Banc of America Securities LLC

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1 NEW ISSUE BOOK-ENTRY ONLY RATINGS: (See RATINGS herein) In the opinion of Sidley Austin LLP, San Francisco, California, Bond Counsel, based on existing statutes, regulations, rulings and judicial decisions and assuming compliance with certain covenants in the documents pertaining to the Bonds and requirements of the Internal Revenue Code of 1986, as amended (the Code ), as described herein, interest on the Bonds is not includable in the gross income of the owners of the Bonds for federal income tax purposes. In the further opinion of Bond Counsel, interest on the Bonds is not treated as an item of tax preference in calculating the federal alternative minimum taxable income of individuals and corporations. Interest on the Bonds, however, is included as an adjustment in the calculation of federal corporate alternative minimum taxable income and may therefore affect a corporation s alternative minimum tax liability. In the further opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxes imposed by the State of California. See TAX MATTERS herein. Dated: Date of Delivery $150,000,000 SAN FRANCISCO UNIFIED SCHOOL DISTRICT (CITY AND COUNTY OF SAN FRANCISCO, CALIFORNIA) (Proposition A, Election of 2006) General Obligation Bonds Series B (2009) Due: June 15, as shown on the inside cover The San Francisco Unified School District (City and County of San Francisco, California) (Proposition A, Election of 2006) General Obligation Bonds, Series B (2009) (the Bonds ), in the aggregate principal amount of $150,000,000 were authorized at an election of the registered voters of the San Francisco Unified School District (the District ) held on November 7, 2006, at which more than 55% of the persons voting on the measure voted to authorize the issuance and sale of up to $450,000,000 aggregate principal amount of general obligation bonds of the District. The Bonds represent the second series of bonds issued pursuant to that authorization and are issued for the purpose of constructing a number of projects within the District as more fully described herein under the caption INTRODUCTION Purpose of Issue. The Bonds are obligations of the District only and are not obligations of the City and County of San Francisco (the City ), the State of California or any of its other political subdivisions. The Board of Supervisors of the City has the power and is obligated to levy and collect ad valorem property taxes in each fiscal year upon the taxable property of the District in an amount at least sufficient, together with other moneys available for such purpose, to pay the principal of and premium, if any, and interest on each Bond as the same becomes due and payable. The Bonds are issued in fully registered form and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository of the Bonds as described herein under the caption THE BONDS Book-Entry Only System. Interest on the Bonds is payable on June 15 and December 15, commencing on June 15, Payments of principal of and interest on the Bonds will be paid by the Treasurer-Tax Collector of the City, as the Paying Agent, Bond Registrar and Transfer Agent (the Paying Agent ), to DTC for subsequent disbursement to DTC Participants (defined herein) who will remit such payments to the beneficial owners of the Bonds. See the inside front cover for maturity dates, principal amounts, interest rates, yields and CUSIP numbers for the Bonds. The Bonds are subject to optional redemption as described herein. See THE BONDS Redemption Provisions. This cover page contains certain information for reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Bonds are offered when, as and if issued, subject to the approval as to their legality by Sidley Austin LLP, San Francisco, California, Bond Counsel. Sidley Austin LLP has also acted as Disclosure Counsel to the District. Legal matters for the District will be passed upon by Maribel Medina, General Counsel to the District. Certain legal matters will be passed upon for the Underwriters by Hawkins Delafield & Wood LLP, San Francisco, California. Tamalpais Advisors, Inc., Sausalito, California served as Financial Advisor to the District in connection with the issuance of the Bonds. It is expected that the Bonds in book-entry form will be available for delivery through the facilities of DTC in New York, New York on or about February 5, De La Rosa & Co. Dated: January 22, 2009 Banc of America Securities LLC Goldman, Sachs & Co.

2 $150,000,000 SAN FRANCISCO UNIFIED SCHOOL DISTRICT (CITY AND COUNTY OF SAN FRANCISCO, CALIFORNIA) (Proposition A, Election of 2006) General Obligation Bonds Series B (2009) MATURITY SCHEDULE Base CUSIP Number: 79771T Maturity Date (June 15) Principal Amount Interest Rate Yield CUSIP Suffix 2009 $ 8,000, % 0.500% FB ,000, FC ,215, FD ,550, FE ,895, FF ,260, FG ,640, FH ,000, FJ ,960, FK ,075, FL ,365, FM ,085, FN ,170, FP ,720, FQ ,650, FR ,695, FS1 2020* 500, FT9 2020* 9,820, FU ,875, FV4 2021* 8,940, FW , FX0 2022* 10,560, FY , FZ5 2023* 11,200, GA ,575, GB7 2024* 11,000, GC5 A registered trademark of the American Bankers Association. CUSIP data 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 Service. CUSIP numbers are provided for convenience of reference only. None of the District or the Underwriters take any responsibility for the accuracy of such numbers. * Priced to optional call date of June 15, 2019 at a price of par.

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

4 SAN FRANCISCO UNIFIED SCHOOL DISTRICT Board of Education Name Term Expires Kim-Shree Maufas, President January 2011 Jane Kim, Vice President January 2011 Sandra Lee Fewer January 2013 Hydra B. Mendoza January 2011 Rachel Norton January 2013 Jill Wynns January 2013 Norman Yee January 2013 District Officials Carlos A. Garcia, Superintendent Myong Leigh, Deputy Superintendent, Policy and Operations Dr. Tony Smith, Deputy Superintendent, Instruction, Innovation and Social Justice Joseph C. Grazioli, Chief Financial Officer David Goldin, Chief Facilities Officer Leonard Tom, Director, Finance & Administration, SFUSD Bond Program Paulette Terrell, Director of Fiscal Services Reeta Madhavan, Director of Budget Services Maribel Medina, General Counsel SPECIAL SERVICES Financial Advisor Tamalpais Advisors, Inc. Sausalito, California Bond Counsel and Disclosure Counsel Sidley Austin LLP San Francisco, California Paying Agent, Bond Registrar and Transfer Agent José Cisneros Treasurer-Tax Collector of the City and County of San Francisco, California

5 TABLE OF CONTENTS INTRODUCTION...1 Authority for Issuance...1 Purpose of Issue...2 THE BONDS...3 Description of the Bonds...3 Book-Entry Only System...3 Redemption Provisions...3 Defeasance...5 DEBT SERVICE SCHEDULE...6 SECURITY AND SOURCE OF PAYMENT FOR THE BONDS...7 General...7 Assessed Valuation of Taxable Property...7 Tax Rates, Levies, Collections and Delinquencies...8 State-Assessed Utility Property...10 Teeter Plan...10 Secured Tax...11 ESTIMATED SOURCES AND USES OF FUNDS...12 Estimated Sources of Funds...12 Estimated Uses of Funds...12 CITY AND COUNTY INVESTMENT POOL...12 General...12 Investment of Bond Proceeds...12 CONTINUING DISCLOSURE...13 FINANCIAL STATEMENTS...13 CERTAIN LEGAL MATTERS...13 TAX MATTERS...14 General...14 Original Issue Discount...14 Original Issue Premium...15 Information Reporting and Backup Withholding...15 State Tax Exemption...15 Future Developments...15 RATINGS...16 UNDERWRITING...16 LEGALITY FOR INVESTMENT IN CALIFORNIA...16 NO LITIGATION...16 ADDITIONAL INFORMATION...16 APPENDIX A DISTRICT FINANCIAL AND DEMOGRAPHIC INFORMATION... A-1 APPENDIX B PROPOSED FORM OF OPINION OF BOND COUNSEL...B-1 APPENDIX C EXCERPTS FROM FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, C-1 APPENDIX D BOOK-ENTRY ONLY SYSTEM... D-1 APPENDIX E PROPOSED FORM OF DISCLOSURE DISSEMINATION AGENT AGREEMENT...E-1 APPENDIX F EXCERPTS FROM THE CITY AND COUNTY OF SAN FRANCISCO INVESTMENT PORTFOLIO REPORT...F-1 Page i

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7 OFFICIAL STATEMENT $150,000,000 San Francisco Unified School District (City and County of San Francisco, California) (Proposition A, Election of 2006) General Obligation Bonds Series B (2009) INTRODUCTION This Official Statement (which includes the cover page through the Appendices attached hereto) is furnished by the San Francisco Unified School District (the District ) to provide information concerning the $150,000,000 aggregate principal amount of the San Francisco Unified School District (City and County of San Francisco, California) (Proposition A, Election of 2006) General Obligation Bonds, Series B (2009) (the Bonds ). The Official Statement makes reference to resolutions and to other documents and statutes. Such references do not purport to be complete, comprehensive or definitive and are qualified in their entirety by reference to each such document. Authority for Issuance The Bonds are being issued under the provisions of Article XIIIA of the Constitution of the State of California ( Article XIIIA ) and Title 1, Division 1, Part 10, Chapter 1.5 of the Education Code of the State (commencing at Section 15264) and pursuant to resolutions of the Board of Education of the District adopted on September 23, 2008 and October 14, 2008 (collectively, the District Resolution ) and of the Board of Supervisors of the City and County of San Francisco (the City ) adopted on December 12, At an election held on November 7, 2006, more than 55% of the votes cast by eligible voters within the District authorized the District to issue up to $450,000,000 of general obligation bonds (the Proposition A Authorization ). The Bonds represent the second series of bonds issued under the Proposition A Authorization. Following the issuance of the Bonds, the District will have $200,000,000 remaining authorized and unissued under the Proposition A Authorization. The Bonds were authorized by the voters of the District pursuant to provisions of the Constitution of the State of California (the State ) affected by Proposition 39, the Constitutional initiative passed by voters statewide on November 7, 2000, permitting approval of certain general obligation bonds of school and community college districts by a minimum 55% vote. See APPENDIX A DISTRICT FINANCIAL AND DEMOGRAPHIC INFORMATION CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Proposition 39, herein. Proposition 39 requires the District to establish a citizens bond oversight committee (the Committee ) that is responsible for review of the expenditure of general obligation bond proceeds issued under the Proposition A Authorization. The District Board of Education established the Committee on December 12, The Committee is required to report to the public at least annually regarding financial matters and performance of the District s general obligation bond program. No District officials, employees or consultants may sit on the Committee, and no Proposition A funds may be expended to support the activities of the Committee. The current members of the Committee and the community groups represented by such members are set forth below:

8 SAN FRANCISCO UNIFIED SCHOOL DISTRICT Citizens Bond Oversight Committee (As of January 1, 2008) Member Patricia Crawford Craig Issod Nan McGuire Vacant (1) Jim Quadra Walter Haub Vacant (1) Vacant (1) Lourdes Garcia Community Group Represented Retired Member, United Educators of San Francisco Member at Large President, San Francisco Green Schoolyard Alliance and Member, Older Women s League Member of Business Organization representing business community located within District Attorney, Moscone, Emblidge & Quadra, LLP Retired Member, United Administrators of San Francisco Member of Taxpayer s Organization Parent of child enrolled in District Parent of child enrolled in District and Member of Parent-Teacher Organization (1) The District continually looks at vacancies and works to make recommendations to the District Board of Education to fill these vacancies. Purpose of Issue Proceeds from the Bonds issued pursuant to the Proposition A Authorization will be used to modernize and repair up to 63 school facilities to health, safety, instructional and accessibility standards, and where applicable, replace portable trailers with permanent classrooms, upgrade bathrooms, science labs, plumbing, electrical and other building systems, replace heating and ventilation systems, and renovate classrooms and to pay all necessary legal, financial, engineering and contingent costs in connection therewith as further specified in the Proposition A Authorization (the Project ). The District expects to use proceeds of the Bonds to fund the review, design and construction management of 63 projects at up to 58 District sites, as well as construction expenditures relating to said projects, as summarized in the table below: Project Components and Estimated Costs Amount (in millions) Program Management $ 4.0 Design and Engineering 3.0 Pre-Construction 7.0 Construction Construction Management 18.0 Project Contingency 2.0 $

9 THE BONDS Description of the Bonds The Bonds will be dated the date of delivery and will be issued in denominations of $5,000 or any integral multiple thereof, and will mature on the dates and in the principal amounts and bear interest at the rates per annum, all as set forth on the inside cover page of this Official Statement. Interest on the Bonds accrues from the date of delivery and is payable semiannually on June 15 and December 15 of each year, commencing June 15, Interest will accrue on the Bonds on the basis of a 360-day year comprised of twelve 30-day months. The Bonds will be issued in fully registered form and, when issued, will be registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for the Bonds. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references herein to the Owners or registered owners shall mean Cede & Co. as aforesaid, and shall not mean the Beneficial Owners (as defined herein) of the Bonds. So long as Cede & Co. is the registered owner of the Bonds, principal of and interest or premium, if any, on the Bonds are payable by wire transfer by the Treasurer-Tax Collector of the City (the Treasurer ), as paying agent (the Paying Agent ) and as bond registrar (the Bond Registrar ), to Cede & Co., as nominee for DTC. DTC is obligated, in turn, to remit such amounts to the DTC Participants (as defined herein) for subsequent disbursement to the Beneficial Owners. Payments of principal, and premium, if any, for any Bonds shall be made only upon the surrender of such Bonds to the Paying Agent at its principal office. See APPENDIX D BOOK-ENTRY ONLY SYSTEM herein. For details on the maturity dates, principal amounts of, interest rates and initial public offering prices or yields on the Bonds, see the maturity schedule on the inside cover hereof. For details on the debt service for the Bonds, see DEBT SERVICE SCHEDULE. Book-Entry Only System The Bonds will be issued in book-entry form only and will be initially issued and registered in the name of Cede & Co. as nominee of DTC. Purchasers of beneficial ownership interests in the Bonds from participants in the DTC system (the Beneficial Owners ) will not receive physical certificates representing their interest in the Bonds. See APPENDIX D BOOK-ENTRY ONLY SYSTEM. Redemption Provisions Optional Redemption. The Bonds maturing on or before June 15, 2019, are not subject to redemption prior to their fixed maturity dates. The Bonds maturing on or after June 15, 2020, are subject to redemption, at the option of the District, from any source of funds, in whole or in part, on any date on or after June 15, 2019, at par plus accrued interest to the date of redemption. If less than all of the Bonds are called for redemption, the Paying Agent will select Bonds for redemption from such maturity dates as are selected by the District, and by lot within each such maturity in such manner as the Paying Agent shall determine. Notice of Redemption. Upon written instruction from the District, the Paying Agent shall give notice (a Redemption Notice ) of the redemption of the Bonds. Such Redemption Notice shall specify: (a) the date of the Redemption Notice, (b) the name of the Bonds, (c) the Bonds or designated portions thereof (in the case of redemption of the Bonds in part but not in whole) which are to be redeemed, (d) the date of redemption, (e) the place or places where the redemption will be made, including the name and address of the Paying Agent, (f) the redemption price, (g) the CUSIP numbers assigned to each maturity of the Bonds to be redeemed, (h) if less than all of the Bonds of any maturity are to be redeemed, the Bond numbers of the Bonds of each maturity of the Bonds to be redeemed and, in the case of any Bond to be redeemed in part only, the respective portions of the principal amount of the Bonds of each maturity to be redeemed, and (i) the original issue date, interest rate and stated maturity date of each Bond to be redeemed in whole or in part. Such Redemption Notice shall further state that on the 3

10 specified date there shall become due and payable upon each Bond or portion thereof being redeemed the Redemption Price thereof, together with the interest accrued to the redemption date, and that from and after such date, interest with respect thereto shall cease to accrue. The Paying Agent shall provide such Redemption Notice: (a) at least 30 but not more than 45 days prior to the redemption date, to the respective Owners of Bonds designated for redemption by first class mail, postage prepaid, at their addresses appearing on the books of the Bond Registrar; (b) at least 32 days prior to the redemption date to each of the nationally recognized municipal securities depositories and to at least two of the nationally recognized information services specializing in municipal securities; and (c) as may be required pursuant to the terms of the Disclosure Dissemination Agent Agreement (defined below). Neither failure to receive nor failure to publish any Redemption Notice nor any defect in any such Redemption Notice so given shall affect the sufficiency of the proceedings for the redemption of the affected Bonds. Partial Redemption of Bonds. Upon the surrender of any Bond redeemed in part only, the Bond Registrar will execute and deliver to the Owner thereof a new Bond or Bonds of like tenor and maturity and of authorized denominations equal to the unredeemed portion of the Bond surrendered. Such partial redemption will be valid upon payment of the amount required to be paid to such Owner, and the District will be released and discharged thereupon from all liability to the extent of such payment. Effect of Notice of Redemption. Notice having been given as required in the District Resolution, and the moneys for redemption (including the interest to the applicable date of redemption) having been set aside in the District s Debt Service Fund (defined herein) or held in trust for such purposes as provided by law, the Bonds to be redeemed will become due and payable on such date of redemption. If on such redemption date, money for the redemption of all the Bonds to be redeemed, together with interest to such redemption date, is held by the Paying Agent so as to be available therefor on such redemption date, and if notice of redemption thereof has been given, then from and after such redemption date, interest on the Bonds to be redeemed will cease to accrue and become payable. Rescission of Notice of Redemption. The District may rescind any optional redemption and notice thereof for any reason on any date prior to the date fixed for redemption by causing written notice of the rescission to be given to the Owners of the Bonds so called for redemption. In the event that any Bond is subject to optional redemption and moneys sufficient to redeem the principal of and interest on all of the Bonds proposed to be redeemed shall not be on deposit in the Debt Service Fund or in any escrow fund established for redemption of the Bonds on such date fixed for redemption, the redemption and notice thereof shall be rescinded and in each and every such case, the District and the Owners of the Bonds so called for redemption, as the case may be, shall be restored to their former positions and rights. Notice of rescission of redemption shall be given in the same manner in which notice of redemption was originally given. Neither failure to receive nor failure to give nor any defect in any such notice of rescission of redemption shall affect the validity of the rescission. Transfer and Exchange. Any Bond may be exchanged for Bonds of like tenor and maturity upon presentation and surrender at the principal office of the Bond Registrar, together with a request for exchange signed by the Owner or by a person legally empowered to do so in a form satisfactory to the Bond Registrar. A Bond may be transferred on the Bond Register only upon presentation and surrender of such Bond at the principal office of the Bond Registrar together with an assignment executed by the Owner or a person legally empowered to do so in a form satisfactory to the Bond Registrar. Upon exchange or transfer, the Bond Registrar will complete, authenticate and deliver a new Bond or Bonds of like tenor and maturity of any authorized denomination or denominations requested by the Owner equal to the principal amount of the Bond surrendered and bearing or accruing interest at the same rate and maturing on the same date. The Bond Registrar may require the payment by any Owner of the Bonds requesting any such transfer of any tax or other governmental charge required to be paid with respect to such transfer. 4

