101 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 Mobile County Board of School Commissioners, as of September 30, 2014, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 16 to the financial statements, during the fiscal year ended September 30, 2014, the Mobile County Board of School Commissioners adopted Governmental Accounting Standards Board (GASB) Statement Number 65, Items Previously Reported as Assets and Liabilities. Our opinion is not modified with respect to this matter. The Mobile County Board of School Commissioners has not presented a Management s Discussion and Analysis (MD&A) that the Governmental Accounting Standards Board has determined is necessary to supplement, although not required to be part of, the basic financial statements. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the accompanying Schedules of Revenues, Expenditures and Changes in Fund Balances Budget and Actual (Exhibits 8 and 9), be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance G

102 Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Mobile County Board of School Commissioners' basic financial statements. The accompanying Schedule of Expenditures of Federal Awards (Exhibit 10) as required by U. S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, is presented for the purposes of additional analysis and is not a required part of the basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Schedule of Expenditures of Federal Awards is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required bv Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 26, 2015, on our consideration of the Mobile County Board of School Commissioners' 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Mobile County Board of School Commissioners' internal control over financial reporting and compliance. Montgomery, Alabama February 26, 2015 'tf,jt~~ Ronald L. Jones Chief Examiner Department of Examiners of Public Accounts H

103 Basic Financial Statements 1

104 Statement of Net Position September 30, 2014 Governmental Activities Assets Cash and Cash Equivalents $ 44,698, Investments 69,984, Ad Valorem Property Taxes Receivable 97,596, Receivables (Note 4) 18,605, Inventories 3,633, Restricted Assets - Cash and Cash Equivalents 31,660, Restricted Assets - Cash with Fiscal Agent 15,402, Prepaid Items 239, Capital Assets (Note 5): Nondepreciable 25,463, Depreciable, Net 432,488, Total Assets 739,771, Deferred Outflows of Resources Loss on Refunding of Debt 5,499, Total Deferred Outflows of Resources 5,499, Liabilities Payables (Note 9) 4,018, Accrued Interest Payable 1,790, Unearned Revenue 303, Salaries and Benefits Payable 30,897, Liability for Compensated Absences 250, Long-Term Liabilities: Portion Payable Within One Year: Bonds/Warrants Payable 6,047, Funding Agreement 6,720, Lease-Purchase Payable 1,991, Less: Unamortized Discount (173,951.30) Plus: Unamortized Premium 106, Portion Payable After One Year: Bonds/Warrants Payable 150,694, Funding Agreement 170,290, Tax Credit Warrants 23,135, Lease-Purchase Payable 9,248, Less: Unamortized Discount (2,977,898.62) Plus: Unamortized Premium 472, Liability for Compensated Absences 4,514, Total Liabilities $ 407,327, The accompanying Notes to the Financial Statements are an integral part of this statement. Mobile County Board of School Commissioners 2 Exhibit #1

105 Governmental Activities Deferred Inflows of Resources Unavailable Revenue - Property Taxes $ 97,596, Revenue Received in Advance - Motor Vehicle Taxes 3,625, Total Deferred Inflows of Resources 101,221, Net Position Net Investment in Capital Assets 198,411, Restricted for: Capital Projects 11,877, Debt Service 14,769, Other Purposes 9,433, Unrestricted 2,228, Total Net Position $ 236,721, Mobile County Board of School Commissioners 3 Exhibit #1

106 Statement of Activities For the Year Ended September 30, 2014 Program Revenues Charges Operating Grants Functions/Programs Expenses for Services and Contributions Governmental Activities Instruction $ 288,981, $ 6,297, $ 218,770, Instructional Support 84,590, ,333, ,712, Operation and Maintenance 64,813, , ,898, Auxiliary Services: Student Transportation 32,108, , ,373, Food Services 39,241, ,054, ,665, General Administrative and Central Support 30,542, , ,614, Interest and Fiscal Charges 14,336, Other Expenses 15,672, ,304, ,783, Total Governmental Activities $ 570,286, $ 44,047, $ 335,817, General Revenues: Taxes: Property Taxes for General Purposes Property Taxes for Specific Purposes Local Sales Tax Alcohol Beverage Tax Other Taxes Grants and Contributions Not Restricted for Specific Programs Investment Earnings Miscellaneous Total General Revenues Changes in Net Position Net Position - Beginning of Year, as Restated (Note 16) Net Position - End of Year The accompanying Notes to the Financial Statements are an integral part of this statement. Mobile County Board of School Commissioners 4 Exhibit #2

107 Capital Grants and Contributions Net (Expenses) Revenues and Changes in Net Position Total Governmental Activities $ 7,090, $ (56,823,194.84) 1,075, (20,469,371.87) 5,878, (45,594,898.44) 3,501, (3,767,032.61) 429, (5,092,176.20) 2,957, (19,821,014.71) (14,336,125.53) (3,584,260.85) $ 20,932, (169,488,075.05) 86,900, ,532, ,231, ,551, ,096, , ,851, ,263, ,474, (15,013,862.90) 251,735, $ 236,721, Mobile County Board of School Commissioners 5 Exhibit #2

108 Balance Sheet Governmental Funds September 30, 2014 General Fund Special Revenue Fund Assets Cash and Cash Equivalents $ 19,783, $ 10,576, Cash with Fiscal Agents Investments 742, Ad Valorem Property Taxes Receivable 71,189, Receivables (Note 4) 3,807, ,484, Interfund Receivables 7,323, ,442, Inventories 2,032, ,401, Prepaid Items 239, Total Assets 104,375, ,648, Liabilities, Deferred Inflows of Resources and Fund Balances Liabilities Payables (Note 9) 1,177, ,621, Interfund Payables 1,498, ,323, Unearned Revenues 132, , Salaries and Benefits Payable 30,496, , Liability for Compensated Absences 230, Total Liabilities 33,535, ,517, Deferred Inflows of Resources Unavailable Revenue - Property Taxes 71,189, Revenue Received in Advance - Motor Vehicle Taxes 2,213, Total Deferred Inflows of Resources 73,402, Fund Balances Nonspendable: Inventories 2,032, ,401, Prepaid Items 239, Restricted for: Debt Service Capital Projects Child Nutrition Program 7,000, Fleet Renewal Other Purposes 1,031, Assigned to: Local Schools 8,673, Other Purposes 500, , Unassigned (5,334,040.56) Total Fund Balances (2,562,504.09) 18,131, Total Liabilities, Deferred Inflows of Resources and Fund Balances $ 104,375, $ 27,648, The accompanying Notes to the Financial Statements are an integral part of this statement. Mobile County Board of School Commissioners 6 Exhibit #3

109 Capital Other Total Projects Governmental Governmental Fund Funds Funds $ 45,998, $ $ 76,358, ,402, ,402, ,241, ,984, ,406, ,596, ,313, ,605, , ,822, , ,633, , ,215, ,402, ,641, ,218, ,018, ,822, , ,897, , ,218, ,271, ,406, ,596, ,411, ,625, ,818, ,221, , ,633, , ,402, ,402, ,361, ,361, ,000, , , ,031, ,673, , (1,349,178.50) (6,683,219.06) 114,177, ,402, ,148, $ 143,215, $ 15,402, $ 290,641, Mobile County Board of School Commissioners 7 Exhibit #3

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111 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position September 30, 2014 Total Fund Balances - Governmental Funds (Exhibit 3) $ 145,148, Amounts reported for governmental activities in the Statement of Net Position (Exhibit 1) are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. The Cost of Capital Assets is $ 761,914, Accumulated Depreciation is (303,963,105.70) 457,951, Losses on refunding of debt are reported as deferred outflows of resources and are not available to pay for current period expenditures and therefore are deferred on the Statement of Net Position. 5,499, Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Current Portion of Long-Term Debt 14,711, Noncurrent Portion of Long-Term Debt $ 355,376, (370,088,157.81) Interest on long-term debt is not accrued in the funds but rather is recognized as an expenditure when due. Accrued Interest Payable (1,790,334.48) Total Net Position - Governmental Activities (Exhibit 1) $ 236,721, The accompanying Notes to the Financial Statements are an integral part of this statement. Mobile County Board of School Commissioners 8 Exhibit #4

112 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended September 30, 2014 General Fund Special Revenue Fund Revenues State $ 281,328, $ Federal 47, ,861, Local 110,271, ,397, Other 430, ,920, Total Revenues 392,077, ,179, Expenditures Current: Instruction 243,116, ,527, Instructional Support 66,815, ,504, Operation and Maintenance 37,073, , Auxiliary Services: Student Transportation 29,111, , Food Services 10, ,970, General Administrative and Central Support 19,366, ,105, Other 2,619, ,710, Capital Outlay 94, ,967, Debt Service: Principal Retirement Interest and Fiscal Charges Total Expenditures 398,207, ,313, Excess (Deficiency) of Revenues Over Expenditures (6,130,153.97) (10,134,033.65) Other Financing Sources (Uses) Indirect Cost 6,279, Long-Term Debt Issued Transfers In 17,756, ,700, Other Financing Sources 2, Sale of Capital Assets 44, , Transfers Out (25,349,443.32) (2,061,724.04) Total Other Financing Sources (Uses) (1,266,025.30) 7,682, Net Changes in Fund Balances (7,396,179.27) (2,451,100.17) Fund Balances - Beginning of Year 4,833, ,582, Fund Balances - End of Year $ (2,562,504.09) $ 18,131, The accompanying Notes to the Financial Statements are an integral part of this statement. Mobile County Board of School Commissioners 9 Exhibit #5

113 Capital Other Total Projects Governmental Governmental Fund Funds Funds $ 20,891, $ $ 302,219, ,908, ,016, , ,216, ,350, ,907, , ,694, ,173, ,817, , ,491, ,323, ,661, ,020, ,394, ,981, ,258, ,730, ,329, ,779, ,841, ,809, ,730, ,539, , ,941, ,886, ,480, ,671, ,674, (16,573,267.80) (21,141,950.76) (53,979,406.18) 6,279, ,717, ,717, ,778, ,235, ,408, ,167, ,578, , (23,824,651.81) (51,235,819.17) (12,699,271.96) 24,946, ,663, (29,272,539.76) 3,804, (35,315,647.06) 143,450, ,597, ,464, $ 114,177, $ 15,402, $ 145,148, Mobile County Board of School Commissioners 10 Exhibit #5

