MATURITY SCHEDULE (See inside cover)

Transcription

1 NEW ISSUE -- FULL BOOK-ENTRY BANK QUALIFIED Insured Rating: Standard & Poor s: AA Underlying Rating: Standard & Poor s: A+ (See RATINGS herein) In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Special Counsel, subject, however to certain qualifications described herein, under existing law, the portion of lease payments designated as and comprising interest and received by the owners of the Refunding Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings, and the Refunding Certificates are qualified tax-exempt obligations within the meaning of section 265(b)(3) of the Internal Revenue Code of In the further opinion of Special Counsel, such interest is exempt from California personal income taxes. See TAX MATTERS. $2,595, REFUNDING CERTIFICATES OF PARTICIPATION Evidencing the Direct, Undivided Fractional Interests of the Owners Thereof in Lease Payments to be Made by the PIONEER UNION ELEMENTARY SCHOOL DISTRICT to the Local Facilities Finance Corporation Dated: Date of Delivery Due: August 1, as shown on inside cover Purposes. The captioned refunding certificates of participation (the Refunding Certificates ) are being executed and delivered to (a) provide funds to refinance an outstanding lease obligation of the Pioneer Union Elementary School District (the District ), and (b) pay certain costs of executing and delivering the Refunding Certificates, including, but not limited to, the premiums to acquire certificate insurance and a reserve fund surety to be credited to the Reserve Fund (defined herein). See REFINANCING PLAN herein. Security. The Refunding Certificates evidence direct, undivided fractional interests of the owners thereof in Lease Payments to be made by the District for the use and occupancy of certain real property and improvements under a Lease Agreement, dated as of May 1, 2016 (the Lease Agreement ), between the District and the Local Facilities Finance Corporation, a California nonprofit public benefit corporation (the Corporation ). The Lease Payments will be payable from any source of available funds of the District, subject to the provisions of the Lease Agreement described herein regarding abatement and defeasance. The District is required under the Lease Agreement to take such action as may be necessary to include all Lease Payments coming due in each of its annual budgets during the term of the Lease and to make the necessary annual appropriations for all such Lease Payments. The semiannual Lease Payments payable under the Lease Agreement will comprise the interest and principal represented by the Refunding Certificates. The Refunding Certificates will be secured under a Trust Agreement dated as of May 1, 2016, among the District, the Corporation and Wilmington Trust, National Association, Costa Mesa, California, as trustee (the Trustee ). Under an Assignment Agreement dated as of May 1, 2016, between the Corporation and the Trustee, the Lease Payments will be irrevocably assigned to the Trustee for the benefit of the Owners of the Refunding Certificates. See SECURITY AND SOURCES OF PAYMENT FOR THE REFUNDING CERTIFICATES. See also RISK FACTORS. Interest. Interest represented by the Refunding Certificates will be payable on February 1 and August 1 of each year, commencing August 1, See THE REFUNDING CERTIFICATES. Book-Entry Only. When executed and delivered, the Refunding Certificates 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 Refunding Certificates. Ownership interests in the Refunding Certificates may be purchased in book-entry form only. Beneficial owners of Certificates will not receive physical certificates representing the Refunding Certificates purchased, but will receive a credit balance on the books of the nominees of such purchasers who are participants of DTC. See THE REFUNDING CERTIFICATES Book-Entry Only System and APPENDIX F Book-Entry Only System. Payments. Principal, premium, if any, and interest due with respect to the Refunding Certificates will be paid by the Trustee to DTC, which will in turn remit those payments to its participants for subsequent disbursement to the beneficial owners of the Refunding Certificates as described in this Official Statement. See THE REFUNDING CERTIFICATES Book-Entry Only System and APPENDIX F Book-Entry Only System. Prepayment. The Refunding Certificates are subject to optional prepayment and mandatory prepayment from net proceeds of insurance or condemnation, prior to their maturity. See THE REFUNDING CERTIFICATES Prepayment. Limited Obligation. NEITHER THE REFUNDING CERTIFICATES NOR THE OBLIGATION OF THE DISTRICT TO MAKE LEASE PAYMENTS CONSTITUTES AN INDEBTEDNESS OF THE DISTRICT, THE CORPORATION, THE MEMBERS OF THE CORPORATION, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF, WITHIN THE MEANING OF THE CONSTITUTION OF THE STATE OF CALIFORNIA OR OTHERWISE, OR AN OBLIGATION FOR WHICH THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. See SECURITY AND SOURCES OF PAYMENT FOR THE REFUNDING CERTIFICATES. Certificate Insurance. The scheduled payment of principal of and interest on the Refunding Certificates when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Refunding Certificates by MUNICIPAL ASSURANCE CORP. (the Certificate Insurer ). The Certificate Insurer will also issue a reserve fund surety policy concurrently with the delivery of the Refunding Certificates to be credited to the Reserve Fund. See CERTIFICATE INSURANCE and SECURITY AND SOURCES OF PAYMENT FOR THE REFUNDING CERTIFICATES - Reserve Fund. MATURITY SCHEDULE (See inside cover) This cover page contains information for quick reference only. It is not a summary of all the provisions of the Refunding Certificates. Investors must read the entire official statement to obtain information essential in making an informed investment decision. See RISK FACTORS for a discussion of factors that should be considered, in addition to the other matters set forth in this Official Statement, in evaluating the investment quality of the Refunding Certificates. The Refunding Certificates are offered when, as and if executed and delivered, subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Special Counsel. Certain legal matters will be passed upon for the District by Jones Hall, A Professional Law Corporation, San Francisco, California, as Disclosure Counsel. Dannis Woliver Kelley, Long Beach, California, is serving as counsel to the Underwriter. It is anticipated that the Refunding Certificates will be available for delivery to DTC in New York, New York, on or about May 3, The date of this Official Statement is: April 11, 2016

2 MATURITY SCHEDULE $2,595,000 Principal Amount Serial Certificates Maturity Date (August 1) Principal Amount Interest Rate Yield Price 2016 $160, % 0.400% AW , AX , AY , AZ , BA , BB , BC , BD , BE , BF , BG , BH , BJ9 CUSIP (723629) CUSIP is a registered trademark of the American Bankers Association. CUSIP data is provided by CUSIP Global Services (CGS) which is managed on behalf of the American Bankers Association by S&P Capital IQ. CUSIP data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service Bureau. CUSIP numbers are provided for convenience of reference only. Neither the District nor the Underwriter take any responsibility for the accuracy of such numbers.

3 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the sale of the Refunding Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not a contract between any Certificate owner and the District or the Underwriter. No Offering Except by This Official Statement. No dealer, broker, salesperson or other person has been authorized by the District or the Underwriter to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representation must not be relied upon as having been authorized by the District or the Underwriter. No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sale of the Refunding Certificates by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Information in Official Statement. The information set forth in this Official Statement has been furnished by the District and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the District in any press release and in any oral statement made with the approval of an authorized officer of the District or any other entity described or referenced herein, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, forecast, expect, intend and similar expressions identify forward looking statements within the meaning of the Private Securities Litigation Reform Act of Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the District or any other entity described or referenced herein since the date hereof. Involvement of Underwriter. The Underwriter has provided the following statement for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Stabilization of and Changes to Offering Prices. The Underwriter may overallot or take other steps that stabilize or maintain the market prices of the Refunding Certificates at levels above those that might otherwise prevail in the open market. If commenced, the Underwriter may discontinue such market stabilization at any time. The Underwriter may offer and sell the Refunding Certificates to certain securities dealers, dealer banks and banks acting as agent at prices lower than the public offering prices stated on the inside cover page of this Official Statement, and those public offering prices may be changed from time to time by the Underwriter. Document Summaries. All summaries of the Trust Agreement, the Site Lease, the Lease Agreement, the Assignment Agreement, the Escrow Agreement or other documents referred to in this Official Statement are made subject to the provisions of such documents and qualified in their entirety to reference to such documents, and do not purport to be complete statements of any or all of such provisions. No Securities Laws Registration. The Refunding Certificates have not been registered under the Securities Act of 1933, as amended, in reliance upon exceptions therein for the issuance and sale of municipal securities. The Refunding Certificates have not been registered or qualified under the securities laws of any state. Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Refunding Certificates will, under any circumstances, give rise to any implication that there has been no change in the affairs of the District, the Corporation, the other parties described in this Official Statement, or the condition of the property within the District since the date of this Official Statement. Website. The District maintains a website. However, the information presented on the website is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Refunding Certificates. Certificate Insurer Disclaimer. Municipal Assurance Corp. (the Certificate Insurer ) makes no representation regarding the Refunding Certificates or the advisability of investing in the Refunding Certificates. In addition, the Certificate Insurer has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Certificate Insurer supplied by the Certificate Insurer and presented under the heading Certificate Insurance and Appendix H Certificate Insurance Policy.

4 PIONEER UNION ELEMENTARY SCHOOL DISTRICT KINGS COUNTY STATE OF CALIFORNIA BOARD OF EDUCATION Linda Carvalho-Cooley, President Jack Soares, Clerk Phil Perkins, Member Darrell Reis, Member Doug Wisecarver, Member DISTRICT ADMINISTRATION Paul van Loon, Superintendent Julie Semas, Assistant Superintendent of Financial Services PROFESSIONAL SERVICES FINANCIAL ADVISOR Isom Advisors, A Division of Urban Futures, Inc. Walnut Creek, California BOND AND DISCLOSURE COUNSEL Jones Hall, A Professional Law Corporation San Francisco, California TRUSTEE Wilmington Trust, National Association Costa Mesa, California 2006 CERTIFICATES ESCROW AGENT Wells Fargo Bank, National Association Los Angeles, California VERIFICATION AGENT Grant Thornton LLP Minneapolis, Minnesota

5 TABLE OF CONTENTS Page INTRODUCTION... 1 REFINANCING PLAN... 4 SOURCES AND USES OF FUNDS... 5 THE LEASED PROPERTY... 6 Description and Location... 6 Fair Rental Value... 6 Substitution... 6 THE CORPORATION... 6 THE REFUNDING CERTIFICATES... 7 Certificate Terms... 7 Prepayment... 7 Book-Entry Only System Transfer and Exchange of Certificates LEASE PAYMENT SCHEDULE SECURITY AND SOURCES OF PAYMENT FOR THE REFUNDING CERTIFICATES Nature of the Certificates Lease Payments Abatement Limited Obligation Lease Payment Account Action on Default Reserve Fund Covenant to Maintain Property Insurance Insurance and Condemnation Fund; Application of Net Proceeds CERTIFICATE INSURANCE THE DISTRICT General Information Charter School District Information Administration Employee Relations Recent Enrollment Trends Risk Management DISTRICT FINANCIAL INFORMATION Education Funding Generally District Accounting Practices Financial Statements Attendance - Revenue Limit and LCFF Funding Revenue Sources District Retirement Systems Other Post-Employment Healthcare Benefits.. 36 Long Term District Debt State Funding of Education Recent State Budgets Adopted State Budget Page Proposed State Budget Ad Valorem Property Taxation Assessed Valuations Land Use Distribution Assessed Value of Single-Family Homes Property Tax Collections Tax Rates Largest Secured Property Taxpayers in District Direct and Overlapping Debt Obligations COUNTY INVESTMENT POOL CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Constitutionally Required Funding of Education Article XIIIA of the California Constitution Article XIIIB of the California Constitution Unitary Property Articles XIIIC and XIIID Proposition Proposition Proposition Proposition 1A and Proposition Proposition Future Initiatives and Changes in Law RISK FACTORS No Pledge of Taxes Additional Obligations of the District Limited Recourse on Default Abatement Property Taxes State Budget Considerations Absence of Earthquake and Flood Insurance Limitations on Remedies; Bankruptcy LEGAL OPINION FINANCIAL ADVISOR TAX MATTERS Tax Exemption Other Tax Considerations NO LITIGATION ESCROW VERIFICATION RATING UNDERWRITING CONTINUING DISCLOSURE EXECUTION APPENDIX A - APPENDIX B - APPENDIX C - APPENDIX D - APPENDIX E - APPENDIX F - APPENDIX G - APPENDIX H - SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2015 GENERAL INFORMATION ABOUT KINGS COUNTY FORM OF PROPOSED OPINION OF SPECIAL COUNSEL FORM OF CONTINUING DISCLOSURE CERTIFICATE BOOK-ENTRY ONLY SYSTEM KINGS COUNTY INVESTMENT POLICY AND SUMMARY OF POOLED FUNDS SPECIMEN CERTIFICATE INSURANCE POLICY

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7 OFFICIAL STATEMENT $2,595, REFUNDING CERTIFICATES OF PARTICIPATION Evidencing the Direct, Undivided Fractional Interests of the Owners Thereof in Lease Payments to be Made by the PIONEER UNION ELEMENTARY SCHOOL DISTRICT To the Local Facilities Finance Corporation INTRODUCTION This Official Statement (which includes the cover page, inside cover page and Appendices hereto) (collectively, the Official Statement ), provides certain information concerning the sale and delivery of the refunding certificates of participation captioned above (the Refunding Certificates ), which evidence the direct, undivided fractional interests of the Owners thereof in lease payments (the Lease Payments ) to be made by the Pioneer Union Elementary School District (the District ) pursuant to a Lease Agreement, dated as of May 1, 2016 (the Lease Agreement ), by and between the District and the Local Facilities Finance Corporation (the Corporation ). All capitalized terms used in this Official Statement but not otherwise defined have the meanings set forth in the Trust Agreement (defined below) or the Lease Agreement. See APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS. Use of Proceeds. The net proceeds of the sale of the Refunding Certificates will be used for the following purposes: (i) to provide funds to refinance the District s lease payment obligations in connection with outstanding Pioneer Union Elementary School District Certificates of Participation Series 2006 (the 2006 Certificates ), (ii) to pay certain costs incurred in connection with the execution and delivery of the Refunding Certificates, which may include, but are not limited to, the payment of premiums to obtain a certificate insurance policy (the Certificate Insurance Policy ) and a reserve fund surety (the Reserve Fund Surety ). See REFINANCING PLAN. Security and Sources of Payment. The Refunding Certificates evidence and represent the direct, undivided fractional interests of the registered owners (the Owners ) thereof in the Lease Payments to be made by the District for the right to use certain real property and improvements constituting the District s Pioneer Middle School (the Site ), to be leased by the District from the Corporation under the Lease Agreement. The Site and all improvements thereon as of the date the Refunding Certificates are delivered are hereinafter referred to as the Leased Property. The District and the Corporation will enter into a Site Lease, dated as of May 1, 2016 (the Site Lease ). Under the Site Lease, the District (as owner of the Leased Property) will

8 lease the Leased Property to the Corporation. Concurrently, the District and the Corporation will enter into the Lease Agreement, under which the District will sublease the Leased Property back from the Corporation. The Refunding Certificates will be executed and delivered under a Trust Agreement dated as of May 1, 2016 (the Trust Agreement ), among the District, the Corporation and Wilmington Trust, National Association, Costa Mesa, California, as trustee (the Trustee ). The Trustee and the Corporation will enter into an Assignment Agreement dated as of May 1, 2016 (the Assignment Agreement ), under which the Corporation will assign to the Trustee for the benefit of the Certificate Owners substantially all of the Corporation s right, title and interest in and to the Lease Agreement, including its right to receive the Lease Payments due under the Lease Agreement, provided that the Corporation will retain the rights to indemnification and to payment or reimbursement of its reasonable costs and expenses under the Lease Agreement. See SECURITY AND SOURCES OF PAYMENT FOR THE REFUNDING CERTIFICATES. LIMITED OBLIGATION. THE OBLIGATION OF THE DISTRICT TO PAY THE LEASE PAYMENTS DOES NOT CONSTITUTE A DEBT OF THE DISTRICT, THE CORPORATION, KINGS COUNTY (THE COUNTY ) OR THE STATE OF CALIFORNIA (THE STATE ) OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE DISTRICT, THE COUNTY OR THE STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. Covenant to Appropriate; Abatement. The District is required under the Lease Agreement to take such action as may be necessary to include all Lease Payments coming due in each of its annual budgets during the term of the Lease Agreement and to make the necessary annual appropriations for all such Lease Payments. The semiannual Lease Payments payable under the Lease Agreement will comprise the interest and principal represented by the Refunding Certificates. See SECURITY AND SOURCES OF PAYMENT FOR THE REFUNDING CERTIFICATES. However, the Lease Payments are subject to complete or partial abatement in the event and to the extent that there is substantial interference with the District s right to use and possession of the Leased Property or any portion thereof. If the Lease Payments are abated under the Lease Agreement, and are not paid from alternative sources as described in this Official Statement, the Certificate Owners would receive less than the full amount of principal and interest represented by the Refunding Certificates. To the extent proceeds of rental interruption insurance are available or there are moneys in the Reserve Fund with respect to the Refunding Certificates (as described below), Lease Payments (or a portion thereof) may be made from those sources during periods of abatement. See SECURITY AND SOURCES OF PAYMENT FOR THE REFUNDING CERTIFICATES Abatement and RISK FACTORS. The obligation of the District to make the Lease Payments does not constitute a debt of the District, or of the State or of any of its political subdivisions within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which -2-

9 the District or the State is obligated to levy or pledge any form of taxation or for which the District or the State has levied or pledged any form of taxation. Certificate Insurance; Reserve Fund Surety. Concurrently with the issuance of the Refunding Certificates, Municipal Assurance Corp. (the Certificate Insurer ) will issue its Municipal Bond Insurance Policy for the Refunding Certificates (the Policy ). The Policy guarantees the scheduled payment of principal of and interest on the Refunding Certificates when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York or Connecticut insurance law. Concurrently with the issuance of the Refunding Certificates, the Certificate Insurer will also issue the Reserve Fund Surety to be credited to the Reserve Fund. See CERTIFICATE INSURANCE and SECURITY AND SOURCES OF PAYMENT FOR THE REFUNDING CERTIFICATES - Reserve Fund. Bank Qualified. The District has designated the Refunding Certificates as "qualified tax-exempt obligations" pursuant to Section 265(b)(3) of the Internal Revenue Code of Such section provides an exception to the prohibition against the ability of a financial institution (as defined in the Internal Revenue Code of 1986) to deduct its interest expense allocable to tax-exempt interest. See TAX MATTERS herein. Summaries of Documents. The summaries or references to the Site Lease, the Trust Agreement, the Lease Agreement, the Assignment Agreement and other documents, agreements and statutes referred to in this Official Statement, and the description of the Refunding Certificates included in this Official Statement, do not purport to be comprehensive or definitive, and such summaries, references and descriptions are qualified in their entireties by reference to each such document or statute. [Remainder of page intentionally left blank.] -3-

10 REFINANCING PLAN The portions of the 2006 Certificates (the Refunded 2006 Certificates ) being refunded with Certificate proceeds are identified in the following table. PIONEER UNION ELEMENTARY SCHOOL DISTRICT Identification of Refunded 2006 Certificates Maturities to be Refunded (August 1) CUSIP Principal Amount Prepaid Redemption Date Prepayment Price (% of Par Amount Redeemed) AG6 $135, AH4 140,000 08/01/ % 2021 T AM3 640,000 08/01/ T AV3 1,725,000 08/01/ TOTAL $2,640,000 CUSIP Copyright American Bankers Association. CUSIP data herein is provided by Standard & Poor s CUSIP Service Bureau, a division of McGraw Hill Companies, Inc. Neither the District nor the Underwriter is responsible for the accuracy of such data. T Term Certificate. Escrow Fund. In order to accomplish the refunding of the Refunded 2006 Certificates, the District will enter into an Escrow Agreement with Wells Fargo Bank, National Association, Los Angeles, California, as escrow agent for the Refunded 2006 Certificates (the 2006 Certificates Escrow Agent ), under which a portion of the proceeds of the Refunded 2006 Certificates will be deposited with the Escrow Agent into an irrevocable escrow fund (the 2006 Certificates Escrow Fund), upon the closing of the Refunding Certificates. Amounts on deposit in the Escrow Fund will be invested in certain United States Treasury Securities, or held in cash, to be applied to the payment and redemption of the Refunded 2006 Certificates in accordance with the foregoing table. Sufficiency of the amounts and investments held in the Escrow Fund for the purpose of paying the principal of and interest and redemption price of the corresponding 2006 Refunded Certificates will be verified by Grant Thornton LLP, Minneapolis, Minnesota (the Verification Agent ). See ESCROW VERIFICATION herein. -4-

11 SOURCES AND USES OF FUNDS The estimated sources and uses of funds with respect to the Refunding Certificates are as follows: Sources of Funds Principal Amount of Certificates $2,595, Plus Net Original Issue Premium 51, Amounts Available from 2006 Certificates 278, Total Sources $2,924, Uses of Funds 2006 Certificates Escrow Fund $2,753, Delivery Costs (1) 171, Total Uses $2,924, (1) All estimated costs of issuance including, but not limited to, Underwriter s discount, printing costs, and fees of Special Counsel, Disclosure Counsel, Financial Advisor, Trustee, Escrow Agent, Verification Agent, Certificate insurance premium, reserve fund surety premium, the rating agency and certain other costs. -5-

12 THE LEASED PROPERTY Description and Location Lease Payments will be made by the District under the Lease for the use and possession of the Leased Property. The Leased Property consists of the real property and improvements constituting the District s Pioneer Middle School, a 20-acre site located at 101 West Pioneer Way in Hanford, California. Pioneer Middle School was built in It has 29 classrooms in 4 permanent buildings as well as a multi-purpose room, a staff lounge, administrative office, a library media center, a kitchen and auxiliary facilities housed in 5 additional permanent buildings, totaling 55,177 square feet. Fair Rental Value The Lease Agreement provides that the Lease Payments payable in a Fiscal Year will constitute the total rental for the Leased Property for that Fiscal Year, and will be paid by the District in each Fiscal Year for and in consideration of the right of the use and occupancy of, and the continued quiet use and enjoyment of the Leased Property during each Fiscal Year. The Corporation and the District have agreed and determined in the Lease Agreement that the total Lease Payments represent the fair rental value of the Leased Property. In making such determination, consideration has been given to the estimated fair market value of the Leased Property, other obligations of the parties under the Lease, the uses and purposes which may be served by the Leased Property and the benefits therefrom which will accrue to the District and the general public. Substitution The Lease Agreement provides that, upon compliance with certain conditions specified therein, the District may substitute alternate real property for all or any portion of the Leased Property or to release a portion of the Leased Property from the Lease Agreement. See APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS The Lease Agreement. THE CORPORATION The Local Facilities Finance Corporation is a nonprofit public benefit corporation organized under the Nonprofit Public Benefit Corporation Law of the State of California (Title 1, Division 2, Part 2 of the California Corporations Code). The Corporation was formed in order to facilitate and assist California school districts in financing their facilities and equipment needs. -6-