11 Defeasance All or any portion of the outstanding maturities of the Bonds may be defeased at any time prior to maturity in the following ways: (a) by irrevocably depositing with the Paying Agent an amount of cash which, together with amounts then on deposit in the Debt Service Fund, is sufficient to pay all Bonds outstanding and designated for defeasance, including all principal thereof and interest and redemption premium thereon, if any; or (b) by irrevocably depositing with the Paying Agent, noncallable United States Obligations and/or other Permitted Investments, together with cash, if required, in such amount as will, in the opinion of an independent certified public accountant, together with interest to accrue thereon and moneys then on deposit in the Debt Service Fund together with the interest to accrue thereon, be fully sufficient to pay and discharge all the Bonds outstanding and designated for defeasance (including all principal thereof and interest and redemption premium, if any, thereon) at or before their maturity date. Notwithstanding that any of such defeased Bonds shall not have been surrendered for payment, all obligations of the District with respect to all of such defeased outstanding Bonds shall cease and terminate, except only the obligation of the Paying Agent to pay or cause to be paid from funds deposited pursuant to paragraphs (a) or (b) above, to the owners of such defeased Bonds not so surrendered and paid all sums due with respect thereto. United States Obligations means: (i) Non-callable direct obligations of the United States of America or other non-callable obligations the payment of the principal of and interest on which is guaranteed by a pledge of the full faith and credit of the United States of America; and (ii) Non-callable obligations of government sponsored agencies that are rated AAA, by Standard & Poor s or Aaa by Moody s Investors Service but are not backed by the full faith and credit of the U.S. Government. These include the following: (a) Farm Credit System (Formerly: Federal Land Banks, Intermediate Credit Banks, and Banks for Cooperatives) Consolidated Systemwide bonds and notes; (b) Federal Home Loan Banks (FHL Banks) Consolidated debt obligations; and (c) Resolution Funding Corp. (REFCORP) Debt Obligations. Permitted Investments means: Pre-refunded fixed interest rate municipal obligations meeting the following conditions: (a) the municipal obligations are not subject to redemption prior to maturity, or the Paying Agent has been given irrevocable instructions concerning their calling and redemption and the District has covenanted not to redeem such obligations other than as set forth in such instructions; (b) the municipal obligations are secured by cash and/or United States Obligations; (c) the principal of and interest on the United States Obligations (plus any cash in the escrow fund or the redemption account) are sufficient to meet the liabilities of the municipal obligations; (d) the United States Obligations serving as security for the municipal obligations are held by the Treasurer or, if appointed by the Treasurer, an escrow agent or trustee; (e) the United States Obligations are not available to satisfy any other claims, including those against the trustee or escrow agent; and (f) the municipal obligations are rated AAA by Standard & Poor s and Aaa by Moody s Investors Service. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 5

12 DEBT SERVICE SCHEDULE The following table summarizes the semi-annual debt service requirements for the Bonds and all other outstanding general obligation bonds issued by the District: The Bonds Payment Date Principal Interest Debt Service for the Bonds Debt Service for Outstanding Election of 2003 General Obligation Bonds Debt Service for Outstanding Election of 2006 Series A Bonds (2) Total Debt Service (1) 06/15/09 $8,000,000 $2,365, $10,365, $16,022, $5,418, $31,806, /15/09 3,215, ,215, ,569, ,980, ,764, /15/10 7,000,000 3,215, ,215, ,224, ,500, ,939, /15/10 3,110, ,110, ,344, ,909, ,364, /15/11 7,215,000 3,110, ,325, ,444, ,574, ,344, /15/11 3,001, ,001, ,110, ,845, ,957, /15/12 7,550,000 3,001, ,551, ,675, ,635, ,862, /15/12 2,888, ,888, ,863, ,769, ,522, /15/13 7,895,000 2,888, ,783, ,923, ,714, ,422, /15/13 2,730, ,730, ,605, ,690, ,026, /15/14 8,260,000 2,730, ,990, ,190, ,790, ,971, /15/14 2,565, ,565, ,331, ,588, ,484, /15/15 8,640,000 2,565, ,205, ,456, ,893, ,554, /15/15 2,367, ,367, ,024, ,480, ,872, /15/16 9,035,000 2,367, ,402, ,764, ,000, ,167, /15/16 2,151, ,151, ,727, ,356, ,235, /15/17 9,450,000 2,151, ,601, ,057, ,126, ,785, /15/17 1,932, ,932, ,385, ,237, ,554, /15/18 9,890,000 1,932, ,822, ,405, ,247, ,474, /15/18 1,705, ,705, ,049, ,111, ,867, /15/19 10,345,000 1,705, ,050, ,739, ,371, ,162, /15/19 1,460, ,460, ,699, , ,139, /15/20 10,320,000 1,460, ,780, ,094, ,500, ,374, /15/20 1,192, ,192, ,327, , ,362, /15/21 10,815,000 1,192, ,007, ,462, ,642, ,112, /15/21 920, , ,912, , ,530, /15/22 11,335, , ,255, ,872, ,787, ,915, /15/22 627, , ,463, , ,666, /15/23 11,675, , ,302, ,323, ,905, ,531, /15/23 323, , ,014, , ,754, /15/24 12,575, , ,898, ,774, ,067, ,739, /15/24 533, , , /15/25 16,923, ,167, ,090, /15/25 154, , , /15/26 7,004, ,269, ,273, /15/26 108, , /15/27 7,373, ,373, Total $150,000,000 $62,751, $212,751, $367,470, (2) $140,111, $720,334, (1) (2) The District has no other outstanding general obligations bonds issued in the name of the District, although the City has $ million of outstanding general obligation bonds that the City has issued on behalf of the District in the name of the City. The figures in the column entitled Debt Service for Outstanding Election of 2006 Series A Bonds and the total in the column entitled Debt Service for Outstanding Election of 2003 General Obligation Bonds, as printed in the Preliminary Official Statement dated January 14, 2009, were inadvertently overstated. 6

13 SECURITY AND SOURCE OF PAYMENT FOR THE BONDS Principal of and interest on the Bonds are to be paid from the proceeds of an ad valorem tax authorized to be levied by the City on taxable property within the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates) in an amount sufficient to make such payments. The information in this section describes how ad valorem property taxes in general are assessed and levied. General The Bonds are obligations of the District only and are not obligations of the City, the State, or any of its other political subdivisions. The Board of Supervisors of the City has the power and is obligated to levy and collect ad valorem property taxes in each fiscal year upon the taxable property of the District in an amount at least sufficient, together with other moneys available for such purpose, to pay the principal of and premium, if any, and interest on each Bond as the same becomes due and payable. Assessed Valuation of Taxable Property The District uses the services of the City for the assessment of taxable property in the District. The District has boundaries that are coterminous with the City, and assessed valuation of taxable property is the same for both District and City taxing purposes. The City typically experiences increases in assessment appeals activity during economic downturns and decreases as the economy rebounds. Historically during severe economic downturns, partial reductions of up to approximately 20.0% to 30.0% of the assessed valuations appealed have been granted. Assessment appeals granted typically result in revenue refunds, and the level of refund activity depends on the unique economic circumstances of each fiscal year. The 2008 assessment appeal open filing period for the City was July 2, 2008 to September 15, Property owners in the City filed an estimated 1,687 requests for informal re-evaluations during Fiscal Year through September 2, 2008, which is five times the number filed in the prior fiscal year. Property owners filed approximately 1,753 requests for a formal review before the City assessment appeals board for secured property for Fiscal Year through December 31, The value for the 1,753 requests for formal review of secured real property as of December 31, 2008 totals $12,494,893,656. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 7

14 The following tabulation shows the assessed valuation of taxable property in the District for the current fiscal year and the previous nine fiscal years. (1) (2) Fiscal Year SAN FRANCISCO UNIFIED SCHOOL DISTRICT Assessed Valuation of Taxable Property (1) Fiscal Years through (Dollars in Thousands) Total Assessed Value Assessed Value Less Exemptions (2) Increase of Assessed Value Less Exemptions from Prior Year Percent Increase of Assessed Value Less Exemptions $71,243,838 $64,948,698 $5,241, % ,519,416 74,872,213 9,923, ,553,250 84,466,707 9,594, ,106,745 90,250,041 5,783, ,727,811 95,439,753 5,189, ,542, ,647,880 5,208, ,233, ,875,759 6,227, ,598, ,990,087 10,114, ,513, ,004,478 13,014, ,603, ,919,748 11,915, Assessed Value of taxable property represents all property within the City. Net of non-reimbursable and homeowner exemptions and redevelopment tax increment allocations. Sources: City and County of San Francisco Comprehensive Annual Financial Report for the Year Ended June 30, 2007, for Fiscal Years through ; Office of the Controller, City and County of San Francisco for Fiscal Years and Tax Rates, Levies, Collections and Delinquencies School districts use the services of the local county for the assessment and collection of property taxes for district purposes. In the case of the District, the local county is the City. District property taxes, including the ad valorem property tax for payment of the Bonds, are assessed and collected by the City at the same time and on the same rolls as county, special district and City property taxes. Proposition 13 and its implementing legislation impose the function of property tax allocation on counties in the State, except for levies to support voted debt prior to enactment of Proposition 13, and prescribe how levies on countywide property values are to be shared with local taxing entities within each county. The City levies a 1% property tax on behalf of all taxing agencies in the City. The taxes collected are allocated on the basis of a formula established by State law enacted in Under this formula, the City and all other taxing entities receive a base year allocation plus an allocation on the basis of situs growth in assessed value (new construction, change of ownership, inflation) prorated among the jurisdictions which serve the tax rate areas within which the growth occurs. Tax rate areas are specifically defined geographic areas which were developed to permit the levying of taxes for less than countywide or less than citywide special and school districts. Taxes are levied for each fiscal year on taxable real and personal property as of the preceding January 1. For assessment and collection purposes, property is classified either as secured or unsecured and is listed accordingly on separate parts of the assessment roll. The secured roll is that part of the assessment roll containing real property the taxes on which are a lien sufficient, in the opinion of the Assessor for the City, to secure payment of the taxes. Other property is listed on the unsecured roll. Real property which changes ownership or is newly constructed is revalued at the time the change occurs or the construction is completed. The current year property tax rate is applied to the reassessed value, and the taxes are then adjusted by a proration factor that reflects the portion of the remaining tax year for which taxes are due. 8

15 Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year, and become delinquent on December 10 and April 10, respectively. A penalty of 10% attaches immediately to all delinquent payments. Properties on the secured roll with respect to which taxes are delinquent become tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1.5% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then may be sold at public auction by the Treasurer. Property taxes on the unsecured roll are due as of the January 1 lien dates and become delinquent on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5 p.m. on October 31, an additional penalty of 1.5% attaches to them on the first day of each month until paid. The City has four ways of collecting delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a judgment in the office of the county clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the county recorder s office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. State law exempts $7,000 of the full cash value of an owner-occupied dwelling, but this exemption does not result in any loss of revenue to local entities, since an amount equivalent to the taxes which would have been payable on such exempt values is paid by the State. Government Code Sections through set forth the details of and procedures that all counties, including the City, must follow for calculating tax rates. The secured tax levy within the District consists of the District s share of the general ad valorem and unitary taxes assessed on a City-wide basis. The secured tax levy also includes the District s share of special voter approved ad valorem taxes assessed on a District-wide basis which are levied to pay debt service on the Bonds and the District s other voter approved bonds. In addition, the total secured tax levy includes special assessments, improvement bonds, supplemental taxes or other charges that have been assessed on property within the District. Since State law allows homeowners exemptions (described above) and certain businesses exemptions from ad valorem property taxation, the homeowner s exemption is not included in the total secured tax levy. The annual tax rate is based on the amount necessary to pay all debt service obligations payable from ad valorem taxes and the assessed value of taxable property in a given year. Economic and other factors beyond the District s control, such as a general market decline in land values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes), or the complete or partial destruction of taxable property caused by natural or manmade disaster such as earthquake, flood, toxic dumping, etc., could cause a reduction in the assessed value of taxable property within the District and necessitate a corresponding increase in the annual tax rate to be levied to pay the principal of and interest on the Bonds. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 9

16 SAN FRANCISCO UNIFIED SCHOOL DISTRICT Summary of Property Tax Levies and Collections (1)(2) Fiscal Years through (Dollars in Thousands) Percent of Current Tax Collections to Annual Tax Levy Delinquent Tax Collections (3) Percent of Total Tax Collections to Annual Tax Levy Outstanding Delinquent Taxes (3) Percent of Delinquent Taxes to Annual Tax Levy Fiscal Year Annual Tax Levy Current Tax Collections Total Tax Collections $ 709,852 $ 697, % $ 8,917 $ 706, % $ 46, % , , , , , , , , , , , , , , , ,010, , , , , ,051,921 1,028, ,766 1,034, , ,100,951 1,079, ,092 1,088, , ,208,044 1,179, ,010 1,197, , ,291,491 1,263, ,524 1,280, n/a (5) n/a (5) ,411,316 1,372, ,959 1,378, n/a (5) n/a (5) ,483,351 n/a (4) n/a (4) n/a (4) n/a (4) n/a (4) n/a (5) n/a (5) (1) (2) (3) (4) (5) Includes the District, San Francisco Community College District, Bay Area Rapid Transit District, Bay Area Air Quality Management District and San Francisco Redevelopment Agency. So long as the City applies the Teeter Plan (defined below) to the tax levy for the Bonds, delinquent taxes do not impact the availability of ad valorem taxes to pay principal of and interest on the Bonds. Does not include Senate Bill 813 supplemental property taxes. Delinquent tax collections and outstanding delinquent taxes reflect reductions due to assessment appeals. Information not available. Data is compiled from numerous sources and is typically released with a significant time lag. Information not available. The Office of the Controller, City and County of San Francisco, has discontinued including these figures in the City and County of San Francisco Comprehensive Annual Financial Reports. Sources: City and County of San Francisco Comprehensive Annual Financial Report for the Year Ended June 30, 2007 and Office of the Controller, City and County of San Francisco. State-Assessed Utility Property The Constitution provides that the State Board of Equalization (the SBE ), rather than counties, assess certain property owned or used by regulated utilities. Such property is grouped and assessed by the SBE as going concern operating units, which may cross local tax jurisdiction boundaries, rather than as individual parcels of real or personal property separately assessed. Such utility property is known as unitary property. The SBE assesses property at fair market value, determined by various methods and formulae depending on the nature of the property, except that assessed value of certain railroad property is limited to a percentage of the fair market value determined by the SBE, in conformity with federal law. The SBE assesses values as of January 1 prior to the tax year of the related tax levy. Property tax on SBE-assessed property is then levied and collected by each county in the same manner as county assessed property, but at special county-wide tax rates, and distributed to each taxing agency within that county generally according to the approximate percentages as allocated to each taxing agency in the prior year. Changes in the State electric utility industry structure and in the way in which components of that industry are regulated and owned, including the sale of electric generation assets to largely unregulated, non-utility companies, may convert the status of such assets from SBE-assessed unitary property to locally assessed property or otherwise affect how those assets are assessed in the future and which local taxing agencies are to receive the property taxes on such assets. Teeter Plan The City has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the Teeter Plan ), as provided for in Section 4701 et seq. of the State Revenue and Taxation Code. 10

17 Under the Teeter Plan, each participating local agency, including school districts, levying property taxes in a county receives the amount of uncollected taxes credited to its fund, in the same manner as if the amount credited had been collected. In return, the county receives and retains delinquent payments, penalties and interest as collected, that would have been due the local agency. The Teeter Plan is to remain in effect unless the county board of supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year of the county, the board of supervisors receives a petition for its discontinuance from two-thirds of the participating revenue districts in the county. A board of supervisors may, after holding a public hearing on the matter, discontinue the procedures under the Teeter Plan with respect to any tax levying agency in its county when delinquencies for taxes levied by that agency exceed 3%. The Teeter Plan applies to the 1% general purpose property tax levy. Whether or not the Teeter Plan also is applied to other tax levies for local agencies, such as the tax levy for general obligation bonds of a local agency, varies by county. The City currently applies the Teeter Plan to the tax levy for the District s Bonds, but no assurance can be given that the City will continue to do so while the Bonds remain outstanding. See Tax Rates, Levies, Collections and Delinquencies herein for a history of property tax collections and delinquencies in the District. Secured Tax The following table shows the ten largest secured property taxpayers in the District for Fiscal Year Property Owner SAN FRANCISCO UNIFIED SCHOOL DISTRICT Largest Local Secured Taxpayers Fiscal Year Ended June 30, 2008 (Dollars in Thousands) Type of Business Assessed Valuation (1) % Total HWA 555 Owners LLC Office, Commercial $ 885, % PPF OFF One Market Plaza Owner LLC Office, Commercial 442, Marriott Hotel Hotel 413, SFHR LLC Office, Commercial 373, Post-Montgomery Associates Office, Commercial 363, TST Mission Street LLC Office, Commercial 331, One Embarcadero Center Venture Office, Commercial 322, Broadway Partners Office, Commercial 306, Three Embarcadero Center Venture Office, Commercial 303, Embarcadero Center Associates Office, Commercial 301, (1) Ten Largest Assessees $4,041, % Represents the Assessed Valuation as of the Basis of Levy, an annual report published by the Office of the Assessor, which excludes those assessments that, for a variety of reasons, are not being captured in the Basis of Levy report. Source: Office of the Assessor, City and County of San Francisco. 11