114 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended September 30, 2014 Net Changes in Fund Balances - Total Governmental Funds (Exhibit 5) $ (35,315,647.06) Amounts reported for governmental activities in the Statement of Activities (Exhibit 2) are different because: Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which depreciation expense is exceeded by capital outlays in the period. Capital Outlays $ 33,841, Depreciation Expense (14,912,459.11) 18,928, Some of the capital assets acquired this year were financed with capital leases. The amount financed by the leases is reported in the governmental funds as a source of financing. On the other hand, the capital leases are not revenues in the Statement of Activities, but rather constitute long-term liabilities in the Statement of Net Position. (7,717,232.00) Repayment of debt principal is an expenditure in the governmental funds, but it reduces long-term liabilities in the Statement of Net Position and does not affect the Statement of Activities. 12,539, In the Statement of Activities, only the gain or loss on the sale of capital assets is reported, whereas in the governmental funds, the proceeds from the sale increase financial resources. The change in net position differs from the change in fund balances by this amount. Proceeds from Sale of Capital Assets $ (88,826.73) Loss on Disposition of Capital Assets (2,674,824.90) (2,763,651.63) The accompanying Notes to the Financial Statements are an integral part of this statement. Mobile County Board of School Commissioners 11 Exhibit #6

115 Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Accrued Interest Payable, Current Year Increase $ (34,282.23) Compensated Absences, Current Year Increase in Noncurrent Portion (235,693.07) Amortization of Discounts/Premiums/Loss on Refunding (415,567.89) (685,543.19) Change in Net Position of Governmental Activities (Exhibit 2) $ (15,013,862.90) Mobile County Board of School Commissioners 12 Exhibit #6

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117 Statement of Fiduciary Net Position September 30, 2014 Agency Funds Assets Cash and Cash Equivalents $ 811, Prepaid Items 44, Total Assets 855, Liabilities Salaries and Benefits Payable 855, Total Liabilities $ 855, The accompanying Notes to the Financial Statements are an integral part of this statement. Mobile County Board of School Commissioners 13 Exhibit #7

118 Notes to the Financial Statements For the Year Ended September 30, 2014 Note 1 Summary of Significant Accounting Policies The financial statements of the Mobile County Board of School Commissioners (the Board ) have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant of the government s accounting policies are described below. A. Reporting Entity The Board is governed by a separately elected board composed of five members elected by the qualified electors of the County. The Board is responsible for the general administration and supervision of the public schools for the educational interests of the County (with the exception of cities having a city board of education). Generally accepted accounting principles (GAAP) require that the financial reporting entity consist of the primary government and its component units. Accordingly, the accompanying financial statements present the Board (a primary government). Component units are legally separate organizations for which the elected officials of the primary government are financially accountable and other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity s financial statements to be misleading or incomplete. Based on the application of these criteria, there are no component units which should be included as part of the financial reporting entity of the Board. B. Government-Wide and Fund Financial Statements Government-Wide Financial Statements The statement of net position and the statement of activities display information about the Board. These statements include the financial activities of the overall government, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. Mobile County Board of School Commissioners 14

119 Notes to the Financial Statements For the Year Ended September 30, 2014 The statement of activities presents a comparison between direct expenses and program revenues for each function of the Board s governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. The Board does not allocate indirect expenses to the various functions. Program revenues include (a) charges to customers or applicants who purchase, use or directly benefit from goods, services, or privileges provided by a given function or program and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements The fund financial statements provide information about the Board s funds, including fiduciary funds. Separate statements for each fund category governmental and fiduciary are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds. The Board reports the following major governmental funds: General Fund The general fund is the primary operating fund of the Board. It is used to account for all financial resources except those required to be accounted for in another fund. The Board primarily receives revenues from the Education Trust Fund (ETF) and local taxes. Amounts appropriated from the ETF were allocated to the school board on a formula basis. Special Revenue Fund This fund is used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. Various federal and local funding sources are included in this fund. Some of the significant federal funding sources include the federal funds that are received for Special Education, Title I, and the Child Nutrition Program in addition to various smaller grants, which are required to be spent for the purposes of the applicable federal grants. Also included in this fund are the public and non-public funds received by the local schools which are generally not considered restricted or committed. Capital Projects Fund This fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlay, including the acquisition or construction of capital facilities and other capital assets. The proceeds from the county sales tax that are to be used exclusively for capital improvement, capital construction and maintenance purposes are also accounted for and reported in this fund. Some of the significant funding sources include the funds that are received for capital projects such as the Public School Fund Capital Outlay, State Paid on Behalf, Fleet Renewal, and Special County Ad Valorem sources. Mobile County Board of School Commissioners 15

120 Notes to the Financial Statements For the Year Ended September 30, 2014 The Board reports the following fund type in the Other Governmental Funds column: Governmental Fund Type Debt Service Fund This fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest and the accumulation of resources for principal and interest payments maturing in future years. The Board reports the following fiduciary fund type: Fiduciary Fund Type Agency Funds These funds are used to report assets held by the Board in a purely custodial capacity. The Board collects these assets and transfers them to the proper individual, private organizations, or other government. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of the timing of related cash flows. Nonexchange transactions, in which the Board gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Revenue from property taxes is recognized in the fiscal year for which the taxes are levied. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Board considers revenues to be available if they are collected within sixty (60) days of the end of the current fiscal year. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. General long-term debt issued and acquisitions under capital leases are reported as other financing sources. Mobile County Board of School Commissioners 16

121 Notes to the Financial Statements For the Year Ended September 30, 2014 Under the terms of grant agreements, the Board funds certain programs by a combination of specific cost-reimbursement grants, categorical block grants, and general revenues. Thus, when program expenses are incurred, there is both restricted and unrestricted net position available to finance the program. It is the Board s policy to first apply cost-reimbursement grant resources to such programs, followed by categorical block grants and then by general revenues. D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position/Fund Balances 1. Deposits and Investments Cash and cash equivalents include cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. Statutes authorize the Board to invest in obligations of the U. S. Treasury, obligations of any state of the United States, general obligations of any Alabama county or city board of education secured by the pledged of the three-mill school tax and certificates of deposit. Investments are reported at fair value, based on quoted market prices, except for money market investments and repurchase agreements, which are reported at amortized cost, and certificates of deposit, which are reported at cost. The Board reports all money market investments U. S. Treasury bills and bankers acceptances having a remaining maturity at time of purchase of one year or less at amortized cost. 2. Receivables Sales tax receivables are based on the amounts collected within 60 days after year-end. Millage rates for property taxes are levied at the first regular meeting of the County Commission in February of each year. Property taxes are assessed for property as of October 1 of the preceding year based on the millage rates established by the County Commission. Property taxes are due and payable the following October 1 and are delinquent after December 31. Amounts receivable, net of estimated refunds and estimated uncollectible amounts, are recorded for the property taxes levied in the current year. However, since the amounts are not available to fund current year operations, the revenue is deferred and recognized in the subsequent fiscal year when the taxes are both due and collectible and available to fund operations. Receivables due from other governments include amounts due from grantors for grants issued for specific programs and capital projects. Mobile County Board of School Commissioners 17

122 Notes to the Financial Statements For the Year Ended September 30, Inventories Inventories are valued at cost, which approximates market, using the first-in/first-out (FIFO) method. Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased. 4. Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. 5. Restricted Assets Certain funds received from the State Department of Education for capital projects and improvements, as well as certain resources set aside for repayment of debt, are classified as restricted assets on the balance sheet because they are maintained separately and their use is limited. The Public School Capital Projects, Fleet Renewal, Bond Issue Payments, Bonds and Warrants, and Qualified Zone Academy Bonds funds are used to report proceeds that are restricted for use in various construction projects and the purchase of school buses. The Debt Service Fund is used to report resources set aside to pay the principal and interest on debt as it become due. 6. Capital Assets Capital assets, which include property and equipment, are reported in the government-wide financial statements. Such assets are valued at cost where historical records are available and at an estimated historical cost where no historical records exist. Donated fixed assets are valued at their estimated fair market value on the date received. Additions, improvements and other capital outlays that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. Major outlays of capital assets and improvements are capitalized as projects are constructed. Mobile County Board of School Commissioners 18

123 Notes to the Financial Statements For the Year Ended September 30, 2014 Depreciation on all assets is provided on the straight-line basis over the assets estimated useful life. Capitalization thresholds (the dollar values above which asset acquisitions are added to the capital asset accounts) and estimated useful lives of capital assets reported in the government-wide statements are as follows: Capitalization Threshold Estimated Useful Life Land Improvements $50, years Buildings $50, years Building Improvements $50, years Equipment and Furniture $ 5, years Vehicles $ 5,000 8 years Equipment Under Capital Lease $ 5, years 7. Deferred Outflows of Resources Deferred outflows of resources are reported in the Statement of Net Position. Deferred outflows of resources are defined as a consumption of net position by the government that is applicable to a future reporting period. Deferred outflows of resources increase net position, similar to assets. 8. Long-Term Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities statement of net position. Bond/Warrant premiums and discounts are deferred and amortized over the life of the debt. Bonds/Warrants payable are reported net of the applicable bond/warrant premium or discount. Bond/Warrant issuance costs are reported as an expense in the period incurred. In the fund financial statements, governmental fund types recognize premiums and discounts, as well as issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Mobile County Board of School Commissioners 19

124 9. Compensated Absences Notes to the Financial Statements For the Year Ended September 30, 2014 The Board s annual leave policy consists of the following: All administrative and supervisory personnel who are employed for twelve months are entitled to earn annual leave. Annual leave for current twelve-month employees (240 days), those assigned or hired prior to July 1, 1999, accrues in accordance with the following policy: An employee with 119 months of service or less accrues annual leave at a rate of ten (10) days per year. An employee with 120 months of service or more accrues annual leave at a rate of fifteen (15) days per year. Newly hired or transferred twelve-month employees (260 days) are those assigned after June 30, The 260-day employees will accrue annual leave at a rate of five (5) days per year until they have twelve (12) months of service, when it increases to ten (10) days per year. Annual leave will be fifteen (15) days per year after 120 months of service and twenty (20) days per year after 240 months of service. A maximum of forty-five (45) days of annual leave may be accumulated and paid upon retirement or termination of service. For twelve-month employees, effective June 30, 2003, any annual leave in excess of forty-five (45) days shall become sick leave days and may be used as sick leave or accumulated for purposes of retirement, subject to the Retirement Systems of Alabama (RSA) rules at the time of retirement. 10. Deferred Inflows of Resources Deferred inflows of resources are reported in the government-wide and fund financial statements. Deferred inflows of resources are defined as an acquisition of net position by the government that is applicable to a future reporting period. Deferred inflows of resources decrease net position, similar to liabilities. Mobile County Board of School Commissioners 20