13 THE REFUNDING CERTIFICATES Certificate Terms General. The Refunding Certificates evidence and represent direct, fractional undivided interests of the Owners thereof in the principal and interest components of Lease Payments to be made by the District pursuant to the Lease Agreement. The Refunding Certificates are dated the date of original delivery thereof and will be executed and delivered, without coupons, in denominations of $5,000 or any integral multiple thereof, except that no Certificate shall represent principal payable in more than one year. The interest components evidenced by the Refunding Certificates will be due and payable semiannually on February 1 and August 1 of each year (each a Payment Date ), commencing August 1, Each Certificate shall be dated as of the date of its execution, and interest represented thereby shall be payable from the Payment Date next preceding the date of execution thereof, (a) unless it is executed following the close of business on the fifteenth day of the month preceding each Payment Date, whether or not such fifteenth day is a Business Day (a Record Date ) and on or before the next succeeding Payment Date, in which event interest represented thereby shall be payable from such Payment Date, or (b) unless it is executed on or before the first Record Date, in which event interest represented thereby shall be payable from the day when the Refunding Certificates, duly executed by the Trustee, are delivered to the Underwriter; provided, however, that if, as of the date of any Certificate, interest represented by such Certificate is in default, interest represented thereby shall be payable from the Payment Date to which interest has previously been paid or made available for payment with respect to such Certificate. Interest shall be computed on the basis of a 360-day year comprised of twelve 30- day months. The Lease Payments evidenced by the Refunding Certificates will be payable no later than the fifteenth day preceding each Payment Date (in the event that any payment due under the Lease Agreement is due on a day which is not a Business Day, such payment shall be made on the next Business Day), the principal components of which will evidence interest components calculated at the rates per annum, all as set forth on the front inside cover page of this Official Statement. Prepayment Optional Prepayment. The Refunding Certificates maturing on or before August 1, 2026 are not subject to optional prepayment. The Refunding Certificates maturing on or after August 1, 2027, are subject to optional prepayment in whole, or in part among maturities on a pro rata basis and by lot within a maturity, on any date on or after August 1, 2026, from prepayments of the Lease Payments made at the option of the District pursuant to the Lease Agreement, at a prepayment price equal to 100% of the principal amount to be prepaid together with accrued interest represented thereby to the date fixed for prepayment, without premium. -7-

14 Mandatory Prepayment from Net Proceeds. The Refunding Certificates are subject to mandatory prepayment on any date, in whole, or in part among maturities on a pro rata basis and by lot within a maturity, from the Net Proceeds of insurance or eminent domain proceedings credited towards the prepayment of the Lease Payments pursuant to the Lease Agreement, at a prepayment price equal to 100% of the principal amount of Certificates to be prepaid, together with accrued interest represented thereby to the date fixed for prepayment, without premium, pursuant to the following provisions: a. From the Net Proceeds of any insurance award resulting from damage to or destruction of all or a substantial portion of the Leased Property and deposited by the Trustee in the Lease Payment Fund in the event that the District certifies to the Trustee that replacement, repair, restoration, modification or improvement of the Leased Property is not economically feasible or in the best interests of the District and directing that the Net Proceeds are to be used to prepay Certificates; provided, however, that no such prepayment will occur unless such Net Proceeds, together with other available moneys, are sufficient to cause the corresponding prepayment of all Lease Payments; or b. From the Net Proceeds of a condemnation award resulting from eminent domain proceedings deposited by the Trustee in the Lease Payment Fund in the event (i) less than all of the Leased Property, shall have been taken in such eminent domain proceedings or sold to a government threatening the use of eminent domain powers, and the District certifies to the Trustee that such eminent domain proceedings have materially affected the interest of the District in the Leased Property or the ability of the District to meet any of its financial obligations under the Lease Agreement, or (ii) all of the Leased Property shall have been taken in such eminent domain proceedings. Purchase In Lieu of Prepayment. In lieu of prepayment of Certificates as described above, amounts held by the Trustee for such prepayment shall, at the written request of the District Representative received by the Trustee prior to selection of Certificates for prepayment, and with the consent of the Certificate Insurer, be applied by the Trustee to the purchase of Certificates at a public or private sale as and when and at such prices (including brokerage, accrued interest and other charges) as the District may in its discretion direct, but not to exceed the prepayment price which would be payable if such Certificates were prepaid. The aggregate principal amount of Certificates of the same maturity purchased in lieu of prepayment as described above shall not exceed the aggregate principal amount of Certificates of such maturity which would otherwise be subject to such prepayment. Notice of Prepayment. When prepayment is authorized or required pursuant to the Trust Agreement, the Trustee shall give notice of the prepayment of the Refunding Certificates on behalf and at the expense of the District. Such notice shall state the prepayment date and prepayment price and, if less than all of the then Outstanding Certificates are of a maturity to be called for prepayment, shall designate the numbers of the Refunding Certificates to be prepaid by giving the individual number of each Certificate or by stating that all Certificates between two stated numbers, both inclusive, have been called for prepayment or by stating that all of the Refunding Certificates of one or more maturities have been called for prepayment, shall state the CUSIP numbers of the Refunding Certificates called for prepayment and shall require that such Certificates be surrendered on the prepayment date at the Office of the Trustee for prepayment at said prepayment price, giving notice also that further interest represented by the -8-

15 Refunding Certificates will not accrue from and after the prepayment date. Such notice shall further state that on the prepayment date there shall become due and payable, the principal and premium, if any, represented by each Certificate together with accrued interest represented thereby to said date. Notice of such prepayment shall be mailed by first class mail with postage prepaid, to one or more of the Information Services, and to the Owners of Certificates designated for prepayment at their respective addresses appearing on the Registration Books, at least thirty days but not more than sixty days prior to the prepayment date. In addition, notice of prepayment shall be given by telecopy or certified, registered or overnight mail to each of the Securities Depositories concurrently with such mailing to the Certificate Owners. Such notice shall, in addition to setting forth the above information, set forth, in the case of each Certificate called only in part, the portion of the principal represented thereby which is to be prepaid; provided, however, that neither failure to receive such notice so mailed nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the prepayment of such Certificates or the cessation of accrual of interest represented thereby from and after the date fixed for prepayment. While the Refunding Certificates are subject to the book-entry system, the Trustee will not be required to give any notice of prepayment to any person or entity other than DTC and to the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access System and at the District s written direction, other securities depositories and information services. DTC and the DTC Participants shall have sole responsibility for providing any such notice of prepayment to the Beneficial Owners of the Refunding Certificates to be prepaid. Any failure at DTC to notify any DTC Participant, or any failure of a DTC Participant to notify the Beneficial Owner of any Certificates to be prepaid, of a notice of prepayment or its content or effect will not affect the validity of the notice of prepayment, or alter the effect of prepayment described below under Effect of Prepayment. Selection of Certificates. Whenever provision is made in this Trust Agreement for the prepayment of Certificates and less than all Outstanding Certificates of any maturity are called for prepayment, the Trustee shall select Certificates of such maturity for prepayment by lot. For the purposes of such selection, Certificates shall be deemed to be composed of $5,000 portions, and any such portion may be separately prepaid. The Trustee shall promptly notify the District in writing of the Refunding Certificates or portions thereof so selected for prepayment. Conditional Prepayment Notice. Any notice of optional prepayment may specify that prepayment of the Certificates designated for prepayment on the specified date will be subject to the receipt by the District of monies sufficient to cause such prepayment, or other circumstances, as set forth in the Trust Agreement, and the District, the Corporation or the Trustee will have no liability to the Owners of any Certificates, or to any other person or entity, as a result of the District s failure to prepay the Certificates designated for prepayment as a result of insufficient monies therefor, or due to such other circumstances. Rescission of Prepayment Notice. Additionally, the District may rescind any optional prepayment of the Refunding Certificates, and notice thereof, for any reason on any date prior to the date fixed for such prepayment by causing written notice of the rescission to be given to the Owners of the Certificates so called for prepayment. Notice of rescission of prepayment will be given in the same manner in which the notice of prepayment was originally given. The actual receipt by the Owner of any Certificate of notice of such rescission, or by any of the securities -9-

16 depositories or information services as specified above, will not be a condition precedent to rescission, and failure to receive such notice or any defect in such notice will not affect the validity of the rescission. The District, the Corporation, or the Trustee will have no liability to the Owners of any Certificates, or to any other person or entity, as a result of the District s decision to rescind a prepayment of any Certificates pursuant to this provision of the Trust Agreement. Effect of Prepayment. Moneys for the prepayment (including the interest to the applicable date of prepayment) of Certificates having been set aside in the Lease Payment Fund shall become due and payable on the date of such prepayment, and, upon presentation and surrender thereof at the Office of the Trustee, said Certificates shall be paid at the unpaid principal amount (or applicable portion thereof) represented thereby plus interest accrued and unpaid to said date of prepayment. If, on said date of prepayment, moneys for the prepayment of all the Refunding Certificates to be prepaid, together with interest represented thereby to said date of prepayment, shall be held by the Trustee so as to be available therefor on such date of prepayment, then, from and after said date of prepayment, interest represented by the Refunding Certificates shall cease to accrue and become payable. All moneys held by the Trustee for the prepayment of Certificates shall be held in trust for the account of the Owners of the Refunding Certificates so to be prepaid. All Certificates paid at maturity or prepaid prior to maturity shall be cancelled upon surrender thereof and destroyed Book-Entry Only System The Refunding Certificates will be executed and delivered as fully registered certificates, registered in the name of Cede & Co. as nominee of DTC, and will be available to actual purchasers of the Refunding Certificates (the Beneficial Owners ) in the denominations set forth above, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants (as defined in this Official Statement) as described herein. Beneficial Owners will not be entitled to receive physical delivery of the Refunding Certificates. See APPENDIX F Book-Entry Only System. If the book-entry-only system is no longer used with respect to the Refunding Certificates, the Refunding Certificates will be registered and transferred in accordance with the Trust Agreement, as described below. Transfer and Exchange of Certificates While the Refunding Certificates are subject to DTC s book-entry system, their exchange and transfer will be effected through DTC and the Participants and will be subject to the procedures, rules and requirements established by DTC. See APPENDIX F Book-Entry Only System. During any period in which the Refunding Certificates are not subject to DTC s bookentry system, their exchange and transfer will be governed by provisions of the Trust Agreement summarized in APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS. -10-

17 LEASE PAYMENT SCHEDULE Following is the schedule of principal and interest payments with respect to the Refunding Certificates. Under the Lease Agreement, Lease Payments are due the 15th calendar day of the month immediately preceding each Interest Payment Date. Date Principal Component Interest Component Total Payments August 1, 2016 $160, $13, $173, February 1, , , August 1, , , , February 1, , , August 1, , , , February 1, , , August 1, , , , February 1, , , August 1, , , , February 1, , , August 1, , , , February 1, , , August 1, , , , February 1, , , August 1, , , , February 1, , , August 1, , , , February 1, , , August 1, , , , February 1, , , August 1, , , , February 1, , , August 1, , , , February 1, , , August 1, , , , Totals $2,595, $364, $2,959,

18 SECURITY AND SOURCES OF PAYMENT FOR THE REFUNDING CERTIFICATES Nature of the Refunding Certificates General. Each Certificate evidences and represents a direct, undivided fractional interest in the principal component of the Lease Payment due under the Lease Agreement on the payment date or prepayment date of such Certificate, and the interest component of all Lease Payments (based on the stated interest rate with respect to such Certificate) to accrue from the date of delivery to its principal payment date or prepayment date, as the case may be. Assignment of Rights in Lease to Trustee. The Corporation, under the Assignment Agreement, will assign to the Trustee for the benefit of the Certificate Owners substantially all of the Corporation s right, title and interest in and to the Lease Agreement, including, without limitation, its right to receive Lease Payments to be paid by the District; except that the Corporation will retain certain rights under the Lease Agreement (including the rights to Additional Rental Payments, repayment of advances, indemnification and payment of attorneys fees). The District will pay Lease Payments directly to the Trustee, as assignee of the Corporation. See Lease Payments below. Lease Payments General. For the right to the use and occupancy of the Leased Property, the Lease Agreement requires the District to make Lease Payments. To secure the payment of the Lease Payments, the District is required to pay to the Trustee, for deposit into the Lease Payment Account established and maintained by the Trustee, on the fifteenth day before each Payment Date, an amount sufficient to pay the Lease Payment then due. Pursuant to the Trust Agreement, the Trustee shall withdraw moneys from the Lease Payment Account on each Payment Date in amounts which equal the Lease Payment due on such Payment Date and shall cause all sums withdrawn from the Lease Payment Account to be deposited in the Certificate Payment Account, and shall cause the same to be applied to the payment of principal and interest evidenced by the Refunding Certificates due on such Payment Date. Scheduled Lease Payments relating to the Refunding Certificates are set forth above under the heading LEASE PAYMENT SCHEDULE. Additional Rent. The Lease Agreement requires the District to pay, as additional rent ( Additional Rent ) thereunder in addition to the Lease Payments, such amounts as shall be required for the payment of all taxes and assessments levied upon the Leased Property, all fees and expenses of the Trustee in connection with the performance of its duties under the Lease Agreement and the Trust Agreement, insurance premiums and all other amounts payable under the Lease Agreement or the Trust Agreement and reimbursements due under the Certificate Insurance Policy and the Reserve Fund Surety. Covenant to Appropriate Funds. The District covenants under the Lease Agreement to take such action as may be necessary to include all Lease Payments, Reserve Replenishment Rent (as described below) and payments of Additional Rent (collectively, Total Rent ) due under the Lease Agreement in its annual budget. The Lease Agreement provides that it shall be the duty of each and every public official of the District to take such action and do -12-

19 such things as are required by law in the performance of the official duty of such officials to enable the District to carry out and perform such covenant. The Lease Agreement provides that, during the term of the Lease Agreement, the District will furnish to the Trustee, no later than 20 days following adoption of the budget for that fiscal year, a certificate stating that the Total Rent due in that fiscal year have been included in the budget approved by the District s board of Education for such fiscal year; or if no budget has been approved by August 15th of any year, the District shall deliver to the Trustee no later than August 30th of such year, a certificate stating that the Total Rent due in that fiscal year have been appropriated by a resolution duly adopted by the District s board of Education. See APPENDIX A - SUMMARY OF CERTAIN PROVISIONS OF LEGAL DOCUMENTS - The Lease Agreement - Lease Payments. Abatement Total Rent is paid by the District in each rental period for the District s right to use and occupy the Leased Property for such rental period. The obligation of the District to pay Total Rent will be abated, proportionately, during any period in which, by reason of damage or destruction, or taking in eminent domain or any defect in title to the Leased Property, there is substantial interference with the use and possession of the Leased Property by the District. The Lease Agreement provides that the amount of such abatement shall be such that the resulting Lease Payments represent the fair consideration for the use and possession of the portion of the Leased Property not damaged or destroyed or taken; provided, however, that such abatement shall not result so long as moneys in the Lease Payment Account and the Reserve Account and Net Proceeds of insurance and rental interruption insurance and condemnation awards are sufficient to make Lease Payments when and as due. Such abatement or adjustment, if any, will continue for the period commencing with such damage or destruction or taking and ending with the substantial completion of the work of repair or reconstruction; and the term of this Lease Agreement shall be extended as provided in the Lease Agreement, except that the term of the Lease Agreement will in no event be extended more than ten years beyond the termination date. Abatement of Total Rent is not an event of default under the Lease Agreement and does not permit the Trustee to take any action or avail itself of any remedy against the District. In the event of any such partial damage or destruction or taking, the Lease Agreement will continue in full force and effect and the District waives any right to terminate the Lease Agreement by virtue of any such damage or destruction or taking. For information regarding rental interruption insurance, see Covenant to Maintain Property Insurance below. The Trustee cannot terminate the Lease Agreement solely on the basis of such substantial interference. Abatement of Total Rent is not an event of default under the Lease Agreement and does not permit the Trustee to take any action or avail itself of any remedy against the District. For a description of abatement resulting from condemnation of all or part of the Leased Property, see APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS The Lease Agreement Lease Payments Abatement of Rent. Limited Obligation THE OBLIGATION OF THE DISTRICT TO MAKE THE LEASE PAYMENTS DOES NOT CONSTITUTE A DEBT OF THE DISTRICT, THE CORPORATION OR THE STATE OR OF -13-

20 ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE DISTRICT, THE COUNTY OR THE STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT, THE COUNTY OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. Termination or Abatement Due to Eminent Domain. Under the Lease Agreement, if the Leased Property is taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the Term of the Lease Agreement will cease with respect thereto as of the day possession is so taken. If less than all of the Leased Property is taken permanently, or if the Leased Property is taken temporarily, under the power of eminent domain, (a) the Lease Agreement will continue in full force and effect with respect thereto and will not be terminated by virtue of such taking, and the parties waive the benefit of any law to the contrary, and (b) there will be a partial abatement of Lease Payments allocated thereto, in an amount to be agreed upon by the District and the Corporation such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portions of the Leased Property, calculated in accordance with the Lease Agreement. However, there will be no abatement of Lease Payments to the extent that amounts in the Reserve Fund, insurance proceeds and eminent domain proceeds are available to pay Lease Payments that would otherwise be abated under this provision, and such proceeds and amounts will constitute a special fund for the payment of the Lease Payments. Lease Payment Account Establishment. Under the Trust Agreement the Trustee will establish a special fund designated as the "Lease Payment Account." All moneys at any time deposited by the Trustee in the Lease Payment Account will be held by the Trustee in trust for the benefit of the District and the Owners of the Refunding Certificates. So long as any Certificates are Outstanding, neither the District nor the Corporation will have any beneficial right or interest in the Lease Payment Account or the moneys deposited therein, except only as provided in the Trust Agreement, and such moneys will be used and applied by the Trustee as set forth in the Trust Agreement. Deposits. All Lease Payments received by the Trustee will be deposited in the Lease Payment Account. Application of Moneys. All amounts in the Lease Payment Account will be used and withdrawn by the Trustee solely for the purpose of paying the principal, interest and prepayment premiums (if any) represented by the Refunding Certificates as they become due and payable, in accordance with the Trust Agreement. Lease Payment Account; Surplus. Any surplus remaining in the Lease Payment Account after prepayment and payment of all Certificates, including premiums and accrued interest (if any) and payment of any applicable fees and expenses to the Trustee, or provision for such prepayment or payment having been made to the satisfaction of the Trustee, will be withdrawn by the Trustee and remitted to the District. -14-

21 Action on Default If the District defaults under the Lease Agreement, the Trustee, as assignee of the Corporation s rights under the Lease Agreement, may terminate the Lease Agreement and recover certain damages from the District, or may retain the Lease Agreement and hold the District liable for all Lease Payments thereunder on an annual basis. Lease Payments may not be accelerated upon a default under the Lease Agreement. See RISK FACTORS. For a description of the events of default and permitted remedies of the Trustee (as assignee of the Corporation) contained in the Lease Agreement and the Trust Agreement, see APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS. Reserve Fund A reserve fund (the Reserve Fund ) is established by the Trust Agreement and is required to be funded in an amount, as of the date of calculation, equal to the least of (i) 125% of average annual aggregate Lease Payments over the remaining term of the Lease Agreement; (ii) the maximum aggregate annual Lease Payments over the remaining term of the Lease Agreement; or (iii) 10% of the issue price of the Refunding Certificates calculated in accordance with Treasury Regulations Section (f)(1) (the Reserve Requirement ). The Reserve Fund is required to be maintained until all Lease Payments are paid in full pursuant to the Lease Agreement and until the first date upon which the Refunding Certificates are no longer Outstanding. The Reserve Requirement, or any portion thereof, may be satisfied by crediting to the Reserve Fund moneys, a letter of credit, a bond insurance policy, or any other comparable credit facility or any combination thereof (each a Reserve Facility ), which in the aggregate make funds available in the Reserve Fund in an amount equal to the Reserve Requirement; however, the long-term unsecured debt or claim-paying ability, as the case may be, of the provider of any such letter of credit, bond insurance policy or any other comparable credit facility, must have a rating of at least A from Moody s, and/or A from S&P, on the date such security is deposited into the Reserve Fund (provided that the Trustee shall be under no obligation and have no responsibility whatsoever to independently determine or verify such rating other than at the time of delivery). The District may acquire a Reserve Fund Surety for the Refunding Certificates in an amount equal to the initial Reserve Requirement, which will be credited to the Reserve Fund for the Refunding Certificates. Amounts available in the Reserve Fund, including amounts available pursuant to the Reserve Fund Surety, are to be used to make delinquent Lease Payments to the extent that the moneys available in the Lease Payment Account do not equal the amount of the principal and interest evidenced by the Refunding Certificates then coming due. If (i) funds have been withdrawn from the Reserve Fund in order to pay interest or principal evidenced by the Refunding Certificates or a draw on a Reserve Facility shall have been made or if there shall be a deficiency in the Reserve Fund resulting from a decrease of 10% or more in the market value of the Permitted Investments in the Reserve Fund, determined as provided in the Trust Agreement, (ii) Lease Payments are not in abatement under the Lease Agreement, (iii) the amount of the Lease Payments is less than the fair rental value of the -15-

22 Leased Property, and (iv) the amount on deposit in the Reserve Fund is less than the Reserve Requirement, then the Lease Agreement provides that the District shall pay from its first available moneys after payment of Lease Payments, to the Trustee, Reserve Replenishment Rent consistent with such fair rental value (a) over a one-year period, in substantially equal quarterly payments as further provided in the Trust Agreement, or (b) if such payments prescribed in clause (a) are inconsistent with fair rental value, in such maximum amounts as shall be recommended by the appraisal referenced in the Lease Agreement consistent with fair rental value on each Lease Payment Date until the amount on deposit in the Reserve Fund equals the Reserve Requirement; provided, if a draw on a Reserve Facility shall have been made, then the Lessee shall repay the costs in accordance with the Trust Agreement or such costs in accordance with the applicable Reserve Facility. See APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS for a further description of the application of funds in the Reserve Fund. Covenant to Maintain Property Insurance The Lease Agreement requires the District to cause to be maintained insurance against loss or damage to the Leased Property by fire and lightning, with extended coverage and vandalism and malicious mischief insurance. The Lease Agreement provides that said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke, sprinkler damage, boiler explosion and such other hazards as are normally covered by such insurance (but excluding earthquake and flood). The Lease Agreement provides that said insurance shall be in an amount equal to the full insurable value (without deduction for depreciation) of all structures constituting any part of the Leased Property, except that such insurance may be subject to a deductible clause of not to exceed $100,000; provided, however, the Lease Agreement provides that in no event shall such insurance be maintained in an aggregate amount (together with moneys in the Reserve Fund) less than the aggregate principal amount of Certificates Outstanding at the time. The Lease Agreement provides that such insurance may be maintained in the form of self insurance by the District, in compliance with the terms of the Lease Agreement. The Lease Agreement also requires the District to cause to be maintained rental interruption insurance to cover loss, total or partial, of the use of the Leased Property as the result of any of the hazards covered in the insurance required by the Lease Agreement, as described above, in an amount sufficient to pay the total Lease Payments under the Lease Agreement for a period of 24 months (using the two highest annual Lease Payments during the Term). The District is also required to obtain certain public liability and property damage insurance coverage in protection of the Corporation and the District and worker s compensation insurance as described under APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS The Lease Agreement Insurance. The District is required under the Lease Agreement to obtain title insurance on the Leased Property, in the aggregate amount of not less than the entire principal amount evidenced by the Refunding Certificates, subject only to Permitted Encumbrances, as defined in the Lease Agreement. -16-