18 ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds in connection with the Bonds are as follows: Estimated Sources of Funds Aggregate Principal Amount of Bonds $150,000,000 Plus Original Issue Premium 11,463,210 Less Original Issue Discount (115,147) Total Sources of Funds $161,348,063 Estimated Uses of Funds Building Fund $149,039,361 Costs of Issuance (1) 242,000 Underwriters Discount (2) 718,639 Debt Service Fund 11,348,063 Total Uses of Funds $161,348,063 (1) (2) Includes fees for printing, ratings, bond and disclosure counsel, financial advisor and other miscellaneous costs of issuance. Includes the Underwriters compensation and expenses. CITY AND COUNTY INVESTMENT POOL General In accordance with Education Code Section 41001, each State public school district maintains substantially all of its operating funds in the county treasury of the county in which it is located, and each county treasurer serves as ex officio treasurer for those school districts located within the county. Each county treasurer has the authority to implement and oversee the investment of school district funds held in the county treasury. Generally, the county treasurer pools county funds with school district funds and funds from certain other public agencies and invests the cash. These pooled funds are carried at cost. Interest earnings are accounted for on either a cash or accrual basis and apportioned to pool participants on a regular basis. Each county is required to invest funds, including those pooled funds described above, in accordance with Government Code Sections et seq. and et seq. In addition, each county is required to establish an investment policy that may impose further limitations beyond those required by the Government Code. A copy of the City investment policy and periodic reports on the City investment pool are available from the Treasurer, P.O. Box 7425, San Francisco, CA 94120, telephone (415) See also APPENDIX F EXCERPTS FROM THE CITY AND COUNTY OF SAN FRANCISCO INVESTMENT PORTFOLIO REPORT. Investment of Bond Proceeds The proceeds from the sale of the Bonds, to the extent of the aggregate principal amount thereof, shall be paid to the City, as Paying Agent for the Bonds, to be deposited to the credit of the 2009 Series B San Francisco Unified School District General Obligation Bonds Building Fund (the Building Fund ) and shall be kept separate and distinct from all other District and City funds. The proceeds shall be used for the purposes authorized under Proposition A. Investment of funds on deposit in the Building Fund will be subject to the City s investment policy and to Title 5, Division 2, Part 1, Chapter 4, Article 1 of the Government Code of the State. Interest earned on funds on deposit in the Building Fund shall be spent only on capital projects authorized under Proposition A. Any excess 12

19 proceeds of the Bonds not needed for the purpose for which the Bonds are issued shall be transferred, in accordance with State law, to the District s general fund after payment in full of the Bonds. Any premium received by the District from the sale of the Bonds shall be kept separate and apart in the 2009 Series B San Francisco Unified School District General Obligation Bond Debt Service Fund (the Debt Service Fund ) and used only for payment of principal of and interest on the Bonds. Interest earned on the investment of monies held in the Debt Service Fund shall be retained in the Debt Service Fund and used toward payment of the principal of and interest on the Bonds when due. CONTINUING DISCLOSURE The District has covenanted for the benefit of the holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to the District (the Annual Report ) by not later than 270 days following the end of the District s fiscal year (currently ending June 30), commencing with the report for Fiscal Year , and to provide notices of the occurrence of certain enumerated events, if material. The District will provide the Annual Report to Digital Assurance Certification, L.L.C. ( DAC ), as dissemination agent, to file with each Nationally Recognized Municipal Securities Information Repository ( NRMSIR ), and with the State information repository, if any. The District will provide the notices of material events to DAC to file with each NRMSIR or with the Municipal Securities Rulemaking Board and with the State information repository, if any. Pursuant to rules recently enacted by the SEC, beginning July 1, 2009, all such financial information and operating data must be filed with the Municipal Securities Rulemaking Board s Electronic Municipal Market Access System, rather than the current NRMSIRs. The Municipal Securities Rulemaking Board intends to make the information available to the public without charge at The information to be contained in the Annual Report or the notices of material events is set forth in APPENDIX E PROPOSED FORM OF DISCLOSURE DISSEMINATION AGENT AGREEMENT. These covenants have been made in order to assist the underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the Rule ). A previous continuing disclosure undertaking entered into by the District in connection with the execution and delivery of certain certificates of participation (the Prior Obligations ) called for filing the Annual Report no later than 270 days after the end of each fiscal year and/or certain other information to designated repositories upon the occurrence of certain events, so long as any of such Prior Obligations are outstanding. The District did not timely file its Annual Report required for Fiscal Year As of the date of this Official Statement, this report has been filed. In addition, the District caused DAC to provide a notice of failure to timely file such Annual Report to the Nationally Recognized Municipal Securities Information Repositories. As of the date hereof, the District is in compliance with the Rule. FINANCIAL STATEMENTS The financial statements of the District for the Fiscal Year ended June 30, 2008, certain sections of which are included in Appendix C to this Official Statement, have been audited by Vavrinek, Trine, Day & Co., LLP, independent certified public accountants, as stated in their report appearing in Appendix C. The District has not requested nor has the District obtained the consent of Vavrinek, Trine, Day & Co., LLP to the inclusion of its report as Appendix C. Vavrinek, Trine, Day & Co., LLP has not undertaken to update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by Vavrinek, Trine, Day & Co., LLP with respect to any event subsequent to its report dated December 15, CERTAIN LEGAL MATTERS The legal opinion of Sidley Austin LLP, Bond Counsel, attesting to the validity of the Bonds, will be supplied to the original purchasers of the Bonds without charge. A copy of the proposed form of opinion of Bond Counsel is attached hereto as APPENDIX B. Sidley Austin LLP has also acted as Disclosure Counsel to the District. Certain legal matters will be passed upon for the District by the District s General Counsel. Certain legal matters will be passed upon for the Underwriters by Hawkins Delafield & Wood LLP, San Francisco, California. Neither Bond Counsel nor Disclosure Counsel undertake any responsibility for the accuracy, completeness or fairness of this Official Statement. 13

20 TAX MATTERS General In the opinion of Sidley Austin LLP, San Francisco, California, Bond Counsel, based on existing statutes, regulations, rulings and judicial decisions and assuming compliance with certain covenants in the District Resolution and the Tax Certificate executed with respect to the Bonds and requirements of the Internal Revenue Code of 1986, as amended (the Code ), regarding the use, expenditure and investment of proceeds of the Bonds and the timely payment of certain investment earnings to the United States, interest on the Bonds is not includable in the gross income of the owners of the Bonds for federal income tax purposes. Failure to comply with such covenants and requirements may cause interest on the Bonds to be included in gross income retroactively to the date of issuance of the Bonds. In the further opinion of Bond Counsel, interest on the Bonds is not treated as an item of tax preference in calculating the federal alternative minimum taxable income of individuals and corporations. Interest on the Bonds, however, is included as an adjustment in the calculation of federal corporate alternative minimum taxable income and may therefore affect a corporation s alternative minimum tax liability. Ownership of, or the receipt of interest on, tax-exempt obligations may result in collateral tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with excess passive income, individual recipients of Social Security or Railroad Retirement benefits, taxpayers that may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations and taxpayers who may be eligible for the earned income tax credit. Bond Counsel expresses no opinion with respect to any collateral tax consequences and, accordingly, prospective purchasers of the Bonds should consult their tax advisors as to the applicability of any collateral tax consequences. Certain requirements and procedures contained or referred to in the District Resolution or other documents pertaining to the Bonds may be changed, and certain actions may be taken or not taken, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of counsel nationally recognized in the area of tax-exempt obligations. Bond Counsel expresses no opinion as to the effect of any change to any document pertaining to the Bonds or of any action taken or not taken where such change is made or action is taken or not taken without its approval or in reliance upon the advice of counsel other than Sidley Austin LLP with respect to the exclusion from gross income of the interest on the Bonds for federal income tax purposes. Original Issue Discount The initial public offering price of certain of the Bonds (collectively, the Discount Bonds ) may be less than the principal amount of the Discount Bonds. The difference between the principal amount of a Discount Bond and its initial public offering price is original issue discount. Original issue discount on a Discount Bond accrues over the term of such Discount Bond at a constant interest rate. To the extent it has accrued, original issue discount on a Discount Bond is treated as interest excludable from gross income for federal income tax purposes under the conditions and limitations described above. The amount of original issue discount that accrues on a Discount Bond in each year is not an item of tax preference for purposes of calculating federal alternative minimum taxable income, but is included as an adjustment in the calculation of federal corporate alternative minimum taxable income and may therefore affect a corporation s alternative minimum tax liability. Additionally, such accrued original issue discount is taken into account in determining the distribution requirements of certain regulated investment companies. Consequently, owners of Discount Bonds should be aware that the accrual of original issue discount in each year may result in an alternative minimum tax liability, additional distribution requirements or other collateral federal income tax consequences although the owner may not have received cash in such year. The accrual of original issue discount on a Discount Bond will increase the owner s adjusted basis in such Discount Bond. This will affect the amount of taxable gain or loss realized by the owner of the Discount Bond upon the redemption, sale or other disposition of such Discount Bond. The effect of the accrual of original issue discount on the federal income tax consequences of a redemption, sale or other disposition of a Discount Bond that is not 14

21 purchased at the initial public offering price may be determined according to rules that differ from those described above. Owners of Discount Bonds should consult their tax advisors with respect to the precise determination for federal income tax purposes of the amount of original issue discount that properly accrues with respect to the Discount Bonds, other federal income tax consequences of owning and disposing of the Discount Bonds and any state and local tax consequences of owning and disposing of the Discount Bonds. Original Issue Premium Certain of the Bonds may be purchased in the initial offering for an amount in excess of their principal amount (hereinafter, the Premium Bonds ). The excess of the tax basis of a purchaser of a Premium Bond (other than a purchaser who holds a Premium Bond as inventory, stock in trade or for sale to customers in the ordinary course of business) over the principal amount of such Premium Bond is bond premium. Bond premium is amortized for federal income tax purposes over the term of a Premium Bond based on the purchaser s yield to maturity in the Premium Bond, except that in the case of a Premium Bond callable prior to its stated maturity, the amortization period and the yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on such Premium Bond. A purchaser of a Premium Bond is required to decrease his or her adjusted basis in such Premium Bond by the amount of bond premium attributable to each taxable year in which such purchaser holds such Premium Bond. The amount of bond premium attributable to a taxable year is not deductible for federal income tax purposes. Purchasers of Premium Bonds should consult their tax advisors with respect to the precise determination for federal income tax purposes of the amount of bond premium attributable to each taxable year and the effect of bond premium on the sale or other disposition of a Premium Bond, and with respect to the state and local tax consequences of owning and disposing of a Premium Bond. Information Reporting and Backup Withholding Interest paid on tax-exempt obligations is subject to information reporting in a manner similar to interest paid on taxable obligations. While this reporting requirement does not, by itself, affect the excludability of interest from gross income for federal income tax purposes, the reporting requirement causes the payment of interest on the Bonds to be subject to backup withholding if such interest is paid to beneficial owners that (a) are not exempt recipients, and (b) either fail to provide certain identifying information (such as the beneficial owner s taxpayer identification number) in the required manner or have been identified by the IRS as having failed to report all interest and dividends required to be shown on their income tax returns. Generally, individuals are not exempt recipients, whereas corporations and certain other entities are exempt recipients. Amounts withheld under the backup withholding rules from a payment to a beneficial owner are allowed as a refund or credit against such beneficial owner s federal income tax liability so long as the required information is furnished to the IRS. State Tax Exemption In the further opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxes imposed by the State of California. Future Developments Future legislative proposals, if enacted into law, regulations, rulings or court decisions may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation or to State or local income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. Further, legislation and regulatory actions and proposals may affect the economic value of the federal or state tax exemption or the market value of the Bonds. Prospective purchasers of the Bonds should consult their tax advisors regarding pending or proposed federal or state tax legislation, regulations, rulings or litigation, as to which Bond Counsel expresses no opinion. A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix B. 15

22 RATINGS Moody s Investors Service, Inc. ( Moody s) has assigned the Bonds the rating of Aa3. Standard & Poor s Ratings Services, a division of The McGraw-Hill Companies ( Standard & Poor s ), has assigned the rating of AA- to the Bonds. Such ratings reflect only the views of such organizations and any desired explanation of the significance of such ratings should be obtained from the rating agency furnishing the same, at the following addresses: Moody s, 7 World Trade Center, 250 Greenwich Street, New York, New York 10007; Standard & Poor s, 55 Water Street, 38 th Floor, New York, New York Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Bonds. UNDERWRITING Banc of America Securities LLC, E. J. De La Rosa & Co., Inc. and Goldman, Sachs & Co., as underwriters (the Underwriters ), have agreed pursuant to a Bond Purchase Agreement (described below) to purchase the Bonds from the District at the purchase price of $160,629, (which represents the aggregate principal amount of the Bonds, plus original issue premium in the amount of $11,463,209.70, less original issue discount in the amount of $115,146.75, and less Underwriters compensation of $718,639.27). Banc of America Securities LLC, as representative of the Underwriters, will enter into a Bond Purchase Agreement with the District providing for the terms and conditions of the purchase of the Bonds. The Bond Purchase Agreement provides that the Underwriters will purchase all (but not less than all) of the Bonds, if any Bonds are purchased. The Underwriters obligation to make such purchase is subject to the terms and conditions set forth in the Bond Purchase Agreement, including the approval of certain legal matters by counsel and other conditions. LEGALITY FOR INVESTMENT IN CALIFORNIA Under provisions of the State Financial Code, the Bonds are legal investments for commercial banks in the State, to the extent that the Bonds, in the informed opinion of the bank, are prudent for the investment of funds of depositors, and, under provisions of the State Government Code, are eligible for security for deposits of public moneys in the State. NO LITIGATION The District is not aware of any litigation pending or threatened questioning the political existence of the District or contesting the District s ability to receive ad valorem taxes or to collect other revenues or contesting the District s ability to issue and pay debt service on the Bonds. A certificate as to the foregoing will be furnished at the time of the original delivery of the Bonds. ADDITIONAL INFORMATION The purpose of this Official Statement is to supply information to prospective buyers of the Bonds. Quotations from and summaries and explanations of the Bonds, the District Resolution providing for issuance of the Bonds, and the constitutional provisions, statutes and other documents described herein do not purport to be complete, and reference is made to said documents, constitutional provisions and statutes for full and complete statements of their provisions. Copies of the District Resolution and certain other documents relating to the issuance of the Bonds are available for inspection at the District by request to the Chief Financial Officer at (415) Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the Bonds. 16

23 The delivery of this Official Statement has been duly authorized by the District. SAN FRANCISCO UNIFIED SCHOOL DISTRICT By: /s/ Joseph C. Grazioli Chief Financial Officer 17

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25 APPENDIX A DISTRICT FINANCIAL AND DEMOGRAPHIC INFORMATION

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27 TABLE OF CONTENTS THE DISTRICT... A-1 Introduction... A-1 Enrollment History... A-1 Population... A-2 Board of Education... A-2 Superintendent and Administrative Personnel... A-2 DISTRICT FINANCIAL INFORMATION... A-4 State Funding of School Districts... A-5 Basic Aid Districts... A-5 Average Daily Attendance... A-6 State Budget... A-6 County Office of Education... A-7 School District Budget Process... A-8 District Budgets... A-9 Revenue Limit Sources... A-10 Unique Revenue Sources... A-12 Labor and Staffing... A-12 Retirement Programs... A-13 Insurance... A-15 Accounting Practices... A-16 Comparative Financial Statements... A-16 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS... A-18 Constitutionally Required Funding of Education... A-18 Article XIIIA of the State Constitution... A-18 Legislation Implementing Article XIIIA... A-18 Article XIIIB of the State Constitution... A-18 Article XIIIC and Article XIIID of the State Constitution...A-19 Proposition A-19 Proposition A-19 Proposition A-20 State School Facilities Bonds... A-20 Future Initiatives... A-22 DISTRICT DEBT STRUCTURE... A-22 Long-Term Debt... A-22 Capital Plan... A-22 Proposed Future Financings... A-23 Constitutional Debt Limit... A-23 DIRECT AND OVERLAPPING DEBT... A-23 Page A-i

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29 The information in this Appendix A provides investors with information concerning the operations of the San Francisco Unified School District (the District ) and the District s finances is provided as supplementary information to assist investors in evaluating the District. The Bonds are payable from ad valorem taxes levied on taxable property within the District and not from the District s operating funds. See SECURITY AND SOURCE OF PAYMENT FOR THE BONDS in the forepart of the Official Statement and demographics. Investors must read the entire Official Statement, including this Appendix A, to obtain information essential to making an informed investment decision. Introduction THE DISTRICT The San Francisco Unified School District (the District ) has boundaries that are coterminous with the City and County of San Francisco (the City ). The District provides public education from Pre-Kindergarten through Grade 12. Public schools have operated in the City since the Gold Rush (1849); however, the District has been a political subdivision of the State of California (the State ) since The administrative headquarters of the District are located at 555 Franklin Street, San Francisco, CA The District operates 71 elementary and K-8 school sites, 13 middle schools, 17 senior high schools (including two continuation schools and an independent study school), and 36 State funded preschool sites. The District currently sponsors 9 independent charter schools; however, independent charter schools receive their funding directly from the State and function like independent agencies, including having control over their staffing and budget. For these reasons, information regarding enrollment, average daily attendance, budgets and other financial information relating to independent charter schools is not included in the District s audit reports or in this Official Statement. The District s enrollment for Fiscal Year is projected to be 52,747. The students represent the broad multi-cultural and multi-ethnic population of the District. Virtually all ethnic groups are represented in the District student body. Major groups in alphabetical order include African American/Blacks, Chinese, Filipinos, Latinos, Pacific Islanders, Southeast Asians and Whites. The administration and faculty reflects the diversified ethnicity of this cosmopolitan population. The District has an estimated total of 9,150 full-time equivalent certified administrators, teachers, para-professionals and classified personnel. Enrollment History Enrollment figures for the District for Fiscal Years through are set forth below. Enrollment figures are affected by a number of factors, such as increased enrollment in private schools and the decline of the number of families with school-age children in the City due to the escalating housing prices and the general overall cost of living in the San Francisco Bay Area, which is especially acute in the City. However, enrollment figures for the District have been stabilizing in recent years. (1) Fiscal Year District Schools (1) , , , , (2) 52,747 Includes elementary, middle and high school students. Excludes independent charter schools and students in County Office of Education programs. (2) Enrollment figure for Fiscal Year is a projection by the District. Source: The District. A-1

30 Population The population of the City reached approximately 824,525 as of January 1, 2008, by estimate of the California Department of Finance. The City comprises the service area for the District. The following table shows the recent population figures and per capita income for the City and the State. Year City Population POPULATION AND INCOME 2004 through 2008 State Population City Per Capita Income State Per Capita Income ,095 36,252,878 $58,244 $35, ,346 36,743,186 62,614 36, ,099 37,195,240 69,942 38, ,241 37,662,518 Not available (1) 41, ,525 38,049,462 Not available (1) Not available (1) (1) Information not available. Data is compiled from numerous sources by the U.S. Department of Commerce, Bureau of Economic Analysis, and is typically released with a significant time lag. Sources: State Department of Finance, Demographic and Finance Research Units; U.S. Department of Commerce, Bureau of Economic Analysis; California Employment Development Department, Labor Market Information Division. Board of Education The District is governed by a seven-member elected board (the Board of Education ), whose members are elected to four-year terms. The terms are staggered on two-year intervals providing continuity of governance. SAN FRANCISCO UNIFIED SCHOOL DISTRICT Board of Education Name Office Term Expires Kim-Shree Maufas, President Member January 2011 Jane Kim, Vice President Member January 2011 Sandra Lee Fewer Member January 2013 Hydra B. Mendoza Member January 2011 Rachel Norton Member January 2013 Jill Wynns Member January 2013 Norman Yee Member January 2013 Superintendent and Administrative Personnel The Superintendent of Schools of the District (the Superintendent ) is appointed by and reports to the Board of Education. The Superintendent is responsible for management of the District s day-to-day operations and supervises the work of other key District administrators. Following are brief professional biographical summaries of the Superintendent and certain key administrative personnel. Carlos A. Garcia, Superintendent. Carlos A. Garcia began as Superintendent for the District in July, With over a decade of prior experience as a superintendent, he has led several large school districts, including Fresno Unified School District in California, and Clark County School District in Nevada, the fifth largest school district in the country and one of the fastest growing in the nation. A-2