125 11. Net Position/Fund Equity Notes to the Financial Statements For the Year Ended September 30, 2014 Net position is reported on the government-wide financial statements and is required to be classified for accounting and reporting purposes into the following categories: Net Investment in Capital Assets Capital assets minus accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets plus or minus any deferred outflows of resources and deferred inflows of resources that are attributable to those assets or related debt. Any significant unspent related debt proceeds and any deferred outflows or inflows at year-end related to capital assets are not included in this calculation. Restricted Constraints imposed on net position by external creditors, grantors, contributors, laws or regulations of other governments, or law through constitutional provision or enabling legislation. Unrestricted is the net amount of assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted portion of net position. Assignments and commitments of unrestricted net position should not be reported on the face of the Statement of Net Position. Fund balance is reported in governmental funds in the fund financial statements under the following five categories: A. Nonspendable fund balances include amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained in-tact. Examples of nonspendable fund balance reserves for which fund balance shall not be available for financing general operating expenditures include: inventories, prepaid items, and long-term receivables. B. Restricted fund balances consist of amounts that are subject to externally enforceable legal restrictions imposed by creditors, grantors, contributors, or laws and regulations of other governments; or through constitutional provisions or enabling legislation. C. Committed fund balances consist of amounts that are subject to a purpose constraint imposed by formal action or resolution of the Board, which is the highest level of decision-making authority, before the end of the fiscal year and that require the same level of formal action to remove or modify the constraint. Mobile County Board of School Commissioners 21

126 Notes to the Financial Statements For the Year Ended September 30, 2014 D. Assigned fund balances consist of amounts that are intended to be used by the school system for specific purposes. The Board or its designee makes the determination of the assigned amounts of fund balance. Such assignments may not exceed the available (spendable, unrestricted, uncommitted) fund balance in any particular fund. Assigned fund balances require the same level of authority to remove the constraint. E. Unassigned fund balances include all spendable amounts not contained in the other classifications. This portion of the total fund balance in the general fund is available to finance operating expenditures. When an expenditure is incurred for purposes for which both restricted and unrestricted (committed, assigned, or unassigned) amounts are available, it shall be the determination of the Board or its designee to consider restricted amounts to have been reduced first. When an expenditure is incurred for the purposes for which amounts in any of the unrestricted fund balance classifications could be used, it shall be the determination of the Board or its designee that committed amounts would be reduced first, followed by assigned amounts and then unassigned amounts. Note 2 Stewardship, Compliance, and Accountability A. Budgets Budgets are adopted on a basis of accounting consistent with accounting principles generally accepted in the United States of America (GAAP) for the General Fund with the exception of salaries and benefits, which are budgeted only to the extent expected to be paid rather than on the modified accrual basis of accounting. Also, motor vehicle ad valorem taxes are budgeted only to the extent expected to be received rather than on the modified accrual basis of accounting. The Special Revenue Fund budgets on a basis of accounting consistent with GAAP with the exception of salaries and benefits, which are budgeted only to the extent expected to be paid rather than on the modified accrual basis of accounting. All other governmental funds adopt budgets on the modified accrual basis of accounting. Capital projects funds adopt project-length budgets. All appropriations lapse at fiscal year-end. On or before October 1 of each year, each county board of education shall prepare and submit to the State Superintendent of Education the annual budget to be adopted by the County Board of Education. The Superintendent or County Board of Education shall not approve any budget for operations of the school for any fiscal year which shall show expenditures in excess of income estimated to be available plus any balances on hand. Mobile County Board of School Commissioners 22

127 Notes to the Financial Statements For the Year Ended September 30, 2014 B. Deficit Fund Balances/Net Position of Individual Funds At September 30, 2014, the following governmental fund had a deficit fund balance: General Fund $2,562, The deficit in the General Fund is a result of the salary accrual adjustment. Salaries and benefits payable at September 30, 2014, are funded with an appropriation from the State of Alabama that is not legally available to the Board until October 1, and therefore is not reflected as revenue in the Board s financial statements as of September 30, Note 3 Deposits and Investments A. Deposits and Certificates of Deposit The custodial credit risk for deposits is the risk that, in the event of a bank failure, the Board will not be able to cover deposits or will not be able to recover collateral securities that are in the possession of an outside party. The Board s deposits at year-end were entirely covered by federal depository insurance or by the Security for Alabama Funds Enhancement Program (SAFE Program). The SAFE Program was established by the Alabama Legislature and is governed by the provisions contained in the Code of Alabama 1975, Sections 41-14A-1 through 41-14A-14. Under the SAFE Program all public funds are protected through a collateral pool administered by the Alabama State Treasurer s Office. Under this program, financial institutions holding deposits of public funds must pledge securities as collateral against those deposits. In the event of failure of a financial institution, securities pledged by that financial institution would be liquidated by the State Treasurer to replace the public deposits not covered by the Federal Deposit Insurance Corporation (FDIC). If the securities pledged fail to produce adequate funds, every institution participating in the pool would share the liability for the remaining balance. The Board has $40,806, of its funds in Certificates of Deposit. These certificates of deposit are classified as Deposits in order to determine insurance and collateralization. However, they are classified as Investments on the financial statements. Mobile County Board of School Commissioners 23

128 B. Cash with Fiscal Agent Notes to the Financial Statements For the Year Ended September 30, 2014 The Board has deposits totaling $15,402, in the debt service funds which is shown as cash with fiscal agents on the fund financial statements and restricted assets on the government-wide financial statements. Funds are invested in short-term money market funds and amounts in excess of FDIC coverage are required by the provisions of the bond covenant to be invested in federal securities. Amounts on deposit with fiscal agents are invested as shown below: Investment Type Fair Value Maturity Rating Series 2006 Refunding Bonds RMK Select Treasury Money Market CLA $ Less than 60 days Standard & Poor s AAA Series 2009-A Warrant Fund RMK Select Treasury Money Market CLA $ Less than 60 days Standard & Poor s A+ Series 2009-B Warrant Fund RMK Select Treasury Money Market CLA $ Less than 60 days Standard & Poor s A+ Series 2009-TC Warrant Fund RMK Select Treasury Money Market CLA $ Less than 60 days Standard & Poor s AA- Series 2009-TC Sinking Fund Account Natixis Bank $4,836, Less than 60 days Unrated Series 2010 Taxable-Direct Subsidy QSCB-RMK $ 4.54 Less than 60 days Standard & Poor s AA- Series 2010 Taxable-Direct Subsidy QSCB-Sinking Fund Acct-Natixis Bank $3,563, Less than 60 days Unrated 2011 Capital Pool Warrants (SDE) Qualified Zone Academy Bonds $3,515, Less than 60 days N/A Series 2012 Capital Outlay Warrants RMK Select Treasury Money Market CLA $ 1, Less than 60 days Standard & Poor s AA- QZAB 2001 Trust Fund Federal Home LN MTG CORP BD DTD $1,344, Less than 60 days Unrated QZAB 2001 Trust Fund REPO s, FNMA $ 550, Less than 60 days Unrated QZAB 2003 Trust Fund U. S. Treasury NTS SEC Stripped $ 879, Less than 60 days Unrated QZAB 2003 Trust Fund U. S. Treasury Bills $ 4, Less than 60 days Unrated QZAB 2005 Trust Fund U. S. Treasury Bills $ 703, Less than 60 days Unrated C. Investments Statutes authorize the Board to invest in obligations of the U. S. Treasury, obligations of any state of the United States, general obligations of any Alabama county or city board of education secured by pledge of the three-mill school tax and other obligations as outlined in the Code of Alabama 1975, Section and Section Mobile County Board of School Commissioners 24

129 Notes to the Financial Statements For the Year Ended September 30, 2014 As of September 30, 2014, the Board had the following investments and maturities: Investment Type Fair Value Maturity Rating Series 2012 Capital Outlay Warrants FNMA-Federal National Mortgage Assn. $ 4,027, /30/2014 Standard & Poor s AA+ Series 2012 Capital Outlay Warrants FHLMC-Federal Home Loan Mortgage 4,035, /25/2014 Standard & Poor s AA+ Series 2012 Capital Outlay Warrants FHLMC-Federal Home Loan Mortgage 4,029, /29/2014 Standard & Poor s AA+ Series 2012 Capital Outlay Warrants FHLMC-Federal Home Loan Mortgage 4,003, /16/2015 Standard & Poor s AA+ Series 2012 Capital Outlay Warrants FHLMC-Federal Home Loan Mortgage 4,003, /20/2015 Standard & Poor s AA+ Series 2012 Capital Outlay Warrants FNMA-Federal National Mortgage Assn. 4,012, /16/2015 Standard & Poor s AA+ Series 2012 Capital Outlay Warrants FFCB-Federal Farm Credit 5,000, /15/2015 Standard & Poor s AA+ Total $29,112, Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The Board does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increased interest rates. Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligation. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The credit rating, if applicable and available, is presented in the table of investments. The Board has no policy on credit risk. Custodial Credit Risk For an investment, this is the risk that, in the event of the failure of the counterparty, the government will not be able to cover the value of its investments or collateral securities that are in the possession of an outside party. The Board does not have a formal investment policy that limits the amount of securities that can be held by counterparties. Concentrations of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government s investment in a single issuer. The Board does not have a formal investment policy that limits the amount the Board may invest in any one issuer. Mobile County Board of School Commissioners 25