23 Insurance and Condemnation Fund; Application of Net Proceeds The Lease Agreement requires that Net Proceeds of any insurance or condemnation award with respect to the Leased Property (other than proceeds of rental interruption insurance, which are required to be deposited into the Lease Payment Account) be paid to the Trustee to be applied as provided in the Trust Agreement. The Trust Agreement provides that such Net Proceeds received by the Trustee shall be deposited in the Insurance and Condemnation Fund and that the District shall, within 120 days of the deposit of Net Proceeds with the Trustee, file a certificate with the Trustee and the Net Proceeds shall be applied by the Trustee as follows: Application of Net Proceeds of Insurance. The Trust Agreement provides that, if the District files a certificate with the Trustee stating that Net Proceeds of insurance are to be utilized for the repair, replacement, restoration, modification or improvement of a damaged or destroyed portion of the Leased Property and that sufficient funds have been appropriated in an amount which, together with the Net Proceeds, will be equal to the total cost of the proposed repair, replacement, restoration, modification or improvement, then the District shall cause the Leased Property to be repaired, replaced, restored, modified or improved to at least the same good order, repair and condition as it was in prior to the damage or destruction, insofar as the same may be accomplished by the use of said funds and Net Proceeds. The Trustee shall permit withdrawals of said Net Proceeds from time to time upon receiving a certificate of the District Representative stating that the District has expended moneys or incurred liabilities in an amount equal to the amount therein requested to be paid over to it for the purpose of such repair, replacement, restoration, modification or improvement, specifying the purposes for which such moneys were expended, or such liabilities were incurred. The Trust Agreement provides that each such certificate of the District Representative shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. The Trust Agreement provides that, if the District files a certificate with the Trustee stating that repair, replacement, restoration, modification or improvement of the damaged item of the Leased Property is not economically feasible or in the best interests of the District and that such Net Proceeds are to be applied to the prepayment of a portion of the Lease Payments and prepayment of the Refunding Certificates in part, the Trustee shall transfer such Net Proceeds to the Lease Payment Fund, to be applied to the prepayment of Certificates in accordance with the Trust Agreement. See THE REFUNDING CERTIFICATES Prepayment Mandatory Prepayment from Net Proceeds. The Trust Agreement provides that, if the District Representative files a certificate with the Trustee stating that such a substantial portion of the Leased Property has been damaged or destroyed that repair, replacement, restoration, modification or improvement of the Leased Property is not economically feasible or in the best interests of the District and that such Net Proceeds are to be applied to the prepayment of the Lease Payments and prepayment of all of the Outstanding Certificates, and if there are sufficient funds for such prepayment as required by the Trust Agreement, the Trustee shall transfer such Net Proceeds to the Lease Payment Fund to be applied to the prepayment of Certificates in accordance with the Trust Agreement. The prepayment of the Refunding Certificates with the Net Proceeds is subject to the consent of the Certificate Insurer. See THE REFUNDING CERTIFICATES Prepayment Mandatory Prepayment from Net Proceeds. Application of Net Proceeds of Condemnation Award. The Trust Agreement provides that, if the District files a certificate with the Trustee stating that such eminent domain -17-

24 proceedings have not materially affected the operation of the Leased Property or the ability of the District to meet any of its obligations under the Lease Agreement, and that the District has determined that such Net Proceeds related thereto are needed for the repair or rehabilitation of the Leased Property, the Trustee shall pay to the District or to its order, from said Net Proceeds, such amounts as the District may expend for such repair or rehabilitation, upon receipt of a certificate of the District Representative stating that the District has incurred liabilities in an amount equal to the amount requested in order for the District to cause the Leased Property to be repaired, replaced or improved to at least the same good order, repair and condition as it was in prior to the eminent domain proceedings, insofar as the same may be accomplished with said Net Proceeds. The Trust Agreement provides that each such certificate of the District Representative shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. The Trust Agreement provides that, if the District Representative files a certificate with the Trustee stating that repair or rehabilitation of the Leased Property taken in such eminent domain proceedings is not economically feasible or in the best interests of the District and that such Net Proceeds are to be applied to the prepayment of a portion of the Lease Payments and prepayment of the Refunding Certificates in part, the Trustee shall transfer such Net Proceeds to the Lease Payment Fund to be applied to the prepayment of Certificates in accordance with the Trust Agreement. See THE REFUNDING CERTIFICATES Prepayment Mandatory Prepayment from Net Proceeds. The Trust Agreement provides that, if the District Representative files a certificate with the Trustee stating that such eminent domain proceedings have materially affected the operation of the Leased Property as a whole or the ability of the District to meet any of its obligations under the Lease Agreement, and if there are sufficient funds for such prepayment as required by the Trust Agreement, then the Trustee shall transfer such Net Proceeds to the Lease Payment Fund to be applied to the prepayment of all of the Outstanding Certificates in the manner provided in the Trust Agreement. The prepayment of the Refunding Certificates with the Net Proceeds is subject to the consent of the Certificate Insurer. See THE REFUNDING CERTIFICATES Prepayment Mandatory Prepayment from Net Proceeds. [Remainder of page intentionally left blank.] -18-

25 CERTIFICATE INSURANCE The following information has been furnished by the Certificate Insurer for use in this Official Statement. No representation is made by the District or the Underwriter as to the accuracy or completeness of this information, or the absence of material adverse changes therein at any time subsequent to the date hereof. See APPENDIX H for a specimen of the Certificate Insurance Policy. Certificate Insurance Policy Concurrently with the issuance of the Refunding Certificates, the Certificate Insurer will issue its Municipal Bond Insurance Policy for the Refunding Certificates (the Certificate Insurance Policy ). The Certificate Insurance Policy guarantees the scheduled payment of principal of and interest on the Refunding Certificates when due as set forth in the form of the Certificate Insurance Policy included as an exhibit to this Official Statement. The Certificate Insurance Policy is not covered by any insurance security or guaranty fund established under New York or Connecticut insurance law. Municipal Assurance Corp. The Certificate Insurer is a New York domiciled financial guaranty insurance company and an indirect subsidiary of Assured Guaranty Ltd. ( AGL ), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol AGO. AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, infrastructure and structured finance markets. Neither AGL nor any of the shareholders or affiliates of AGL, other than the Certificate Insurer, is obligated to pay any debts of the Certificate Insurer or any claims under any insurance policy issued by the Certificate Insurer. The Certificate Insurer is wholly owned by Municipal Assurance Holdings Inc., which, in turn, is owned 61% by Assured Guaranty Municipal Corp. and 39% by Assured Guaranty Corp. The Certificate Insurer s financial strength is rated AA (stable outlook) by Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ) and AA+ (stable outlook) by Kroll Bond Rating Agency, Inc. ( KBRA ). Each rating of the Certificate Insurer should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies, including withdrawal initiated at the request of the Certificate Insurer in its sole discretion. In addition, the rating agencies may at any time change the Certificate Insurer s long-term rating outlooks or place such ratings on a watch list for possible downgrade in the near term. Any downward revision or withdrawal of any of the above ratings, the assignment of a negative outlook to such ratings or the placement of such ratings on a negative watch list may have an adverse effect on the market price of any security guaranteed by the Certificate Insurer. The Certificate Insurer only guarantees scheduled principal and scheduled interest payments payable by the District insured by the Certificate Insurer on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the relevant insurance policy), -19-

26 and does not guarantee the market price or liquidity of the securities it insures, nor does it guarantee that the ratings on such securities will not be revised or withdrawn. Current Financial Strength Ratings. On June 29, 2015, S&P issued a credit rating report in which it affirmed the Certificate Insurer s financial strength rating of AA (stable outlook). The Certificate Insurer can give no assurance as to any further ratings action that S&P may take. On August 3, 2015, KBRA issued a credit rating report in which it affirmed the Certificate Insurer s insurance financial strength rating of AA+ (stable outlook). The Certificate Insurer can give no assurance as to any further ratings action that KBRA may take. For more information regarding the Certificate Insurer s financial strength ratings and the risks relating thereto, see AGL s Annual Report on Form 10-K for the fiscal year ended December 31, Capitalization of the Certificate Insurer. As of December 31, 2015, the Certificate Insurer s policyholders surplus and contingency reserve were approximately $1,012 million and its unearned premium reserve was approximately $469 million, in each case, determined in accordance with statutory accounting principles. Incorporation of Certain Documents by Reference. Portions of the following document filed by AGL with the Securities and Exchange Commission (the SEC ) that relate to the Certificate Insurer are incorporated by reference into this Official Statement and shall be deemed to be a part hereof: the Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (filed by AGL with the SEC on February 26, 2016). All financial statements of the Certificate Insurer and all other information relating to the Certificate Insurer included in, or as exhibits to, documents filed by AGL with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, excluding Current Reports or portions thereof furnished under Item 2.02 or Item 7.01 of Form 8-K, after the filing of the last document referred to above and before the termination of the offering of the Refunding Certificates shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Copies of materials incorporated by reference are available over the internet at the SEC s website at at AGL s website at or will be provided upon request to Municipal Assurance Corp.: 31 West 52 nd Street, New York, New York 10019, Attention: Communications Department (telephone (212) ). Except for the information referred to above, no information available on or through AGL s website shall be deemed to be part of or incorporated in this Official Statement. Any information regarding the Certificate Insurer included herein under the caption CERTIFICATE INSURANCE Municipal Assurance Corp. or included in a document incorporated by reference herein (collectively, the Certificate Insurer Information ) shall be modified or superseded to the extent that any subsequently included the Certificate Insurer Information (either directly or through incorporation by reference) modifies or supersedes such previously included the Certificate Insurer Information. Any Certificate Insurer Information so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded. -20-

27 Miscellaneous Matters. The Certificate Insurer makes no representation regarding the Refunding Certificates or the advisability of investing in the Refunding Certificates. In addition, the Certificate Insurer has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Certificate Insurer supplied by the Certificate Insurer and presented under the heading CERTIFICATE INSURANCE. General Information THE DISTRICT The District was established on August 5, 1870 and is comprised of an area of 17.5 square miles located in Kings County. The District is currently operating two elementary schools and one middle school. Enrollment for fiscal year is estimated to be 1,549 students, with enrollment projected to remain flat in the immediate future. The District converted into a charter school district in The District is headquartered in Hanford, the county seat of Kings County, California, and is located roughly equidistant from Los Angeles and San Francisco. The District is in the San Joaquin Valley east of Interstate 5 and west of Highway 99. Charter School District Information In 1996, the District became a charter school district. Since its inception as a charter school district, the District experienced growth in ADA primarily from parents moving into the area for the purpose of having their children attend Pioneer schools; increased test scores; as well as an expansion of programs, services, and offerings for students. The charter schools are characterized as non-autonomous from the District, because pursuant to their charters, the charter schools are governed by the Board of Education, which duties include all decision-making authority with respect to administrative matters, including approving and monitoring the charter schools annual budget, budget revisions and audit. The charter schools were not incorporated as 501(c)(3) nonprofit corporations. The Superintendent is the leader of the charter schools, and the District s administrative team continues to provide all administrative services and budget development for the charter schools. In the event the charter schools were to close, all assets of the charter schools remain the assets of the District. -21-

28 Administration Board of Education. The District is governed by a five-member Board of Education, with each member elected to a four-year term in alternate slates of two and three. Current members of the Board of Education, together with their office and the date their current term expires, are listed below. Name Office Term Expires Linda Carvalho-Cooley President November 2016 Jack Soares Clerk November 2018 Phil Perkins Member November 2018 Darrell Reis Member November 2018 Doug Wisecarver Member November 2016 Superintendent and Administrative Personnel. The day-to-day operations are managed by a board-appointed Superintendent of Schools. Paul van Loon is currently serving as Superintendent, effective July District finances are managed by Julie Semas, the Assistant Superintendent of Fiscal Services, serving since March Paul van Loon has 23 years of educational experience. Mr. van Loon began his educational career in 1992 teaching at the elementary level. He has been a school site viceprincipal, principal of various schools, Director of Special Services and Director of Student Services, and currently serves as Superintendent. Julie Semas has worked in education for over 18 years, 15 of which have been with the District. She previously worked with Kit Carson School District as Chief Business Official. Prior to working in education Mrs. Semas worked as an accounts payable supervisor and in retail accounting. Employee Relations The certificated and classified employees of the District are represented by the below bargaining units, with contracts as set forth in the following table. BARGAINING UNITS Pioneer Union Elementary School District Employee Group Representation Number of Employees Represented Contract Expiration Date Certificated PTA/CTA 65 FTEs June 30, 2017 Classified CSEA 105 FTEs June 30, 2017 Source: Pioneer Union Elementary School District. -22-

29 Recent Enrollment Trends The following table shows historical enrollment, with projected figures through fiscal year PIONEER UNION ELEMENTARY SCHOOL DISTRICT Annual Enrollment Fiscal Years through Risk Management School Year Enrollment Percent Change ,343 --% , , , , ,630 (2.0) ,567 (3.9) , , , ,577 (2.5) * 1, * 1, * Projected. Source: State Department of Education; the District. The District participates in joint ventures under joint powers agreements ( JPAs ) with the Self-Insured Schools of California II, the Self-Insured Schools of California Ill, the Kings County Self-Insured Schools, and the Kings School Transportation Authority. The relationship between Pioneer Union Elementary School District and the JPAs is such that none of the JPAs is a component unit of Pioneer Union Elementary School District for financial reporting purposes. The JPAs are governed by boards consisting of representatives from the member agencies. The boards control the operations of the JPAs, including selection of management and approval of operating budgets. Each member district pays premiums commensurate with the level of coverage or service requested, and shares in surpluses and deficits in proportion to participation in the JPA. -23-

30 Education Funding Generally DISTRICT FINANCIAL INFORMATION School districts in California receive operating income primarily from two sources: the State funded portion which is derived from the State s general fund, and a locally funded portion, being the district s share of the one percent general ad valorem tax levy authorized by the California Constitution. As a result, decreases or deferrals in education funding by the State could significantly affect a school district s revenues and operations. From to , California school districts operated under general purpose revenue limits established by the State Legislature. In general, revenue limits were calculated for each school district by multiplying (1) the average daily attendance ( ADA ) for such district by (2) a base revenue limit per unit of ADA. The revenue limit calculations were adjusted annually in accordance with a number of factors designated primarily to provide cost of living increases and to equalize revenues among all California school districts of the same type. Funding of the District's revenue limit was provided by a mix of local property taxes and State apportionments of basic and equalization aid. Generally, the State apportionments amounted to the difference between the District's revenue limit and its local property tax revenues. The fiscal year State budget package (the State Budget ) replaced the previous K-12 finance system with a new formula known as the Local Control Funding Formula (the LCFF ). Under the LCFF, revenue limits and most state categorical programs were eliminated. School districts instead receive funding based on the demographic profile of the students they serve and gain greater flexibility to use these funds to improve outcomes of students. The LCFF creates funding targets based on student characteristics. For school districts and charter schools, the LCFF funding targets consist of grade span-specific base grants plus supplemental and concentration grants that reflect student demographic factors. The LCFF includes the following components: A base grant for each local education agency per unit of ADA, which varies with respect to different grade spans. The base grant is $2,375 more than the average revenue limit provided prior to LCFF implementation. The base grants will be adjusted upward each year to reflect cost-of-living increases. In addition, grades K-3 and 9-12 are subject to adjustments of 10.4% and 2.6%, respectively, to cover the costs of class size reduction in grades K-3 and the provision of career technical education in grades A 20% supplemental grant for English learners, students from low-income families and foster youth to reflect increased costs associated with educating those students. An additional concentration grant of up to 50% of a local education agency s base grant, based on the number of English learners, students from low-income families and foster youth served by the local agency that comprise more than 55% of enrollment. An economic recovery target to ensure that almost every local education agency receives at least their pre-recession funding level, adjusted for inflation, at full implementation of the LCFF. -24-

31 The LCFF was implemented for fiscal year and will be phased in gradually. Beginning in fiscal year , an annual transition adjustment was required to be calculated for each school district, equal to each district s proportionate share of the appropriations included in the State budget (based on the percentage of each district s students who are lowincome, English learners, and foster youth ( Targeted Students ), to close the gap between the prior-year funding level and the target allocation at full implementation of LCFF. In each year, districts will have the same proportion of their respective funding gaps closed, with dollar amounts varying depending on the size of a district s funding gap. Based on revenue projections, districts will reach what is referred to as full funding in fiscal year This projection assumes that the State s economy will improve each year; if the economy falters it could take longer to reach full funding. The target LCFF amounts for State school districts and charter schools based on grade levels and Targeted Students is shown below. Grade Span Funding at Full LCFF Implementation (Target Amount) K-3 Class Size Reduction and 9-12 Adjustments Average Assuming 0% Targeted Students Average Assuming 25% Targeted Students Average Assuming 50% Targeted Students Average Assuming 100% Targeted Students Grade Span Base Grant (1) K-3 $6,845 $712 $7,557 $7,935 $8,313 $10, ,947 N/A 6,947 7,294 7,642 9, ,154 N/A 7,154 7,512 7,869 10, ,289 $216 8,505 8,930 9,355 12,119 (1) Does not include adjustments for cost of living. Source: California Department of Education. The new legislation included a hold harmless provision which provided that a district or charter school would maintain total revenue limit and categorical funding at least equal to its fiscal year level, unadjusted for changes in ADA or cost of living adjustments. The LCFF includes an accountability component. Districts are required to increase or improve services for English language learners, low income, and foster youth students in proportion to supplemental and concentration grant funding received. All school districts, county offices of education, and charter schools are required to develop and adopt local control and accountability plans, which identify local goals in areas that are priorities for the State, including pupil achievement, parent engagement, and school climate. County superintendents review and provide support to the districts under their jurisdiction, and the Superintendent of Public Instruction performs a corresponding role for county offices of education. In addition, the State Budget created the California Collaborative for Education Excellence to advise and assist school districts, county offices of education, and charter schools in achieving the goals identified in their plans. Under the LCFF and related legislation, the State will continue to measure student achievement through statewide assessments, produce an Academic Performance Index for schools and subgroups of students, determine the contents of the school accountability report card, and establish policies to implement the federal accountability system. -25-

32 District Accounting Practices The accounting practices of the District conform to generally accepted accounting principles in accordance with policies and procedures of the California School Accounting Manual. This manual, according to Section of the California Education Code, is to be followed by all California school districts. District accounting is organized on the basis of fund groups, with each group consisting of a separate set of self-balancing accounts containing assets, liabilities, fund balances, revenues and expenditures. The major fund classification is the General Fund which accounts for all financial resources not requiring a special fund placement. The District's fiscal year begins on July 1 and ends on June 30. District expenditures are accrued at the end of the fiscal year to reflect the receipt of goods and services in that year. Revenues generally are recorded on a cash basis, except for items that are susceptible to accrual (measurable and/or available to finance operations). Current taxes are considered susceptible to accrual. Revenues from specific state and federally funded projects are recognized when qualified expenditures have been incurred. State block grant apportionments are accrued to the extent that they are measurable and predictable. The State Department of Education sends the District updated information from time to time explaining the acceptable accounting treatment of revenue and expenditure categories. The Governmental Accounting Standards Board ( GASB ) published its Statement No. 34 Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments on June 30, Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management s Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting, (iii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting and (iv) required supplementary information. Financial Statements General. The District's general fund finances the legally authorized activities of the District for which restricted funds are not provided. General fund revenues are derived from such sources as State school fund apportionments, taxes, use of money and property, and aid from other governmental agencies. The District's Audited Financial Statements for the fiscal year ending fiscal year were prepared by Borchardt, Corona & Faeth, Fresno, California (the Auditor ). Audited financial statements for the District for the fiscal year ended June 30, 2015, and prior fiscal years are on file with the District and available for public inspection at the Superintendent s Office. See Appendix A hereto for the Audited Financial Statements. Copies of such financial statements will be mailed to prospective investors and their representatives upon written request to the District. The District has not requested nor did the District obtain permission from the Auditor to include the audited financial statements as an appendix to this Official Statement. Accordingly, the Auditor has not performed any post-audit review of the financial condition or operations of the District. -26-

33 Revenues General Fund Revenues, Expenditures and Changes in Fund Balance. The following table shows the audited income and expense statements for the District s General Fund for the fiscal years through REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Fiscal Years through (Audited) Pioneer Union Elementary School District Audited Audited Audited Audited Audited Revenue Limit Sources/LCFF (1) $7,792,833 $7,832,467 $7,884,487 $9,827,227 $10,587,338 Federal Revenues 523, , , , ,830 Other state revenues 1,542,721 1,531,717 1,644, , ,063 Other local revenues 638, , , , ,208 Total Revenues 10,497,815 10,334,664 10,471,163 11,601,785 12,381,439 Expenditures Instruction 6,328,579 6,339,275 6,489,143 6,731,970 7,444,301 Instruction-related services: 1,143,882 1,108,477 1,215,008 1,297,300 1,433,599 Pupil services 398, , , , ,279 Ancillary services 32,910 30,364 25,138 33,479 31,545 Enterprise General administration services 917, , , ,139 1,009,613 Plant services 1,222,860 1,280,818 1,315,308 1,494,507 1,536,920 Other outgo 95,410 63,495 61,115 94, ,995 Debt service: principal Debt service: interest Total Expenditures 10,140,411 10,116,572 10,400,990 10,979,116 12,118,252 Excess of Revenues Over/(Under) Expenditures 357, ,092 70, , ,187 Other Financing Sources (Uses) Transfers in 5,500 10,621 48,481 78, Transfers out -- (1,519,772) (700,253) (694,415) (267,113) Total Other Financing Sources (Uses) 362,904 (1,509,151) (651,772) (616,344) (267,113) Net change in fund balance 362,904 (1,291,059) (581,599) 6,325 (3,926) Fund Balance, July 1 (2) 5,703,750 6,066,654 4,775,596 3,888,048 (2) 3,894,373 Fund Balance, June 30 $6,066,654 $4,775,595 $4,193,997 $3,894,373 $3,890,447 (1) LCFF commenced in fiscal year (2) Reflects decrease in fund balance of $305,949 from fiscal year in accordance with GASB Statement No. 54.Source: District Audit Reports for fiscal years through