31 Prior to assuming the position of Superintendent in San Francisco, Mr. Garcia served as Vice President of Urban Advisory Resource for McGraw-Hill Education. He has also worked as a principal at several schools in the District and at Pajaro Valley Unified School District in Watsonville, California. From , he served as principal of the District s Horace Mann Middle School which was designated a California Distinguished School during his tenure. Mr. Garcia holds a Bachelor of Arts degree in Political Science and a Master s degree in Education from Claremont Men s College in Claremont, California, and a credential in Educational Administration from California State University at Fullerton. Myong Leigh, Deputy Superintendent, Policy and Operations. Myong Leigh has been a District staff member since August Areas of responsibility under Mr. Leigh s supervision include policy development and implementation, business services, facilities, human resources, information technology, intergovernmental relations, and public engagement and communications. His work has focused in subject areas including financial planning and resource allocation, school site-based academic decision-making and budgeting, student assignment and desegregation, collective bargaining and labor relations, capital facilities planning, and transportation. Mr. Leigh s work involves interaction and collaboration with numerous staff members in the district including all school sites and every department. Immediately prior to working for the District, Mr. Leigh served as the Budget Director for the District of Columbia Public Schools. Prior to working in urban K-12 education, he was a financial advisor to state and local governments on capital facilities financing and budgeting. His clients included the District of Columbia, the City of Philadelphia, the Virginia Public School Authority, the City of Norfolk, and Montgomery County, Maryland. Mr. Leigh holds a Master in Public Policy from Harvard University s John F. Kennedy School of Government and a Bachelor of Science in Economics from the Wharton School of the University of Pennsylvania. Dr. Tony Smith, Deputy Superintendent, Instruction, Innovation and Social Justice. Dr. Tony Smith joined the District in November, He was previously superintendent of Emery Unified School District (EUSD), where he was widely credited for its impressive turnaround in academic performance and his efforts to improve both funding issues and low student test scores. Dr. Smith also worked for the Bay Area Coalition for Equitable Schools (BayCES) where he led school redesign efforts resulting in the return of local control to EUSD in less than three years after a state takeover. In April, 2008, Dr. Smith received the Mark Bingham Award for Excellence in Achievement from the UC Berkeley California Alumni Association. The award honors a younger alumnus/a (1-20 years out of school) who has compiled significant accomplishments early in his or her career. A three-time graduate of UC Berkeley, Dr. Smith holds a B.A. in English, as well as an M.A. and a Ph.D. in Education. Joseph C. Grazioli, Chief Financial Officer. Joseph C. Grazioli is the Chief Financial Officer of the District and has been a District staff member since December Mr. Grazioli is responsible for the daily activities of 11 departments. Mr. Grazioli has an undergraduate degree and a Master of Business Administration, Accounting from Golden Gate University. He consulted for the San Francisco Performing Arts Library & Museum as well as the Business Integration Group from 2003 through Prior to consulting, Mr. Grazioli was employed with Cushman & Wakefield as Managing Director in Operations, Finance, Administration and Building Accounting from 1973 through David Goldin, Chief Facilities Officer. David L. Goldin assumed the position of Chief Facilities Officer for the District in November He currently oversees nine departments and a total staff of 850 individuals. Mr. Goldin has an undergraduate degree and a Master of Architecture degree from the University of California, Berkeley, where he graduated Phi Beta Kappa and with highest honors. In addition, Mr. Goldin studied architecture and planning at Lunds University in Sweden. Mr. Goldin s experience ranges from the design and planning of new communities in Indonesia and Saudi Arabia to the design, construction and management of complex K-12 educational facilities throughout California. Mr. Goldin is a registered Architect and licensed General Contractor in California, a member of the American Institute of Architects and a member of the California Association of School Business Officials. A-3

32 Leonard Tom, Director of Finance & Administration, SFUSD Bond Program. Mr. Tom earned a Bachelor s Degree in City and Regional Planning from California Polytechnic State University in San Luis Obispo and a Master s Degree in City Planning from the University of California, Berkeley. Mr. Tom is currently the finance director for the District s Proposition A (2003) and the Proposition A (2006) Bond Programs to modernize 90 school sites. He has 35 years of financial, planning, administrative and consulting experience in public infrastructure and real estate development, public transit, convention facilities and housing. Prior to joining the District, he served as Financial Manager and Chief Financial Officer for the City s Convention Facilities Department, overseeing expansion of the Moscone Convention Center. Other accomplishments include financial management of the Waterfront Transportation Projects along San Francisco s Embarcadero and administration of the Transit Impact Development Fee while with the Chief Administrative Officer and the San Francisco Public Utilities Commission. Mr. Tom helped develop community development policy as a regional planner with the Association of Bay Area Governments. Paulette Terrell, Director of Fiscal Services. Ms. Terrell, a graduate of the University of Arkansas AM&N College, earned a Bachelor of Science Degree in Business Administration with a Minor in Accounting. She also has earned several certificates for additional educational course work in income tax accounting, cost accounting, government accounting and school business training and management. Ms. Terrell has served in public education for eight years and currently is the Director of Fiscal Services for the District. Before joining the District, Ms. Terrell held other positions in the private sector and federal government. During her tenure with these organizations, she served as an auditor for nine years and as an accounting and budget manager for 17 years. Reeta Madhavan, Director of Budget Services. Ms. Madhavan has been with the District since September, 2002, during which time she has held increasingly challenging responsibilities in the Budget Office. Ms. Madhavan has more than 11 years of experience in both corporate and commercial real estate banking. She was an Assistant Vice-President of Commercial Real Estate Lending, and managed a portfolio of construction and leasehold improvement loans in excess of $300 million, at a medium-sized bank in Cambridge, Massachusetts. She earned a Master of Arts degree from the State University of New York at Stony Brook, and a Master s degree in Business Administration with a major in Finance and Accounting from Babson College, Massachusetts. Ms. Madhavan continues to receive on-going professional training in school finance and new legislation that affects budgets and funding for schools. Maribel Medina, General Counsel. Ms. Medina assumed the position of General Counsel to the District in July Ms. Medina has an undergraduate degree and a Juris Doctor from the University of California, Berkeley, and a Master of Public Administration from Harvard University. Prior to joining the District, she served as Special Counsel to the Los Angeles Unified School District s Board of Education from June 2005 through July 2008, serving as lead legal advisor to the LAUSD Board on issues ranging from education, real estate, environmental and construction to labor and budgeting issues. Ms. Medina is currently President of the Mexican-American Bar Association, President of the Statewide La Raza Lawyers Association and serves as General Counsel to the Hispanic National Bar Association. DISTRICT FINANCIAL INFORMATION Principal of and interest on the Bonds are to be paid from the proceeds of an ad valorem tax authorized to be levied by the City without limit on taxable property (except for certain personal property that is taxed at limited rates) within the District in an amount sufficient to make such payments. The information in this section concerning funding procedures of K 12 school districts in the State is provided as context for information regarding the District s finances discussed elsewhere in this Official Statement. It should not be inferred from the inclusion of this information that any of these matters discussed affect or limit in any way the obligation of the City to levy ad valorem taxes on taxable property within the District in an amount sufficient to pay all amounts when due on the Bonds. Certain statements included or incorporated by reference in this Appendix A constitute forward-looking statements. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, budget, project, projection or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from A-4

33 any future results, performance or achievements expressed or implied by such forward-looking statements. The District does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur. State Funding of School Districts Annual State apportionments of basic and equalization aid to K-12 school districts for general purposes are according to a revenue limit per unit of average daily attendance ( A.D.A. ). If a district s total revenue limit exceeds its property tax revenue, its annual State apportionments, subject to certain adjustments, amount to the difference between revenue limit and its property tax receipts. A.D.A. is determined by school districts twice a year, in December ( First Period A.D.A. ) and April ( Second Period A.D.A. ). The calculation of the amount of State apportionment a school district is entitled to receive each year is a multiple step process. First, the prior year Statewide revenue limit per A.D.A. is recalculated with certain adjustments for equalization and other factors. Second, this adjusted prior year Statewide revenue limit per A.D.A. is inflated according to formulas based on the implicit price deflator for government goods and services and the Statewide average revenue limit per A.D.A. for each type of A.D.A. (elementary, high school or adult). This yields the school district s current year revenue limit per A.D.A. Third, the current year revenue limit per A.D.A. for each type of A.D.A. is applied to the school district s A.D.A. for either the current or prior year, as the district elects. Fourth, revenue limit adjustments known as add-ons are calculated for each school district if the school district qualifies for such add-ons. There are, for example, add-ons to adjust for small school district size and for providing meals for needy pupils, among others. Finally, local property tax revenues are deducted from the total revenue limit calculated for each district to arrive at the amount of State apportionment to which each school district is entitled for the current year. The State revenue limit is calculated and recalculated three times a year for each school district on the basis of projections submitted by the district on or about December 10, based on First Period A.D.A., and April 15 and June 30, both based on Second Period A.D.A. Beginning in Fiscal Year , A.D.A. calculations have been based on actual attendance and no longer include excused absences. Calculations are reviewed by each county office of education and submitted to the State Department of Education which reviews the calculations for accuracy, calculates the amount of State apportionment owed to such school district, and notifies the State Controller of the amount, which is then distributed to the school districts. The first calculation is performed for the First Principal Apportionment in February, the second calculation for the Second Principal Apportionment in June, and the final calculation for the end of the fiscal year Annual Principal Apportionment, in essence a correction that is made in October of the next fiscal year. See DISTRICT FINANCIAL INFORMATION Revenue Limit Sources in this Appendix A for information on the District s annual revenue limit per A.D.A. Basic Aid Districts In the event that a school district s property tax revenue exceeds its calculated revenue limit entitlement, that school district retains all of its property tax revenue and State apportionments to that district are limited to the minimum basic aid amount of $120 per A.D.A. set forth in the Constitution. Such districts are commonly known as Basic Aid Districts. The District is not a Basic Aid District. A-5

34 Average Daily Attendance (1) Information concerning A.D.A. in the District for Fiscal Years through is set forth below. SAN FRANCISCO UNIFIED SCHOOL DISTRICT Average Daily Attendance Fiscal Year District Schools (1) , , , , ,110 (2) Includes elementary, middle and high school students. Excludes independent charter schools and students in County Office of Education programs. (2) Estimate. Source: The District s Annual Financial Reports for Fiscal Years through ; the District for Fiscal Year State Budget As is true for all non-basic Aid school districts in California, the District s operating income consists primarily of two components: (1) State apportionments funded from the State s general fund (the State General Fund ), and (2) property tax revenue derived from the District s share of the 1% local ad valorem property tax authorized by the State Constitution. School districts also receive revenue from the State lottery and may be eligible for other special categorical funding, including State and federal funding for certain programs. Decreases in State revenues, or in State legislative appropriations made to fund education, may significantly affect District operations, as revenue limit sources and other State revenues comprise nearly 85% of District revenues. According to the State Constitution, the Governor of the State is required to propose a budget to the State Legislature no later than January 10 of each year, and a final budget must be adopted by a 2/3 vote of each house of the Legislature no later than June 15, although this deadline is routinely breached. The budget becomes law upon the signature of the Governor, who retains veto power over specific items of expenditure. Since the early 1990s, the State has required counties, cities and special districts to shift property tax revenues to school districts by contributing to the Education Revenue Augmentation Fund in lieu of direct payments of State apportionment to school districts from the State General Fund. The State experienced significant fiscal deficits in the period from , and as part of the State s economic recovery plan to address such deficits, a bond initiative formally known as the California Economic Recovery Act was approved by the voters at a statewide election on March 2, This act authorized the issuance of $15 billion in bonds to finance the Fiscal Year and Fiscal Year State budget deficits (as described above), which are payable from a fund established by the redirection of tax revenues through a mechanism commonly referred to as the Triple Flip. Under the Triple Flip, one-quarter of local governments 1% share of the sales tax imposed on taxable transactions within their jurisdiction is redirected to the State; to eliminate the adverse impact of the sales tax revenue redirection on local governments, a like amount of property taxes in the ERAF are redirected to local government. Because the ERAF monies were previously earmarked for schools and community college districts, State General Fund revenues are directed to schools and community college districts for such amount. Governor Schwarzenegger called a Special Session of the State Legislature on November 5, 2008 in order to address the State s estimated $11.2 billion budget shortfall for Fiscal Year The Governor proposed tax increases totaling approximately $4.7 billion. The Governor also proposed midyear spending reductions totaling $4.5 billion, including reductions to K-14 school and community college districts of $2.5 billion. The Governor A-6

35 proposed eliminating the Fiscal Year K-12 revenue limit COLA of 0.68% and reducing K-12 revenue limits by an additional $1.291 billion, which is approximately $300 per ADA. If this proposal is implemented, the District estimates that its portion of any midyear cuts would be $ million and, in its projected Fiscal Year cash flows, has assumed midyear cuts of $ million. The Special Session ended on November 30, 2008 without any definitive budget agreement and the Fiscal Year Regular Session began on December 1, Due to the worsening economy, the Governor s administration projects an additional $7.0 billion decline in revenues over Fiscal Years and resulting in a cumulative budget deficit of $40 billion absent corrective action. On December 31, 2008, the Governor proposed a Fiscal Year State budget (the Governor s Proposed Budget ) that addresses a $39.6 billion budget gap and provides a $2.0 billion reserve for a total of $41.6 billion in Fiscal Years and The Governor s Proposed Budget continues to propose the changes set forth in the November 2008 Special Session, as well as adding $19.0 billion in proposed solutions. Such proposed solutions include a midyear spending reduction of $6.6 billion ($4.1 billion greater reduction than proposed in November). The Governor s Proposed Budget includes the November proposal to eliminate the Fiscal Year K-12 revenue limit COLA of 0.68%, reduces K-12 revenue limits by $1.6 billion and proposes to defer $2.0 billion in K-12 revenue limit payments and $570.0 million in K-3 Class Reduction payments from February to July The Governor s Proposed Budget also includes a savings proposal to shorten the school year by up to five days resulting in $1.092 billion in savings. All of these discussions are only proposals in nature and have not been acted upon by either the State Legislature or the Governor. The District is carefully evaluating the proposals and monitoring the results of legislative actions. To the extent that the State budget process results in reduced revenues to the District, the District will be required to make adjustments to its budgets. The District cannot predict what actions will be taken in this fiscal year or future years by the State Legislature and the Governor to address State fiscal issues. Actions taken may be adverse to the District. State income tax and other receipts, as well as State expenditures, can fluctuate significantly from year to year, depending on economic conditions in the State and the nation. Because funding for education is closely related to overall State income, as described in this section, funding levels can also vary significantly from year to year, even in the absence of significant education policy changes. The District cannot predict how State income, State expenditures or State education funding will vary over the entire term to maturity of the Bonds, and the District takes no responsibility for informing owners of the Bonds as to any such fluctuations, except to the extent such information is disclosed pursuant to the District s continuing disclosures undertaking. However, the Bonds are payable from ad valorem taxes levied on taxable property within the District and not from the District s operating funds. Information about the State budget and State spending for education is regularly available at various Statemaintained websites, including the website of the Department of Education, Text of the budget may be found at the website of the Department of Finance, under the heading California Budget. An impartial analysis of the budget is posted by the Office of the Legislative Analyst at In addition, various State official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on school districts in the State, may be found at the website of the State Treasurer, The information contained in these websites has not, however, been prepared or reviewed for use in this Official Statement by any party, is not incorporated by reference and should not be relied upon as being complete or accurate. No attempt is being made in this Official Statement to present complete or accurate information concerning the State budget. County Office of Education In each county there is a county superintendent of schools (the County Superintendent ) and a county board of education. The office of the county superintendent of schools, frequently known as the County Office of Education (the County Office ) provides the staff and organization that carries out the activities of the county superintendent and county board of education. Because the District is coterminous with the City, the District s Superintendent performs the duties of the County Superintendent and the District administers the local County Office of Education. County Offices provide instructional and support services to school districts within their counties, and various State mandated services county-wide, particularly in special education and juvenile court education services. County Office business services departments act as a control point for a variety of information, including pupil data A-7

36 collection, attendance accounting, teacher credential registration, payroll accounting, retirement and tax information and school district budgets, and also report such information to the State Department of Education. All school district budgets must be approved by their County Office and each district must provide its County Office with scheduled interim reports throughout the fiscal year. County Offices also act as enforcement entities which intervene in district fiscal matters should a district fail to meet State budget and reporting criteria. School District Budget Process School districts are required by provisions of the State Education Code to maintain a balanced budget each year, in which the sum of expenditures and the ending fund balance cannot exceed the sum of revenues and the carry-over fund balance from the previous year. School districts annual general fund expenditures are characterized in large part by multi-year expenditure commitments such as union contracts. Year-to-year fluctuations in State and local funding of school district general funds could result in revenue decreases which, if large enough, may not easily be offset by an equal reduction in expenditures until at least the following fiscal year. School districts are required by State law to maintain minimum reserves which can be drawn upon in the event of a resulting excess of expenditures over revenues for a given fiscal year. The State Department of Education imposes a uniform budgeting and accounting format for school districts. School districts must adopt a budget no later than June 30 of each year. The budget must be submitted to the county superintendent within five days of adoption or by July 1, whichever occurs first. A district may be on either a dual or single budget cycle. The dual budget option requires a revised and readopted budget by September 1 that is subject to State mandated standards and criteria. The revised budget must reflect changes in projected income and expenses subsequent to July 1. The single budget is only readopted if it is disapproved by the county superintendent, or as needed. The District follows a single budget adoption cycle. The District s Adopted Budget for Fiscal Year was adopted by the Board of Education on June 24, For both dual and single budgets submitted on July 1, the county superintendent will examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical corrections necessary to bring the budget into compliance, will determine if the budget allows the district to meet its current obligations and will determine if the budget is consistent with a financial plan that will enable the district to meet its multi-year financial commitments. On or before August 15, the county superintendent will approve or disapprove the adopted budget for each school district. Pursuant to State law, the county superintendent has available various remedies by which to impose and enforce a budget that complies with State criteria, depending on the circumstances, if a budget is disapproved. Subsequent to approval, the county superintendent throughout the fiscal year will monitor each school district under his or her jurisdiction pursuant to its adopted budget to determine on an ongoing basis if the district can meet its current or subsequent year financial obligations. If a county superintendent determines that a district cannot meet its current or subsequent year obligations, the county superintendent will notify the district s governing board of the determination and the county superintendent may do either or both of the following: (a) assign a fiscal advisor to enable the district to meet those obligations or (b) if a study and recommendations are made and a district fails to take appropriate action to meet its financial obligations, the county superintendent will so notify the State Superintendent of Public Instruction, and then may do any or all of the following for the remainder of the fiscal year: (i) request additional information regarding the district s budget and operations; (ii) develop and impose, after also consulting with the district s board, revisions to the budget that will enable the district to meet its financial obligations; and (iii) stay or rescind any action inconsistent with such revisions. However, the county superintendent may not abrogate any provision of collective bargaining agreement that was entered into prior to the date upon which the county superintendent assumed authority. At minimum, school districts file with their county superintendent and the State Department of Education a First Period Interim Financial Report by December 15 covering financial operations from July 1 through October 30, and a Second Period Interim Financial Report by March 15 covering financial operations from July 1 through January 31. Section of the Education Code requires that each interim report be certified by the school board as either (a) positive, certifying that the district, based upon current projections, will meet its financial obligations for the current fiscal year and subsequent two fiscal years, (b) qualified, certifying that the district, based upon current projections, may not meet its financial obligations for the current fiscal year or two subsequent fiscal years, A-8