130 Notes to the Financial Statements For the Year Ended September 30, 2014 Note 4 Receivables On September 30, 2014, receivables for the Board s individual major funds and other governmental funds in the aggregate are as follows: General Fund Special Revenue Fund Capital Projects Fund Other Governmental Funds Total Receivables: Accounts $ 76, $ $ $ $ 76, Intergovernmental 3,641, ,478, ,310, ,430, Other 89, , , , Total Receivables $3,807, $13,484, $1,313, $3.10 $18,605, Note 5 Capital Assets Capital asset activity for the year ended September 30, 2014, was as follows: Balance 10/01/2013 Additions/ Retirements/ Reclassifications (*) Reclassifications (*) Balance 09/30/2014 Governmental Activities: Capital Assets, Not Being Depreciated: Land $ 8,018, $ 1,083, $ $ 9,101, Construction in Progress 52,191, ,469, (56,300,159.99) 16,361, Total Capital Assets, Not Being Depreciated 60,210, ,553, (56,300,159.99) 25,463, Capital Assets Being Depreciated: Land Improvements (Exhaustible) 7,320, , ,345, Buildings 442,818, ,224, (75,000.00) 471,968, Buildings Improvements 155,788, ,220, (2,908,077.26) 182,100, Equipment and Vehicles 56,640, ,404, (1,003,973.97) 58,040, Assets Under Capital Lease 9,282, ,714, ,996, Total Capital Assets Being Depreciated 671,850, ,588, (3,987,051.23) 736,451, Less Accumulated Depreciation for: Land Improvements (Exhaustible) (1,819,829.75) (366,644.82) (2,186,474.57) Buildings (225,339,041.24) (6,704,854.61) 18, (232,025,895.85) Buildings Improvements (17,513,711.92) (3,378,892.86) 370, (20,522,408.41) Equipment and Vehicles (43,861,048.32) (2,819,620.98) 835, (45,845,466.07) Assets Under Capital Lease (1,740,414.96) (1,642,445.84) (3,382,860.80) Total Accumulated Depreciation (290,274,046.19) (14,912,459.11) 1,223, (303,963,105.70) Total Capital Assets Being Depreciated, Net 381,576, ,676, (2,763,651.63) 432,488, Governmental Activities Capital Assets, Net $ 441,786, $ 75,229, $(59,063,811.62) $ 457,951, (*) Included in the Additions/Reclassifications and the Retirements/Reclassifications columns are $56,300, in reclassifications for assets. Mobile County Board of School Commissioners 26

131 Notes to the Financial Statements For the Year Ended September 30, 2014 Depreciation expense was charged to functions/programs of the primary government as follows: Current Year Depreciation Expense Governmental Activities: Instruction $11,134, Instructional Support 3, Operation and Maintenance 120, Auxiliary Services Transportation 1,713, Auxiliary Services Food Services 431, General Administrative and Central Support 97, Other 1,411, Total Depreciation Expense Governmental Activities $14,912, Note 6 Defined Benefit Pension Plan A. Plan Description The Board contributes to the Teachers Retirement System of Alabama, a cost-sharing multiple-employer public employee retirement system for the various state-supported educational agencies and institutions. This plan is administered by the Retirement Systems of Alabama. Substantially all employees of the Board are members of the Teachers Retirement System. Membership is mandatory for covered or eligible employees of the Board. Benefits vest after 10 years of creditable service. The provisions of Act Number , Acts of Alabama, established a new defined benefit plan tier for employees (Tier 2). Tier 2 employees are those hired on or after January 1, Employees who were hired before January 1, 2013 are considered to be Tier 1 employees. Mobile County Board of School Commissioners 27

132 Notes to the Financial Statements For the Year Ended September 30, 2014 Vested Tier 1 employees may retire with full benefits at age 60 or after 25 years of service. Vested Tier 2 employees may retire after completing at least 10 years of service at the age of 62. Retirement benefits are calculated by two methods with the retiree receiving payment under the method which yields the highest monthly benefit. The methods are (1) Minimum Guaranteed, or (2) Formula, of which the Formula method usually produces the highest monthly benefit. Under this method Tier 1 retirees are allowed % of their average final salary (best three of the last ten years) for each year of service, whereas Tier 2 retirees are allowed % of their average final salary (best five of the last ten years) for each year of service with a benefit cap of 80% of the average final salary. Retirees may also elect to receive a reduced retirement allowance (Special Privileges at Retirement) in order to provide an allowance to a designated beneficiary after the member s death. Disability retirement benefits are calculated in the same manner. Pre-retirement death benefits in the amount of the annual salary for the fiscal year preceding death are provided to plan members. The Teachers Retirement System was established as of October 1, 1941, under the provisions of Act Number 419, Acts of Alabama 1939, for the purpose of providing retirement allowances and other specified benefits for qualified persons employed by state-supported educational institutions. The responsibility for general administration and operation of the Teachers Retirement System is vested in the Board of Control (currently 14 members). Benefit provisions are established by the Code of Alabama 1975, Sections through , as amended, and Sections 36-27B-1 through 36-27B-6, as amended. The Retirement Systems of Alabama issues a publicly available financial report that includes financial statements and required supplementary information for the Teachers Retirement System of Alabama. That report may be obtained by writing to The Retirement Systems of Alabama, 201 South Union Street, Montgomery, Alabama Mobile County Board of School Commissioners 28

133 Notes to the Financial Statements For the Year Ended September 30, 2014 B. Funding Policy Tier 1 employees are required to contribute 7.5 percent of their salary to the Teachers Retirement System, whereas Tier 2 employees are required to contribute 6 percent of their salary. The Board is required to contribute the remaining amounts necessary to fund the actuarially determined contributions to ensure sufficient assets will be available to pay benefits when due. Each year the Teachers Retirement System recommends to the Legislature the contribution rate for the following fiscal year, with the Legislature setting this rate in the annual appropriation bill. The percentages of the contributions and the amount of contributions made by the Board and the Board s employees equal the required contributions for each year as follows: Fiscal Year Ended September 30, Total Percentage of Covered Payroll (Tier 1) 19.21% 17.58% 17.25% Total Percentage of Covered Payroll (Tier 2) 17.08% 15.44% Contributions: Percentage Contributed by the Board (Tier 1) 11.71% 10.08% 10.00% Percentage Contributed by the Employees (Tier 1) 7.50% 7.50% 7.25% Percentage Contributed by the Board (Tier 2) 11.08% 9.44% Percentage Contributed by the Employees (Tier 2) 6.00% 6.00% Contributed by the Board $32,860, $28,093, $28,568, Contributed by Employees 20,922, ,884, ,712, Total Contributions $53,782, $48,978, $49,280, Note 7 Other Postemployment Benefits (OPEB) A. Plan Description The Board contributes to the Alabama Retired Education Employees Health Care Trust (the Trust ), a cost-sharing multiple-employer defined benefit postemployment healthcare plan. The Trust provides health care benefits to state and local school system retirees and was established in 2007 under the provisions of Act Number , Acts of Alabama, as an irrevocable trust fund. Responsibility for general administration and operations of the Trust is vested with the Public Education Employees Health Insurance Board (PEEHIB) members. The Code of Alabama 1975, Section 16-25A-4, provides the PEEHIB with the authority to amend the benefit provisions in order to provide reasonable assurance of stability in future years. The Trust issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained at the Public Educations Employees Health Insurance Plan website, under the Trust Fund Financials tab. Mobile County Board of School Commissioners 29

134 Notes to the Financial Statements For the Year Ended September 30, 2014 B. Funding Policy The Public Education Employees Health Insurance Fund (PEEHIF) was established in 1983 under the provisions of Act Number , Acts of Alabama, to provide a uniform plan of health insurance for current and retired employees of state educational institutions. The plan is administered by the PEEHIB. Any Trust fund assets used in paying administrative costs and retiree benefits are transferred to and paid from the PEEHIF. The PEEHIB periodically reviews the funds available in the PEEHIF and if excess funds are determined to be available, the PEEHIB authorizes a transfer of funds from the PEEHIF to the Trust. Retirees are required to contribute monthly as follows: Fiscal Year 2014 Individual Coverage Non-Medicare Eligible $ Individual Coverage Medicare Eligible $ Family Coverage Non-Medicare Eligible Retired Member and Non-Medicare Eligible Dependent(s) $ Family Coverage Non-Medicare Eligible Retired Member and Dependent Medicare Eligible $ Family Coverage Medicare Eligible Retired Member and Non-Medicare Eligible Dependent(s) $ Family Coverage Medicare Eligible Retired Member and Dependent Medicare Eligible $ Surviving Spouse Non-Medicare Eligible $ Surviving Spouse Non-Medicare Eligible and Dependent Non-Medicare Eligible $ Surviving Spouse Non-Medicare Eligible and Dependent Medicare Eligible $ Surviving Spouse Medicare Eligible $ Surviving Spouse Medicare Eligible and Dependent Non-Medicare Eligible $ Surviving Spouse Medicare Eligible and Dependent Medicare Eligible $ For employees that retire other than for disability on or after October 1, 2005, and before January 1, 2012, for each year under 25 years of service, the retiree pays two percent of the employer premium and for each year over 25 years of service, the retiree premium is reduced by two percent of the employer premium. Employees who retire on or after January 1, 2012, with less than 25 years of service, are required to pay 4% for each year under 25 years of service. In addition, non-medicare eligible employees who retire on or after January 1, 2012 are required to pay 1% more for each year less than 65 (age premium) and to pay the net difference between the active employee subsidy and the non-medicare eligible retiree subsidy (subsidy premium). When the retiree becomes Medicare eligible, the age and subsidy premium no longer applies, but the years of service premium (if applicable to the retiree) will continue to be applied throughout retirement. These changes are being phased in over a 5 year period. The tobacco premium is $28.00 per month for retired members that use tobacco. Mobile County Board of School Commissioners 30

135 Notes to the Financial Statements For the Year Ended September 30, 2014 The Board is required to contribute at a rate specified by the State for each active employee. The Board s share of premiums for retired Board employees health insurance is included as part of the premium for active employees. The following shows the required contributions in dollars and the percentage of that amount contributed for Board retirees: Fiscal Year Ended September 30, Active Health Insurance Premiums Paid By Board Amount of Premium Attributable to Retirees Percentage of Active Employee Premiums Attributable to Retirees Total Amount Paid Attributable to Retirees Percentage of Required Amount Contributed 2014 $ $ % $19,204, % 2013 $ $ % $18,878, % 2012 $ $ % $20,535, % Each year the PEEHIB certifies to the Governor and to the Legislature the contribution rates based on the amount needed to fund coverage for benefits for the following fiscal year and the Legislature sets the premium rate in the annual appropriation bill. This results in a pay-as-you-go funding method. Mobile County Board of School Commissioners 31