34 Budgeting and Interim Reporting Procedures. State law requires school districts to maintain a balanced budget in each fiscal year. The State Department of Education imposes a uniform budgeting and accounting format for school districts. Under current law, a school district governing board must adopt and file with the county superintendent of schools a tentative budget by July 1 in each fiscal year. The District is under the jurisdiction of the Kings County Superintendent of Schools (the "County Superintendent"). The County Superintendent must review and approve or disapprove the budget no later than August 15. The County Superintendent is required to 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 with the established standards. If the budget is disapproved, it is returned to the District with recommendations for revision. The District is then required to revise the budget, hold a public hearing thereon, adopt the revised budget and file it with the County Superintendent no later than September 8. 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. After approval of an adopted budget, the school district's administration may submit budget revisions for governing board approval. Subsequent to approval, the County Superintendent will monitor each district under its jurisdiction throughout the fiscal year pursuant to its adopted budget to determine on an ongoing basis if the district can meet its current or subsequent year financial obligations. If the 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 may then 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) after also consulting with the district's board, develop and impose 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 a collective bargaining agreement that was entered into prior to the date upon which the County Superintendent assumed authority. A State law adopted in 1991 ("A.B. 1200") imposed additional financial reporting requirements on school districts, and established guidelines for emergency State aid apportionments. Under the provisions of A.B. 1200, each school district is required to file interim certifications with the County Superintendent (on December 15, for the period ended October 31, and by mid-march for the period ended January 31) as to its ability to meet its financial obligations for the remainder of the then-current fiscal year and, based on current forecasts, for the subsequent fiscal year. The County Superintendent reviews the certification and issues either a positive, negative or qualified certification. Interim Certifications Regarding Ability to Meet Financial Obligations. Under the provisions of AB 1200, each school district is required to file interim certifications with the county office of education as to its ability to meet its financial obligations for the remainder of the thencurrent fiscal year and, based on current forecasts, for the subsequent two fiscal years. The -28-

35 county office of education reviews the certification and issues the following types of certifications: Positive certification - the school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. Negative certification - the school district will be unable to meet its financial obligations for the remainder of the fiscal year or subsequent fiscal year. Qualified certification - the school district may not meet its financial obligations for the current fiscal year or subsequent two fiscal years. Under California law, any school district and office of education that has a qualified or negative certification in any fiscal year may not issue, in that fiscal year or in the next succeeding fiscal year, certificates of participation, tax anticipation notes, revenue bonds or any other debt instruments that do not require the approval of the voters of the district, unless the applicable county superintendent of schools determines that the district s repayment of indebtedness is probable. District s Budget Approval/Disapproval and Certification History. During the past five years, all of the District s adopted budgets have been approved by the County Superintendent and the District has received positive certifications on all of its interim reports. Copies of the District s budget, interim reports and certifications may be obtained upon request from the District Office at Pioneer Union Elementary School District, 1888 N Mustang Drive, Hanford, California 93230; (559) The District may impose charges for copying, mailing and handling. -29-

36 District s Budget Figures. The following table shows a comparison of the Adopted Budget figures for fiscal year , and the First Interim Report for fiscal year COMPARISON OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Fiscal Year (Adopted Budget and First Interim Report) Pioneer Union Elementary School District Revenues Adopted Budget st Interim Report LCFF/ Revenue Limits Sources $11,318,367 $11,127,216 Federal Revenues 338, ,726 Other State Revenues 322,520 1,239,617 Other Local Revenues 612, ,356 Total Revenues 12,591,603 13,447,914 Expenditures Certificated Salaries 5,701,516 5,528,223 Classified Salaries 2,209,739 2,165,647 Employee Benefits 2,542,546 2,518,520 Books and Supplies 680, ,716 Contract Services & Operating Exp. 1,391,710 1,475,669 Capital Outlay ,338 Other Outgo (excluding indirect costs) 241, ,037 Other Outgo Transfers of Indirect Costs (64,512) (54.987) Total Expenditures 12,702,459 13,432,163 Excess of Revenues Over/(Under) Expenditures (110,856) 15,752 Other Financing Sources (Uses) Operating transfers in 8,626 8,626 Operating transfers out 201, ,237 Contributions Total Other Financing Sources (Uses) (192,611) (339,611) Net change in fund balance (303,467) (323,859) Fund Balance, July 1 3,067,457 3,515,267 Fund Balance, June 30 $2,763,990 $3,191,357 Source: District Fiscal Year First Interim Report. District Reserves. The District s ending fund balance is the accumulation of surpluses from prior years. This fund balance is used to meet the State s minimum required reserve of 3% of expenditures, plus any other allocation or reserve which might be approved as an expenditure by the District in the future. The District maintains, and expects to maintain, an unrestricted reserve which meets the State s minimum requirements. In connection with legislation adopted in connection with the State s fiscal year Budget ( SB 858 ), the California Education Code was amended to provide that, beginning in fiscal year , if a district s proposed budget includes a local reserve above the minimum recommended level, the board of Education must provide the information for review at the annual public hearing on its proposed budget. In addition, SB 858 included a provision, which became effective upon the passage of Proposition 2 at the November 4, 2014 statewide election, which limits the amount of reserves which may be maintained at the District level. -30-

37 Specifically, the legislation, among other things, enacted Education Code Section , which became operative December 15, 2014, and provides that in any fiscal year immediately after a fiscal year in which a transfer is made to the State s Public School System Stabilization Account (the Proposition 98 reserve), a school district may not adopt a budget that contains a reserve for economic uncertainties in excess of twice the applicable minimum recommended reserve for economic uncertainties established by the State Board (for school districts with ADA over 400,000, the limit is three times the amount). Exemptions can be granted by the County Superintendent under certain circumstances. In August of 2015, a bill was introduced into the State Senate in response to SB 858 ( SB 799 ) proposing reforms to the reserve cap. SB 799 proposes a cap on unassigned reserves and special reserves for other than capital outlay of seventeen percent, with exemptions from the cap for school districts with less then 2,500 average daily attendance and basic aid districts. The District cannot predict how SB 858 or SB 799, if enacted, will impact its reserves and future spending. As of the date hereof, SB 799 has been approved by the State Senate and is pending approval in the State Assembly Attendance - Revenue Limit and LCFF Funding As described herein, prior to fiscal year , school districts in California derived most State funding based on a formula which considered a revenue limit per unit of average daily attendance ( ADA ). With the implementation of the LCFF, commencing in fiscal year , school districts receive base funding based on ADA, and may also be entitled to supplemental funding, concentration grants and funding based on an economic recovery target. The following table sets forth historical LCFF funding for the District for fiscal year through (Projected). Revenue Sources AVERAGE DAILY ATTENDANCE AND LCFF Fiscal Years through Pioneer Union Elementary School District LCFF Phase-In Entitlement Per ADA (2) % of Target Student Enrollment Under LCFF Fiscal Year ADA (1) ,516 $6, ,516 7, ,516 7, (1) Unaudited actuals. (2) An average across grade spans. Includes anticipated supplemental and concentration grant funds. Source: Pioneer Union Elementary School District. The District categorizes its General Fund revenues into four sources, being LCFF, Federal Revenues, Other State Revenues and Local Revenues. Each of these revenue sources is described below. LCFF Sources. District funding is provided by a mix of (1) local property taxes and (2) State apportionments of funding under the LCFF. Generally, the State apportionments will -31-

38 amount to the difference between the District's LCFF funding entitlement and its local property tax revenues. Beginning in fiscal year , Proposition 13 and its implementing legislation provided for each county to levy (except for levies to support prior voter-approved indebtedness) and collect all property taxes, and prescribed how levies on county-wide property values are to be shared with local taxing entities within each county. The principal component of local revenues is the school district s property tax revenues, i.e., the district s share of the local 1% property tax, received pursuant to Sections 75 and following and Sections 95 and following of the California Revenue and Taxation Code. California Education Code Section 42238(h) itemizes the local revenues that are counted towards the base revenue limit before calculating how much the State must provide in equalization aid. Historically, the more local property taxes a district received, the less State equalization aid it is entitled to. Federal Revenues. The federal government provides funding for several District programs, including special education programs, programs under No Child Left Behind, the Individuals With Disabilities Education Act, and specialized programs such as Drug Free Schools. Other State Revenues. As discussed above, the District receives State apportionment of basic and equalization aid in an amount equal to the difference between the District's revenue limit and its property tax revenues. In addition to such apportionment revenue, the District receives other State revenues. The District receives State aid from the California State Lottery (the "Lottery"), which was established by a constitutional amendment approved in the November 1984 general election. Lottery revenues must be used for the education of students and cannot be used for non-instructional purposes such as real property acquisition, facility construction, or the financing of research. Moreover, State Proposition 20 approved in March 2000 requires that 50% of the increase in Lottery revenues over fiscal year levels must be restricted to use on instruction material. For additional discussion of State aid to school districts, see -State Funding of Education. Other Local Revenues. In addition to local property taxes, the District receives additional local revenues from items such as interest earnings and other local sources. -32-

39 District Retirement Systems Qualified employees of the District are covered under multiple-employer defined benefit pension plans maintained by agencies of the State. Certificated employees are members of the State Teachers Retirement System ( STRS ) and classified employees are members of the Public Employees Retirement System ( PERS ). Both STRS and PERS are operated on a Statewide basis. The information set forth below regarding the STRS and PERS programs, other than the information provided by the District regarding its annual contributions thereto, has been obtained from publicly available sources which are believed to be reliable but are not guaranteed as to accuracy or completeness, and should not to be construed as a representation by either the District or the Underwriter. Implementation of GASB Nos. 68 and 71. Commencing with fiscal year ended June 30, 2015, the District implemented the provisions of GASB Statement Nos. 68 and 71 which require certain new pension disclosures in the notes to its audited financial statements commencing with the audit for fiscal year Statement No. 68 generally requires the District to recognize its proportionate share of the unfunded pension obligation for STRS and PERS by recognizing a net pension liability measured as of a date (the measurement date) no earlier than the end of its prior fiscal year. As a result of the implementation of GASB Statement Nos. 68 and 71, the District may have to reflect a restatement of its beginning net position as of July 1, See APPENDIX B - Audited Financial Statements of the District For Fiscal Year Ending June 30, 2015 and particularly Note 3. STRS. All full-time certificated employees participate in STRS, a cost-sharing, multipleemployer contributory public employee retirement system. STRS provides retirement, disability and survivor benefits to plan members and beneficiaries under a defined benefit program. Benefit provisions and contribution amounts are established by State statutes, as legislatively amended. The program is funded through a combination of investment earnings and statutorily set contributions from three sources: employees, employers and the State. The District s employer contributions to STRS for recent fiscal years are set forth in the following table. STRS EMPLOYER CONTRIBUTIONS Pioneer Union Elementary School District Fiscal Years through (1) Fiscal Year Amount $398, , , , (1) 599,253 (1) Projected. Source: Pioneer Union Elementary School District. Historically, employee, employer and State contribution rates did not vary annually to account for funding shortfalls or surpluses in the STRS plan. In recent years, the combination of investment earnings and statutory contributions were not sufficient to pay actuarially required amounts. As a result, the STRS defined benefit program showed an estimated unfunded actuarial liability of approximately $72.7 billion as of June 30, 2014 (the date of the last actuarial valuation). In connection with the State s adoption of its fiscal year Budget, the Governor signed into law Assembly Bill 1469 ( AB 1469 ), which represents a legislative effort -33-

40 to address the unfunded liabilities of the STRS pension plan. AB 1469 addressed the funding gap by increasing contributions by employees, employers and the State. In particular, employer contribution rates are scheduled to increase through at least fiscal year , from a contribution rate of 8.25% in fiscal year to 19.1% in fiscal year Thereafter, employer contribution rates will be determined by the STRS board to reflect the contribution required to eliminate unfunded liabilities by June 30, The District s employer contribution rates for fiscal years and were 8.88% and 10.73%, respectively. Projected employer contribution rates for school districts (including the District) for fiscal year through fiscal year are set forth in the following table. PROJECTED EMPLOYER CONTRIBUTION RATES (STRS) Fiscal Years through Projected Employer Fiscal Year Contribution Rate (1) % (1) Expressed as a percentage of covered payroll. Source: AB 1469 PERS. All full-time and some part-time classified employees participate in PERS, an agent multiple-employer contributory public employee retirement system that acts as a common investment and administrative agent for participating public entities within the State. PERS provides retirement, disability, and death benefits to plan members and beneficiaries. The District is part of a cost-sharing pool within PERS known as the Schools Pool. Benefit provisions are established by State statutes, as legislatively amended. Contributions to PERS are made by employers and employees. Each fiscal year, the District is required to contribute an amount based on an actuarially determined employer rate. The District s employer contributions to PERS for recent fiscal years are set forth in the following table. PERS EMPLOYER CONTRIBUTIONS Pioneer Union Elementary School District Fiscal Years through (1) Fiscal Year Amount $234, , , , (1) 255,702 (1) Projected. Source: Pioneer Union Elementary School District. Like the STRS program, the PERS program has experienced an unfunded liability in recent years. The PERS unfunded liability, on a market value of assets basis, was approximately $8.7 billion as of June 30, 2014 (the date of the last actuarial valuation). To address this issue, the PERS board has taken a number of actions. In April 2013, for example, -34-

41 the PERS board approved changes to the PERS amortization and smoothing policy intended to reduce volatility in employer contribution rates. In addition, in April 2014, PERS set new contribution rates, reflecting new demographic assumptions and other changes in actuarial assumptions. The new rates and underlying assumptions, which are aimed at eliminating the unfunded liability of PERS in approximately 30 years, will be implemented for school districts beginning in fiscal year , with the costs spread over 20 years and the increases phased in over the first five years. The District s employer contribution rates for fiscal years and were % and %, respectively. Projected employer contribution rates for school districts (including the District) for fiscal year through fiscal year are set forth in the following table. PROJECTED EMPLOYER CONTRIBUTION RATES (PERS) Fiscal Years through (1) Projected Employer Fiscal Year Contribution Rate (2) % (1) Rates were estimated by PERS in 2014 using 2012 financial data. The PERS board is expected to approve official employer contribution rates for each fiscal year shown during the immediately preceding fiscal year. (2) Expressed as a percentage of covered payroll. Source: PERS California Public Employees Pension Reform Act of On September 12, 2012, the Governor signed into law the California Public Employees Pension Reform Act of 2013 ( PEPRA ), which impacted various aspects of public retirement systems in the State, including the STRS and PERS programs. In general, PEPRA (i) increased the retirement age for public employees depending on job function, (ii) capped the annual pension benefit payouts for public employees hired after January 1, 2013, (iii) required public employees hired after January 1, 2013 to pay at least 50% of the costs of their pension benefits (as described in more detail below), (iv) required final compensation for public employees hired after January 1, 2013 to be determined based on the highest average annual pensionable compensation earned over a period of at least 36 consecutive months, and (v) attempted to address other perceived abuses in the public retirement systems in the State. PEPRA applies to all public employee retirement systems in the State, except the retirement systems of the University of California, and charter cities and charter counties whose pension plans are not governed by State law. PEPRA s provisions went into effect on January 1, 2013 with respect to new State, school, and city and local agency employees hired on or after that date; existing employees who are members of employee associations, including employee associations of the District, have a five-year window to negotiate compliance with PEPRA through collective bargaining. PERS has predicted that the impact of PEPRA on employees and employers, including the District and other employers in the PERS system, will vary, based on each employer s current level of benefits. As a result of the implementation of PEPRA, new members must pay at least 50% of the normal costs of the plan, which can fluctuate from year to year. To the extent that the new formulas lower retirement benefits, employer contribution rates could -35-

42 decrease over time as current employees retire and employees subject to the new formulas make up a larger percentage of the workforce. This change would, in some circumstances, result in a lower retirement benefit for employees than they currently earn. With respect to the STRS pension program, employees hired after January 1, 2013 will pay the greater of either (1) fifty percent of the normal cost of their retirement plan, rounded to the nearest one-quarter percent, or (2) the contribution rate paid by then-current members (i.e., employees in the STRS plan as of January 1, 2013). The member contribution rate could be increased from this level through collective bargaining or may be adjusted based on other factors. Employers will pay at least the normal cost rate, after subtracting the member s contribution. The District is unable to predict the amount of future contributions it will have to make to PERS and STRS as a result of the implementation of PEPRA, and as a result of negotiations with its employee associations, or, notwithstanding the adoption of PEPRA, resulting from any legislative changes regarding the PERS and STRS employer contributions that may be adopted in the future. Additional Information. Additional information regarding the District s retirement programs is available in Note 12 to the District s audited financial statements attached hereto as APPENDIX B. In addition, both STRS and PERS issue separate comprehensive financial reports that include financial statements and required supplemental information. Copies of such reports may be obtained from STRS and PERS, respectively, as follows: (i) STRS, P.O. Box 15275, Sacramento, California ; and (ii) PERS, 400 Q Street, Sacramento, California More information regarding STRS and PERS can also be obtained at their websites, and respectively. The references to these Internet websites are shown for reference and convenience only and the information contained on such websites is not incorporated by reference into this Official Statement. The information contained on these websites may not be current and has not been reviewed by the District or the Underwriter for accuracy or completeness. Other Post-Employment Healthcare Benefits Other Post-Employment Benefits. In June 2004, the Governmental Accounting Standards Board ( GASB ) issued Statement No. 45 ( GASB 45 ), which addresses how state and local governments should account for and report their costs and obligations related to postemployment health care and other non-pension benefits ( OPEB ). GASB 45 generally requires that local governments account for and report the annual cost of OPEB and the outstanding obligations and commitments related to OPEB in essentially the same manner as they currently do for pensions. Annual OPEB cost for most local governments will be based on actuarially determined amounts that, if paid on an ongoing basis, generally would provide sufficient resources to pay benefits as they come due. Plan Description. The District provides post-employment health care benefits to two employees who retired from the District. The District pays health insurance premiums on behalf of these retirees to the same extent as afforded to active certificated employees, for a maximum of five years but not beyond Medicare age. On June 30, 2015, two retirees met these eligibility requirements. -36-

43 Funded Status and Funding Progress. A summary of the District s OPEB obligation, based on projected pay-as-you-go financing requirements, as shown in the District s audited financial statements as of June 30, 2015, is as follows: OPEB FUNDING PROGRESS Pioneer Union Elementary School District Annual required contribution $176,237 Interest on net OPEB obligation 14,140 Adjustment to ARC (12,526) Annual OPEB cost (expense) 77,851 Contributions for the fiscal year 17,686 Change in net OPEB obligation 60,165 Net OPEB obligation- June 30, ,809 Net OPEB obligation- June 30, 2015 $342,974 The District s annual OPEB cost, the percentage of annual OPEB cost contributed, and the net OPEB obligation were as follows: NET OPEB OBLIGATION Fiscal Years through Pioneer Union Elementary School District Fiscal Year Ended Annual OPEB Cost Percentage Contributed Net OPEB/Asset Obligation 2013 $77, % $228, , , , ,974 Actuarial Methods and Assumptions. On April 1, 2013, actuarial valuation, the most recent actuarial valuation date, the plan was not funded. The actuarial accrued liability for benefits was $649,985 based on 62 employees, and the actuarial value of assets was $0, resulting in an unfunded actuarial accrued liability of $649,985. The covered payroll was $4,354,058 and the ratio of UAAL to covered payroll was 14.9% For more information regarding the District s OPEB and assumptions used in the Actuarial Study, see Note M in the District s Audit in Appendix B hereto. Long Term District Debt The District has outstanding certain long term debt, including certificates of participation, general obligation bonds and lease revenue bonds. Debt which is currently outstanding is described below. The District has never defaulted on the payment of principal of or interest on any of its indebtedness. General Obligation Bonds. The District currently has three series of general obligation bonds currently outstanding, as further described below. The 2005 GO Bond Authorization. The District received authorization at an election held on November 8, 2005 (the 2005 Authorization ) to issue $7,500,000 principal amount of general obligation bonds. -37-

44 On August 1, 2006, the District issued its $4,499, General Obligation Bonds, Election of 2005, Series A (the 2005 Series A Bonds ) as its first series of bonds issued under the 2005 Authorization, which are currently outstanding in the aggregate principal amount of $1,159,998. On June 11, 2015, the District issued its $1,528, General Obligation Bonds, Election of 2005, Series B (the 2005 Series B Bonds ) as its second series of bonds issued under the 2005 Authorization, which are currently outstanding in the aggregate principal amount of $1,528, On June 11, 2015, the District issued its $3,230,000 General Obligation Refunding Bonds (the 2015 Refunding Bonds ) to refund a portion of the 2005 Series A Bonds. The 2015 Refunding Bonds are currently outstanding in the aggregate principal amount of $3,175,000. Certificates of Participation. The District currently has one outstanding issue of certificates of participation, secured by lease payments payable from its general fund, as further described below Certificates. The District issued, through the Local Facilities Finance Corporation, $5,320,000 in certificates of participation on July 20, 2006 (the 2006 Certificates ). In March of 2009, the District deposited $2,264,564 of cash reserves into an escrow account to advance refund $1,540,000 in aggregate principal amount of the outstanding 2006 certificates. The 2006 Certificates are currently outstanding in the aggregate principal amount of $2,640,000. Certain maturities of the 2006 Certificates are expected to be refinanced with the proceeds of the Refunding Certificates as described herein. Commitments Under Noncapitalized Leases. Commitments under operating (noncapitalized) lease agreements for equipment provide minimum future rental payments as of June 30, 2015, as follows: Year Ended June 30 Lease Payments 2016 $23, , , , ,870 Total $74,780 The District will receive no sublease rental revenues nor pay any contingent rentals for these properties. The District made lease payments of $35,833 for these leases during the year ended June 30,

45 State Funding of Education General. The State requires that from all State revenues there first shall be set apart the moneys to be applied for support of the public school system and public institutions of higher education. Public school districts in California are dependent on revenues from the State for a large portion of their operating budgets. California school districts receive an average of about 55% of their operating revenues from various State sources. The primary source of funding for school districts is funding under the LCFF, which is a combination of State funds and local property taxes (see DISTRICT FINANCIAL INFORMATION Education Funding Generally above). State funds typically make up the majority of a district s LCFF entitlement. The availability of State funds for public education is a function of constitutional provisions affecting school district revenues and expenditures (see CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS below), the condition of the State economy (which affects total revenue available to the State general fund), and the annual State budget process. Decreases in State revenues may significantly affect appropriations made by the legislature to school districts. The following information concerning the State s budgets for the current and most recent preceding years has been compiled from publicly-available information provided by the State. Neither the District, the Corporation, nor the Underwriter are responsible for the information relating to the State s budgets provided in this section. Further information is available from the Public Finance Division of the State Treasurer s Office. The Budget Process. The State s fiscal year begins on July 1 and ends on June 30. The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the Governor s Budget ). Under State law, the annual proposed Governor s Budget cannot provide for projected expenditures in excess of projected revenues and balances available from prior fiscal years. Following the submission of the Governor s Budget, the Legislature takes up the proposal. Under the State Constitution, money may be drawn from the State Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a majority vote of each house of the Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line-item vetoes are subject to override by a two-thirds majority vote of each house of the Legislature. Appropriations also may be included in legislation other than the Budget Act. Bills containing appropriations (including for K-14 education) must be approved by a majority vote in each house of the Legislature, unless such appropriations require tax increases, in which case they must be approved by a two-thirds vote of each house of the Legislature, and be signed by the Governor. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution. Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt. -39-