37 or (c) negative, certifying that the district, based upon current projections, will be unable to meet its financial obligations for the remainder of the fiscal year or the subsequent fiscal year. A certification by a school board may by revised by the county superintendent. If either the First or Second Period Interim Financial Report is not positive, the county superintendent may require the district to provide an additional financial report (the June Report ) covering financial operations from February 1 through April 30 by June 1, although the certification of a district cannot be changed on the basis of the June Report. If not required, a June Report is not prepared. Each interim report shows fiscal year to date financial operations and the current budget, with any budget amendments made in light of operations and conditions to that point. After the close of the fiscal year on June 30, an unaudited financial report for the fiscal year is prepared and filed without certification with the county superintendent and the State Department of Education. The District currently has a positive certification on the basis of its First Interim Financial Report for Fiscal Year The Second Period Interim Financial Report for Fiscal Year is due by March 15, District Budgets In Fiscal Year , the District began allocating local funds to schools through a weighted student formula ( WSF ), as opposed to the alternative method of full-time equivalent staffing allocations. The WSF method focuses on allocating and distributing dollars and permits budgetary decisions to be made at the school site by local school site councils. A basic funding amount by grade level is provided for each student and supplemented by an additional amount if the student requires English language learner services or is from a low socioeconomic household. The school site councils prepare preliminary budgets using initial allocations that are based on enrollment projections. These preliminary budgets are subject to change as a result of changes in each school s actual enrollment and/or overall District funding levels. As budget allocations change, the school sites prepare revised spending plans. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] A-9

38 The following table contains the District s Adopted General Fund Budget for Fiscal Years and and the District s Audited Actual for Fiscal Year SAN FRANCISCO UNIFIED SCHOOL DISTRICT General Fund Budget (1) Fiscal Years through (Dollars in Thousands) Adopted Budget Audited Actual Adopted Budget Beginning Balance (2) $ 56,148 $ 56,148 $ 62,437 Income: Revenue Limit Sources $283,658 $281,171 $279,525 Federal Revenue 32,473 35,760 40,485 Other State Revenue 109, , ,717 Other Local Revenue 58,597 67,915 88,616 Total Income $484,531 $531,075 $536,343 Total Beginning Balance and Income $540,679 $587,223 $598,780 Expenditures: Certificated Salaries $210,129 $222,046 $214,070 Classified Salaries 71,146 67,342 72,805 Employee Benefits 102,632 96, ,927 Books and Supplies 17,691 26,467 20,068 Services & Other Operating Expenses 43,691 61,718 61,221 Capital Outlay Other Outgo/Indirect/Transfers 39,538 50,476 54,880 Total Expenditures $484,984 $524,787 $533,598 Net Ending Balance $ 55,695 $ 62,437 $ 65,182 (3) (1) Figures exclude Charter Schools Pass-through Revenue Limit and Categorical Block Grant Pass-through. Totals may not add due to independent rounding. (2) Figures for Fiscal Year reflect the actual beginning balance; figure is unaudited for Fiscal Year (3) Does not include $14.4 million of parcel tax funds that are expected to be unspent at year end. Source: The District. Revenue Limit Sources Since Fiscal Year , California public school districts have operated under general purpose revenue limits established by the State Legislature. In general, the revenue limits are calculated for each school district by multiplying (1) the A.D.A. for each such district by (2) a base revenue limit per unit of A.D.A.. The revenue limit calculations are adjusted annually in accordance with a number of factors designed primarily to provide cost of living increases and to equalize revenues among all school districts in the State of the same type. See DISTRICT FINANCIAL INFORMATION State Funding of School Districts in this Appendix A. In Fiscal Year the District s base revenue limit per unit of A.D.A. is estimated to be $5, For Fiscal Year , the District estimates that its base revenue limit per unit of A.D.A. will be $5, This amount is net of a deficit factor of 4.71% to the revenue limit of the enacted State budget for Fiscal Year Absent this deficit factor, the District s base revenue limit per unit of ADA for Fiscal Year would be $6, In Fiscal Year , the District received approximately $281.2 million from revenue limit sources, accounting for approximately 53% of its total General Fund revenues. For Fiscal Year , the District has A-10

39 budgeted $279.5 million of revenue limit source income, which is approximately 52% of its total budgeted General Fund revenues. In total, the District received an estimated $146.2 million or 28% of its General Fund revenues in Fiscal Year from State categorical funds, and has budgeted to receive $127.7 million or 24% of its General Fund revenues in Fiscal Year from State categorical funds. See DISTRICT FINANCIAL INFORMATION District Budgets in this Appendix A. Funding of the District s revenue limit is accomplished by a mix of (1) local property taxes and (2) State apportionments of basic and equalization aid. Generally, the State apportionments amount to the difference between the District s revenue limit and its local property tax revenues. See DISTRICT FINANCIAL INFORMATION State Funding of School Districts in this Appendix A. Beginning in Fiscal Year , Proposition 13 and its implementing legislation permitted each county to levy and collect all property taxes (except for levies to support prior voter-approved indebtedness) and prescribed how levies on county-wide property values were to be shared with local taxing entities within each county. The approximate District property tax revenue for the General Fund has been budgeted at $200.0 million for Fiscal Year [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] A-11

40 Unique Revenue Sources The District has several unique revenue sources, as described below. Revenue Source 1. Proposition A, Quality Teacher and Education Act (2008), approved by 69.75% of the voters is a $198 flat annual tax per parcel that sunsets in A major portion of the annual revenue (71.3%) will go toward teacher compensation, training and support to make salaries competitive with surrounding school districts, with the remainder going to technology and infrastructure improvements, innovation, research and development, and additional teacher professional development. 2. A special sales tax (0.25%) was approved by voters in 1993 and continues indefinitely. Portions of the sales tax revenue are allocated to the District and to San Francisco Community College District. 3. Proposition H (2004) created a Public Education Enrichment Fund ( PEEF ) which is funded by the City until The annual amount can be funded from in-kind services or dollars. A portion of the PEEF is to be allocated to pre- Kindergarten education throughout the City. The remaining PEEF can be used for General Fund purposes, as well as to meet academic program needs. 4. City and County of San Francisco Rainy Day Reserve established in the City Charter by voter approval of Proposition G in November 2003 provides unrestricted funds to the District in times of fiscal stress. (1) 5. Proposition B, a parcel tax approved by the voters in 1993 that sunsets in 2010, provides funds for facilities, life safety and fire repairs. District s Amount for Fiscal Year ($ in millions) $28.8 $25.7 $22.5 $18.2 $ The District receives revenues from facility permits and ground leases. $ Proposition F (1998) is an admission tax on stadium sporting events which is allocated to after-school and school-related programs. $1.1 (1) Whenever growth in the City s General Fund revenues exceeds five percent, 50 percent of the amount above the five percent threshold is deposited in the Rainy Day Reserve. The District receives funds if the City Controller projects that inflationadjusted per pupil revenues will be reduced in a given fiscal year and if the District has issued significant layoff notices. The maximum draw from the Rainy Day Reserve is the lesser of: (1) 25 percent of the Rainy Day Reserve balance, or (2) the dollar value of the total decline in inflation-adjusted per pupil revenues. Source: The District. Labor and Staffing The District s employees are grouped into two general employee classifications: certificated and classified. In 1974, the State Legislature enacted a public school employee collective bargaining law known as the Rodda Act, which outlines the parameters for collective bargaining. The law provides that employees are to be divided into appropriate bargaining units that are to be represented by an exclusive bargaining agent. A-12

41 The approximately 3,986 teachers of the District are represented by the United Educators of San Francisco ( UESF ), which is affiliated with the California Teachers Association, National Education Association, California Federation of Teachers and American Federation of Teachers. UESF also represents approximately 1,403 paraprofessional employees who support and assist teachers and other certificated staff. The expiration date of the current contract is June 30, 2010 with an annual reopener. Classified employees of the District are represented by several unions, the largest of which is the Service Employees International Union, Local 790 ( SEIU ), whose collective bargaining agreement was extended to June 30, 2009 without a salary increase. Approximately 214 of the District s site administrators, program administrators and supervisors are represented by the United Administrators of San Francisco ( UASF ), which is affiliated with American Federation of School Administrators. Their current collective bargaining agreement expires on June 30, 2010 with an annual reopener. Under State law, non-certificated employees of the District, except for certain paraprofessionals, are employed pursuant to the provisions of the City s charter that relate to the City s Civil Service Commission. The Civil Service Commission generally governs non-compensation related processes and oversees the City s civil service merit system. The Civil Service Commission specifically is charged with the responsibility of developing rules and policies regarding employment eligibility and certification; appointments, promotions, transfers, resignations, lay-offs or reduction in work force, both permanent and temporary; and the designation and filling of positions as exempt, temporary, provisional, part-time, seasonal or permanent. Retirement Programs Retirement Plans. Qualified District employees are covered under any of several employer contributory retirement plans maintained by agencies of the State. The District participates in the State of California Teachers Retirement System ( STRS ). This plan covers certificated employees hired as of or after July 1, In order to receive STRS benefits, an employee must be at least 55 years old and have provided five years of service to California public schools. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers Retirement Law. The District s classified personnel and certain certificated employees hired prior to July 1, 1972 are covered by the San Francisco Employees Retirement System ( SFERS ). Contribution rates to these two retirement systems vary annually depending on changes in actuarial assumptions and other factors, such as changes in benefits. The contribution rates for STRS are based on statewide rates set by the STRS State retirement boards. Based on available information, STRS has $19.6 billion of unfunded accrued actuarial liabilities as of June 30, SFERS does not have unfunded accrued actuarial liabilities as of June 30, The amount of the unfunded accrued actuarial liabilities of STRS and SFERS will vary from time to time depending upon actuarial assumptions, rates of return on investments, salary scales, and levels of contribution. Under current law, the STRS liability is the responsibility of the State and not of individual school districts. Since this liability has not been broken down by each school district, it is impossible to determine the District s share. However, the STRS investment portfolio suffered a decline in value in 2008 due to the turmoil in the U.S. equity and bond markets which could lead to higher District contributions. A-13

42 A history of the District s annual contributions to STRS is set forth below. Source: The District. San Francisco Unified School District Annual STRS Contributions Fiscal Years Through Fiscal Year Amount $19,412, ,937, ,906, ,376, ,558,109 A history of the District s annual contributions to SFERS is set forth below. Source: The District. San Francisco Unified School District Annual SFERS Contributions Fiscal Years Through Fiscal Year Amount $5,705, ,456, ,366, ,450, ,824,907 The District also participates in a retirement plan administered by the Public Agency Retirement System ( PARS ), which plans cover employees who are not eligible to participate under STRS or SFERS. Under the first PARS plan, employees contribute 3.75% of their salary, which is matched by a District contribution of 3.75%. Under the second PARS plan, the District makes annual contributions to a reserve account. A history of the District s contributions under the two PARS plans is set forth below. Source: The District. Fiscal Year San Francisco Unified School District PARS Contributions Fiscal Years Through First PARS Plan Amount Second PARS Plan Amount $36,039 $1,800, ,940 1,798, ,214 1,728, ,341 1,805, ,064 2,130,268 Other Post-Employment Benefits. The District provides retiree health benefits to (i) all certificated employees hired before July 1, 2004 who were employed full-time for 9 to 12 (depending on retirement date) final years of consecutive service with the District prior to retirement, (ii) all certificated employees hired after A-14

43 July 1, 2004 who were employed full-time with the District for 20 final consecutive years of service, (iii) paraprofessionals hired before July 1, 2006 employed full-time with the District for 7 to 10 (depending on retirement date) final years of consecutive service, (iv) paraprofessionals hired after July 1, 2006 employed full-time with the District for 10 final consecutive years of service, (v) all classified employees hired on or before January 9, 2009 with at least 5 years of service and (vi) pursuant to Proposition B ( Proposition B ), which was approved by voters in June, 2008, to all classified employees hired on or after January 10, 2009 with at least 20 years of service with the District; retirees with at least 10 but less than 15 years of service with the District will qualify for a 50% retiree health subsidy and retirees with at least 15 but less than 20 years of service with the District will qualify for a 75% retiree health subsidy. On June 21, 2004, the Governmental Accounting Standards Board ( GASB ) released its Governmental Accounting Standards Board Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. Statement No. 45 establishes standards for the measurement, recognition and display of post-employment healthcare as well as other forms of post-employment benefits, such as life insurance, when provided separately from a pension plan expense or expenditures and related liabilities in the financial reports of state and local governments. Under Statement No. 45, governments will be required to: (i) measure the cost of benefits, and recognize other post-employment benefits expense, on the accrual basis of accounting in periods that approximate employees years of service; (ii) provide information about the actuarial liabilities for promised benefits associated with past services and whether, or to what extent, those benefits have been funded; and provide information useful in assessing potential demands on the employer s future cash flows. The District s post-employment health benefits fall under Statement No. 45. The effective date of the Statement No. 45 reporting requirements for the District is Fiscal Year (the first fiscal year period beginning after December 15, 2006). The District completed an actuarial study in July 2007 (the Study ) and, based on the results of the Study, will develop accounting guidelines in compliance with State law and Government Accounting Standard Board requirements. The Study estimates that the pay-as-you-go cost of providing retiree health benefits for current retirees in the year beginning June 1, 2007 to be $29,057,843. For current employees, the Study estimates that the value of benefits accrued in the year beginning June 1, 2007 (the normal cost ) is $32,572,991 and that the actuarial accrued liability ( AAL ) of post-employment health benefits is $686,633,364. The District has funded only the pay-as-you-go cost of retiree health benefits and has not set aside money to fund the AAL. The Study estimates the current year cost to amortize the unfunded actuarial accrued liability ( UAAL ) using a 30 year amortization period is $30,413,108. The Study estimates a total first year annual required contribution ( ARC ), to be used as the basis for determining expenses and liabilities under Statement No. 45, of $62,986,099 (derived by combining the normal cost and UAAL amortization costs in the first year). Over the past five years, the District annually has spent an average of $18.3 million on post-employment benefits. The District has been and is expected to continue to review the Study in conjunction with the District s obligations under its post-employment benefit plan to determine its course of action with respect to its contributions for post-employment benefits. Insurance The District has a risk management department that is responsible for all insurance and risk management activities. The current structure combines self-insurance with excess, or reinsurance, protection beyond retained levels. The program staff works with other departments within the District on prevention strategies to minimize the risk of loss to people and property. The current financial strategy for the program includes one actuarial study per year for the workers compensation program. The property, liability, and benefits programs are studied one time per year during marketing or prior to renewals. The District maintains property coverage through St. Paul/Travelers Insurance Co. in the amount of $300 million per occurrence, with a $100,000 deductible. Liability insurance is purchased in various layers through ACE, Lloyds and Schools Excess Liability Fund. Coverage is $45 million per occurrence, with a self-insured retention of $250,000. For workers compensation coverage, the District maintains a $650,000 self-insured retention, with a statutory limit through various layers of excess coverage. The District does not maintain insurance for earthquake risks, relying on its general reserves and the expectation that funds will be available from the Federal Emergency Management Agency ( FEMA ). There is no guarantee that sufficient reserves or FEMA assistance would be available in the event of a major seismic event in the San Francisco Bay Area. The District will carry earthquake insurance when it deems it cost-effective. A-15

44 The District offers its employees dental insurance through a self-insured program, life and long-term disability insurance that is purchased through commercial carriers, and health insurance that is purchased through the City Health Service System. While the District considers its insurance coverage to be adequate, the District is unable to predict the availability or cost of such insurance in the future. Accounting Practices The accounting policies of California school districts, including the District, conform to generally accepted accounting principles in accordance with policies and procedures of the California School Accounting Manual. This manual, according to Section of the Education Code, is to be followed by all California school districts. Revenues are recognized in the period in which they become both measurable and available to finance expenditures of the current fiscal period. Expenditures are recognized in the period in which the liability is incurred. Comparative Financial Statements The District is required by provisions of the California Education Code to maintain each year a balanced budget in which the sum of expenditures plus the ending fund balance cannot exceed the revenues plus the carryover fund balance from the previous year. The California State Department of Education imposes a uniform budgeting format for each school district in the State of California. The table on the following page summarizes the District s Statement of General Fund Revenues, Expenditures and Changes in Fund Balance for the Fiscal Years through See also APPENDIX B EXCERPTS OF AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE YEAR ENDED JUNE 30, 2008 for further detail on the District s financial condition. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] A-16