136 Notes to the Financial Statements For the Year Ended September 30, 2014 Note 8 Construction and Other Significant Commitments As of September 30, 2014, the Board was obligated under the following significant construction contracts: Total Amount Paid Total Contract Amount Hoar Program Management $1,474, $ 3,743, Citronelle High School 1,572, ,000, Lott Middle School 464, ,000, Dauphin Island Elementary School 15, ,200, Chastang Middle School/Brazier Elementary School 235, ,000, Phillips Preparatory School 52, ,000, Mae Eanes Middle School 69, ,600, Barton Academy Restoration 2, ,500, Tanner Williams Elementary School 234, ,000, Cranford Burns Middle School 67, ,100, Leflore Magnet High School 148, ,400, Williamson High School 47, ,600, Indian Springs Elementary School 85, ,000, Orchard Elementary School 36, ,000, Ella Grant Elementary School 75, ,000, Hall Elementary School 89, ,000, St. Elmo Elementary School 83, ,000, Burroughs Elementary School 73, ,000, Robbins Elementary School 63, ,000, Total $4,892, $103,143, The Board s significant encumbrances by the Board s individual major funds at September 30, 2014, are as follows: General Fund $ 741, Special Revenue Fund 15,816, Capital Projects Fund 25,514, Total $42,073, Mobile County Board of School Commissioners 32

137 Notes to the Financial Statements For the Year Ended September 30, 2014 Note 9 Payables On September 30, 2014, payables for the Board s individual major funds are as follows: Vendors Other Payables Total Payables Governmental Activities: General Fund $1,177, $ $1,177, Special Revenue Fund 1,562, , ,621, Capital Projects Fund 1,218, ,218, Total Governmental Activities $3,958, $59, $4,018, Note 10 Lease Obligations Capital Leases The Board is obligated under a certain lease accounted for as a capital lease. Assets under capital lease totaled $16,996, at September 30, If the Board completes the lease payments according to the schedule below, which is the stated intent of the Board, ownership of the leased equipment will pass to the Board. Until that time, the leased equipment will be identified separately on the balance sheet. The following is a schedule of future minimum lease payments under capital leases, together with the net present value of the minimum lease payments as of September 30, 2014: Fiscal Year Ending Governmental Activities September 30, 2015 $ 2,279, ,279, ,279, ,279, , ,379, Total Minimum Lease Payments 12,344, Less: Amount Representing Interest (1,105,190.75) Present Value of Net Minimum Lease Payments $11,239, Mobile County Board of School Commissioners 33

138 Note 11 Funding Agreements 2006 Funding Agreement Notes to the Financial Statements For the Year Ended September 30, 2014 In 2006, the Public Educational Building Authority of the City of Mobile, (the Authority ) issued the Series 2006-A Limited Obligation Bonds for the purpose of refunding the Series 2001-A Capital Outlay Warrants and the 2001-B Capital Outlay Warrants that were issued under the indenture in order to provide funds to allow the Authority to pay the Board the purchase price of the Educational Facilities which, in turn, were leased and occupied by the Board. Pursuant to the agreement, the Board sold Rosa Lott Middle School, Orchard Elementary School, St. Elmo Elementary School, Alma Bryant High School, Citronelle High School, Collier Elementary School, and Davidson High School (the Educational Facilities ) to the Authority. The Board agreed to pay principal and interest due on the warrants. At the end of the term of the agreement the Board can purchase the educational facilities for $ The initial term of the agreement ends on September 30, 2006, with the options of making automatic annual renewals extending until the final maturity of the Series 2006-A Bonds A Funding Agreement In 2009, the Public Educational Building Authority of the City of Mobile, (the Authority ) issued the Series 2009-A Limited Obligation School Bonds for the purpose of partially refunding the Limited Obligation School Warrants, Series 2003 that were issued under the indenture in order to provide funds to allow the Authority to pay the Board the purchase price of the Educational Facilities which, in turn, were leased and occupied by the Board. Pursuant to the agreement, the Board sold Palmer Pillans Middle School, Calloway-Smith Middle School, Craighead Elementary School, Denton Middle School, Dunbar Magnet School, Gilliard Elementary School, Florence Howard Elementary School, Mertz Elementary, and Mobile County Training School (the Educational Facilities ) to the Authority. The Board agreed to pay principal and interest due on the warrants. At the end of the term of the agreement, the Board can purchase the educational facilities for $ The initial term of the agreement ends on September 30, 2009, with the options of making automatic annual renewals extending until the final maturity of the Series 2009-A Bonds. Mobile County Board of School Commissioners 34

139 2009-B Funding Agreement Notes to the Financial Statements For the Year Ended September 30, 2014 In 2010, the Public Educational Building Authority of the City of Mobile, (the Authority ) issued the Series 2009-B Limited Obligation School Bonds for the purpose of refunding the remaining portion of the Limited Obligation School Warrants, Series 2003 that were issued under the indenture in order to provide funds to allow the Authority to pay the Board the purchase price of the Educational Facilities which, in turn, were leased and occupied by the Board. Pursuant to the agreement, the Board sold Palmer Pillans Middle School, Calloway- Smith Middle School, Craighead Elementary School, Denton Middle School, Dunbar Magnet School, Gilliard Elementary School, Florence Howard Elementary School, Mertz Elementary, and Mobile County Training School (the Educational Facilities ) to the Authority. The Board agreed to pay principal and interest due on the warrants. At the end of the term of the agreement, the Board can purchase the educational facilities for $ The initial term of the agreement ends on September 30, 2010, with the options of making automatic annual renewals extending until the final maturity of the Series 2009-B Bonds. If the Board completes the payments according to the schedule below, which is the stated intent of the Board, ownership of the assets will pass to the Board. The following is a schedule of future minimum payments under the funding agreements, together with the new present value of the minimum payments as of September 30, Fiscal Year Ending Governmental Activities September 30, 2015 $ 14,259, ,251, ,260, ,266, ,271, ,450, ,686, ,440, Total Minimum Payments 259,888, Less: Amount Representing Interest (82,878,619.01) Present Value of Net Minimum Payments $177,010, Mobile County Board of School Commissioners 35

140 Notes to the Financial Statements For the Year Ended September 30, 2014 Note 12 Qualified Zone Academy Bonds (QZAB s) and Qualified School Construction Bonds (QSCB s) Certificate of Participation Qualified Zone Academy Bonds A Trustee issued Certificates of Participation in Qualified Zone Academy Bonds (QZAB s) which were to be sold to one or more commercial banks. The ratable portion of the proceeds of the sale of the Certificates of Participation allocable to the Mobile County Board of School Commissioners, $2,000,000 issued April 3, 2001, $1,000,000 issued May 22, 2003 and $1,000,000 issued April 27, 2005, were deposited in a separate account of the Project Fund and are available for use only for the Mobile County Board of School Commissioners and its QZAB projects. As also described in the Official Proposal Forms, it is contemplated that the Alabama School Finance Cooperative and the Trustee (with written endorsement of each Board of Education) will enter into a guaranteed investment contract that will provide for the investments of moneys sufficient to pay each Board s payment at the maturity date of the QZAB s. The Mobile County Board of School Commissioners will make level annual installment payments of $134,490.57, $78, and $73, beginning April 3, 2002, May 22, 2004 and April 27, 2006 through and including April 3, 2011, May 22, 2013 and April 27, 2015, respectively, sufficient to make the payment at the maturity dates, whereupon the Board s obligation will be satisfied. None of the base payment represents the payment of interest. Deposits made into the escrow fund shall remain the property of the Board pledged to the payment of the base payments to the Alabama School Finance Cooperative on the base payment due dates. Series 2011 Qualified Zone Academy Bonds In 2011, the Alabama Public School and College Authority (the Authority ) issued the Series 2011 Qualified Zone Academy Bonds (the Warrant ) Capital Outlay Pool Warrant on behalf of various Boards of Education in the State. The Warrant was issued for the purpose of rehabilitating or repairing the public school facility in which the academy is established and providing equipment for use at such academy. The Board had a % participation in the warrants resulting in the Board s share of principal, issuance costs, and net proceeds of $19,796,745.00, $74,068.49, and $19,722,676.51, respectively. The Board is required to make sinking fund deposits of $991, on May 1 in each year for fifteen years so that such deposits and any interest earned thereon shall be used to pay the principal of the warrants upon maturity and are pledged to pay the debt service requirements of the warrants. This Warrant will be payable solely out of and secured by the annual amounts of Public School Fund Capital Purchase Funds. Mobile County Board of School Commissioners 36

141 Notes to the Financial Statements For the Year Ended September 30, 2014 Series 2010 Taxable-Direct Subsidy Qualified School Construction Bonds On October 1, 2010, the Mobile County Board of School Commissioners issued Capital Outlay Warrants Qualified School Construction Bonds Series 2010 (Taxable-Direct Subsidy QSCB) in the amount of $25,415, with an interest rate of 4.95%. The Warrants were issued for the purposes of providing funding to finance the construction, rehabilitation, or repair of public school facilities. The Board is required to make sinking fund deposits of $1,107, on October 20 in each year for seventeen years so that such deposits and any interest earned thereon shall be used to pay the principal of the bonds upon maturity and are pledged to pay the debt service requirements of the bonds. The sinking fund payments are payable from and secured by a pledge of the Board s special tax proceeds (the One-Half Cent Sales Tax) levied annually for public school purposes. The Board will receive Subsidy Payments from the United States Treasury in connection with the amount of interest payable. The Subsidy Payments are to be paid to the Board and may be used by the Board for any lawful purpose, including debt service on the Warrants. Note 13 Long-Term Debt Qualified Zone Academy Bonds (QZAB s) and Qualified School Construction Bonds (QSCB s) The Board issued Qualified Zone Academy Bonds for the purpose of acquiring certain capital improvements and the purchase and installation of equipment. The Board issued Qualified School Construction Bonds for the purposes of financing the construction, rehabilitation, or repairing public school facilities. Funding Agreements (2006, 2009-A and 2009-B) The Board issued the 2006 Funding Agreement in order to refund the 2001-A and 2001-B Capital Outlay Warrants that were originally issued for the purpose of funding various capital improvements. The Board issued the 2009-A Funding Agreement and the 2009-B Funding Agreement in order to refund the Series 2003 Warrants, to pay the cost of terminating an existing interest rate swap transaction that pertains to the Series 2003 Warrants, and to make a deposit to the debt service fund for the Series 2003 Warrants. Mobile County Board of School Commissioners 37