46 Recent State Budgets Certain information about the State budgeting process and the State Budget is available through several State of California sources. A convenient source of information is the State s website, where recent official statements for State bonds are posted. The references to internet websites shown below are shown for reference and convenience only, the information contained within the websites may not be current and has not been reviewed by the District or the Underwriter and is not incorporated herein by reference. The California Department of Finance s Internet home page at under the heading California Budget, includes the text of proposed and adopted State Budgets. The State Legislative Analyst s Office prepares analyses of the proposed and adopted State budgets. The analyses are accessible on the Legislative Analyst s Internet home page at under the heading Subject Area Budget (State). Prior Years Budgeting Techniques. Declining revenues and fiscal difficulties which arose in the State commencing in fiscal year led the State to undertake a number of budgeting strategies, which had subsequent impacts on local agencies within the State. These techniques included the issuance of IOUs in lieu of warrants (checks), the enactment of statutes deferring amounts owed to public schools, until a later date in the fiscal year, or even into the following fiscal year (known as statutory deferrals), trigger reductions, which were budget cutting measures which were implemented or could have been implemented if certain State budgeting goals were not met, among others, and the dissolution of local redevelopment agencies in part to make available additional funding for local agencies. There can be no certainty that budgetcutting strategies such as those used in recent years will not be used in the future should the State Budget again be stressed and if projections included in such budget do not materialize State Budget: Significant Change in Education Funding. As described previously herein, the State Budget and its related implementing legislation enacted significant reforms to the State s system of K-12 education finance with the enactment of the LCFF. Significant reforms such as the LCFF and other changes in law may have significant impacts on the District s finances Adopted State Budget On June 24, 2015, Governor Brown signed the fiscal year State Budget Act (the " State Budget"). The State Budget includes approximately $117.5 billion in State General Fund resources (including revenues, transfers and the prior year ending balance) and approximately $115.4 billion in planned State General Fund expenditures. By the end of fiscal year , the Budget Stabilization Account will have a total balance of $3.5 billion. The State Budget includes an approximately 0.8% State General Fund spending increase from the fiscal year State Budget Act (the " State Budget"). The State Budget includes Proposition 98 funding of $68.4 billion for the fiscal year, which is approximately $7.6 billion more in Proposition 98 funding than in the State Budget. When combined with increases of $6.1 billion in fiscal years and as well as other one-time savings and adjustments in those years, the State Budget provides a $14.4 billion increased investment in K-14 education. -40-

47 The State Budget includes the following significant adjustments affecting California K-12 school districts: Local Control Funding Formula - An increase of $6 billion Proposition 98 General Fund to continue the State's transition to the LCFF. This formula commits most new funding to districts serving English language learners, students from lowincome families, and youth in foster care. This increase will close the remaining funding implementation gap by more than 51%. Career Technical Education - The State Budget establishes the Career Technical Education ("CTE") Incentive Grant Program and provides $400 million, $300 million, and $200 million Proposition 98 General Fund in fiscal year , fiscal year , and fiscal year , respectively, for local education agencies to establish new or expand high-quality CTE programs. School districts, county offices of education, and charter schools receiving funding under this program will be required to provide local-to-state matching funds of 1:1 in fiscal year , 1.5:1 in fiscal year , and 2:1 in fiscal year When determining grant recipients, the Department of Education and the State Board of Education will give priority to grant recipients that: (1) are establishing new programs; (2) serve a large number of English-learner, low-income, or foster youth students; (3) serve pupil groups with higher-than-average dropout rates; or (4) are located in areas of high unemployment. Educator Support - An increase of $500 million one-time Proposition 98 General Fund for education support. Of this amount, $490 million is for activities that promote educator quality and effectiveness, including beginning teacher and administrator support and mentoring, support for teachers who have been identified as needing improvement, and professional development that is aligned to the State academic content standards. These funds will be allocated to school districts, county offices of education, charter schools, and State special schools in an equal amount per certificated staff and are available for expenditure over the next three years. Additionally, $10 million is provided for the K-12 High Speed Network to provide professional development and technical assistance to local educational agencies related to network management. Special Education - The State Budget includes $60.1 million in Proposition 98 General Fund funding ($50.1 million ongoing and $10 million one-time) to implement selected program changes that improve service delivery and outcomes for all disabled students, with a particular emphasis on early education. K-12 High Speed Internet Access - An increase of $50 million in one-time funding to the Proposition 98 General Fund to support additional investments in internet connectivity and infrastructure. This builds on $26.7 million in one-time Proposition 98 funding that was provided in the State Budget to assist local educational agencies with securing required internet connectivity and infrastructure to implement the new computer-adaptive tests administered under Common Core. K-12 Deferrals - The State Budget provides $897 million in funding to the Proposition 98 General Fund to eliminate deferrals consistent with the revenue trigger included in the State Budget. -41-

48 Proposed State Budget Proposed Budget. On January 7, 2016, Governor Brown presented his proposed budget for the fiscal year (the Proposed State Budget ) to the State Senate and Assembly. The Proposed State Budget proposes a multiyear plan that is balanced and that, among other items, provides for the following: contributions to both state budget reserves: the Special Fund for Economic Uncertainties, the state s discretionary reserve, and the Budget Stabilization Account, the state s constitutional rainy day fund, raising such reserves to $2.2 billion and $8 billion, respectively; an increase in funding for K-12 schools of $2.8 billion by raising the funding level under the LCFF to $14,184 per pupil in fiscal year (representing an increase of 5.4% over the LCFF funding level for fiscal year ); an increase of more than $1.2 billion in one-time discretionary general funds for school districts, charter schools and county offices of education to use at local discretion; a $1.6 billion early education block grant by combining three existing programs to promote local flexibility, focusing on disadvantaged students and improved accountability; $807 million for statewide deferred maintenance at levees, state parks, universities, community colleges, prisons, state hospitals, and other state facilities; a $3.1 billion cap-and-trade expenditure plan to reduce greenhouse gas emissions; and $710 million to pay for the costs of wildfires and for other effects of the drought. In May 2016, Governor Brown is expected to issue the May Revision to the Proposed State Budget to reflect updated revenue and expenditure estimates. LAO Budget Overview. On January 11, 2016, the Legislative Analyst s Office (the LAO ), a nonpartisan State office that provides fiscal and policy information and advice to the State Legislature, released its report on the Proposed State Budget entitled, The Budget: Overview of the Governor s Budget (the Proposed Budget Overview ). In the Proposed Budget Overview, among other items, the LAO commends the State for its emphasis on increasing budget reserves. The LAO believes that this general approach is prudent and is the key to weathering the next recession with minimal disruption to public programs. Though the LAO anticipates the State s economic growth will continue in the near term, the LAO warns that the Proposition 98 minimum guarantee could decrease in fiscal year or future years if stock market prices were to drop or growth in the economy and personal income were to decline. The LAO notes that such a scenario serves -42-

49 as a caution against the State committing all available Proposition 98 funding for ongoing purposes. The complete Proposed Budget Overview is available from the LAO s website at The District cannot, and does not, take any responsibility for the continued accuracy of such internet address or for the accuracy, completeness or timeliness of information posted on such address, and such information is not incorporated in this Official Statement by such reference. Disclaimer Regarding State Budgets. The execution of the foregoing State Budgets may be affected by numerous factors, including but not limited to: (i) shifts of costs from the federal government to the State, (ii) national, State and international economic conditions, (iii) litigation risk associated with proposed spending reductions, (iv) rising health care costs and (v) other factors, all or any of which could cause the revenue and spending projections included in such budgets to be unattainable. The District cannot predict the impact that the State Budgets, or subsequent budgets, will have on its own finances and operations. Additionally, the District cannot predict the accuracy of any assumptions or projections made in the State Budgets. Availability of State Budgets. The complete State Budget and Proposed State Budget are available from the California Department of Finance website at The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated in this Official Statement by such reference. The information referred to above should not be relied upon in making an investment decision with respect to the Refunding Certificates. Uncertainty Regarding Future State Budgets. The District cannot predict what actions will be taken in future years by the State Legislature and the Governor in connection with its budgets. Future State budgets will be affected by national and state economic conditions and other factors over which the District has no control. The District cannot predict what impact any future budget proposals will have on the financial condition of the District. 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 State has not entered into any contractual commitment with the District, the County, or the Owners of the Refunding Certificates to provide State budget information to the District or the owners of the Refunding Certificates. Although they believe the State sources of information listed above are reliable, neither the District nor the Underwriter assumes any responsibility for the accuracy of the State Budget information set forth or referred to in this Official Statement or incorporated herein. However, the Refunding Certificates are secured by ad valorem taxes levied and collected on taxable property in the District, without limit as to rate or amount, and are not secured by a pledge of revenues of the District or its general fund. -43-

50 Ad Valorem Property Taxation Taxes are levied by the County for each fiscal year on taxable real and personal property which is situated in the District as of the preceding January 1. For assessment and collection purposes, property is classified either as secured or unsecured and is listed accordingly on separate parts of the assessment roll. The secured roll is that part of the assessment roll containing State-assessed public utilities property and real property having a tax lien which is sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the unsecured roll. Property taxes on the secured roll are due in two installments, on August 1 and March 1 of each fiscal year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. Property on the secured roll with respect to which taxes are delinquent becomes tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1.5% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is subject to sale by the County Treasurer. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid, on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1.5% attaches to them on the first day of each month until paid. The taxing authority has four ways of collecting delinquent unsecured personal property taxes: (1) bringing a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Clerk and County Recorder s office in order to obtain a lien on certain property of the taxpayer; and (4) seizing and selling personal property, improvements, or possessory interests belonging or assessed to the assessee. Assessed Valuations Generally. The assessed valuation of property in the District is established by the Kings County Assessor, except for public utility property which is assessed by the State Board of Equalization. Assessed valuations are reported at 100% of the full value of the property, as defined in Article XIIIA of the California Constitution. Prior to , assessed valuations were reported at 25% of the full value of property. For a discussion of how properties currently are assessed, see CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS. Certain classes of property, such as churches, colleges, not-for-profit hospitals, and charitable institutions, are exempt from property taxation and do not appear on the tax rolls. -44-

51 Assessed Valuation History. valuations for the District. Shown in the following table are recent assessed PIONEER UNION ELEMENTARY SCHOOL DISTRICT Assessed Valuations of All Taxable Property Fiscal Years to Local Secured Utility Unsecured Total %Change $522,891,235 $139,954 $2,746,741 $525,777, ,908, ,171 3,139, ,310, % ,176, ,914, ,091, ,535, ,857, ,392, ,323, ,428, ,752,387 (2.1) ,292, ,659, ,952,004 (3.4) ,699, ,951, ,650, ,303, ,584, ,888,497 (1.6) ,328, ,284, ,613, ,808, ,536, ,344, ,347, ,640, ,988, Source: California Municipal Statistics, Inc. As indicated in the previous table, assessed valuations are subject to change in each year. Increases or decreases in assessed valuation may result from a variety of factors including but not limited to general economic conditions, supply and demand for real property in the area, government regulations such as zoning, and natural disasters such as earthquakes, fires, floods and droughts. With respect to droughts specifically, the State of California is currently facing water shortfalls, and on January 17, 2014, Governor Brown (the "Governor") declared a state of drought emergency, calling on Californians to conserve water. As part of his declaration, the Governor directed State officials to assist agricultural producers and communities that may be economically impacted by dry conditions. Thereafter, the California State Water Resources Control Board (the Water Board ) issued a statewide notice of water shortages and potential future curtailment of water right diversions. On April 1, 2015, the Governor issued an executive order mandating certain conservation measures including a requirement that the Water Board impose restrictions to achieve a statewide 25% reduction in urban water usage through February 28, On November 13, 2015 the Governor issued an executive order that calls for additional actions to build on the State's ongoing response to record dry conditions; assists recovery efforts from the current year's devastating wildfires; and extends existing water use restrictions through October 31, 2016 if drought conditions persist through January The District cannot predict or make any representations regarding the effects that the current drought has had, or, if it should continue, may have on the value of taxable property within the District, or to what extent the drought could cause disruptions to economic activity within the boundaries of the District. -45-

52 Assessed Valuation by Jurisdiction. The following table shows the assessed valuation of local secured property within the District by jurisdiction for fiscal year PIONEER UNION ELEMENTARY SCHOOL DISTRICT Assessed Valuation By Jurisdiction (1) Fiscal Year Assessed Valuation % of Assessed Valuation % of Jurisdiction Jurisdiction: in District District of Jurisdiction in District City of Hanford $741,914, % $3,424,940, % Unincorporated Kings County 181,073, $3,679,945, Total District $922,988, % Kings County $922,988, % $9,587,927, % (1) Before deduction of redevelopment incremental valuation. Source: California Municipal Statistics, Inc. Land Use Distribution The following table shows a breakdown of local secured property assessed value and parcels within the District by land use for fiscal year As shown, the majority of the District s assessed valuation is represented by residential property. PIONEER UNION ELEMENTARY SCHOOL DISTRICT Local Secured Property Assessed Valuation and Parcels by Land Use % of No. of % of Non-Residential: Assessed Valuation (1) Total Parcels Total Agricultural/Rural $ 99,492, % % Commercial 17,627, Industrial 46, Institutional 487, Miscellaneous 457, Subtotal Non-Residential $118,111, % % Residential: Single Family Residence $743,160, % 3, % Mobile Home 343, Residential Units 314, Residential Units/Apartments 49,766, Miscellaneous Residential 845, Vacant Residential 5,806, Subtotal Residential $762,613, % 3, % Total $918,347, % 3, % (1) Local Secured Assessed Valuation, excluding tax-exempt property. Source: California Municipal Statistics, Inc. -46-

53 Assessed Value of Single-Family Homes The table below shows the distribution of assessed value for the singe-family residential parcels in the District for fiscal year PIONEER UNION ELEMENTARY SCHOOL DISTRICT Per Parcel Assessed Valuation of Single Family Homes No. of Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single Family Residential 3,123 $743,160,098 $237,964 $217, No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $24, % 0.160% $ 109, % 0.015% $25,000 - $49, , $50,000 - $74, ,193, $75,000 - $99, ,399, $100,000 - $124, ,311, $125,000 - $149, ,785, $150,000 - $174, ,726, $175,000 - $199, ,745, $200,000 - $224, ,552, $225,000 - $249, ,321, $250,000 - $274, ,394, $275,000 - $299, ,093, $300,000 - $324, ,456, $325,000 - $349, ,686, $350,000 - $374, ,447, $375,000 - $399, ,374, $400,000 - $424, ,025, $425,000 - $449, ,453, $450,000 - $474, ,463, $475,000 - $499, ,340, $500,000 and greater ,677, Total 3, % $743,160, % (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc. -47-

54 Property Tax Collections Because the County does not participate in the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the Teeter Plan ), secured property taxes actually collected are allocated to political subdivisions for which the County acts as tax-levying or tax-collecting agency, including the District, when the secured property taxes are actually collected. Therefore, the District s secured tax revenues reflect actual delinquencies. The table below shows the secured tax charge and delinquency rate for fiscal years through PIONEER UNION ELEMENTARY SCHOOL DISTRICT through Secured Tax Charges and Delinquencies Tax Rates Secured Amt. Del. % Del. Tax Charge (1) June 30 June $285, $10, % , , , , , , , , , , (1) District s general obligation bond debt service levy. Source: California Municipal Statistics, Inc. The table below summarizes the total ad valorem tax rates levied by all taxing entities in a representative tax rate area (Tax Rate Area 2-055) in the District during fiscal years through For fiscal year , Tax Rate Area covered 9.1% of the total assessed valuation of the District. PIONEER UNION ELEMENTARY SCHOOL DISTRICT Typical Tax Rates - (Tax Rate Area 2-055) Dollars per $100 of Assessed Valuation Fiscal Years through General Tax Rate Hanford Joint Union High School District Pioneer Union School District College of Sequoias Hanford SFID Total Tax Rate Source: California Municipal Statistics, Inc. -48-

55 Largest Secured Property Taxpayers in District The following table shows the 20 largest secured property taxpayers in the District as determined by secured assessed valuation in fiscal year Each taxpayer listed below is a unique name listed on the tax rolls. The District cannot determine from County assessment records whether individual persons, corporations or other organizations are liable for tax payments with respect to multiple properties held in various names that in aggregate may be larger than is suggested by the table below. A large concentration of ownership in a single individual or entity results in a greater amount of tax collections, which are dependent upon that property owner s ability or willingness to pay property taxes. PIONEER UNION ELEMENTARY SCHOOL DISTRICT Largest Property Owners Fiscal Year % of Property Owner Primary Land Use Assessed Valuation Total (1) 1. Wasatch Pool Holdings LLC Apartments $ 29,636, % 2. River Oaks Holdings LLC Apartments 11,061, Hanford Retirement Residence Ltd. Apartments 8,882, Zonneveld Dairies Inc. Agricultural 5,268, Blackheart Capital LLC Shopping Center 5,218, Paul Singh Family LP Agricultural 5,159, Neves Family Trust Agricultural 4,914, B&L Farms Agricultural 4,797, John J, Migliozzi, Trust Shopping Center 3,826, Cal-Clark Farms Inc. Agricultural 3,740, R&L Investment Group LLC Residential Properties 3,647, Browns Dairy Agricultural 3,603, Longs Drug Stores California Inc. Agricultural 3,526, Kiran Properties LLC Residential Properties 2,977, Netto Family Living Trust Agricultural 2,631, Manuel L. and Adelia M. Soares Family Trust Agricultural 2,547, J.D. Mello Dairy Agricultural 2,463, Ajmer S. Nahal Mini-Mart/Service Station 2,406, Joseph A. and Kathleen A. Sequeira Agricultural 2,249, Harry and Nancy Miya Living Trust Agricultural 2,199, $110,758, % (1) Local Secured Assessed Valuation: $918,347,792 Source: California Municipal Statistics, Inc. -49-

56 Direct and Overlapping Debt Obligations Set forth below is a direct and overlapping debt report (the "Debt Report") prepared by California Municipal Statistics, Inc. and dated as of March 1, The Debt Report is included for general information purposes only. The District has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such long-term obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency Assessed Valuation: $922,988,155 PIONEER UNION ELEMENTARY SCHOOL DISTRICT Statement of Direct and Overlapping Bonded Debt Dated as of March 1, 2016 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 3/1/16 College of Sequoias Hanford School Facilities Improvement District % $ 3,592,610 Hanford Joint Union High School District ,044,215 Pioneer Union School District ,863,114 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $16,499,939 OVERLAPPING GENERAL FUND DEBT: Kings County General Fund Obligations 9.627% $1,172,087 Kings County Pension Obligation Bonds ,351 College of Sequoias Certificates of Participation ,482 Hanford Joint Union High School District Certificates of Participation ,848 Pioneer Union School District Certificates of Participation ,640,000 (1) TOTAL OVERLAPPING GENERAL FUND DEBT $5,331,768 COMBINED TOTAL DEBT $21,831,707 (2) Ratios to Assessed Valuation: Direct Debt ($5,863,114) % Total Direct and Overlapping Tax and Assessment Debt % Combined Direct Debt ($6,874,998) % Combined Total Debt % (1) Excludes Refunding Certificates to be sold. (2) Excludes tax and revenue anticipation notes, revenue, mortgage revenue and non-bonded capital lease obligations. Source: California Municipal Statistics, Inc. -50-

57 COUNTY INVESTMENT POOL In accordance with Government Code Section et seq., the Kings County Treasurer manages funds deposited with it by the District. The County is required to invest such funds in accordance with California Government Code Sections et seq. In addition, counties are required to establish their own investment policies which may impose limitations beyond those required by the Government Code. For further information concerning County investments, access the County s website at and access the link to Financial Information. The information contained in such website has not been reviewed by the District or the Underwriter and is not incorporated in this Official Statement by reference. See also APPENDIX G hereto for a copy of the County s current investment policy and summary of pooled investment fund. CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Articles XIIIA, XIIIB, XIIIC, and XIIID of the State Constitution, Propositions 62, 98, 111, 187 and 218, and certain other provisions of law discussed below, are included in this section to describe the potential effect of these Constitutional and statutory measures on the ability of the District to levy taxes and spend tax proceeds for operating and other purposes. Constitutionally Required Funding of Education The State Constitution requires that from all State revenues, there shall be first 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 and increases in State revenues can significantly affect appropriations made by the State Legislature to school districts. Article XIIIA of the California Constitution Basic Property Tax Levy. On June 6, 1978, California voters approved Proposition 13 ("Proposition 13"), which added Article XIIIA to the State Constitution ("Article XIIIA"). Article XIIIA limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on (i) indebtedness approved by the voters prior to July 1, 1978, (ii) (as a result of an amendment to Article XIIIA approved by State voters on June 3, 1986) on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-thirds of the voters on such indebtedness (which provided the authority for the issuance of the 2010 Note), and (iii) (as a result of an amendment to Article XIIIA approved by State voters on November 7, 2000) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures are included in the proposition. 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 have occurred after the

58 assessment". This full cash value may be increased at a rate not to exceed 2% per year to account for inflation. Article XIIIA has subsequently been amended to permit reduction of the "full cash value" base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster and in other minor or technical ways. Legislation Implementing Article XIIIA. Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the county 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 annual adjustment not to exceed 2% are allocated among the various jurisdictions in the taxing area based upon their respective situs. Any such allocation made to a local agency continues as part of its allocation in future years. Inflationary Adjustment of Assessed Valuation. As described above, the assessed value of a property may be increased at a rate not to exceed 2% per year to account for inflation. On December 27, 2001, the Orange County Superior Court, in County of Orange v. Orange County Assessment Appeals Board No. 3, held that where a home s taxable value did not increase for two years, due to a flat real estate market, the Orange County assessor violated the 2% inflation adjustment provision of Article XIIIA, when the assessor tried to "recapture" the tax value of the property by increasing its assessed value by 4% in a single year. The assessors in most California counties, including the County, use a similar methodology in raising the taxable values of property beyond 2% in a single year. The State Board of Equalization has approved this methodology for increasing assessed values. On appeal, the Appellate Court held that the trial court erred in ruling that assessments are always limited to no more than 2% of the previous year s assessment. On May 10, 2004 a petition for review was filed with the California Supreme Court. The petition has been denied by the California Supreme Court. As a result of this litigation, the recapture provision described above may continue to be employed in determining the full cash value of property for property tax purposes. Article XIIIB of the California Constitution Article XIIIB ( Article XIIIB ) of the State Constitution, as subsequently amended by Propositions 98 and 111, respectively, limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and in population and for transfers in the financial responsibility for providing services and for certain declared emergencies. For fiscal years beginning on or after July 1, 1990, the appropriations limit of each entity of government shall be the appropriations limit for the fiscal year adjusted for the changes made from that fiscal year under the provisions of Article XIIIB, as amended. The appropriations of an entity of local government subject to Article XIIIB limitations include the proceeds of taxes levied by or for that entity and the proceeds of certain state -52-