45 SAN FRANCISCO UNIFIED SCHOOL DISTRICT Summary of General Fund Revenues and Expenditures (1) Fiscal Years to (Dollars in Thousands) Revenues: Revenue limit sources $263,341 $263,944 $274,368 $293,043 $281,171 Federal sources 41,053 48,165 34,900 34,261 35,760 Other State sources 97, , , , ,229 Other local sources 62,678 58,664 61,011 49,789 67,915 TOTAL REVENUES 464, , , , ,076 Expenditures: Current Instruction 212, , , , ,205 Instruction related activities: Supervision of instruction 39,061 50,613 48,658 51,493 65,952 Instructional library, media and technology 2,766 1,985 3,159 5,116 6,736 School site administration 29,899 31,977 30,414 32,173 31,711 Pupil Services: Home-to-school transportation 9,090 12,280 9,408 7,865 9,003 Food services All other pupil services 19,286 23,286 23,144 26,317 32,410 General Administration: Data processing 6,852 5,178 5,024 5,520 5,775 All other general administration 49,846 22,377 15,502 19,013 16,767 Plant services 39,655 45,240 46,113 49,070 50,573 Facility acquisition and construction 4,463 2,579 3,856 3,627 2,893 Ancillary services 1,787 1,812 2,510 3,132 2,939 Community services Other (outgo) 45,236 42,817 41,819 47,607 41,620 Debt service Principal ,191 Interest and other 1,512 2,618 2,030 3,350 3,630 TOTAL EXPENDITURES 462, , , , ,403 Excess of revenues over (under) expenditures 2,449 10,776 27,822 29,201 16,673 Other Financing Sources (Uses): Transfers in 3,078 Other sources Transfers out (11,866) (12,258) (10,479) (11,710) (10,383) NET FINANCING SOURCES (USES) (11,866) (9,180) (9,997) (11,460) (10,383) NET CHANGE IN FUND BALANCES (9,418) 1,595 17,826 17,740 6,289 Fund Balance Beginning 31,944 20,639 20,582 38,408 56,148 Prior Period Adjustment (1,887) (1,652) Equity Transfers Fund Balance Ending $20,639 $20,582 $38,408 $56,148 $62,437 (1) Totals may not add due to rounding. Source: The District s Annual Financial Reports for Fiscal Years through A-17

46 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Constitutionally Required Funding of Education The State Constitution requires that from all State revenues there shall first be set apart the moneys to be applied by the State for the support of the public school system and public institutions of higher education. School districts receive a significant portion of their funding from State appropriations. As a result, decreases as well as increases in State revenues can significantly affect appropriations made by the State Legislature to school districts. Article XIIIA of the State Constitution On June 6, 1978, State voters approved Proposition 13 ( Proposition 13 ), which added Article XIIIA to the State Constitution ( Article XIIIA ). Article XIIIA, as amended, limits the amount of any ad valorem tax on real property to one percent of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978 on bonded indebtedness approved by a two-thirds vote on or after July 1, 1978, for the acquisition or improvement of real property. Proposition 39, approved by State voters on November 7, 2000, provides an alternative method of seeking voter approval for bonded indebtedness (see Proposition 39 below). Article XIIIA defines full cash value to mean the county assessor s valuation of real property as shown on the tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment. This full cash value may be increased at a rate not to exceed two percent per year to account for inflation. Article XIIIA has subsequently been amended to permit reduction of the full cash value base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the full cash value base in the event of reconstruction of property damaged or destroyed in a disaster, and in other minor or technical ways. Legislation Implementing Article XIIIA Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voterapproved indebtedness). The one percent property tax is automatically levied by the City and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the two percent annual adjustment are allocated among the various jurisdictions in the taxing area based upon their respective situs. Any such allocation made to a local agency continues as part of its allocation in future years. All taxable property is shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100 percent of market value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value. Article XIIIB of the State Constitution An initiative to amend the State Constitution entitled Limitation of Government Appropriations was approved on September 6, 1979 thereby adding Article XIIIB to the State Constitution ( Article XIIIB ). In June 1990, Article XIIIB was amended by the voters through their approval of Proposition 111. Under Article XIIIB, the State and each local governmental entity has an annual appropriations limit and is not permitted to spend certain moneys that are called appropriations subject to limitation (consisting of tax revenues, State subventions and certain other funds) in an amount higher than the appropriations limit. Article XIIIB does not affect the appropriations of moneys that are excluded from the definition of appropriations subject to limitation, A-18

47 including debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the appropriations limit is to be based on certain Fiscal Year expenditures, and is to be adjusted annually to reflect changes in consumer prices, populations, and services provided by these entities. Among other provisions of Article XIIIB, if these entities revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. However, in the event that a school district s revenues exceed its spending limit, the district may, in any fiscal year, increase its appropriations limit to equal its spending by borrowing appropriations limit from the State, provided the State has sufficient excess appropriations limit in such year. Article XIIIC and Article XIIID of the State Constitution On November 5, 1996, the voters of the State approved Proposition 218, the so-called Right to Vote on Taxes Act. Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing and future taxes, assessments, fees and charges. Article XIIID deals with assessments and property-related fees and charges. Article XIIID explicitly provides that nothing in Article XIIIC or XIIID shall be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development; however it is not clear whether the initiative power is therefore unavailable to repeal or reduce developer and mitigation fees imposed by the District in accordance with State allowances. Developer fees imposed by the District are neither pledged nor available to pay the Bonds. Proposition 62 On November 4, 1986, State voters adopted Proposition 62, a statutory initiative which amended the State Government Code by the addition of Sections Proposition 62 requires that (i) any local tax for general governmental purposes (a general tax ) must be approved by a majority vote of the electorate; (ii) any local tax for specific purposes (a special tax ) must be approved by a two-thirds vote of the electorate; (iii) any general tax must be proposed for a vote by two-thirds of the legislative body; and (iv) proceeds of any tax imposed in violation of the vote requirements must be deducted from the local agency s property tax allocation. Provisions applying Proposition 62 retroactively from its effective date to 1985 are unlikely to be of any continuing importance; certain other restrictions were already contained in the Constitution. Most of the provisions of Proposition 62 were affirmed by the 1995 California Supreme Court decision in Santa Clara County Local Transportation Authority v. Guardino, which invalidated a special sales tax for transportation purposes because fewer than two-thirds of the voters voting on the measure had approved the tax. Following the State Supreme Court s decision upholding Proposition 62, several actions were filed challenging taxes imposed by public agencies since the adoption of Proposition 62, which was passed in November On June 4, 2001, the State Supreme Court released its decision in one of these cases, Howard Jarvis Taxpayers Association v. City of La Habra, et al. ( La Habra ). In this case, the court held that public agency s continued imposition and collection of a tax is an ongoing violation, upon which the statute of limitations period begins anew with each collection. The court also held that, unless another statute or constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received within three years of the date the action is brought. Although by its terms Proposition 62 applies to school districts, the District has not experienced any substantive adverse financial impact as a result of the passage of this initiative or the Santa Clara or La Habra decisions and believes that any impact experienced by the District will not adversely effect the ability of the District to make payments with respect to the Bonds. Proposition 98 On November 8, 1988, State voters approved Proposition 98, a combined initiative, constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act (the Accountability Act ). The Accountability Act changed State funding of public education below the university A-19

48 level, and the operation of the State s Appropriations Limit, primarily by guaranteeing State funding for K-12 school districts and community college districts (collectively, K-14 districts ). Under Proposition 98 (as modified by Proposition 111, which was enacted on June 5, 1990), K-14 districts are guaranteed the greater of (a) in general, a fixed percent of the State General Fund revenues ( Test 1 ), (b) the amount appropriated to K-14 schools in the prior year, adjusted for changes in the cost-of-living (measured as in Article XIIIB by reference to State per capita personal income) and enrollment ( Test 2 ), or (c) a third test, which would replace Test 2 in any year when the percentage growth in per capita State General Fund revenues from the prior year plus one-half of one percent is less than the percentage growth in State per capita personal income ( Test 3 ). Under Test 3, schools would receive the amount appropriated in the prior year adjusted for changes in enrollment and per capita State General Fund revenues, plus an additional small adjustment factor. If Test 3 is used in any year, the difference between Test 3 and Test 2 would become a credit to schools which would be the basis of payments in future years when per capita State General Fund revenue growth exceeds per capita personal income growth. Legislation adopted prior to the end of Fiscal Year , implementing Proposition 98, determined the K-14 districts funding guarantee under Test 1 to be 40.3% of the State General Fund tax revenues, based on appropriations. However, that percentage has been adjusted to 35% to account for a subsequent redirection of local property taxes whereby a greater proportion of education funding now comes from local property taxes. Proposition 98 permits the State Legislature by a two-thirds vote of both houses, with the Governor s concurrence, to suspend the K-14 districts minimum funding formula for a one-year period. In the fall of 1989, the Legislature and the Governor utilized this provision to avoid having 40.3% of revenues generated by a special supplemental sales tax enacted for earthquake relief go to K-14 districts. Proposition 98 also contains provisions transferring certain State tax revenues in excess of the Article XIIIB limit to K-14 districts. The State budget increased total Proposition 98 expenditures by 2.7%, to $58.1 billion. The State General Fund contributes approximately 72 percent, or $41.9 billion, of total proposed Proposition 98 funding. See DISTRICT FINANCIAL INFORMATION State Budget for further information concerning the State budget. Proposition 39 Proposition 39 which was approved by State voters in November, 2000, and provides an alternative method for passage of school facilities bond measures by lowering the constitutional voting requirement from two-thirds to 55 percent of voters and allows property taxes to exceed the current 1 percent limit in order to repay such bonds. The lower 55 percent vote requirement would apply only for bond issues to be used for construction, rehabilitation, equipping of school facilities or the acquisition of real property for school facilities. The Legislature enacted additional legislation which placed certain limitations on this lowered threshold, requiring that (i) two-thirds of the governing board of a school district approve placing a bond issue on the ballot, (ii) the bond proposal be included on the ballot of a statewide or primary election, a regularly scheduled local election, or a statewide special election (rather than a school board election held at any time during the year), (iii) the tax rate levied as a result of any single election not exceed $25 for a community college district, $60 for a unified school district, or $30 for an elementary school or high school district per $100,000 of taxable property value, and (iv) the governing board of the school district appoint a citizen s oversight committee to inform the public concerning the spending of the bond proceeds. In addition, the school board of the applicable district is required to perform an annual, independent financial and performance audit until all bond funds have been spent to ensure that the funds have been used only for the projects listed in the measure. The District s Election of 2003, Proposition A bond program and the Election of 2006, Proposition A bond program were both authorized pursuant to Proposition 39. The District is in compliance with the Proposition 39 requirements applicable to such bond programs. State School Facilities Bonds Proposition 47 and Proposition 1A. The Class Size Reduction Kindergarten University Public Education Facilities Bond Act of 2002 ( Proposition 47 ) appeared on the November 5, 2002 ballot as Proposition 47 and was approved by the California voters. This measure authorizes the sale and issuance of $13.05 billion in general obligation bonds for construction and renovation of K-12 school facilities ($11.4 billion) and higher education A-20

49 facilities ($1.65 billion). Proposition 47 includes $6.35 billion for acquisition of land and new construction of K-12 school facilities. Of this amount, $2.9 billion will be set aside to fund backlog projects for which school districts submitted applications to the State on or prior to February 1, The balance of $3.45 billion would be used to fund projects for which school districts submitted applications to the State after February 1, K-12 school districts will be required to pay 50% of the costs for acquisition of land and new construction with local revenues. In addition, $100 million of the $3.45 billion would be available for charter school facilities. Proposition 47 makes available $3.3 billion for reconstruction or modernization of existing K-12 school facilities. Of this amount, $1.9 billion will be set aside to fund backlog projects for which school districts submitted applications to the State on or prior to February 1, 2002 and the balance of $1.4 billion would be use to fund projects for which school districts submitted applications to the State after February 1, K-12 school districts will be required to pay 40% of the costs for reconstruction or modernization with local revenues. Proposition 47 provides a total of $1.7 billion to K-12 school districts which are considered critically overcrowded, specifically to schools that have a large number of pupils relative to the size of the school site. In addition, $50 million will be available to fund jointuse projects. Proposition 47 also includes $1.65 billion to construct new buildings and related infrastructure, alter existing buildings and purchase equipment for use in the State s public higher education systems. Proposition 1A was previously approved in November 1998 and provided $6.7 billion of capital funding for schools. Proposition 55. The Kindergarten-University Public Education Facilities Bond Act of 2004 ( Proposition 55 ) appeared on the March 2, 2004 ballot as Proposition 55 and was approved by State voters by a margin of 1.4%. This measure authorizes the sale and issuance of $12.3 billion in general obligation bonds for the construction and renovation of K-12 school facilities ($10 billion) and higher education facilities ($2.3 billion). Proposition 55 includes $5.26 billion for the acquisition of land and construction of new school buildings. A district would be required to pay for 50% of costs with local resources unless it qualifies for state hardship funding. The measure also provides that up to $300 million of these new construction funds is available for charter school facilities. Proposition 55 makes $2.25 billion available for the reconstruction or modernization of existing school facilities. Districts would be required to pay 40% of project costs from local resources. Proposition 55 directs a total of $2.44 billion to districts with schools which are considered critically overcrowded. These funds would go to schools that have a large number of pupils relative to the size of the school site. Proposition 55 also makes a total of $50 million available to fund joint-use projects. Proposition 55 includes $2.3 billion to construct new buildings and related infrastructure, alter existing buildings and purchase equipment for use in these buildings for the State s public higher education systems. The measure allocates $690 million to each University of California and California State University campus and $920 million to California community colleges. The Governor and the Legislature will select specific projects to be funded by the bond proceeds. Proposition 1D. The Kindergarten-University Public Education Facilities Bond Act of 2006 ( Proposition 1D ) appeared on the November 7, 2006 ballot as Proposition 1D and was approved by the California voters. This measure authorizes the sale and issuance of $10.4 billion in general obligation bonds by the State for funding the construction and renovation of public K-12 school facilities ($7.3 billion) and public higher education facilities ($3.1 billion). Proposition 1D includes $1.9 billion for the acquisition of land and construction of new school buildings. A school district would be required to pay for 50% of costs with local resources unless it qualifies for state hardship funding. Proposition 1D also provides that up to $500 million of these construction funds is available for charter school facilities. Proposition 1D makes $3.3 billion available for the reconstruction or modernization of existing public school facilities. Districts would be required to pay 40% of project costs from local resources. Proposition 1D directs a total of $1.0 billion to school districts with schools which are considered critically overcrowded. These funds would go to schools that have a large number of pupils relative to the size of the school site. Proposition 1D also makes a total of $29 million available to fund joint-use projects. Proposition 1D includes $3.1 billion to construct new buildings and related infrastructure, alter existing buildings and purchase equipment for use in these buildings for California s public higher education systems. The measure allocates $890 million to University of California and $690 million to California State University campus and $1.5 billion to California community colleges. The Governor and the State Legislature will select specific projects to be funded by the bond proceeds. A-21

50 Set forth below is a table showing the District s actual apportionments from Proposition 1A and Proposition 47 and the District s estimated apportionments from Proposition 55 and Proposition 1D. On December 17, 2008, due to a mounting deficit and budget stalemate, the State cut off funding for $3.8 billion of public works projects statewide. California officials froze State funds that have already been approved for projects ranging from construction of new schools to upgrades of older campuses. Some of the frozen funds may be for District projects. The State investment board is scheduled to meet again later this month to assess its funding cut decision. No assurances can be given that the District will continue to apply for apportionments from future State bond initiatives or that the District will continue to receive funding from State bond initiatives to which it applies. San Francisco Unified School District State Bond Initiative Funding Apportionments (Dollars in Thousands) State Bond Measure Total Proposition 1A (actual) $ 39,400 Proposition 47 (actual) 13,200 Proposition 55 (actual) 28,400 Proposition 1D (estimated) 60,700 Total $ 141,700 Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC, Article XIIID and Propositions 62, 98, 39, 1A, 47, 55 and 1D were each adopted as measures that qualified for the ballot pursuant to the State s initiative process. From time to time other initiative measures could be adopted, further affecting District revenues or the District s ability to expend revenues. Long-Term Debt DISTRICT DEBT STRUCTURE As of June 30, 2008, the District had $15.0 million of outstanding certificates of participation, of which $7.6 million have been economically defeased. The debt service due in Fiscal Year for the remaining $15.0 million of certificates of participation is $2.25 million. In addition, the District had $22.6 million of capital leases with $2.28 million of lease payments due in Fiscal Year For additional details on the District s long-term liabilities, see Note 9 to the audited financial report in Appendix B hereto. On October 28, 2004, the District issued its first series of general obligation bonds authorized at an election of the registered voters held on November 4, 2003, at which more than 55% of the persons voting on the measure voted to authorize the issuance and sale of up to $295,000,000 principal amount of general obligation bonds of the District, of which $280,000,000 has been issued and $15,000,000 is remaining. The District issued the first series of general obligation bonds pursuant to the authorization received at an election of the registered voters held on November 7, 2006, at which more than 55% of the persons voting on the measure voted to authorize the issuance and sale of up to $450,000,000 principal amount of general obligation bonds of the District (the Proposition A Authorization ). The first series was issued on February 28, 2007 in an aggregate principal amount of $100,000,000. The District will have $200,000,000 remaining pursuant to the Proposition A Authorization following the issuance of the Bonds. Capital Plan The District developed a 10-year Capital Plan in 2007 that replaces the Facilities Master Plan that the District previously developed. The Capital Plan is updated on a yearly basis to take into account an annual review A-22

51 of changing capital needs and improved information regarding project requirements and projected costs. Because of the need for reconstruction and repair of existing facilities, including structural changes to comply with disability access standards, the District s current 10-year Capital Plan anticipates a total capital facilities need of over $1.0 billion. Pertinent District items are reflected in the City's annual Capital Plan. As part of the District s ongoing review of the 10-year Capital Plan, the District is in the process of initiating building assessments of remaining District properties that were not reviewed in connection with the 2003 and 2006 Proposition A Bond Program, in order to define the scope and projected costs of required new construction, replacement, modernization and deferred maintenance for such buildings. The District anticipates funding its capital needs from a combination of proceeds from the sale of general obligation bonds, State-matching funds, developer fees, facilities parcel tax, donations/capital funding campaigns, deferred maintenance allocations and other sources. The District currently estimates an additional $500 million of future general obligation bond funding will be necessary to complete renovation, modernization and repair work required in 60 additional facilities. Proposed Future Financings The District expects to issue an additional series of general obligation bonds in Fiscal Year pursuant to the $200,000,000 remaining of the Proposition A Authorization. Constitutional Debt Limit The District s constitutional debt limit is 2.5% of the value of taxable property in the District and is currently equal to $3.6 billion, based upon Fiscal Year assessed valuation. The amount of outstanding general obligation bonds as of December 31, 2008 is $351,275,000. DIRECT AND OVERLAPPING DEBT Contained within the District are numerous overlapping local agencies providing public services. These local agencies have outstanding debt issued in the form of general obligation, lease revenue and special tax and assessment bonds. The direct and overlapping debt of the District as of December 31, 2008 is shown in the following table (the Debt Statement ). Self-supporting revenue bonds, tax allocation bonds and non-bonded capital lease obligations are excluded from the Debt Statement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] A-23