142 Series 2009 Tax Credit Warrants Notes to the Financial Statements For the Year Ended September 30, 2014 On December 15, 2009, the Mobile County Board of School Commissioners issued Capital Outlay Warrants Qualified School Construction Bonds Series 2009-TC (Tax Credit Warrants) in the amount of $23,135, with a tax credit rate of 5.68% and interest rate of 2.07%. The Board is required to make sinking fund deposits of $1,106, on December 15 in each year for fifteen years so that such deposits and any interest earned thereon shall be used to pay the principal of the bonds upon maturity and are pledged to pay the debt service requirements of the bonds. The sinking fund deposits and interest payments are payable from and secured by a pledge of the Board s special tax proceeds (the Twelve Mill Tax) levied annually for public school purposes. Series 2012 Capital Outlay School Warrants On September 1, 2012, the Mobile County Board of School Commissioners issued Capital Outlay School Warrants Series 2012 in the amount of $100,900, The Warrants were issued for the purpose of acquiring and constructing various capital improvements to the educational facilities of the Board. PSCA Capital Outlay Warrants The Board is obligated for the Series 2009-B Pool Bonds issued for the purpose of refunding the Series 1999-D Pool Bonds which were issued for the purpose of funding capital improvements. The Board s obligation is paid solely from the Board s portion of the Public School Funds received from the State of Alabama. Mobile County Board of School Commissioners 38

143 Notes to the Financial Statements For the Year Ended September 30, 2014 The following is a summary of long-term debt transactions for the Board for the year ended September 30, 2014: Debt Debt Amounts Outstanding Issued/ Repaid/ Outstanding Due Within 10/01/2013 Increased Decreased 09/30/2014 One Year Governmental Activities: Bonds/Warrants and Funding Agreements Payable: 2006 Funding Agreement $ 72,820, $ $ (2,710,000.00) $ 70,110, $ 2,815, A Funding Agreement 92,870, (3,200,000.00) 89,670, ,280, B Funding Agreement 17,840, (610,000.00) 17,230, , Tax Credit Warrants 23,135, ,135, Certificate of Participation - Qualified Zone Academy Bonds 4,000, ,000, ,000, Qualified School Construction Bonds 25,415, ,415, Qualified Zone Academy Bonds 19,796, ,796, Capital Outlay Warrants, PSCA Funds 11,605, (1,705,860.62) 9,900, ,792, Capital Outlay School Warrants, Series ,840, (2,210,000.00) 97,630, ,255, Sub-Total Bonds/Warrants and Funding Agreements Payable 367,322, (10,435,860.62) 356,886, ,767, Unamortized Amounts: Add: Unamortized Premium 686, (106,739.77) 579, , Less: Unamortized Discount (3,325,801.22) 173, (3,151,849.92) (173,951.30) Total Bonds/Warrants and Funding Agreements Payable, Net 364,682, (10,368,649.09) 354,314, ,700, Other Liabilities: Compensated Absences 4,529, , ,764, , Capital Lease Contracts Payable 5,625, ,717, (2,103,433.55) 11,239, ,991, Total Governmental Activities Long-Term Liabilities $374,837, $7,952, $(12,472,082.64) $370,318, $14,941, Payments on the PSCA Capital Outlay Warrants are made by the Capital Projects Fund with Public School Funds withheld from the Board s allocation from the Alabama Department of Education. Payments on the 2006, 2009-A, and 2009-B Funding Agreements are made by the Debt Service Fund with property taxes. Payments on the Series 2009-TC and Series 2012 are made by the Debt Service Fund with property taxes. Payments on the Lease-Purchase Agreements are made by the Debt Service Fund. The compensated absences liability will be liquidated by the General Fund. Mobile County Board of School Commissioners 39

144 Notes to the Financial Statements For the Year Ended September 30, 2014 The following is a schedule of debt service requirements to maturity: 2006 Funding Agreement 2009-A Funding Agreement Fiscal Year Ending Principal Interest Principal Interest September 30, 2015 $ 2,815, $ 2,944, $ 3,280, $ 3,863, ,925, ,833, ,375, ,761, ,060, ,713, ,480, ,652, ,195, ,588, ,595, ,532, ,340, ,457, ,720, ,400, ,135, ,031, ,910, ,613, ,195, ,374, ,815, ,538, ,445, , ,495, ,627, Total $70,110, $29,465, $89,670, $44,990, QZAB 2009 Tax Credit Warrants Series 2012 Warrants Fiscal Year Ending Principal Interest Principal Interest Principal Interest September 30, 2015 $2,000, $ $ $ 478, $ 2,255, $ 3,345, , ,300, ,288, , ,365, ,218, ,000, , ,440, ,146, , ,510, ,072, ,000, ,680, ,275, ,525, ,420, ,455, , ,440, ,443, ,585, ,114, ,550, ,134, ,660, , Total $4,000, $ $23,135, $4,910, $97,630, $58,097, Mobile County Board of School Commissioners 40

145 Notes to the Financial Statements For the Year Ended September 30, B Funding Agreement Lease Contracts Payable 2012 Bus Purchase Lease Contracts Payable 2014 Bus Purchase Principal Interest Principal Interest Principal Interest $ 625, $ 731, $1,289, $144, $ 701, $143, , , ,324, , , , , , ,359, , , , , , , , , , , , , , ,030, ,729, ,209, , ,985, ,778, ,875, , $17,230, $8,422, $4,370, $367, $6,869, $737, QZAB 2010 QSCB Capital Outlay 2009-B PSCA Total Principal and Interest Requirements Principal Interest Principal Interest Principal Interest to Maturity $ $ 991, $ $ 1,258, $1,792, $ 485, $ 29,147, , ,258, ,876, , ,130, , ,258, ,970, , ,134, , ,258, ,069, , ,144, , ,258, ,191, , ,729, ,958, ,290, ,979, ,796, ,983, ,415, ,774, ,236, ,140, ,684, ,572, $19,796, $11,900, $25,415, $16,354, $9,900, $1,525, $544,898, Mobile County Board of School Commissioners 41

146 Notes to the Financial Statements For the Year Ended September 30, 2014 Deferred Loss on Refunding, Discounts and Premiums The Board has deferred amounts associated with several of its debt issues. All are being amortized using the straight-line method. The Series 2009-A Funding Agreement has a discount and deferred loss on refunding which are being amortized over 25 years. The Series 2009-B Funding Agreement has a discount and deferred loss on refunding which are being amortized over 25 years. The 2009-B Refunding PSCA Funding Agreement has a premium and deferred loss on refunding which are being amortized over 10 years. The Series 2006 Funding Agreement has a discount and deferred loss on refunding which are being amortized over 25 years. The 2010 Qualified School Construction Bonds has a premium which is being amortized over 17 years. The Series 2012 Warrants has a discount which is being amortized over 30 years. Loss on Refunding of Debt Discount Premium Total Deferred Loss on Refunding, Discount and Premium $7,780, $4,360, $1,107, Amount Amortized Prior Years 1,932, ,035, , Balance Deferred Loss on Refunding, Discount and Premium 5,847, ,325, , Current Amount Amortized 348, , , Balance Deferred Loss on Refunding, Discount and Premium $5,499, $3,151, $ 579, Mobile County Board of School Commissioners 42

147 Notes to the Financial Statements For the Year Ended September 30, 2014 Pledged Revenues In 2006, the Board entered into a funding agreement with the Public Education Building Authority of the City of Mobile in which the Authority issued Series 2006 Limited Obligation Bonds in the amount of $89,485,000 for the purpose of refunding previously issued bonds and funding various capital improvements. The Authority simultaneously entered into a saleleaseback agreement with the Board. The Board pledged to repay the funding agreement from proceeds of ad valorem taxes. Future revenues of $99,575, are pledged to repay the principal and interest on the 2006 Funding Agreement at September 30, Funds in the amount of $5,757, were used to pay principal and interest on the funding agreement during the 2014 fiscal year. The Series 2006 Funding Agreement will mature in fiscal year In 2009, the Board entered into a funding agreement with the Public Education Building Authority of the City of Mobile in which the Authority issued Limited Obligation School Bonds, Series 2009-A, in the amount of $99,060, for the purpose of refunding previously issued bonds, to pay the cost of terminating an existing interest rate swap transaction of the Board, and to make a deposit to the debt service fund for the Series 2003 Warrants. The Authority simultaneously entered into a sale-leaseback agreement with the Board. The Board pledged to pay the funding agreement from proceeds of ad valorem taxes. Future revenues of $134,660, are pledged to repay the principal and interest on the Series 2009-A Funding Agreement at September 30, Funds in the amount of $7,152, were used to pay principal and interest on the funding agreement during the 2014 fiscal year. The Series 2009-Funding Agreement will mature in fiscal year On November 1, 2009, the Board entered into a funding agreement with the Public Education Building Authority of the City of Mobile in which the Authority issued Limited Obligation School Bonds, Series 2009-B in the amount of $19,020, for the redemption of $18,575, principal amount of the County s Funding Agreement, Series The Authority simultaneously entered into a sale-leaseback agreement with the Board. The Board pledged to repay the funding agreement from proceeds of ad valorem taxes. Future revenues of $25,652, are pledged to repay the principal and interest on the Series 2009-B Funding Agreement at September 30, Funds in the amount of $1,358, were used to pay principal and interest on the funding agreement during the 2014 fiscal year. The Series 2009-B Funding Agreement will mature in fiscal year On December 15, 2009, the Board issued $23,135, of Capital Outlay Warrants, Series 2009-TC (the Tax Credit Warrants ). The Board intends to use the proceeds from the sale of the Tax Credit Warrants to finance the construction, rehabilitation or repair of public school facilities. The Tax Credit Warrants are limited obligations of the Board. The Board pledges to repay the bonds from proceeds of ad valorem taxes. Future revenues of $28,045, are pledged to repay the principal and interest on the Series 2009-TC Warrants at September 30, Funds in the amount of $478, were used to pay interest on the funding agreement during the 2014 fiscal year. The Series 2009-TC Warrant will mature in fiscal year Mobile County Board of School Commissioners 43