59 subventions to that entity. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to the entity from (a) regulatory licenses, user charges and user fees (but only to the extent that these proceeds exceed the reasonable costs in providing the regulation, product or service), and (b) the investment of tax revenues. Appropriations subject to limitation do not include (a) refunds of taxes, (b) appropriations for debt service, (c) appropriations required to comply with certain mandates of the courts or the federal government, (d) appropriations of certain special districts, (e) appropriations for all qualified capital outlay projects as defined by the legislature, (f) appropriations derived from certain fuel and vehicle taxes and (g) appropriations derived from certain taxes on tobacco products. Article XIIIB includes a requirement that all revenues received by an entity of government other than the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years. 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. Article XIIIB also includes a requirement that 50% of all revenues received by the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be transferred and allocated to the State School Fund under Section 8.5 of Article XVI of the State Constitution. Unitary Property Some amount of property tax revenue of the District is derived from utility property which is considered part of a utility system with components located in many taxing jurisdictions ( unitary property ). Under the State Constitution, such property is assessed by the State Board of Equalization ( SBE ) as part of a going concern rather than as individual pieces of real or personal property. State-assessed unitary and certain other property is allocated to the counties by SBE, taxed at special county-wide rates, and the tax revenues distributed to taxing jurisdictions (including the District) according to statutory formulae generally based on the distribution of taxes in the prior year. Articles XIIIC and XIIID On November 5, 1996, the voters of the State of California approved Proposition 218, popularly known as the Right to Vote on Taxes Act. Proposition 218 added to the California Constitution Articles XIIIC and XIIID (respectively, Article XIIIC and Article XIIID ), which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing and future taxes, assessments, fees and charges. According to the Title and Summary of Proposition 218 prepared by the California Attorney General, Proposition 218 limits the authority of local governments to impose taxes and property-related assessments, fees and charges. Among other things, Article XIIIC establishes that every tax is either a general tax (imposed for general governmental purposes) or a special tax (imposed for specific purposes), prohibits special purpose government agencies such as school districts from levying general taxes, and prohibits any local agency from -53-

60 imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds vote; and also provides that the initiative power will not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. Article XIIIC further provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the California Constitution and special taxes approved by a two-thirds vote under Article XIIIA, Section 4. On November 2, 2010, Proposition 26 was approved by State voters, which amended Article XIIIC to expand the definition of tax to include any levy, charge, or exaction of any kind imposed by a local government except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor s burdens on, or benefits received from, the governmental activity. Article XIIID deals with assessments and property-related fees and charges, and explicitly provides that nothing in Article XIIIC or XIIID will be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development. While the provisions of Proposition 218 may have an indirect effect on the District, such as by limiting or reducing the revenues otherwise available to other local governments whose boundaries encompass property located within the District (thereby causing such local governments to reduce service levels and possibly adversely affecting the value of property within the District), the District does not believe that Proposition 218 will directly impact the revenues available to pay Lease Payments and therefore payments due on the Refunding Certificates. Proposition 98 On November 8, 1988, California voters approved Proposition 98, a combined initiative constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act (the Accountability Act ). Certain provisions of the Accountability Act have, however, been modified by Proposition 111, discussed below, the provisions of which became effective on July 1, The Accountability Act changes State funding of public education below the university level and the operation of the State s appropriations limit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (hereinafter referred to collectively as K-14 school districts ) at a level equal to the -54-

61 greater of (a) the same percentage of general fund revenues as the percentage appropriated to such districts in , and (b) the amount actually appropriated to such districts from the general fund in the previous fiscal year, adjusted for increases in enrollment and changes in the cost of living. The Accountability Act permits the Legislature to suspend this formula for a oneyear period. The Accountability Act also changes how tax revenues in excess of the State appropriations limit are distributed. Any excess State tax revenues up to a specified amount would, instead of being returned to taxpayers, be transferred to K-14 school districts. Any such transfer to K-14 school districts would be excluded from the appropriations limit for K-14 school districts and the K-14 school district appropriations limit for the next year would automatically be increased by the amount of such transfer. These additional moneys would enter the base funding calculation for K 14 school districts for subsequent years, creating further pressure on other portions of the State budget, particularly if revenues decline in a year following an Article XIIIB surplus. The maximum amount of excess tax revenues which could be transferred to K 14 school districts is 4% of the minimum State spending for education mandated by the Accountability Act. Proposition 111 On June 5, 1990, the voters approved Proposition 111 (Senate Constitutional Amendment No. 1) called the Traffic Congestion Relief and Spending Limit Act of 1990 ( Proposition 111 ) which further modified Article XIIIB and Sections 8 and 8.5 of Article XVI of the State Constitution with respect to appropriations limitations and school funding priority and allocation. The most significant provisions of Proposition 111 are summarized as follows: Annual Adjustments to Spending Limit. The annual adjustments to the Article XIIIB spending limit were liberalized to be more closely linked to the rate of economic growth. Instead of being tied to the Consumer Price Index, the change in the cost of living is now measured by the change in California per capita personal income. The definition of change in population specifies that a portion of the State s spending limit is to be adjusted to reflect changes in school attendance. Treatment of Excess Tax Revenues. Excess tax revenues with respect to Article XIIIB are now determined based on a two-year cycle, so that the State can avoid having to return to taxpayers excess tax revenues in one year if its appropriations in the next fiscal year are under its limit. In addition, the Proposition 98 provision regarding excess tax revenues was modified. After any two-year period, if there are excess State tax revenues, 50% of the excess are to be transferred to K-14 school districts with the balance returned to taxpayers; under prior law, 100% of excess State tax revenues went to K-14 school districts, but only up to a maximum of 4% of the schools minimum funding level. Also, reversing prior law, any excess State tax revenues transferred to K-14 school districts are not built into the school districts base expenditures for calculating their entitlement for State aid in the next year, and the State s appropriations limit is not to be increased by this amount. Exclusions from Spending Limit. Two exceptions were added to the calculation of appropriations which are subject to the Article XIIIB spending limit. First, there are excluded all appropriations for qualified capital outlay projects as defined by the Legislature. Second, there are excluded any increases in gasoline taxes above the 1990 level (then nine cents per gallon), -55-

62 sales and use taxes on such increment in gasoline taxes, and increases in receipts from vehicle weight fees above the levels in effect on January 1, These latter provisions were necessary to make effective the transportation funding package approved by the Legislature and the Governor, which expected to raise over $15 billion in additional taxes from 1990 through 2000 to fund transportation programs. Recalculation of Appropriations Limit. The Article XIIIB appropriations limit for each unit of government, including the State, is to be recalculated beginning in fiscal year It is based on the actual limit for fiscal year , adjusted forward to as if Proposition 111 had been in effect. School Funding Guarantee. There is a complex adjustment in the formula enacted in Proposition 98 which guarantees K-14 school districts a certain amount of State general fund revenues. Under prior law, K-14 school districts were guaranteed the greater of (1) 40.9% of State general fund revenues (the first test ) or (2) the amount appropriated in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to per capita personal income) and enrollment (the second test ). Under Proposition 111, schools will receive the greater of (1) the first test, (2) the second test, or (3) a third test, which will replace the second test in any year when growth in per capita State general fund revenues from the prior year is less than the annual growth in California per capita personal income (the third test ). Under the third test, schools will receive the amount appropriated in the prior year adjusted for change in enrollment and per capita State general fund revenues, plus an additional small adjustment factor. If the third test is used in any year, the difference between the third test and the second test will become a credit to schools which will be paid in future years when State general fund revenue growth exceeds personal income growth. Proposition 39 On November 7, 2000, California voters approved an amendment (commonly known as Proposition 39 ) to the California Constitution. This amendment (1) allows school facilities bond measures to be approved by 55% (rather than two-thirds) of the voters in local elections and permits property taxes to exceed the current 1% limit in order to repay the bonds and (2) changes existing statutory law regarding charter school facilities. As adopted, the constitutional amendments may be changed only with another Statewide vote of the people. The statutory provisions could be changed by a majority vote of both houses of the Legislature and approval by the Governor, but only to further the purposes of the proposition. The local school jurisdictions affected by this proposition are K-12 school districts, community college districts, including the District, and county offices of education. As noted above, the California Constitution previously limited property taxes to 1% of the value of property. Prior to the approval of Proposition 39, property taxes could only exceed this limit to pay for (1) any local government debts approved by the voters prior to July 1, 1978 or (2) bonds to acquire or improve real property that receive two-thirds voter approval after July 1, The 55% vote requirement authorized by Proposition 39 applies only if the local bond measure presented to the voters includes: (1) a requirement that the bond funds can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities; (2) a specific list of school projects to be funded and certification that the school board has evaluated safety, class size reduction, and information technology needs in developing the list; and (3) a requirement that the school board conduct annual, independent financial and performance audits until all bond funds have been spent to ensure that the bond funds have been used only for the projects listed in the measure. -56-

63 Legislation approved in June 2000 places certain limitations on local school bonds to be approved by 55% of the voters. These provisions require that the tax rate levied as the result of any single election be no more than $60 (for a unified school district), $30 (for an elementary school district or high school district), or $25 (for a community college district), per $100,000 of taxable property value. These requirements are not part of this proposition and can be changed with a majority vote of both houses of the Legislature and approval by the Governor. Proposition 1A and Proposition 22 On November 2, 2004, California voters approved Proposition 1A, which amended the State constitution to significantly reduce the State's authority over major local government revenue sources. Under Proposition 1A, the State cannot (i) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (ii) shift property taxes from local governments to schools or community colleges, (iii) change how property tax revenues are shared among local governments without two-thirds approval of both houses of the State Legislature or (iv) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. Under Proposition 1A, beginning, in fiscal year , the State may shift to schools and community colleges a limited amount of local government property tax revenue if certain conditions are met, including: (i) a proclamation by the Governor that the shift is needed due to a severe financial hardship of the State, and (ii) approval of the shift by the State Legislature with a two-thirds vote of both houses. Under such a shift, the State must repay local governments for their property tax losses, with interest, within three years. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also amended the State Constitution to require the State to suspend certain State laws creating mandates in any year that the State does not fully reimburse local governments for their costs to comply with the mandates. This provision does not apply to mandates relating to schools or community colleges or to those mandates relating to employee rights. Proposition 22, a constitutional initiative entitled the Local Taxpayer, Public Safety, and Transportation Protection Act of 2010, approved on November 2, 2010, superseded many of the provisions of Proposition 1A. This initiative amends the State constitution to prohibit the legislature from diverting or shifting revenues that are dedicated to funding services provided by local government or funds dedicated to transportation improvement projects and services. Under this proposition, the State is not allowed to take revenue derived from locally imposed taxes, such as hotel taxes, parcel taxes, utility taxes and sales taxes, and local public transit and transportation funds. Further, in the event that a local governmental agency sues the State alleging a violation of these provisions and wins, then the State must automatically appropriate the funds needed to pay that local government. This Proposition was intended to, among other things, stabilize local government revenue sources by restricting the State s control over local property taxes. Proposition 22 did not prevent the California State Legislature from dissolving State redevelopment agencies pursuant to AB 1X26, as confirmed by the decision of the California Supreme Court decision in California Redevelopment Association v. Matosantos (2011). Because Proposition 22 reduces the State s authority to use or reallocate certain revenue sources, fees and taxes for State general fund purposes, the State will have to take other actions to balance its budget, such as reducing State spending or increasing State taxes, and school and college districts that receive Proposition 98 or other funding from the State will be more directly dependent upon the State s general fund. -57-

64 Proposition 30 Proposition 30 appeared on the November 6, 2012 statewide ballot as an initiated constitutional amendment ( Proposition 30 ), and it was approved by State voters. Proposition 30 increased the State sales tax from 7.25 percent to 7.50 percent, increased personal income tax rates on higher income brackets for seven years, and temporarily imposed an additional tax on all retailers, at the rate of 0.25% of gross receipts from the sale of all tangible personal property sold in the State from January 1, 2013 to December 31, Proposition 30 also imposed an additional excise tax on the storage, use, or other consumption in the State of tangible personal property purchased from a retailer on and after January 1, 2013 and before January 1, This excise tax is levied at a rate of 0.25% of the sales price of the property so purchased. For personal income taxes imposed beginning in the taxable year commencing January 1, 2012 and ending December 31, 2018, Proposition 30 increased the marginal personal income tax rate by: (i) 1% for taxable income over $250,000 but less than $300,000 for single filers (over $340,000 but less than $408,000 for joint filers), (ii) 2% for taxable income over $300,000 but less than $500,000 for single filers (over $408,000 but less than $680,000 for joint filers), and (iii) 3% for taxable income over $500,000 for single filers (over $680,000 for joint filers). The revenues generated from the temporary tax increases are included in the calculation of the Proposition 98 minimum funding guarantee for school districts and community college districts. See Proposition 98 and Proposition 111 above. From an accounting perspective, the revenues generated from the temporary tax increases will be deposited into the State account created pursuant to Proposition 30 called the Education Protection Account (the EPA ). Pursuant to Proposition 30, funds in the EPA will be allocated quarterly, with 89% of such funds provided to schools districts and 11% provided to community college districts. The funds will be distributed to school districts and community college districts in the same manner as existing unrestricted per-student funding, except that no school district will receive less than $200 per unit of ADA and no community college district will receive less than $100 per full time equivalent student. The governing board of each school district and community college district is granted sole authority to determine how the moneys received from the EPA are spent, provided that, the appropriate governing board is required to make these spending determinations in open session at a public meeting and such local governing boards are prohibited from using any funds from the EPA for salaries or benefits of administrators or any other administrative costs. Future Initiatives and Changes in Law Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID of the California Constitution and Propositions 98, 111, 1A, 22, 26, 30 and 39 were each adopted as measures that qualified for the ballot under the State s initiative process. From time to time other initiative measures or other legislative enactments could be adopted further affecting District revenues or the District s ability to expend revenues. The nature and impact of these measures cannot be anticipated by the District. RISK FACTORS The following factors, along with all other information in this Official Statement, should be considered by potential investors in evaluating the Refunding Certificates. The discussion does -58-

65 not purport to be, nor should it be construed to be, complete nor a summary of all factors which may affect the financial condition of the District, the District s ability to make Lease Payments in the future, or the effectiveness of any remedies that the Trustee may have or circumstances under which Lease Payments may be abated. No Pledge of Taxes The Lease Payments and other payments due under the Lease Agreement are not secured by any pledge of taxes or other revenues of the District, except, however, the pledge of Tax Increment described herein. See SECURITY AND SOURCES OF PAYMENT FOR THE REFUNDING CERTIFICATES.. The Lease Payments are secured by a District covenant to annually budget and appropriate sufficient funds to make Lease Payments from any lawfully available funds, including the general fund. In the event that the District s general fund revenues are less than its total obligations, the District may choose to pay other costs or expenses before making the Lease Payments. The obligation of the District to pay the Lease Payments and Additional Rental Payments does not constitute an obligation of the District for which the District is obligated to levy or pledge any form of taxation or for which the District has levied or pledged any form of taxation. The obligation of the District to pay Lease Payments and Additional Rental Payments does not constitute a debt or indebtedness of the Corporation, the District, the State of California or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the District, the District is obligated under the Lease Agreement to pay Lease Payments and Additional Rental Payments from any source of legally available funds (subject to certain exceptions) and the District has covenanted in the Lease Agreement that, for as long as the Leased Property is available for its use and possession, it will make the necessary annual appropriations within its budget for all Lease Payments and Additional Rental Payments. See SECURITY AND SOURCES OF PAYMENT FOR THE REFUNDING CERTIFICATES. The District is currently liable on other obligations payable from general revenues and may incur additional obligations payable from its general fund. -59-

66 Additional Obligations of the District The District has existing obligations payable from its general fund. See DISTRICT FINANCIAL INFORMATION Long Term District Debt. In addition, under the Lease Agreement the District is permitted to enter into other obligations which constitute additional charges against its revenues without the consent of owners of the Refunding Certificates. To the extent that additional obligations are incurred by the District, the funds available to pay Lease Payments may be decreased. Limited Recourse on Default Whenever any event of default referred to in the Lease Agreement happens and continues, the Trustee, as the assignee of the Corporation, is authorized under the terms of the Lease Agreement to exercise any and all remedies available under law or granted under the Lease Agreement. Notwithstanding a default under the Lease Agreement, there is no right under any circumstances to accelerate the Lease Payments or otherwise declare any Lease Payments not then due or past due to be immediately due and payable. Neither the Corporation nor the Trustee has any right to re-enter or re-let the Leased Property except following the occurrence and during the continuation of an event of default under the Lease Agreement. Following an event of default, the Corporation may elect either to terminate the Lease Agreement and seek to collect damages from the District or to maintain the Lease Agreement in effect and seek to collect the Lease Payments as they become due. The Lease Agreement further provides that so long as an event of default exists under the Lease Agreement, the Corporation, or its assignee, may re-enter the Leased Property for the purpose of taking possession of all or any portion of the Leased Property and to re-let the Leased Property and, in addition, at its option, with or without such entry, to terminate the Lease Agreement as described therein. See APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS The Lease Agreement. No assurance can be given that the Trustee will be able to re-let the Leased Property so as to provide rental income sufficient to pay principal and interest evidenced by the Refunding Certificates in a timely manner or that such re-letting will not adversely affect the exclusion of interest with respect thereto from gross income for federal or State income tax purposes. Furthermore, it is not certain whether a court would permit the exercise of the remedies of repossession and re-letting with respect to the Leased Property. In the event of a default, there is no remedy of acceleration of the total Lease Payments due over the term of the Lease Agreement and the Trustee is not empowered to sell the Leased Property and use the proceeds of such sale to prepay the Refunding Certificates or pay debt service with respect thereto. The District will be liable only for Lease Payments on an annual basis and, in the event of a default, the Trustee would be required to seek a separate judgment each year for that year s defaulted Lease Payments. Any such suit for money damages would be subject to limitations on legal remedies against municipalities in California, including a limitation on enforcement of judgments against funds of a fiscal year other than the fiscal year in which the Lease Payments were due and against funds needed to serve the public welfare and interest. -60-

67 Abatement The obligation of the District under the Lease Agreement to pay Lease Payments is in consideration of the use and possession of the Leased Property. Under certain circumstances relating to damage, destruction, condemnation or title defects with respect to the Leased Property which cause a substantial interference with the use and possession of the Leased Property, the District s obligation to make Lease Payments is subject to full or partial abatement and could result in the Trustee having inadequate funds to pay the principal and interest with respect to the Refunding Certificates as and when due. See SECURITY AND SOURCES OF PAYMENT FOR THE REFUNDING CERTIFICATES Abatement and APPENDIX A SUMMARY OF CERTAIN PROVISIONS PRINCIPAL LEGAL DOCUMENTS The Lease Agreement. Abatement is not a default under the Lease Agreement and does not result in the Trustee having the right to take any action to avail itself of any remedy against the District. Property Taxes Levy and Collection. The District does not have any independent power to levy and collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the District s share of local property tax revenues, and accordingly, could have an adverse impact on the ability of the District to make Lease Payments. Likewise, delinquencies in the payment of property taxes could have an adverse effect on the District s ability to pay principal and interest with respect to the Refunding Certificates when due. Reduction in Inflationary Rate. Article XIIIA of the California Constitution provides that the full cash value base of real property used in determining assessed value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS. Such measure is computed on a calendar year basis. Because Article XIIIA limits inflationary assessed value adjustments to the lesser of the actual inflationary rate or 2%, there have been years in which the assessed values were adjusted by actual inflationary rates, which were less than 2%. The District is unable to predict if any adjustments to the full cash value base of real property within the District, whether an increase or a reduction, will be realized in the future. Appeals of Assessed Values. There are two types of appeals of assessed values that could adversely impact property tax revenues: Proposition 8 Appeals. Most of the appeals that might be filed in the District would be based on Section 51 of the Revenue and Taxation Code, which requires that for each lien date the value of real property must be the lesser of its base year value annually adjusted by the inflation factor pursuant to Article XIIIA of the State Constitution or its full cash value, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in value. Under California law, property owners may apply for a reduction of their property tax assessment by filing a written application, in form prescribed by the -61-

68 State Board of Equalization, with the appropriate county board of equalization or assessment appeals board. In most cases, the appeal is filed because the applicant believes that present market conditions (such as residential home prices) cause the property to be worth less than its current assessed value. These market-driven appeals are known as Proposition 8 appeals. Any reduction in the assessment ultimately granted as a Proposition 8 appeal applies to the year for which application is made and during which the written application was filed. These reductions are often temporary and are adjusted back to their original values when market conditions improve. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA. However, current case law is uncertain as to whether or not property may be adjusted to its prior value at once or if adjustments may only be made subject to the 2% limitation. See CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS Article XIIIA of the California Constitution Litigation Regarding 2% Limitation." Base Year Appeals. A second type of assessment appeal is called a base year appeal, where the property owners challenge the original (basis) value of their property. Appeals for reduction in the "base year" value of an assessment, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. The base year is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date. No assurance can be given that property tax appeals in the future will not significantly reduce the District s property tax revenues. Local Housing Market. Economic downturns, as those that have been experienced in recent years on a national scale, can have a negative impact on local property values, in part due to fallout from the subprime mortgage crisis, tight credit markets and the recession. High rates of foreclosures tend to depreciate values of homes in the overall market, which could lead to more Proposition 8 appeals. Although the District s total assessed valuation is again increasing, it is not possible to predict how a future mortgage crisis, tightening credit markets, increased foreclosure activity and major reductions in home prices throughout the region could affect home values, assessed values, assessment appeals or collections of property taxes by the County. State Budget Considerations School districts in California receive a significant amount of their funding from State appropriations, as determine din each year s State budget. As a result, decreases in State revenue sources may impact the amount of funds appropriated to school districts, as has occurred in recent years. A deterioration in the State s economy due to factors such as reduced income tax revenues and sales tax revenues can negatively impact the State budget and the District s revenues, and therefore funds available to make Lease Payments. In addition, the State legislature has at times adopted legislation in connection with its annual budgets which may impact education funding, and may do so again in the future. The District cannot predict how State budgets and future legislation may impact its finances. -62-