52 SAN FRANCISCO UNIFIED SCHOOL DISTRICT Statement of Direct and Overlapping Debt and Long-Term Obligations (1) (as of December 31, 2008) Assessed Valuation (net of non-reimbursable & homeowner exemptions): $141,274,628,320 Outstanding GROSS DIRECT GENERAL OBLIGATION BOND DEBT San Francisco Unified School District (Election of 2003) Series A (2004), Series B (2005) and Series C (2006); and (Election of 2006) Series A (2007) $ 351,275,000 $ 351,275,000 LEASE PAYMENT OBLIGATIONS San Francisco Unified School District COPs (1235 Mission Street), Series 1992 $ 7,502,682 San Francisco Unified School District COPs Refunding 480,000 San Francisco Unified School District COPs ,845,000 San Francisco Unified School District COPs (Administration Building) 11,545,000 TOTAL LEASE PAYMENT OBLIGATIONS $ 21,372,682 TOTAL GROSS DIRECT DEBT AND LEASE PAYMENT OBLIGATIONS $ 372,647,682 OVERLAPPING DEBT AND LONG-TERM OBLIGATIONS General City Purposes Carried on the Tax Roll $ 1,139,562,730 San Francisco COPs, Series 1997 ( th Street Property) $ 5,940,000 San Francisco COPs, Series 1999 (555-7th Street Property) 6,480,000 San Francisco Parking Authority Lease Revenue Bonds, Series 2000A (North Beach Garage) 6,495,000 San Francisco COPs, Series 2000 (San Bruno Jail Replacement Project) 125,885,000 San Francisco Refunding COPs, Series (25 Van Ness Avenue Property) 10,290,000 San Francisco Refunding Settlement Obligation Bonds, Series 2003-R1 20,585,000 San Francisco COPs, Series 2001A & Taxable Series 2001B (30 Van Ness Ave. Property) 32,410,000 San Francisco COPs, Series 2003 (Juvenile Hall Replacement Project) 39,540,000 San Francisco Finance Corporation, Equipment LRBs Series 2003A, 2004A, 2005A, 2006A, 2007A, 2008A 26,950,000 San Francisco Finance Corporation Emergency Communication Series, 1997, 1998, , ,140,000 San Francisco Finance Corporation Moscone Expansion Center, Series, , , ,340,000 San Francisco Finance Corporation LRBs Open Space Fund (Various Park Projects) Series 2006, ,320,000 San Francisco Redevelopment Agency Moscone Convention Center ,349,818 San Francisco Redevelopment Agency Lease Revenue Refunding Bonds, Series ,205,000 San Francisco Redevelopment Agency Lease Revenue Refunding Bonds, Series ,050,000 San Francisco Refunding Certificates of Participation, Series 2004-R1(San Francisco Courthouse Project) 33,910,000 San Francisco COPs, Series 2007A and Taxable Series 2007B (City Office Buildings - Multiple Properties) 152,120,000 Bayshore Hester Assessment District $790,000 San Francisco Bay Area Rapid Transit District (33%) Sales Tax Revenue Bonds 119,085,000 San Francisco Bay Area Rapid Transit District (29%) General Obligation Bonds, Series 2005A, 2007B 110,546,550 San Francisco Community College District General Obligation Bonds - Elections of 2001, ,990,000 San Francisco Parking Authority Meter Revenue Refunding Bonds ,985,000 San Francisco Redevelopment Agency Hotel Tax Revenue Bonds ,840,000 San Francisco Redevelopment Agency Hotel Tax Revenue Refunding Bonds ,240,000 San Francisco Redevelopment Agency Obligations (Property Tax Increment) 574,527,610 TOTAL OVERLAPPING DEBT & LONG-TERM OBLIGATIONS $ 3,212,576,708 GROSS COMBINED TOTAL OBLIGATIONS $ 3,585,224,390 (2) (3) Ratios to Assessed Valuation: Ratio Constitutional Requirement Gross Direct Debt (General Obligation Bonds) 0.25% < 2.50% Gross Direct Debt and Lease Payment Obligations (net of 1992 COPs - see footnote 2) 0.26% n/a Gross Combined Total Obligations 2.54% n/a STATE SCHOOL BUILDING AID REPAYMENT FOR FY $29,362 (1) Excludes revenue and mortgage revenue bonds, tax allocation bonds, and non-bonded third party financing lease obligations. (2) These lease obligations have been assigned to a third party; while the COPs have been economically defeased, they have not been legally defeased. (3) The accreted value as of July 1, 2008 is $71,584,497. Source: Office of Public Finance, City and County of San Francisco. A-24

53 APPENDIX B PROPOSED FORM OF OPINION OF BOND COUNSEL Upon delivery of the Bonds, Bond Counsel proposes to render its final approving opinion with respect to the Bonds in substantially the following form: [Closing Date] Board of Education San Francisco Unified School District San Francisco, California $ SAN FRANCISCO UNIFIED SCHOOL DISTRICT (CITY AND COUNTY OF SAN FRANCISCO, CALIFORNIA) (PROPOSITION A, ELECTION OF 2006) GENERAL OBLIGATION BONDS SERIES B (2009) Members of the Board of Education: We have acted as bond counsel to the San Francisco Unified School District (the District ) and in such capacity have examined a record of proceedings related to the issuance of the San Francisco Unified School District (City and County of San Francisco, California) (Proposition A, Election of 2006) General Obligation Bonds, Series B (2009) (the Bonds ). The Bonds are issued under and pursuant to Title 1, Division 1, Part 10, Chapter 1.5 of the California Education Code, a 55% vote of the qualified electors of the District voting at an election held on November 7, 2006, resolutions adopted by the Board of Supervisors of the City and County of San Francisco on December 12, 2006 (the City Resolution ) and resolutions adopted by the Board of Education of the District (the Board of Education ) on September 23, 2008 and October 14, 2008 (collectively, the District Resolution ). In our capacity as bond counsel, we have reviewed originals or copies certified or otherwise identified to our satisfaction of such documents, certificates, opinions and other matters as we deemed necessary or appropriate to render the opinions set forth herein. As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation, and we have assumed, but have not independently verified, that the signatures on all documents, certificates and opinions that we reviewed are genuine. Certain requirements and procedures contained or referred to in the District Resolution or other relevant documents relating to the Bonds may be changed, and certain actions may be taken, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of counsel nationally recognized in the area of tax-exempt obligations. We express no opinion as to the effect of any change to any document pertaining to the Bonds or of any action taken or not taken where such change is made or action is taken or not taken without our approval or in reliance upon the advice of counsel other than ourselves with respect to the exclusion from gross income of the interest on the Bonds for federal income tax purposes. Based on the foregoing and subject to the limitations and qualifications herein specified, as of the date hereof, under existing law, we are of the opinion that: 1. The Bonds constitute valid and binding general obligation bonds of the District, payable as to both principal and interest as solely from the proceeds of the levy of ad valorem taxes on all property subject to such taxes in the District, which taxes are unlimited as to rate or amount. B-1

54 2. Assuming continuing compliance by the District with certain covenants in the District Resolution, the Tax Certificate and other documents relating to the Bonds and the requirements of the Internal Revenue Code of 1986, as amended, regarding the use, expenditure and investment of Bond proceeds and the timely payment of certain investment earnings to the United States, interest on the Bonds is not includable in the gross income of the owners of the Bonds for federal income tax purposes. Failure of the District to comply with such covenants and requirements may cause interest on the Bonds to become includable in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. 3. Interest on the Bonds is not treated as an item of tax preference in calculating the federal alternative minimum taxable income of individuals and corporations. Interest on the Bonds, however, is included as an adjustment in calculating federal corporate alternative minimum taxable income and therefore may affect a corporation s alternative minimum tax liability. 4. Interest on the Bonds is exempt from personal income taxes imposed by the State of California. We express no opinion regarding other federal or State of California income tax consequences caused by the ownership of or the receipt of interest on the Bonds. With respect to the opinions expressed herein, the enforceability of the rights and obligations under the Bonds is subject to bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws affecting the enforcement of creditors rights generally, to the application of equitable principles (regardless of whether such enforceability is considered in equity or at law), to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against school districts in the State of California. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions. Such opinions may be adversely affected by actions taken or events occurring, including a change in law, regulation or ruling (or in the application of official interpretation of any law, regulation or ruling) after the date hereof. We have not undertaken to determine, or to inform any person, whether such actions are taken or such events occur, and we have no obligation to update this opinion in light of such actions or events. Respectfully submitted, B-2

55 APPENDIX C EXCERPTS FROM FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2008

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115 APPENDIX D BOOK-ENTRY ONLY SYSTEM The information in this Appendix concerning The Depository Trust Company ( DTC ), New York, New York, and DTC s book-entry system has been obtained from DTC and the District takes no responsibility for the completeness or accuracy thereof. The District cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current Rules applicable to DTC are on file with the Securities and Exchange Commission and the current Procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. The DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered security certificate will be issued for each maturity of the Bonds, each in the principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC, is the holding company for DTC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation and Fixed Income Clearing Corporation all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual D-1

116 Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. The conveyance of notices and other communications by DTC to DTC Participants, by DTC Participants to Indirect Participants and by DTC Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Any failure of DTC to advise any DTC Participant, or of any DTC Participant or Indirect Participant to notify a Beneficial Owner, of any such notice and its content or effect will not affect the validity of the redemption of the Bonds called for redemption or of any other action premised on such notice. Redemption of portions of the Bonds by the District will reduce the outstanding principal amount of Bonds held by DTC. In such event, DTC will implement, through its book-entry system, a redemption by lot of interests in the Bonds held for the account of DTC Participants in accordance with its own rules or other agreements with DTC Participants and then DTC Participants and Indirect Participants will implement a redemption of the Bonds for the Beneficial Owners. Any such selection of Bonds to be redeemed will not be governed by the Indenture and will not be conducted by the District or the Paying Agent. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments of principal of, premium, if any, and interest evidenced by the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the District or the Paying Agent, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC (nor its nominee), the Paying Agent, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal of, premium, if any, and interest evidenced by the Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. NEITHER THE DISTRICT NOR THE PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS WITH RESPECT TO THE PAYMENTS OR THE PROVIDING OF NOTICE TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS OR THE SELECTION OF BONDS FOR REDEMPTION OR THE SELECTION OF BONDS FOR REDEMPTION. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the District or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, security certificates are required to be printed and delivered. D-2

117 The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, bond certificates will be printed and delivered. In the event that the book-entry system is discontinued as described above, the requirements of the Resolution will apply. The foregoing information concerning DTC concerning and DTC s book-entry system has been provided by DTC, and none of the District or the Paying Agent take any responsibility for the accuracy thereof. The District and the Paying Agent do not give any assurances that DTC, the Participants or others will distribute payments of principal, interest or premium, if any, evidenced by the Bonds paid to DTC or its nominee as the registered owner, or will distribute any redemption notices or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. Neither the District nor the Paying Agent is responsible or liable for the failure of DTC or any Participant to make any payment or give any notice to a Beneficial Owner with respect to the Bonds or an error or delay relating thereto. D-3

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119 APPENDIX E PROPOSED FORM OF DISCLOSURE DISSEMINATION AGENT AGREEMENT This Disclosure Dissemination Agent Agreement (the Disclosure Agreement ), dated as of, 2009, is executed and delivered by San Francisco Unified School District (the Issuer ) and Digital Assurance Certification, L.L.C., as exclusive Disclosure Dissemination Agent (the Disclosure Dissemination Agent or DAC ) for the benefit of the Holders (hereinafter defined) of the San Francisco Unified School District (City and County of San Francisco, California) (Proposition A, Election of 2006) General Obligation Bonds, Series B (2009) (the Bonds ) and in order to provide certain continuing disclosure with respect to the Bonds in accordance with Rule 15c2-12 of the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time (the Rule ). SECTION 1. Definitions. Capitalized terms not otherwise defined in this Disclosure Agreement shall have the meaning assigned in the Rule or, to the extent not in conflict with the Rule, in the Official Statement (hereinafter defined). The capitalized terms shall have the following meanings: Annual Report means an Annual Report described in and consistent with Section 3 of this Disclosure Agreement. Annual Filing Date means the date, set in Sections 2(a) and 2(f), by which the Annual Report is to be filed with the Repositories. Annual Financial Information means annual financial information as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(a) of this Disclosure Agreement. Audited Financial Statements means the financial statements (if any) of the Issuer for the most recently completed fiscal year prior to the reporting date, certified by an independent auditor as prepared in accordance with generally accepted accounting principles or otherwise, as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(b) of this Disclosure Agreement. Bonds means the bonds as listed an the attached Exhibit A, with the 9-digit CUSIP numbers relating thereto. Certification means a written certification of compliance signed by the Disclosure Representative stating that the Annual Report, Audited Financial Statements, Voluntary Report or Notice Event notice delivered to the Disclosure Dissemination Agent is the Annual Report, Audited Financial Statements, Voluntary Report or Notice Event notice then required to be submitted to the Repositories under this Disclosure Agreement. A Certification shall accompany each such document submitted to the Disclosure Dissemination Agent by the Issuer and include the full name of the Bonds and the 9-digit CUSIP numbers for all Bonds to which the document applies. Disclosure Representative means the District s Deputy Superintendent, Policy and Operations, Executive Director of Business Services, Chief Business Officer, Chief Financial Officer or other equivalent authorized officer as may exist from time to time, or such other person as the Issuer shall designate in writing to the Disclosure Dissemination Agent from time to time as the person responsible for providing Information to the Disclosure Dissemination Agent. Disclosure Dissemination Agent means Digital Assurance Certification, L.L.C., acting in its capacity as Disclosure Dissemination Agent hereunder, or any successor Disclosure Dissemination Agent designated in writing by the Issuer pursuant to Section 9 hereof. E-1

120 Holder means any person (a) having the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries) or (b) treated as the owner of any Bonds for federal income tax purposes. Information means the Annual Financial Information, the Audited Financial Statements (if any) the Notice Event notices, and the Voluntary Reports. Notice Event means an event listed in Sections 4(a) of this Disclosure Agreement. MSRB means the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of National Repository means any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The list of National Repositories maintained by the United States Securities and Exchange Commission shall be conclusive for purposes of determining National Repositories. As of the date of execution hereof, the following are National Repositories: 1. DPC Data Inc. One Executive Drive Fort Lee, New Jersey (201) (phone) (201) (fax) 2. FT Interactive Data Attn: Repository 100 Williams Street New York, New York (212) (phone) (212) (fax for secondary market information) (212) (fax for primary market information) 3. Bloomberg Municipal Repositories 100 Business Park Drive Skillman, New Jersey (609) (phone) (609) (fax) 4. Standard & Poor s J.J. Kenny Repository 55 Water Street 45th Floor New York, New York (212) (phone) (212) (fax) nrmsir_repository@sandp.com Official Statement means that Official Statement prepared by or on behalf of the Issuer in connection with the Bonds. Repository means the MSRB, each National Repository and the State Depository (if any). State Depository means any public or private depository or entity designated by the State of California as a state information depository (if any) for the purpose of the Rule provided, that if the state in which the Issuer is located does not have a designated State Depository, no filing with a State Depository is necessary hereunder. The list of state information depositories maintained by the United States Securities and Exchange Commission shall be conclusive as to the existence of a State Depository. E-2

121 Trustee or Paying Agent means the institution or entity identified as such in the document under which the Bonds were issued. Voluntary Report means the information provided to the Disclosure Dissemination Agent by the Issuer pursuant to Section 7. SECTION 2. Provision of Annual Reports. (a) The Issuer shall provide, annually, an electronic copy of the Annual Report and Certification to the Disclosure Dissemination Agent, together with a copy for the Trustee, not later than 30 days prior to the Annual Filing Date. Promptly upon receipt of an electronic copy of the Annual Report and the Certification, the Disclosure Dissemination Agent shall provide an Annual Report to each National Repository and the State Depository (if any) not later than 270 days after the end of each fiscal year of the Issuer, commencing with the fiscal year ending June 30, Such date and each anniversary thereof is the Annual Filing Date. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 3 of this Disclosure Agreement. (b) If on the fifteenth (15th) day prior to the Annual Filing Date, the Disclosure Dissemination Agent has not received a copy of the Annual Report and Certification, the Disclosure Dissemination Agent shall contact the Disclosure Representative by telephone and in writing (which may be by ) to remind the Issuer of its undertaking to provide the Annual Report pursuant to Section 2(a). Upon such reminder, the Disclosure Representative shall either (i) provide the Disclosure Dissemination Agent with an electronic copy of the Annual Report and the Certification) no later than two (2) business days prior to the Annual Filing Date, or (ii) instruct the Disclosure Dissemination Agent in writing that the Issuer will not be able to file the Annual Report within the time required under this Disclosure Agreement, state the date by which the Annual Report for such year will be provided and instruct the Disclosure Dissemination Agent that a Notice Event as described in Section 4(a)(12) has occurred and to immediately send a notice to each National Repository or the MSRB and the State Depository (if any) in substantially the form attached as Exhibit B. (c) If the Disclosure Dissemination Agent has not received an Annual Report and Certification by 12:00 noon on the first business day following the Annual Filing Date for the Annual Report, a Notice Event described in Section 4(a)(12) shall have occurred and the Issuer irrevocably directs the Disclosure Dissemination Agent to immediately send a notice to each National Repository or the MSRB and the State Depository (if any) in substantially the form attached as Exhibit B. (d) If Audited Financial Statements of the Issuer are prepared but not available prior to the Annual Filing Date, the Issuer shall, when the Audited Financial Statements are available, provide in a timely manner an electronic copy to the Disclosure Dissemination Agent, accompanied by a Certificate, together with a copy for the Trustee, for filing with each National Repository and the State Depository (if any). (e) The Disclosure Dissemination Agent shall: (i) (ii) (iii) (iv) determine the name and address of each Repository each year prior to the Annual Filing Date; upon receipt, promptly file each Annual Report received under Section 2(a) with each National Repository, and the State Depository, (if any); upon receipt, promptly file each Audited Financial Statement received under Section 2(d) with each National Repository, and the State Depository (if any); upon receipt, promptly file the text of each disclosure to be made with each National Repository or the MSRB and the State Depository (if any) together with a completed copy of the MSRB Material Event Notice Cover Sheet in the form attached as Exhibit C, E-3