148 Notes to the Financial Statements For the Year Ended September 30, 2014 On October 21, 2009, the Alabama Public School and College Authority issued Capital Improvement Pool Refunding Bonds, Series 2009-B, to refund the previously issued Series 1999-D Bonds, which were outstanding in the aggregate principal amount of $151,170,000. Proceeds of the 1999-D Bonds were used to make loans to local boards of education in the State of Alabama in order to finance capital improvements approved by the Authority and the State Superintendent of Education. The proceeds of the 2009-B Bonds are used to refund the Series 1999-D Bonds and to pay costs of issuance on the 2009-B Bonds. The Board had a % participation in the Bonds (aggregate issue amount of $174,960,000). The Board pledged to repay the principal, sinking fund deposits and interest payable on the loan from the proceeds of the capital outlay funds allocated to the local board from the Public School Fund. Future revenues of $11,425, are pledged to repay the sinking fund deposits and interest payable through August Funds in the amount of $2,276, were used to pay principal and interest on the bonds during the 2014 fiscal year. On October 1, 2010, the Mobile County Board of School Commissioners issued Capital Outlay Warrants Qualified School Construction Bonds Series 2010 (Taxable-Direct Subsidy QSCB) in the amount of $25,415, with an interest rate of 4.95%. The sinking fund payments are payable from and secured by a pledge of the Board s special tax proceeds (the One-Half Cent Sales Tax) levied annually for public school purposes. The Board will receive Subsidy Payments from the United States Treasury in connection with the amount of interest payable. The Subsidy Payments are to be paid to the Board and may be used by the Board for any lawful purpose, including debt service on the Warrants. Future revenues of $41,769, are pledged to repay the sinking fund deposits and interest payable through September Funds in the amount of $1,258, were used to pay interest on the bonds during the 2014 fiscal year. In 2011, the Alabama Public School and College Authority issued the Series 2011 Qualified Zone Academy Bonds Capital Outlay Pool Warrant on behalf of various Boards of Education in the State. The Board had a % participation in the warrants resulting in the Board s share of principal, issuance costs, and net proceeds of $19,796,745.00, $74,068.49, and $19,722,676.51, respectively. The Board is required to make sinking fund deposits of $991, on May 1 in each year for fifteen years so that such deposits and any interest earned thereon shall be used to pay the principal of the warrants upon maturity and are pledged to pay the debt service requirements of the warrants. This Warrant will be payable solely out of and secured by the annual amounts of Public School Fund Capital Purchase Funds. Future revenues of $31,697, are pledged to repay the sinking fund deposits and interest payable through May Funds in the amount of $991, were used to pay interest on the bonds during the 2014 fiscal year. Mobile County Board of School Commissioners 44

149 Notes to the Financial Statements For the Year Ended September 30, 2014 On September 1, 2012, the Mobile County Board of School Commissioners issued Capital Outlay School Warrants Series 2012 in the amount of $100,900, The warrants were issued for the purpose of acquiring and constructing various capital improvements to the educational facilities of the Board. The Board pledged to repay the warrants from proceeds of ad valorem taxes. Future revenues of $155,727, are pledged to repay the principal and interest on the Series 2012 Warrants at September 30, The Series 2012 Warrants will mature in fiscal year Funds in the amount of $5,600, were used to pay principal and interest on the warrants during the 2014 fiscal year. Note 14 Risk Management The Board is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Board has insurance for its buildings and contents through the State Insurance Fund (SIF) part of the State of Alabama, Department of Finance, Division of Risk Management, which operates as a common risk management and insurance program for state owned properties and county boards of education. The Board pays an annual premium based on the amount of coverage requested. The SIF is self-insured up to $1 million per occurrence up to a maximum of $2 million. Automobile liability insurance and errors and omissions insurance are purchased from the Alabama Trust for Boards of Education (ATBE), a public entity risk pool. The ATBE collects the premiums and purchases excess insurance for any amount of coverage requested by pool participants in excess of the coverage provided by the pool. Employee health insurance is provided through the Public Education Employees Health Insurance Fund (PEEHIF), administered by the Public Education Employees Health Insurance Board (PEEHIB). The Fund was established to provide a uniform plan of health insurance for current and retired employees of state educational institutions and is self-sustaining. Monthly premiums for employee and dependent coverage are determined annually by the plan s actuary and are based on anticipated claims in the upcoming year, considering any remaining fund balance on hand available for claims. The Board contributes a specified amount monthly to the PEEHIF for each employee of state educational institutions. The Board s contribution is applied against the employees premiums for the coverage selected and the employee pays any remaining premium. Settled claims resulting from these risks have not exceeded the Board s coverage in the current fiscal year. The Board does not have insurance coverage of job-related injuries. Board employees who are injured while on the job are entitled to salary and fringe benefits of up to ninety working days in accordance with the Code of Alabama 1975, Section (d). Any unreimbursed medical expenses and costs which the employee incurs as a result of an on-the-job injury may be filed for reimbursement with the State Board of Adjustment. Mobile County Board of School Commissioners 45

150 Note 15 Interfund Transactions Interfund Receivables and Payables Notes to the Financial Statements For the Year Ended September 30, 2014 The interfund receivables and payables at September 30, 2014, were as follows: General Fund Interfund Receivables Special Revenue Fund Capital Projects Fund Totals Interfund Payables: General Fund $ $1,442, $56, $1,498, Special Revenue Fund 7,323, ,323, Totals $7,323, $1,442, $56, $8,822, Interfund Transfers The amounts of interfund transfers during the fiscal year ended September 30, 2014, were as follows: General Fund Transfers Out Special Revenue Fund Capital Projects Fund Total Transfers In: General Fund $ $2,061, $15,695, $17,756, Special Revenue Fund 9,654, , ,700, Other Governmental Funds 15,695, ,083, ,778, Totals $25,349, $2,061, $23,824, $51,235, The Board typically used transfers to fund ongoing operating subsidies, to recoup certain expenditures paid on-behalf of the local schools, and to transfer the portion from the general fund to the debt service funds to service current-year debt requirements. Mobile County Board of School Commissioners 46

151 Note 16 Restatement Notes to the Financial Statements For the Year Ended September 30, 2014 During the fiscal year ended September 30, 2014, the Board adopted the GASB Statement Number 65, Items Previously Reported as Assets and Liabilities, (GASB 65) which established accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources (expenses/expenditures) or inflows of resources (revenues), certain items that were previously reported as assets and liabilities. The implementation of GASB 65 resulted in the reclassification of certain items previously reported as assets and liabilities, and required the write-off of deferred bond issuance costs that were previously classified as assets, therefore, the Board s beginning net position has been restated. The implementation of GASB 65 resulted in a reclassification and restatement by the Board. The impact of the restatement on the net position as previously reported is as follows: Net Position Net Position, September 30, 2013, as Previously Reported $256,576, Expense of Debt Issuance Costs Due to Adoption of GASB Statement Number 65 (4,841,861.87) Net Position, September 30, 2013, as Restated $251,735, Mobile County Board of School Commissioners 47

152 This Page Intentionally Blank

153 Required Supplementary Information Mobile County Board of School Commissioners 48

154 Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual - General Fund For the Year Ended September 30, 2014 Budgeted Amounts Actual Amounts Original Final Budgetary Basis Revenues State $ 280,092, $ 280,273, $ 281,328, Federal 47, , , Local 110,408, ,840, ,324, Other 430, Total Revenues 390,547, ,160, ,130, Expenditures Current: Instruction 239,129, ,821, ,529, Instructional Support 67,336, ,196, ,655, Operation and Maintenance 33,263, ,644, ,070, Auxiliary Services: Student Transportation 28,460, ,003, ,498, Food Services 10, General Administrative and Central Support 20,491, ,568, ,355, Other 1,540, ,604, ,618, Capital Outlay 94, Total Expenditures 390,222, ,837, ,833, Excess (Deficiency) of Revenues Over Expenditures 325, (5,677,221.57) 3,297, Other Financing Sources (Uses) Indirect Cost 5,667, ,880, ,279, Transfers In 19,809, ,809, ,756, Other Financing Sources 2, Sale of Capital Assets 44, Transfers Out (28,954,294.10) (28,006,247.06) (25,349,443.32) Other Fund Uses (147,000.00) Total Other Financing Sources (Uses) (3,477,113.49) (2,463,076.31) (1,266,025.30) Net Changes in Fund Balances (3,151,737.53) (8,140,297.88) 2,031, Fund Balances - Beginning of Year 29,254, ,001, ,028, Fund Balances - End of Year $ 26,102, $ 19,860, $ 30,059, Mobile County Board of School Commissioners 49 Exhibit #8

155 Budget to GAAP Differences Actual Amounts GAAP Basis $ $ 281,328, , (1) (53,151.28) 110,271, , (53,151.28) 392,077, (2) (7,587,273.28) 243,116, (2) (1,159,918.34) 66,815, (2) (2,678.54) 37,073, (2) (613,168.27) 29,111, , (2) (11,141.25) 19,366, (2) (444.94) 2,619, , (9,374,624.62) 398,207, (9,427,775.90) (6,130,153.97) 6,279, ,756, , , (25,349,443.32) (1,266,025.30) (9,427,775.90) (7,396,179.27) (3) (23,194,520.33) 4,833, $ (32,622,296.23) $ (2,562,504.09) Mobile County Board of School Commissioners 50 Exhibit #8

156 Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual - General Fund For the Year Ended September 30, 2014 Explanation of differences between Actual Amounts on Budgetary Basis and Actual Amounts GAAP Basis: The Board budgets on the modified accrual basis of accounting except as shown below: (1) The Board budgets for motor vehicle ad valorem tax revenue as it is received, rather than on the modified accrual basis. (2) The Board budgets salaries and benefits as they are actually paid, rather than on the modified accrual basis. Net Decrease in Fund Balance - Budget to GAAP (3) The amount reported as "fund balance" on the budgetary basis of accounting derives from the basis of accounting used in preparing the Board's budget. This amount differs from the fund balance reported in the Statement of Revenues, Expenditures and Changes in Fund Balances because of the cumulative effect of transactions such as those described above. Mobile County Board of School Commissioners 51 Exhibit #8

157 $ (53,151.28) (9,374,624.62) $ (9,427,775.90) Mobile County Board of School Commissioners 52 Exhibit #8