69 Absence of Earthquake and Flood Insurance If any portion of the Leased Property is destroyed or rendered useless by a natural hazard such as an earthquake or flood, an abatement could occur and result in the Trustee having inadequate funds to pay the principal and interest represented by the Refunding Certificates as and when due. The Lease Agreement does not require the District to obtain earthquake or flood insurance on the Leased Property. All building components of the Leased Property were constructed under the standards of the Field Act (California State Building Code, Title 24). The Field Act requires substantially higher construction standards for public schools and hospitals than are required for other types of construction. The Field Act requires that building systems be capable of withstanding seismic forces from the most credible earthquake likely to occur in the vicinity of the building system being constructed. Limitations on Remedies; Bankruptcy The rights of the owners of the Refunding Certificates are subject to the limitations on legal remedies against municipalities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Additionally, enforceability of the rights and remedies of the owners of the Refunding Certificates, and enforcement of the District s obligations under the Lease Agreement, may become subject to the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditor s rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against cities in the State. Bankruptcy proceedings under Chapter 9 of the Bankruptcy Code (Title 11, United States Code), which governs the bankruptcy proceedings for public agencies such as the District, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Refunding Certificates to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights. See Limited Recourse on Default above. LEGAL OPINION The proceedings in connection with the authorization, sale, execution and delivery of the Refunding Certificates are subject to the approval as to their legality of Jones Hall, A Professional Law Corporation, San Francisco, California ( Special Counsel ). A copy of the legal opinion, certified by the official in whose office the original is filed, will be attached to each Certificate, and a form of such opinion is attached as Appendix D. Jones Hall, A Professional Law Corporation, San Francisco, California, is acting as Disclosure Counsel to the District ( Disclosure Counsel ). Dannis Woliver Kelley, Long Beach, California, is serving as counsel to the Underwriter ( Underwriter s Counsel ). -63-

70 The fees of Special Counsel, Disclosure Counsel, the Trustee, the Escrow Agent, the Underwriter and Underwriter s Counsel are contingent upon the execution and delivery of the Refunding Certificates. FINANCIAL ADVISOR Isom Advisors, A Division of Urban Futures, Inc., Walnut Creek, California, is acting as the District s financial advisor in connection with the Refunding Certificates. The Financial Advisor is a registered Municipal Advisor with the Securities Exchange Commission and the Municipal Securities Rulemaking Board. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. The fees of the Financial Advisor with respect to the Refunding Certificates are contingent upon their sale and delivery. The Financial Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. Tax Exemption TAX MATTERS Federal Tax Status. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Special Counsel, subject, however to the qualifications set forth below, under existing law, the portion of lease payments designated as and comprising interest and received by the Owners of the Refunding Certificates is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, provided, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The Refunding Certificates are "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986 (the Tax Code ) such that, in the case of certain financial institutions (within the meaning of section 265(b)(5) of the Code), a deduction for federal income tax purposes is allowed for 80 percent of that portion of such financial institution's interest expense allocable to interest payable on the Refunding Certificates. The opinions set forth in the preceding paragraph are subject to the condition that the District comply with all requirements of the Tax Code that must be satisfied subsequent to the issuance of the Refunding Certificates. The District has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest with respect to the Refunding Certificates in gross income for federal income tax purposes to be retroactive to the date of issuance of the Refunding Certificates. The Code generally prohibits the deduction of interest on indebtedness incurred or continued to purchase or carry tax-exempt obligations, such as the Refunding Certificates. Banks and financial institutions, however, are permitted an 80% deduction for their interest expense allocable to qualified tax-exempt obligations of small governmental units (a) that together with their subordinate entities or entities issuing on their behalf and entities on whose behalf they issue do not reasonably expect to issue in the aggregate more than $10,000,000 of tax-exempt obligations (not including private activity bonds other than qualified 501(c)(3) bonds in a calendar year), and (b) that designate such obligations as qualified tax-exempt -64-

71 obligations. By resolution, the District has (a) represented that it expects that it and all of the above-described entities will not issue in the aggregate more than $10,000,000 of tax-exempt obligations during calendar year 2016, and (b) designated the Refunding Certificates as qualified tax-exempt obligations. If the initial offering price to the public (excluding bond houses and brokers) at which a Certificate is sold is less than the amount payable at maturity thereof, then such difference constitutes "original issue discount" for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which a Certificate is sold is greater than the amount payable at maturity thereof, then such difference constitutes "original issue premium" for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount and original issue premium is disregarded. Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Certificate on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Certificates to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Certificate. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Refunding Certificates who purchase the Refunding Certificates after the initial offering of a substantial amount of such maturity. Owners of such Certificates should consult their own tax advisors with respect to the tax consequences of ownership of Certificates with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Certificates under federal individual and corporate alternative minimum taxes. Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Certificate (said term being the shorter of the Certificate's maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Certificate for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Certificate is amortized each year over the term to maturity of the Certificate on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Certificate premium is not deductible for federal income tax purposes. Owners of premium Certificates, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Certificates. California Tax Status. In the further opinion of Special Counsel, the portion of lease payments designated as and comprising interest and received by the owners of the Refunding Certificates is exempt from California personal income taxes. Form of Opinion. A copy of the proposed form of opinion of Special Counsel is attached hereto as Appendix D. -65-

72 Other Tax Considerations Owners of the Refunding Certificates should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Refunding Certificates may have federal or state tax consequences other than as described above. Special Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Refunding Certificates other than as expressly described above, including any federal tax consequences arising with respect to the ownership, sale or disposition of the Refunding Certificates, or the amount, accrual or receipt of interest on the Refunding Certificates. Current and future legislative proposals, if enacted into law, clarification of the Tax Code or court decisions may cause interest with respect to the Refunding Certificates to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals, clarification of the Tax Code or court decisions may also affect the market price for, or marketability of, the Refunding Certificates. Prospective purchasers of the Refunding Certificates should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Special Counsel expresses no opinion. NO LITIGATION There is no action, suit or proceeding known to be pending, or threatened, restraining or enjoining the execution or delivery of the Refunding Certificates, the Trust Agreement, the Lease, the Site Lease, the Assignment Agreement or any other document relating to the Refunding Certificates or in any way contesting or affecting the validity of the foregoing. There are a number of lawsuits and claims pending against the District which have arisen in the regular course of administering the affairs of the District. In the opinion of the District, such suits and claims as are presently pending will not have a material adverse affect on the ability of the District to make Lease Payments with respect to the Refunding Certificates. ESCROW VERIFICATION Grant Thornton LLP, Minneapolis, Minnesota (the Verification Agent ), upon delivery of the Refunding Certificates, will deliver a report of the mathematical accuracy of certain computations, contained in schedules provided to them on behalf of the District, relating to the sufficiency of the anticipated amount of proceeds of the Refunding Certificates and other funds deposited into each Escrow Fund and available to pay, when due, the principal, whether at maturity or upon prior redemption, interest and redemption premium requirements (if any) of the corresponding Refunded Obligations. The report of the Verification Agent will include the statement that the scope of their engagement is limited to verifying mathematical accuracy, of the computations contained in such schedules provided to them, and that they have no obligation to update their report because of events occurring, or data or information coming to their attention, subsequent to the date of their report. -66-

73 RATINGS Standard & Poor s Ratings Services ( S&P ) is expected to assign its rating of AA to the Refunding Certificates, based on the understanding that the Certificate Insurer will deliver its Certificate Insurance Policy with respect to the Refunding Certificates upon delivery. See CERTIFICATE INSURANCE. In addition, S&P has assigned the Refunding Certificates an underlying rating of A+. There is no assurance that the credit rating given to the Refunding Certificates will be maintained for any period of time or that the rating may not be lowered or withdrawn entirely by S&P if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Refunding Certificates. Such rating reflects only the views of S&P and an explanation of the significance of such rating may be obtained from the rating agency. UNDERWRITING The Refunding Certificates are being purchased by O Connor & Company Securities, Inc. (the Underwriter ). Under a Certificate Purchase Agreement (the Purchase Agreement ), the Underwriter has agreed to purchase the Refunding Certificates at a purchase price of $2,607, (which is equal to the principal amount represented by the Refunding Certificates, plus net original issue premium of $51,258.70, less an Underwriter's discount of $38,925.00). The Purchase Agreement provides that the Underwriter will purchase all of the Refunding Certificates (if any are purchased), and the Underwriter s obligation to purchase is subject to certain terms and conditions, including the approval of certain legal matters by counsel. The Underwriter may offer and sell the Refunding Certificates to certain dealers and others at prices lower than the offering prices stated on the inside cover page hereof. The offering prices may be changed by the Underwriter. CONTINUING DISCLOSURE The District has covenanted, for the benefit of holders and beneficial owners of the Refunding Certificates to provide certain financial information and operating data relating to the District to the Municipal Securities Rulemaking Board on an annual basis (an Annual Report ) not later than nine months after the end of the District s fiscal year (which currently would be March 31), commencing March 31, 2017, with the report for the Fiscal Year, and to provide notices of the occurrence of certain enumerated events. The Annual Report and other required notices will be filed by the District with the Municipal Securities Rulemaking Board (the MSRB ) in the manner prescribed by the Securities Exchange Commission. The specific nature of such information is set forth below under the caption APPENDIX E Form of Continuing Disclosure Certificate. These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5) (the Rule ). The District has made undertakings pursuant to the Rule in connection with the delivery of prior general obligation bonds, general obligation refunding bonds and certificates of participation. Specific instances of non-compliance with prior undertakings in the previous five years involved (i) the failure of the District to file certain information required in its Annual Reports for fiscal years through for its 2000 General Obligation Refunding -67-

74 Bonds, which bonds have since matured and (ii) the late filing of rating change notifications relating to the insurer, outstanding obligations of the District and the rating of the District itself. Identification of such instances of non-compliance does not constitute a representation that such non-compliance was material. The District has engaged its financial advisor, Isom Advisors, a Division of Urban Futures, Inc., to serve as its dissemination agent with respect to prior undertakings and the undertaking in connection with the Refunding Certificates. Neither the County nor any other entity other than the District shall have any obligation or incur any liability whatsoever with respect to the performance of the District s duties regarding continuing disclosure. -68-

75 EXECUTION The execution and delivery of this Official Statement have been duly authorized by the District. PIONEER UNION ELEMENTARY SCHOOL DISTRICT By: /s/ Paul van Loon Superintendent -69-

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77 APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS The following is a brief summary of certain provisions of the Site Lease, the Lease Agreement, the Trust Agreement, the Assignment Agreement and the Escrow Agreement. This summary is not intended to be definitive and is qualified in its entirety by reference to such documents for the complete terms thereof. Copies of such documents are available upon request from the Pioneer Union Elementary School District. DEFINED TERMS The following terms have the following meanings, notwithstanding that any such terms may be elsewhere defined in this Official Statement. Any terms not expressly defined in this Summary but previously defined in this Official Statement have the respective meanings previously given. Assignment Agreement means the Assignment Agreement, dated as of May 1, 2016, by and between the Corporation, as assignor, and the Trustee as assignee. Business Day means a day other than a Saturday, Sunday or legal holiday, on which banking institutions in the State of California, or in any state in which the Office of the Trustee or the Certificate Insurer is located, are not closed for corporate trust business. Certificate Insurer means Municipal Assurance Corp. Certificates means the $2,595,000 initial principal 2016 Refunding Certificates of Participation described in this Official Statement. Closing Date means May 3, 2016, being the day when the Certificates, duly executed by the Trustee, are delivered to the Underwriter. Code means the Internal Revenue Code of 1986 as in effect on the date of issuance of the Certificates or (except as otherwise referenced in the Trust Agreement) as it may be amended to apply to obligations issued on the date of execution and delivery of the Certificates, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under the Code. Continuing Disclosure Certificate shall mean that certain Continuing Disclosure Certificate executed by the District and dated the date of execution and delivery of the Certificates, as originally executed and as it may be amended from time to time in accordance with the terms thereof. Corporation means Local Facilities Corporation, a nonprofit public benefit corporation organized and existing under the laws of the State of California. Corporation Representative means the President, Vice President, Treasurer, Executive Director, or Secretary. assistant treasurer or assistant executive director of the Corporation, or any other person authorized to act on behalf of the Corporation under or with respect to the Trust Agreement by resolution of the Board of Directors of the Corporation delivered to the Trustee. A-1

78 Costs of Issuance means all items of expense directly or indirectly payable by or reimbursable to the District or the Corporation relating to the execution and delivery of the Lease Agreement or the execution, sale and delivery of the Certificates, including but not limited to filing and recording costs, settlement costs, printing costs, reproduction and binding costs, initial fees and charges of the Trustee (which shall include legal fees and the first annual administration fee of the Trustee), financing discounts, legal fees and charges, insurance fees and charges, financial and other professional consultant fees, costs of rating agencies for credit ratings, fees for execution, transportation and safekeeping of the Certificates and charges and fees in connection with the foregoing. Cost of Issuance Fund means the fund by that name established and held by the Trustee pursuant to the Trust Agreement. Depository means (a) initially, DTC, and (b) any other Securities Depository acting as Depository pursuant to the Trust Agreement. Depository System Participant means any participant in the Depository's book-entry system. District means the Pioneer Union Elementary School District, a school district duly organized and existing under the Constitution and laws of the State of California. District Representative means the Superintendent or Assistant Superintendent of Financial Services, or any other person authorized to act on behalf of the District under or with respect to the Trust Agreement by resolution of the governing board of the District delivered to the Trustee. DTC means The Depository Trust Company, New York, New York, and its successors and assigns. Event of Default means an event of default under the Lease, as defined in the Lease Agreement. Facilities means all the buildings located on the real property described in the Lease Agreement. Fair Market Value means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm s length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of Section 1273 of the Code) and, otherwise, the term Fair Market Value means the acquisition price in a bona fide arm s length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) any commingled investment fund in which the District and any related parties A-2

79 do not own more than a 10% beneficial interest therein if the return paid by the fund is without regard to the source of the investment. Federal Securities means: (1) non-callable direct obligations of the United States of America ("Treasuries"), and (2) securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America, or as otherwise maybe authorized under State law and approved by the Certificate Insurer. Fiscal Year means the twelve-month period beginning on July 1 of any year and ending on June 30 of the next succeeding year, or any other twelve-month period by the District as its fiscal year pursuant to written notice filed with the Trustee. Hazardous Substances means any substances, pollutants and contaminants included in such (or any similar) term under any federal, state or local statute, ordinance, code or regulation now existing or hereafter enacted or amended. Insurance and Condemnation Fund means the fund by that name to be established and held by the Trustee pursuant to the Trust Agreement. Interest Payment Date means August 1, 2016, and the first day of each February and August thereafter to and including the date of maturity or prepayment of the Certificates. Lease Agreement means the Lease Agreement, dated as of May 1, 2016, by and between the Corporation as lessor and the District as lessee. Leased Property means, collectively, the Site and the Facilities. Lease Payment Date means, with respect to any Interest Payment Date, 15th calendar day of the month immediately preceding such Interest Payment Date. Lease Payment Fund means the fund by that name established and held by the Trustee pursuant to the Trust Agreement. Lease Payments means all payments required to be paid by the District pursuant to the Lease Agreement, including any prepayment thereof. Moody's means Moody's Investors Service, or its successors and assigns. Net Proceeds means any insurance proceeds or eminent domain award (including any proceeds of sale to a governmental entity under threat of the exercise of eminent domain powers), paid with respect to the Project, to the extent remaining after payment therefrom of all expenses incurred in the collection thereof. Nominee means (a) initially, Cede & Co. as nominee of DTC, and (b) any other nominee of the Depository. Office means the corporate trust office of the Trustee at 650 Town Center Drive, Suite 600, Costa Mesa, CA or, with respect to actions taken by the Trustee pursuant to Articles II and III, at such other address or addresses at which the Trustee shall conduct its corporate agency business. A-3

80 Outstanding, when used as of any particular time with respect to Certificates, means (subject to the provisions of the Trust Agreement) all Certificates theretofore executed and delivered by the Trustee under the Trust Agreement except (a) Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (b) Certificates for the payment or prepayment of which funds or Federal Securities in a sufficient amount shall have theretofore been deposited with the Trustee (whether upon or prior to the maturity or prepayment date of such Certificates), provided that, if such Certificates are to be prepaid prior to maturity, notice of such prepayment shall have been given as provided in the Trust Agreement or provision satisfactory to the Trustee shall have been made for the giving of such notice; and (c) Certificates in lieu of or in exchange for which other Certificates shall have been executed and delivered by the Trustee pursuant to the Trust Agreement. Notwithstanding anything herein to the contrary, in the event that the principal and/or interest due with respect to the Certificates shall be paid by the Certificate Insurer pursuant to the Certificate Insurance Policy, the Certificates shall remain Outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the District, and the assignment and pledge of the trust estate and all covenants, agreements and other obligations of the District to the registered Owners shall continue to exist and shall run to the benefit of the Certificate Insurer and the Certificate Insurer shall be subrogated to the rights of such registered Owners. Owner, when used with respect to a Certificate, means the person in whose name the ownership of such Certificate shall be registered on the Registration Books. Participating Underwriter shall have the meaning ascribed thereto in the Continuing Disclosure Certificate. Permitted Encumbrances means, as of any time: (a) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the District may permit to remain unpaid pursuant to the Lease Agreement; (b) the Site Lease, the Lease Agreement, the Assignment Agreement, and any other agreement or document contemplated thereunder to be recorded against the Leased Property; (c) any right or claim of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed by law; and (d) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the date of recordation of the lease and which the District certifies in writing will not materially impair the use of the Leased Property for its intended purposes or the value of the Leased Property. Permitted Investments means any of the following which at the time of investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein (provided that the Trustee shall be entitled to rely upon any written request from the District as conclusive certification to the Trustee that the investments described therein are so authorized under the laws of the State of California): (a) (b) Federal Securities; obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including: Export-Import Bank, Farmers Home Administration, General Services Administration, U.S. Maritime Administration, Small Business Administration, Government National Mortgage Association, U.S. A-4

81 Department of Housing & Urban Development, and Federal Housing Administration; (c) (d) (e) (f) (g) (h) (i) bonds, notes or other evidences of indebtedness rated Aa or better by Moody s, issued by Fannie Mae or the Federal Home Loan Mortgage Corporation with remaining maturities not exceeding three years; U.S. dollar denominated deposit accounts (including those with the Trustee), federal funds and banker s acceptances with domestic commercial banks, which may include the Trustee and its affiliates, which have a rating on their short term certificates of deposit on the date of purchase of rated P-2 or better by Moody s, maturing no more than 360 days after the date of purchase; certificates of deposit issued by federal or State chartered savings and loan associations or in federal or State banks, which may include the Trustee and its affiliates, which are secured at all times by collateral described in the foregoing clauses (a) or (b) of this definition; commercial paper which is rated at the time of purchase in the single highest classification, rated P-2 or better by Moody s, which matures not more than 270 days after the date of purchase; investments in a money market fund rated Aa-mf or better by Moody s, which may include funds for which the Trustee or its affiliates provide investment advisory or other management services, including such funds for which the Trustee, its affiliates or subsidiaries provide investment advisory or other management services or for which the Trustee or an affiliate of the Trustee serves as investment administrator, shareholder servicing agent, and/or custodian or subcustodian, notwithstanding that (i) the Trustee or an affiliate of the Trustee receives fees from funds for services rendered, (ii) the Trustee collects fees for services rendered pursuant to the Trust Agreement, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to the Trust Agreement may at times duplicate those provided to such funds by the Trustee or an affiliate of the Trustee; bonds or notes issued by an state or municipality which are rated Aa or better by Moody s; the Local Agency Investment Fund which is administered by the California Treasurer for the investment of funds belonging to local agencies within the State of California, provided for investment of funds held by the Trustee, the Trustee is entitled to make investments and withdrawals in its own name as Trustee. Record Date means the close of business on the fifteenth (15th) day of the month preceding each Interest Payment Date, whether or not such fifteenth (15th) day is a Business Day. A-5

82 Registration Books means the records maintained by the Trustee pursuant to the Trust Agreement for registration of the ownership and transfer of ownership of the Certificates. Reserve Fund means the fund by that name established and held by the Trustee pursuant to the Trust Agreement. Reserve Fund Surety Bond means that certain Reserve Account Municipal Bond Insurance Policy issued by the Certificate Insurer for credit to the Reserve Fund on the Closing Date. Reserve Requirement means, as of the date of calculation thereof, an amount equal to the lesser of (a) 10% of the original principal amount of the Certificates, or (b) the maximum amount of Lease Payments (excluding Lease Payments with respect to which the District shall have posted a security deposit pursuant to Section 9.1 of the Lease) coming due in the current or any future twelve month period beginning on August 1 of any year and ending on July 31 of the next succeeding year, or (c) 125% of average annual Lease Payments. The initial Reserve Requirement as of the Closing Date is $2,179, On the Closing Date, the Reserve Fund Surety Bond will be credited to the Reserve Fund in satisfaction of the Reserve Requirement. Securities Depositories means The Depository Trust Company, 55 Water Street, 50th Floor, New York, NY , Fax (212) ; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the District may designate in a written request of the District delivered to the Trustee. Site means the land described as such in Exhibit A attached to the Lease Agreement, commonly known as Sierra Vista Elementary School and Hemlock Elementary School. Site Lease means the Site Lease, dated as of May 1, 2016, by and between the District as lessor and the Corporation as lessee of the Site, as originally executed or as thereafter amended pursuant to any duly authorized and executed amendments thereto. Special Counsel means (a) Jones Hall, A Professional Law Corporation, or (b) any other attorney or firm of attorneys of nationally recognized expertise with respect to legal matters relating to obligations the interest on which is excludable from gross income pursuant to Section 103 of the Code. "S&P" means Standard & Poor's Ratings Services, a Standard & Poor s Financial Services LLC business, and its successors and assigns. Term of the Lease Agreement means the time during which the Lease Agreement is in effect, as provided therein. Trust Agreement means the Trust Agreement, dated as of March 1, 2016, by and among, the District, the Corporation and the Trustee. Trustee means Wilmington Trust, National Association, or any successor thereto acting as Trustee pursuant to the Trust Agreement. A-6