122 describing the event by checking the box indicated below when filing pursuant to the Section of this Disclosure Agreement indicated: 1. Principal and interest payment delinquencies, pursuant to Sections 4(c) and 4(a)(1); 2. Non-Payment related defaults, pursuant to Sections 4(c) and 4(a)(2); 3. Unscheduled draws on debt service reserves reflecting financial difficulties, pursuant to Sections 4(c) and 4(a)(3); 4. Unscheduled draws on credit enhancements reflecting financial difficulties, pursuant to Sections 4(c) and 4(a)(4); 5. Substitution of credit or liquidity providers, or their failure to perform, pursuant to Sections 4(c) and 4(a)(5); 6. Adverse tax opinions or events affecting the tax-exempt status of the security, pursuant to Sections 4(c) and 4(a)(6); 7. Modifications to rights of securities holders, pursuant to Sections 4(c) and 4(a)(7); 8. Bond calls, pursuant to Sections 4(c) and 4(a)(8); 9. Defeasances, pursuant to Sections 4(c) and 4(a)(9); 10. Release, substitution, or sale of property securing repayment of the securities, pursuant to Sections 4(c) and 4(a)(10); 11. Ratings changes, pursuant to Sections 4(c) and 4(a)(11); 12. Failure to provide annual financial information as required, pursuant to Section 2(b)(ii) or Section 2(c), together with a completed copy of Exhibit B to this Disclosure Agreement; 13. Other material event notice (specify), pursuant to Section 7 of this Agreement, together with the summary description provided by the Disclosure Representative. (v) provide the Issuer evidence of the filings of each of the above when made, which shall be by means of the DAC system, for so long as DAC is the Disclosure Dissemination Agent under this Disclosure Agreement. (f) The Issuer may adjust the Annual Filing Date upon change of its fiscal year by providing written notice of such change and the new Annual Filing Date to the Disclosure Dissemination Agent, Trustee (if any) and the Repositories, provided that the period between the existing Annual Filing Date and new Annual Filing Date shall not exceed one year. SECTION 3. Content of Annual Reports. (a) Each Annual Report shall contain annual financial information with respect to the Issuer, including the tabular data provided in the Official Statement under the headings: SECURITY AND SOURCE OF PAYMENT FOR THE BONDS Assessed Valuation of Taxable Property, and Tax Rates, Levies, Collections and Delinquencies to the extent provided by the City. E-4

123 (b) Audited Financial Statements prepared in accordance with generally accepted accounting principles as set forth by the National Council on Governmental Accounting will be included in the Annual Report, such Audited Financial Statements to include District enrollment or Average Daily Attendance for the fiscal year of such Audited Financial Statements. See APPENDIX C in the Official Statement. Any or all of the items listed above may be included by specific reference from other documents, including official statements of debt issues with respect to which the Issuer is an obligated person (as defined by the Rule), which have been previously filed with each of the National Repositories or the Securities and Exchange Commission. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The Issuer will clearly identify each such document so incorporated by reference. SECTION 4. Reporting of Notice Events. (a) Notice Event: The occurrence of any of the following events, if material, with respect to the Bonds constitutes a 1. Principal and interest payment delinquencies; 2. Non-payment related defaults; 3. Unscheduled draws on debt service reserves reflecting financial difficulties; 4. Unscheduled draws on credit enhancements relating to the Bonds reflecting financial difficulties; 5. Substitution of credit or liquidity providers, or their failure to perform; 6. Adverse tax opinions or events affecting the tax-exempt status of the Bonds; 7. Modifications to rights of Bond holders; 8. Bond calls; 9. Defeasances; 10. Release, substitution, or sale of property securing repayment of the Bonds; 11. Rating changes on the Bonds; and 12. Failure to provide annual financial information as required. The Issuer shall promptly notify the Disclosure Dissemination Agent in writing upon the occurrence of a Notice Event. Such notice shall instruct the Disclosure Dissemination Agent to report the occurrence pursuant to subsection (c). Such notice shall be accompanied with the text of the disclosure that the Issuer desires to make, the written authorization of the Issuer for the Disclosure Dissemination Agent to disseminate such information, and the date the Issuer desires for the Disclosure Dissemination Agent to disseminate the information. (b) The Disclosure Dissemination Agent is under no obligation to notify the Issuer or the Disclosure Representative of an event that may constitute a Notice Event. In the event the Disclosure Dissemination Agent so notifies the Disclosure Representative, the Disclosure Representative will within five business days of receipt of such notice, instruct the Disclosure Dissemination Agent that (i) a Notice Event has not occurred and no filing is to be made or (ii) a Notice Event has occurred and the Disclosure Dissemination Agent is to report the occurrence pursuant to subsection (c), together with the text of the disclosure that the Issuer desires to make, the written authorization of the Issuer for the Disclosure Dissemination Agent to disseminate such information, and the date the Issuer desires for the Disclosure Dissemination Agent to disseminate the information. E-5

124 (c) If the Disclosure Dissemination Agent has been instructed by the Issuer as prescribed in subsection (a) or (b)(ii) of this Section 4 to report the occurrence of a Notice Event, the Disclosure Dissemination Agent shall promptly file a notice of such occurrence with the State Depository (if any) and (i) each National Repository, or (ii) the MSRB. SECTION 5. CUSIP Numbers. Whenever providing information to the Disclosure Dissemination Agent, including but not limited to Annual Reports, documents incorporated by reference to the Annual Reports, Audited Financial Statements, notices of Notice Events, and Voluntary Reports filed pursuant to Section 7(a), the Issuer shall indicate the full name of the Bonds and the 9-digit CUSIP numbers for the Bonds as to which the provided information relates. SECTION 6. Additional Disclosure Obligations. The Issuer acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, may apply to the Issuer, and that the failure of the Disclosure Dissemination Agent to so advise the Issuer shall not constitute a breach by the Disclosure Dissemination Agent of any of its duties and responsibilities under this Disclosure Agreement. The Issuer acknowledges and understands that the duties of the Disclosure Dissemination Agent relate exclusively to execution of the mechanical tasks of disseminating information as described in this Disclosure Agreement. SECTION 7. Voluntary Reports. (a) The Issuer may instruct the Disclosure Dissemination Agent to file information with the Repositories, from time to time pursuant to a Certification of the Disclosure Representative accompanying such information (a Voluntary Report ). (b) Nothing in this Disclosure Agreement shall be deemed to prevent the Issuer from disseminating any other information through the Disclosure Dissemination Agent using the means of dissemination set forth in this Disclosure Agreement or including any other information in any Annual Report, Annual Financial Statement, Voluntary Report or Notice Event notice, in addition to that required by this Disclosure Agreement. If the Issuer chooses to include any information in any Annual Report, Annual Financial Statement, Voluntary Report or Notice Event notice in addition to that which is specifically required by this Disclosure Agreement, the Issuer shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report, Annual Financial Statement, Voluntary Report or Notice Event notice. SECTION 8. Termination of Reporting Obligation. The obligations of the Issuer and the Disclosure Dissemination Agent under this Disclosure Agreement shall terminate with respect to the Bonds upon the legal defeasance, prior redemption or payment in full of all of the Bonds, when the Issuer is no longer an obligated person with respect to the Bonds, or upon delivery by the Disclosure Representative to the Disclosure Dissemination Agent of an opinion of nationally recognized bond counsel to the effect that continuing disclosure is no longer required. SECTION 9. Disclosure Dissemination Agent. The Issuer has appointed Digital Assurance Certification, L.L.C. as exclusive Disclosure Dissemination Agent under this Disclosure Agreement. The Issuer may, upon thirty days written notice to the Disclosure Dissemination Agent, replace or appoint a successor Disclosure Dissemination Agent. Upon termination of DAC s services as Disclosure Dissemination Agent, whether by notice of the Issuer or DAC, the Issuer agrees to appoint a successor Disclosure Dissemination Agent or, alternately, agrees to assume all responsibilities of Disclosure Dissemination Agent under this Disclosure Agreement for the benefit of the Holders of the Bonds. Notwithstanding any replacement or appointment of a successor, the Issuer shall remain liable until payment in full for any and all sums owed and payable to the Disclosure Dissemination Agent. The Disclosure Dissemination Agent may resign at any time by providing thirty days prior written notice to the Issuer. SECTION 10. Remedies in Event of Default. In the event of a failure of the Issuer or the Disclosure Dissemination Agent to comply with any provision of this Disclosure Agreement, the Holders rights to enforce the provisions of this Agreement shall be limited solely to a right, by action in mandamus or for specific performance, to compel performance of the parties obligation under this Disclosure Agreement. Any failure by a party to perform in E-6

125 accordance with this Disclosure Agreement shall not constitute a default on the Bonds or under any other document relating to the Bonds, and all rights and remedies shall be limited to those expressly stated herein. SECTION 11. Duties, Immunities and Liabilities of Disclosure Dissemination Agent. (a) The Disclosure Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement. The Disclosure Dissemination Agent s obligation to deliver the information at the times and with the contents described herein shall be limited to the extent the Issuer has provided such information to the Disclosure Dissemination Agent as required by this Disclosure Agreement. The Disclosure Dissemination Agent shall have no duty with respect to the content of any disclosures or notice made pursuant to the terms hereof. The Disclosure Dissemination Agent shall have no duty or obligation to review or verify any Information or any other information, disclosures or notices provided to it by the Issuer and shall not be deemed to be acting in any fiduciary capacity for the Issuer, the Holders of the Bonds or any other party. The Disclosure Dissemination Agent shall have no responsibility for the Issuer s failure to report to the Disclosure Dissemination Agent a Notice Event or a duty to determine the materiality thereof. The Disclosure Dissemination Agent shall have no duty to determine, or liability for failing to determine, whether the Issuer has complied with this Disclosure Agreement. The Disclosure Dissemination Agent may conclusively rely upon certifications of the Issuer at all times. THE ISSUER AGREES TO INDEMNIFY AND SAVE THE DISCLOSURE DISSEMINATION AGENT AND ITS RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS, HARMLESS AGAINST ANY LOSS, EXPENSE AND LIABILITIES WHICH THEY MAY INCUR ARISING OUT OF OR IN THE EXERCISE OR PERFORMANCE OF THEIR POWERS AND DUTIES HEREUNDER, INCLUDING THE COSTS AND EXPENSES (INCLUDING ATTORNEYS FEES) OF DEFENDING AGAINST ANY CLAIM OF LIABILITY, BUT EXCLUDING LIABILITIES DUE TO THE DISCLOSURE DISSEMINATION AGENT S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. The obligations of the Issuer under this Section shall survive resignation or removal of the Disclosure Dissemination Agent and defeasance, redemption or payment of the Bonds. (b) The Disclosure Dissemination Agent may, from time to time, consult with legal counsel (either inhouse or external) of its own choosing in the event of any disagreement or controversy, or question or doubt as to the construction of any of the provisions hereof or its respective duties hereunder, and neither of them shall incur any liability and shall be fully protected in acting in good faith upon the advice of such legal counsel. The fees and expenses of such counsel shall be payable by the Issuer. SECTION 12. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Issuer and the Disclosure Dissemination Agent may amend this Disclosure Agreement and any provision of this Disclosure Agreement may be waived, if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws acceptable to both the Issuer and the Disclosure Dissemination Agent to the effect that such amendment or waiver does not materially impair the interests of Holders of the Bonds and would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule; provided neither the Issuer or the Disclosure Dissemination Agent shall be obligated to agree to any amendment modifying their respective duties or obligations without their consent thereto. Notwithstanding the preceding paragraph, the Disclosure Dissemination Agent shall have the right to adopt amendments to this Disclosure Agreement necessary to comply with modifications to and interpretations of the provisions of the Rule as announced by the Securities and Exchange Commission from time to time by giving not less than 20 days written notice of the intent to do so together with a copy of the proposed amendment to the Issuer. No such amendment shall become effective if the Issuer shall, within 10 days following the giving of such notice, send a notice to the Disclosure Dissemination Agent in writing that it objects to such amendment. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Disclosure Dissemination Agent, the underwriters, and the Holders from time to time of the Bonds, and shall create no rights in any other person or entity. E-7

126 SECTION 14. Governing Law. This Disclosure Agreement shall be governed by the laws of the State of California (other than with respect to conflicts of laws). SECTION 15. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.] E-8

127 The Disclosure Dissemination Agent and the Issuer have caused this Disclosure Agreement to be executed, on the date first written above, by their respective officers duly authorized. DIGITAL ASSURANCE CERTIFICATION, L.L.C., as Disclosure Dissemination Agent By: Name: Title: SAN FRANCISCO UNIFIED SCHOOL DISTRICT, as Issuer By: Joseph C. Grazioli Chief Financial Officer E-9

128 Name of Issuer Obligated Person(s) Name of Bond Issue: Date of Issuance:, 2009 Date of Official Statement:, 2009 EXHIBIT A NAME AND CUSIP NUMBERS OF BONDS San Francisco Unified School District San Francisco Unified School District San Francisco Unified School District (City and County of San Francisco, California) (Proposition A, Election of 2006) General Obligation Bonds, Series B (2009) CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: CUSIP Number: E-10

129 EXHIBIT B NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Issuer Obligated Person: Name of Bond Issue: San Francisco Unified School District San Francisco Unified School District San Francisco Unified School District (City and County of San Francisco, California) (Proposition A, Election of 2006) General Obligation Bonds, Series B (2009) Date of Issuance:, 2009 NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect to the abovenamed Bonds as required by the Disclosure Agreement, dated as of, 2009, between the Issuer and Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent. The Issuer has notified the Disclosure Dissemination Agent that it anticipates that the Annual Report will be filed by [ ] Dated: Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent, on behalf of the Issuer cc: Issuer Obligated Person E-11

130 EXHIBIT C MATERIAL EVENT NOTICE COVER SHEET This cover sheet and material event notice should be sent to the Municipal Securities Rulemaking Board or to all Nationally Recognized Municipal Securities Information Repositories, and the State Information Depository, if applicable, pursuant to Securities and Exchange Commission Rule 15c2-12(b)(5)(i)(C) and (D). Issuer s and/or Other Obligated Person s Name: San Francisco Unified School District Issuer s Six-Digit CUSIP Number: [ ]I or Nine-Digit CUSIP Number(s) of the bonds to which this material event notice relates: [ ]I Number of pages of attached material event notice: Description of Material Events Notice (Check One): 1. Principal and interest payment delinquencies 2. Non-Payment related defaults 3. Unscheduled draws on debt service reserves reflecting financial difficulties 4. Unscheduled draws on credit enhancements reflecting financial difficulties 5. Substitution of credit or liquidity providers, or their failure to perform 6. Adverse tax opinions or events affecting the tax-exempt status of the security 7. Modifications to rights of securities holders. 8. Bond calls. 9. Defeasances 10. Release, substitution, or sale of property securing repayment of the securities 11. Rating changes 12. Failure to provide annual financial information as required 13. Other material event notice (specify) I hereby represent that I am authorized by the issuer or its agent to distribute this information publicly: Signature: Name: Employer: Digital Assurance Certification, L.L.C. Address City, State, Zip Code: Voice Telephone Number: Please print the material event notice attached to this cover sheet in 10-point type or larger, The cover sheet and notice may be faxed to the MSRB at (703) or sent to CDINet, Municipal Securities Rulemaking Board, 1900 Duke Street, Suite 600, Alexandria, VA Contact the MSRB at (703) with questions regarding this form or the dissemination of this notice. Title: E-12

131 APPENDIX F EXCERPTS FROM THE CITY AND COUNTY OF SAN FRANCISCO INVESTMENT PORTFOLIO REPORT The following information has been provided by the City and County of San Francisco for use herein. The District takes no responsibility for the accuracy or completeness of such information. Investment Policy The management of the City and County s surplus cash is governed by an Investment Policy administered by the Treasurer-Tax Collector of the City and County. In order of priority, the objectives of this Investment Policy are the preservation of capital, liquidity and yield. The preservation of capital is the foremost goal of any investment decision, and investments generally are made so that securities can be held to maturity. Once safety and liquidity objectives have been achieved, the Treasurer-Tax Collector of the City and County then attempts to generate a favorable return by maximizing interest earnings without compromising the first two objectives. A report detailing the investment portfolio and investment activity, including the market value of the portfolio, is submitted to the Mayor and the Board of Supervisors monthly. The investment portfolio is sufficiently liquid to enable the City and County to meet all disbursement requirements that are anticipated from any fund during the subsequent eighteen months. As of October 31, 2008, the City and County s surplus investment fund consisted of the investments classified below. (1) CITY AND COUNTY OF SAN FRANCISCO All Funds Investment Portfolio (1) As of October 31, 2008 Type of Investment Book Value Par Value Market Value Treasury Bills 217,816, ,000, ,365,625 Treasury Notes 363,486, ,100, ,701,750 Federal Home Loan Bank Notes 230,437, ,000, ,076,563 FHLMC BONDS 80,810,000 79,950,000 80,159,313 FHLB Floater Qtr Act ,476, ,500, ,469,063 FFCB Floater Qtr Act ,000,000 50,000,000 49,578,125 FHLB Floater Monthly 25,000,000 25,000,000 24,937,500 FHLMC Floater Mo Act ,537,476 68,500,000 68,435,781 Federal Nat Mortgage Assn Notes 33,510,009 33,150,000 33,222,516 FNMA Discount Notes 276,882, ,000, ,810,000 Federal Farm Credit Bank Notes 25,700,000 25,700,000 25,643,781 Federal Home Loan Discount Notes 49,430,667 50,000,000 49,975,208 FMC Discount Notes 227,473, ,000, ,813,431 Farm Credit Discount Note 46,760,692 47,000,000 46,926,758 Negotiable C.D. s 135,000, ,000, ,090,263 Commercial Paper Discount 498,748, ,000, ,077,953 Commercial Paper Int Bearing 35,000,000 35,000,000 35,000,000 Public Time Deposit 40,200,000 40,200,000 40,200,000 Total 2,954,269,618 2,962,100,000 2,958,483,629 October 2008 Earnings Yield 2.918% The City s pooled and all funds investment portfolio does not contain any Structured Investment Vehicles or commercial paper issued by Lehman Brothers. Source: Office of the Treasurer, City and County of San Francisco F-1

132 CITY AND COUNTY OF SAN FRANCISCO All Funds Investment Maturity Distribution As of October 31, 2008 Maturity in Months Cost Percentage 0 to 2 Months 637,417, % 2 to 3 Months 514,309, % 3 to 4 Months 158,153, % 4 to 5 Months 398,976, % 5 to 6 Months 69,681, % 6 to 12 Months 447,458, % 12 to 18 Months 564,735, % 18 to 24 Months 82,625, % 24 to 36 Months % 36 to 48 Months % 48 to 60 Months 80,912, % 2,954,269, % Weighted Average Maturity: 238 days Source: Office of the Treasurer, City and County of San Francisco F-2

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