158 Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual - Special Revenue Fund For the Year Ended September 30, 2014 Budgeted Amounts Actual Amounts Original Final Budgetary Basis Revenues Federal $ 74,681, $ 80,434, $ 81,861, Local 16,528, ,528, ,397, Other 656, ,561, ,920, Total Revenues 91,866, ,524, ,179, Expenditures Current: Instruction 30,818, ,239, ,527, Instructional Support 15,674, ,263, ,504, Operation and Maintenance 183, , , Auxiliary Services: Student Transportation 209, , , Food Services 38,843, ,963, ,832, General Administrative and Central Support 3,436, ,029, ,105, Other 10,622, ,011, ,710, Capital Outlay 2,157, ,883, ,967, Total Expenditures 101,945, ,867, ,175, Excess (Deficiency) of Revenues Over Expenditures (10,079,408.03) (12,343,401.99) (9,995,898.62) Other Financing Sources (Uses) Transfers In 12,829, ,889, ,700, Sale of Capital Assets 44, Transfers Out (3,684,334.86) (3,692,334.86) (2,061,724.04) Total Other Financing Sources (Uses) 9,144, ,196, ,682, Net Changes in Fund Balances (934,694.03) (4,146,734.98) (2,312,965.14) Fund Balances - Beginning of Year 18,625, ,868, ,839, Fund Balances - End of Year $ 17,691, $ 16,721, $ 18,526, Mobile County Board of School Commissioners 53 Exhibit #9

159 Budget to GAAP Differences Actual Amounts GAAP Basis $ $ 81,861, ,397, ,920, ,179, ,527, ,504, , , (1) (138,135.03) 42,970, ,105, ,710, ,967, (138,135.03) 112,313, (138,135.03) (10,134,033.65) 9,700, , (2,061,724.04) 7,682, (138,135.03) (2,451,100.17) (2) (256,950.98) 20,582, $ (395,086.01) $ 18,131, Mobile County Board of School Commissioners 54 Exhibit #9

160 Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual - Special Revenue Fund For the Year Ended September 30, 2014 Explanation of differences between Actual Amounts on Budgetary Basis and Actual Amounts GAAP Basis: The Board budgets on the modified accrual basis of accounting except as shown below: (1) The Board budgets salaries and benefits as they are actually paid, rather than on the modified accrual basis. Net Decrease in Fund Balance - Budget to GAAP (2) The amount reported as "fund balance" on the budgetary basis of accounting derives from the basis of accounting used in preparing the Board's budget. This amount differs from the fund balance reported in the Statement of Revenues, Expenditures and Changes in Fund Balances because of the cumulative effect of transactions such as those described above. Mobile County Board of School Commissioners 55 Exhibit #9

161 $ $ (138,135.03) (138,135.03) Mobile County Board of School Commissioners 56 Exhibit #9

162 This Page Intentionally Blank

163 Supplementary Information Mobile County Board of School Commissioners 57

164 Schedule of Expenditures of Federal Awards For the Year Ended September 30, 2014 Federal Grantor/ Federal Pass-Through Pass-Through Grantor/ CFDA Grantor's Program Title Number Number U. S. Department of Education Direct Programs Indian Education - Grants to Local Educational Agencies N.A. Impact Aid N.A. High School Graduation Initiative N.A. Total Direct Programs U. S. Department of Education Passed Through Alabama Department of Education Title I Grants to Local Educational Agencies (M) N.A. Career and Technical Education - Basic Grants to States N.A. Migrant Education - State Grant Program N.A. Special Education - State Personnel Development N.A. Twenty-First Century Community Learning Centers N.A. Education for Homeless Children and Youth N.A. Special Education Cluster: Special Education - Grants to States N.A. Special Education - Learning Tree X Special Education - St. Mary's Home X Sub-Total Special Education - Grants to States Special Education - Preschool Grants N.A. Sub-Total Special Education Cluster Education Research, Development and Dissemination: W. P. Davidson High School X L. B. Williamson High School X C. F. Vigor High School X Mary G. Montgomery High School X Theodore High School X Baker High School X W. P. Davidson High School X L. B. Williamson High School X Murphy High School X Sub-Total Education Research, Development and Dissemination Advanced Placement Program N.A. Improving Teacher Quality State Grants (M) N.A. English Language Acquisition State Grants N.A. Total U. S. Department of Education Sub-Total Forward Mobile County Board of School Commissioners 58 Exhibit #10

165 Budget Assistance Federal Revenue Period Total Share Recognized Expenditures 10/01/ /30/2014 $ 130, $ 130, $ 130, $ 130, /01/ /30/ , , , , /01/ /30/2014 1,629, ,629, ,629, ,629, ,786, ,786, ,786, ,786, /01/ /30/ ,471, ,471, ,553, ,553, /01/ /30/2014 1,025, ,025, ,025, ,025, /01/ /30/ , , , , /01/ /30/ , , , , /01/ /30/ , , , , /01/ /30/ , , , , /01/ /30/ ,825, ,825, ,825, ,825, /01/ /30/2014 4,444, ,444, ,444, ,444, /01/ /30/ , , , , ,482, ,482, ,482, ,482, /01/ /30/ , , , , ,754, ,754, ,754, ,754, /01/ /30/2014 5, , , , /01/ /30/2014 5, , , , /01/ /30/ , , , , /01/ /30/ , , , , /01/ /30/ , , , , /01/ /30/ , , , , /01/ /30/2014 5, , , , /01/ /30/2014 5, , , , /01/ /30/ , , , , , , , , /01/ /30/ , , , , /01/ /30/2014 5,262, ,262, ,740, ,740, /01/ /30/ , , , , ,061, ,061, ,430, ,430, $ 52,061, $ 52,061, $ 50,430, $ 50,430, Mobile County Board of School Commissioners 59 Exhibit #10

166 Schedule of Expenditures of Federal Awards For the Year Ended September 30, 2014 Federal Grantor/ Federal Pass-Through Pass-Through Grantor/ CFDA Grantor's Program Title Number Number Sub-Total Brought Forward U. S. Department of Agriculture Passed Through Alabama Department of Education Child Nutrition Cluster: National School Lunch Program: Cash Assistance N.A. Non-Cash Assistance (Commodities) N.A. National School Lunch Program Sub-Total School Breakfast Program - Cash Assistance N.A. Summer Food Service Program for Children N.A. Sub-Total Child Nutrition Cluster (M) Child and Adult Care Food Program N.A. State Administrative Expenses for Child Nutrition N.A. Fresh Fruit and Vegetable Program N.A. Total U. S. Department of Agriculture U. S. Department of Health and Human Services Passed Through Alabama Department of Education Child Care and Development Block Grant N.A. Social Security Administration Passed Through Alabama Department of Education Social Security - Disability Insurance N.A. U. S. National Oceanic and Atmospheric Administration Passed Through University of Southern Mississippi Sea Grant Support N.A. Other Federal Assistance U. S. Department of Defense Direct Program ROTC Bus Mileage Reimbursement N.A. N.A. Navy ROTC N.A. N.A. Army ROTC N.A. N.A. Total U. S. Department of Defense Total Expenditures of Federal Awards (M) = Major Program N.A. = Not Available or Not Applicable The accompanying Notes to the Schedule of Expenditures of Federal Awards are an integral part of this schedule. Mobile County Board of School Commissioners 60 Exhibit #10

167 Budget Assistance Federal Revenue Period Total Share Recognized Expenditures $ 52,061, $ 52,061, $ 50,430, $ 50,430, /01/ /30/ ,936, ,936, ,936, ,936, /01/ /30/2014 2,223, ,223, ,223, ,223, ,160, ,160, ,160, ,160, /01/ /30/2014 7,452, ,452, ,452, ,452, /01/ /30/ , , , , ,961, ,961, ,961, ,961, /01/ /30/ , , , , /01/ /30/ , , , , /01/ /30/ , , , , ,470, ,470, ,470, ,470, /01/ /30/2014 7, , , , /01/ /30/ , , , , /01/ /30/ , , , , /01/ /30/2014 2, , , , /01/ /30/ , , , , /01/ /30/ , , , , , , , , $ 83,504, $ 83,504, $ 81,873, $ 81,873, Mobile County Board of School Commissioners 61 Exhibit #10

168 Note 1 Basis of Presentation Notes to the Schedule of Expenditures of Federal Awards For the Year Ended September 30, 2014 The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of the Mobile County Board of School Commissioners and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in or used in the preparation of the basic financial statements. Mobile County Board of School Commissioners 62

169 Additional Information Mobile County Board of School Commissioners 63

170 Board Members and Administrative Personnel October 1, 2013 through September 30, 2014 Board Members Term Expires Reginald A. Crenshaw, Ph.D. President November 2014 L. Douglas Harwell, Jr. Vice-President November 2018 William C. Foster, Ed.D. Member November 2016 Levon C. Manzie Member Resigned November 2, 2013 Tracie L. Roberson Member November 2014 Don Stringfellow Member November 2018 Administrative Personnel Martha L. Peek Superintendent June 2015 Dinish Simpson Chief School Financial Officer Mobile County Board of 64 Exhibit #11 School Commissioners

171 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 To: Members of the Mobile County Board of School Commissioners, Superintendent and Chief School Financial Officer We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Mobile County Board of School Commissioners as of and for the year ended September 30, 2014, and the related notes to the financial statements, which collectively comprise the Mobile County Board of School Commissioners basic financial statements and have issued our report thereon dated February 26, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Mobile County Board of School Commissioners internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Mobile County Board of School Commissioners internal control. Accordingly, we do not express an opinion on the effectiveness of the Mobile County Board of School Commissioners internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we considered to be material weaknesses. However, material weaknesses may exist that have not been identified. Mobile County Board of 65 Exhibit #12 School Commissioners

172 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 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Mobile County Board of School Commissioners' financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we have reported to the management of the Mobile County Board of School Commissioners in the Schedule of State and Local Compliance and Other Findings. Mobile County Board o{school Commissioner's Response to Findings The Mobile County Board of School Commissioner's response to the findings identified in our audit is described in the accompanying Auditee Response. The Mobile County Board of School Commissioner's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose ofthis Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Montgomery, Alabama February 26,2015 'tf-ltti<~ Ronald L. Jones Chief Examiner Department of Examiners of Public Accounts Mobile County Board of School Commissioners 66 Exhibit #12