83 2006 Certificates means 2006 Certificates of Participation executed and delivered in the aggregate principal amount of $5,320,000 and representing interests in lease payments due under the 2006 Lease Lease means that certain Lease Agreement, dated as of August 1, 2006, between the Corporation, as lessor, and the District, as lessee, relating to the 2006 Certificates. Underwriter means O Connor & Company Securities, Inc., as original purchaser of the Certificates. SITE LEASE Under the Site Lease, the District leases the Leased Property to the Corporation, to enable the Corporation to sublease the Leased Property back to the District under the Lease Agreement. The term of the Site Lease is coterminous with the term of the Lease Agreement. Lease of the Leased Property; Term THE LEASE AGREEMENT The Corporation leases the Leased Property to the District pursuant to the Lease Agreement. The Lease Agreement commences on the date of recordation of the Lease Agreement and terminates on August 1, 2028, or such earlier or later date on which the Lease Agreement shall be discharged pursuant to and in accordance the Lease Agreement, but under any circumstances not later than August 1, 2038, which is ten years following the final maturity date of the Certificates. Substitution of Leased Property The District, upon the prior written consent of the Certificate Insurer, is granted in the Lease Agreement the option at any time and from time to time during the term of the Lease Agreement, to substitute other land, facilities, improvements or other property ( Substitute Leased Property ) for the Leased Property or any portion thereof (the Former Leased Property ), provided that the District shall satisfy all of the following conditions precedent: (a) The District shall notify each rating agency then rating the Certificates in writing of such substitution; (b) The District shall take all actions and shall execute all documents required to subject such Substitute Leased Property to the terms and provisions of the Lease Agreement, including the filing with the Trustee an amended Exhibit A and an amended Exhibit B to the Lease Agreement, which adds thereto a description of such Substitute Leased Property and deletes therefrom the description of such Former Leased Property; (c) The District shall certify in writing to the Corporation and the Trustee that the estimated fair market value and the estimated fair rental value of such Substitute Leased Property are at least equal to the estimated fair market value A-7

84 and the estimated fair rental value, respectively, of such Former Leased Property; (d) The District shall certify in writing to the Corporation and the Trustee that such Substitute Leased Property serves the public purposes of the District and constitutes property which the District is permitted to lease under the laws of the State of California and that no prior liens exist on such Substitute Leased Property; (e) The District shall certify in writing to the Corporation and the Trustee that the estimated useful life of such Substitute Leased Property at least extends to the date on which the final Lease Payment becomes due and payable under the Lease Agreement; (f) The District shall obtain a CLTA policy of title insurance meeting the requirements of the Lease Agreement with respect to such Substitute Leased Property; (g) The Substitute Leased Property shall not cause the District to violate any of its covenants, representations and warranties made in the Lease Agreement or in the Trust Agreement. The District shall not be entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of such substitution. Lease Payments; Abatement Lease Payments. The District agrees to pay semiannual Lease Payments, subject to abatement as described below, as the rental for the use and occupancy of the Leased Property. On each Lease Payment Date, the District is obligated to deposit with the Trustee the full amount of the Lease Payments coming due and payable on such Interest Payment Date, to the extent required to be paid by the District under the Lease Agreement. Any amount held in the Lease Payment Fund on any Lease Payment Date (other than amounts resulting from the prepayment of the Lease Payments in part but not in whole pursuant to the Lease Agreement and other than amounts required for payment of past due principal or interest represented by any Certificates not presented for payment) shall be credited towards the Lease Payment then required to be paid thereunder; and no Lease Payment need be deposited with the Trustee on any Lease Payment Date if the amounts then held in the Lease Payment Fund are at least equal to the Lease Payment then required to be deposited with the Trustee. The Lease Payments payable in any Fiscal Year shall be for the use of the Leased Property during such Fiscal Year. The District agrees to take such action as may be necessary to include all Lease Payments coming due under the Lease Agreement in its annual budgets during the term of the Lease Agreement and to make the necessary annual appropriations for all such Lease Payments. Additional Payments. In addition to the Lease Payments, the District shall pay when due all costs and expenses incurred by the Corporation to comply with the provisions of the Trust Agreement (collectively, Additional Payments ), including without limitation all Costs of Issuance (to the extent not paid from amounts on deposit in the Costs of Issuance Fund), A-8

85 annual compensation due to the Trustee, all of its reasonable costs payable as a result of the performance of and compliance with its duties under the Trust Agreement and all other amounts due to the Trustee pursuant to the Trust Agreement and all amounts due to the Certificate Insurer that do not constitute payment of Lease Payments, including but not limited to amounts due under the Insurance Agreement which shall be payable no later than twelve months after a draw has been made on the Reserve Fund Surety Bond, and all costs and expenses of attorneys, auditors, engineers and accountants. Such costs and expenses shall be payable as additional amounts of rental under the Lease Agreement in consideration of the right of the District to the use and occupancy of the Leased Property. The District shall be obligated to pay, as an additional lease payment, to the Trustee for deposit to the Debt Service Reserve Fund an amount equal to the Reserve Fund Requirement under the Trust Agreement, including any amounts required to repay draws and policy costs under the Reserve Fund Surety Bond. Termination or Abatement Due to Eminent Domain. If the Leased Property shall be taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the Term of the Lease Agreement shall cease with respect thereto as of the day possession shall be so taken. If less than all of the Leased Property shall be taken permanently, or if the Leased Property shall be taken temporarily, under the power of eminent domain, (a) the Lease Agreement shall continue in full force and effect with respect thereto and shall not be terminated by virtue of such taking and the parties waive the benefit of any law to the contrary, and (b) there shall be a partial abatement of Lease Payments allocated thereto, in an amount to be agreed upon by the District and the Corporation such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portions of the Leased Property. Notwithstanding the foregoing, there shall be no abatement of Lease Payments as described above to the extent that amounts in the Reserve Fund are available to pay Lease Payments which would otherwise be abated as described above, it being declared in the Lease Agreement that such proceeds and amounts constitute a special fund for the payment of the Lease Payments. Abatement Due to Damage or Destruction. The amount of Lease Payments will be abated under the Lease Agreement during any period in which by reason of damage or destruction (other than by eminent domain which is described above) there is substantial interference with the use and occupancy by the District of the Leased Property or any portion thereof. The parties agree that the amount of Lease Payments under such circumstances shall not be less than the amount of the Lease Payments required to pay principal and interest with respect to the Certificates, as scheduled, unless such unpaid amounts are determined, to be greater than the fair rental value of the portions of the Leased Property not damaged or destroyed (giving due consideration to the factors identified in the Lease Agreement, based on the opinion of an MAI appraiser with expertise in valuing such properties or other appropriate method of valuation, in which event the Lease Payments shall be abated such that they represent said fair rental value. Such abatement shall continue for the period commencing with such damage or destruction and ending with the substantial completion of the work of repair or reconstruction. In the event of any such damage or destruction, the Lease Agreement shall continue in full force and effect and the District waives any right to terminate the Lease Agreement by virtue of any such damage and destruction. Notwithstanding the foregoing, there shall be no abatement of Lease Payments to the extent that the proceeds of hazard insurance, rental interruption insurance or amounts in the Reserve Fund are available to pay Lease Payments which would otherwise be abated under the Lease Agreement, it being declared A-9

86 under the Lease Agreement that such proceeds and amounts constitute a special fund for the payment of the Lease Payments. Calculation of Lease Payments in Event of Abatement. As provided in the Lease Agreement, Lease Payments payable in any Certificate Year shall be for the use of the Leased Property during such Certificate Year, and abatement of Lease Payments shall also be calculated on a Certificate Year basis, taking into account the entire twelve-month period of such Certificate Year, within which the damage or destruction occurs. If at any time it shall be necessary to calculate abatement of Lease Payments, for purposes of calculation in any Certificate Year, the total amount of Lease Payments payable within such twelve-month period shall be divided by 365 days. The maximum amount of daily abatement of Lease Payments for such twelve-month period shall not exceed the result of such calculation. Upon cessation of the abatement event, the Leased Property shall be appraised to determine its current fair rental value. If such value has increased since the closing date, base rental payments shall be increased for the remaining term to reflect such increase so that amounts abated are recouped to the extent permissible pursuant to applicable law. Title At all times during the term of the Lease Agreement, the District will hold title to the Leased Property, subject to the Permitted Encumbrances, and any and all additions which comprise fixtures, repairs, replacements or modifications thereto. Maintenance, Utilities, Taxes and Modifications Throughout the Term of the Lease Agreement, as part of the consideration for the rental of the Leased Property, all improvement, repair and maintenance of the Leased Property will be the responsibility of the District, and the District will pay for or otherwise arrange for the payment of all utility services supplied to the Leased Property, which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, water and all other utility services, and shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Leased Property resulting from ordinary wear and tear or want of care on the part of the District or any assignee or sublessee thereof. In exchange for the Lease Payments, the Corporation agrees to provide only the Leased Property. The District waives the benefits of subsections 1 and 2 of Section 1932, Section 1933(4) and Sections 1941 and 1942 of the California Civil Code, but such waiver shall not limit any of the rights of the District under the terms of the Lease Agreement. The District also agrees pay or cause to be paid all taxes and assessments of any type or nature, if any, charged to the Corporation or the District affecting the Leased Property or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the District will be obligated to pay only such installments as are required to be paid during the Term of the Lease Agreement as and when the same become due. The District will, at its own expense, have the right to remodel the Leased Property, or to make additions, modifications and improvements thereto. All additions, modifications and improvements to the Leased Property shall thereafter comprise part thereof and be subject to the provisions of the Lease Agreement. Such additions, modifications and improvements shall not in any way damage the Leased Property, or cause the Leased Property to be used for A-10

87 purposes other than those authorized under the provisions of state and federal law; and the Leased Property, upon completion of any additions, modifications and improvements made thereto, shall be of a value which is not substantially less than the value thereof immediately prior to the making of such additions, modifications and improvements. The District will not permit any mechanic's or other lien to be established or remain against the Leased Property for labor or materials furnished in connection with any remodeling, additions, modifications, improvements, repairs, renewals or replacements made by the District; provided that if any such lien is established and the District shall first notify or cause to be notified the Corporation of the District's intention to do so, the District may in good faith contest any lien filed or established against the Leased Property, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Corporation with full security against any loss or forfeiture which might arise from the nonpayment of any such item, in form satisfactory to the Corporation. The Corporation will cooperate fully in any such contest, upon the request and at the expense of the District. Insurance The Lease Agreement requires the District to maintain or cause to be maintained the following insurance against risk of physical damage to the Leased Property and other risks for the protection of the Certificate Owners, the Corporation and the Trustee: Public Liability and Property Damage Insurance. The District will maintain or cause to be maintained, throughout the Term of the Lease Agreement, a standard comprehensive general insurance policy or policies in protection of the Corporation, District, and their respective members, officers, agents, employees and assigns. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Leased Property. Such policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event (subject to a deductible of not to exceed $250,000), and in a minimum amount of $150,000 (subject to a deductible of not to exceed $50,000) for damage to property resulting form each accident or event. Such insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks, subject to a deductible of not to exceed $250,000. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the District, and may be maintained in whole or in part in the form of self-insurance by the District, subject to the provisions of the Lease Agreement, or in the form of the participation by the District in a joint powers agency or other program providing pooled insurance. The Net Proceeds of such liability insurance shall be applied by the District toward extinguishment or satisfaction of the liability with respect to which paid. Casualty Insurance. The District will procure and maintain, or cause to be procured and maintained, throughout the Term of the Lease Agreement, insurance against loss or damage Facilities by fire and lightning, with extended coverage and vandalism and malicious mischief insurance., Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance. Such insurance shall be in an aggregate amount of least equal to the greater of (a) one hundred percent (100%) of the replacement cost of the Facilities, or (b) aggregate principal amount of the Outstanding Certificates. All policies of such insurance may be subject to standard deductibles, and shall be provided by an insurance company rated A or better by S&P, unless waived by the California Insurer. Such insurance A-11

88 may be maintained as part of or in conjunction with any other insurance coverage carried by the District, and may be maintained in whole or in part in the form of self-insurance by the District, subject to the provisions of the Lease Agreement, or in the form of the participation by the District in a joint powers agency or other program providing pooled insurance. The Net Proceeds of any such insurance will be deposited by the Trustee in the Insurance and Condemnation Fund and applied at the election and direction of the District either to the replacement, repair, restoration, modification or improvement of the damaged Leased Property or to the prepayment of the Lease Payments and the corresponding prepayment of outstanding Certificates. Rental Interruption Insurance. The District will procure and maintain, or cause to be maintained, throughout the Term of the Lease Agreement, rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of the Leased Property, leased under the Lease Agreement as a result of any of the hazards covered in the casualty insurance required under the Lease Agreement as described in the immediately preceding paragraph, in an amount at least equal to the maximum Lease Payments allocable to such improvements (if any) coming due and payable during a 24-month period. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the District, and may be maintained in whole or in part in the form of the participation by the District in a joint powers agency or other program providing pooled insurance, but shall not be self-insured. The Net Proceeds of such insurance, if any, shall be paid to the Trustee and deposited in the Lease Payment Fund, and shall be credited towards the payment of the Lease Payments as the same become due and payable. Title Insurance. On the Closing Date, the District will, at its expense, (a) cause this Lease or a memorandum thereof in form and substance approved by Special Counsel, and the Assignment Agreement to be recorded in the office of the San Diego County Recorder with respect to the Site, and (b) obtain a CLTA title insurance policy insuring the District's leasehold estate under the Lease Agreement in the Leased Property, subject only to Permitted Encumbrances, in an amount at least equal to the aggregate principal amount of the Certificates. A copy of such policy shall be delivered to the Certificate Insurer. All Net Proceeds received under any such title insurance policy shall be deposited with the Trustee in the Lease Payment Fund and shall be credited towards the prepayment of the remaining Lease Payments pursuant to the Lease Agreement. Assignment; Subleases The Corporation has assigned certain of its rights under the Lease Agreement to the Trustee pursuant to the Assignment Agreement. The District may not assign any of its rights in the Lease Agreement, but may sublease all or a portion of the Leased Property only under the conditions contained in the Lease Agreement, including the condition that such sublease not cause the interest component of the Lease Payments to become subject to federal or State of California personal income taxes. A-12

89 Amendment of Lease The Corporation and the District may at any time amend or modify any of the provisions of the Lease Agreement, but only (a) with the prior written consent of the Certificate Insurer and the Owners of a majority in aggregate principal amount of the Outstanding Certificates; or (b) with the consent of the Certificate Insurer, but without the consent of the Trustee or any of the Certificate Owners, but only if such amendment or modification is for any one or more of the following purposes- (i) to add to the covenants and agreements of the District contained in the Lease Agreement, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power therein reserved to or conferred upon the District, or (ii) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained therein, or in any other respect whatsoever as the Corporation and the District may deem necessary or desirable, provided that, in the opinion of Special Counsel, such modifications or amendments do not materially adversely affect the interests of the Owners of the Certificates; (iii) to amend any provision thereof relating to the Code, to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income of interest represented by any of the Certificates under the Code, in the opinion of Special Counsel; (iv) to amend the description of the Leased Property to reflect accurately the property originally intended to be included therein, or in connection with any substitution of the Leased Property as described above; or (v) to obligate the District to pay additional amounts of rental for the use and occupancy of the Leased Property, provided that (1) such additional amounts of rental do not cause the total rental payments made by the District under the Lease Agreement to exceed the fair rental value of the Leased Property, as set forth in a certificate of the District filed with the Trustee and the Corporation, (2) the District has obtained and filed with the Trustee and the Corporation an appraisal of the Leased Property showing that the estimated fair market value thereof is not less than the aggregate unpaid principal components of the Lease Payments and the aggregate principal components of such additional amounts of rental, (3) the Certificate Insurer consents to such amendment, and (4) such additional amounts of rental are pledged or assigned for the payment of any bonds, notes, leases or other obligations the proceeds of which will be applied to finance the construction or acquisition of land, facilities or other improvements which are authorized pursuant to the Education Code of the State of California. Events of Default Each of the following constitutes an event of default under the Lease Agreement: A-13

90 Remedies on Default (a) Failure by the District to pay any Lease Payment or other payment required to be paid under the Lease Agreement at the time specified in the Lease Agreement. (b) Failure by the District to observe and perform any covenant, condition or agreement on its part to be observed or performed in the Lease Agreement or in the Trust Agreement, other than as referred to in the preceding paragraph (a), for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the District by the Corporation, the Certificate Insurer or the Trustee; provided, however, that if in the reasonable opinion of the District the failure stated in the notice can be corrected, but not within such thirty (30) day period, such failure will not constitute an Event of Default if the consent of the Certificate Insurer is obtained and the District commences to cure such failure within such thirty (30) day period and thereafter diligently and in good faith shall cure such failure in a reasonable period of time. (c) The filing by the District of a voluntary petition in bankruptcy, or failure by the District promptly to lift any execution, garnishment or attachment, or adjudication of the District as a bankrupt, or assignment by the District for the benefit of creditors, or the entry by the District into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the District in any proceedings instituted under the provisions of the Federal Bankruptcy Code, as amended, or under any similar acts which may be enacted in the future. Whenever any Event of Default shall have happened and be continuing, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to the Lease Agreement; provided, however, that notwithstanding anything therein or in the Trust Agreement to the contrary, there shall be no right under any circumstances to accelerate the Lease Payments or otherwise declare any Lease Payments not then in default to be immediately due and payable. The provisions of the Lease Agreement and the duties of the District and of its board, officers or employees shall be enforceable by the Corporation or its assignee by mandamus or other appropriate suit, action or proceeding in any court of competent jurisdiction. Without limiting the generality of the foregoing, the Corporation and its assignee shall have the right to bring the following actions; however the Certificate Insurer shall have the right to control all remedies for default under both the Lease Agreement and the Trust Agreement: (1) Accounting. By action or suit in equity to require the District and its board, officers and employees and its assigns to account as the trustee of an express trust. (2) Injunction. By action or suit in equity to enjoin any acts or things which may be unlawful or in violation of the rights of the Corporation or its assignee. (3) Mandamus. By mandamus or other suit, action or proceeding at law or in equity to enforce the Corporation's or its assignee's rights against the District (and its board, officers and employees) and to compel the District to perform and carry out its A-14

91 duties and obligations under the law and its covenants and agreements with the Corporation as provided therein. (4) Re-Let; Termination. The Corporation shall have the right to re-enter and relet the Leased Property and terminate the Lease Agreement. Notwithstanding any other provisions of the Lease Agreement, the Certificate Insurer shall have the right to direct the remedies to be taken upon any Event of Default thereunder, and the Certificate Insurer's consent shall be required for remedial action taken by the Trustee or the Corporation hereunder. Trustee TRUST AGREEMENT The Trustee is appointed pursuant to the Trust Agreement and is authorized to prepare, execute and deliver the Certificates thereunder, and to act as a depository of amounts held thereunder. The Trustee is required to make deposits into and withdrawals from funds, and invest amounts held under the Trust Agreement in accordance with the District's instructions. Funds The Trust Agreement creates the Lease Payment Fund, the Reserve Fund and the Insurance and Condemnation Fund to be held in trust by the Trustee. Lease Payment Fund. There shall be deposited in the Lease Payment Fund all Lease Payments received by the Trustee, including any moneys received by the Trustee for deposit therein pursuant to the Trust Agreement or the Lease Agreement. Moneys on deposit in the Lease Payment Fund will be used to pay principal and interest represented by the Certificates. Any earnings on investment of moneys in the Lease Payment Fund will remain therein and will be credited towards payment of the next Lease Payments. Any surplus remaining in the Lease Payment Fund after the payment of all Certificates, or provision for their payment has been made, will be paid to the District. Reserve Fund. The Trustee shall establish a special fund designated as the Reserve Fund to be held by the Trustee in trust for the benefit of the Owners of the Certificates, and applied solely as provided in the Trust Agreement. Moneys in the Reserve Fund shall be held in trust as a reserve for the payment when due of the Lease Payments on behalf of the District. Deposit and Application of Net Proceeds of Eminent Domain Award. If all or any part of the Leased Property shall be taken by eminent domain proceedings (or sold to a government threatening to exercise the power of eminent domain) the Net Proceeds therefrom shall be deposited with the Trustee in the Insurance and Condemnation Fund, pursuant to the Lease Agreement, and shall be applied and disbursed by the Trustee as follows: (a) If the District has given written notice to the Trustee of its determination that (i) such eminent domain proceedings have not materially affected the interest of the District in the Leased Property, or the ability of the District to meet any of its financial obligations under the Lease Agreement, and (ii) that such proceeds are not needed for repair, replacement or rehabilitation of A-15

92 the Leased Property, and the District has given written notice to the Trustee of such determination, the Trustee shall transfer such proceeds to the Lease Payment Fund to be credited towards the payment of the Lease Payments as the same become due and payable. (b) If the District has given written notice to the Trustee of its determination that (i) such eminent domain proceedings have not materially affected the interest of the District in the Leased Property, or the ability of the District to meet any of its financial obligations under the Lease, and (ii) such proceeds are needed for repair, replacement or rehabilitation of the Leased Property, the Trustee shall pay to the District, or to its order, from said proceeds such amounts as the District may expend for such repair or rehabilitation, upon the filing of requisitions of the District Representative meeting the requirements of the Trust Agreement. Each such written requisition of the District shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. (c) If (i) less than all of the Leased Property, shall have been taken in such eminent domain proceedings or sold to a government threatening the use of eminent domain powers, and if the District has given written notice to the Trustee of its determination that such eminent domain proceedings have materially affected the interest of the District in the Leased Property, or the ability of the District to meet any of its financial obligations under the Lease, or (ii) all of the Leased Property shall have been taken in such eminent domain proceedings, then the Trustee shall transfer such proceeds to the Lease Payment Fund to be credited toward the prepayment of the Lease Payments pursuant to the Lease Agreement and applied to the corresponding prepayment of Certificates in the manner provided in the Trust Agreement. In making any such determination whether to repair, replace or rehabilitate the Leased Property as described above, the District may obtain, but shall not be required to obtain, at its expense, the report of an independent engineer or other independent professional consultant. Any such determination by the District shall be final. Investment of Funds; Valuation of Investments Upon the written request of the District filed with the Trustee from time to time, moneys held by the Trustee in any fund or account under the Trust Agreement shall be invested and reinvested by the Trustee in Permitted Investments selected by the District and specified in such written request of the District, which mature not later than the date such moneys are required or estimated by the District to be required to be expended thereunder. Each written investment request of the District shall certify that such investments are Permitted Investments as required by the Trust Agreement. In the absence of any written request of the District directing the investment of uninvested moneys held by the Trustee thereunder, the Trustee shall invest such moneys in Permitted Investments specified in the letter of authorization and direction executed by the District to the Trustee. If no specific money market fund has been specified by the District, the Trustee shall make a request to the District for investment directions. Such moneys shall be held in cash, uninvested, until specific investment directions are provided by the District to the Trustee. Such investments, if registrable, shall be registered in the name of the Trustee, as trustee or in the name of its nominee, and shall be held by the Trustee. The Trustee may purchase or sell to itself or any affiliate, as principal or agent, investments authorized by the A-16

93 Trust Agreement. Such investments and reinvestments shall be made giving full consideration to the time at which funds are required to be available. The Trustee may act as purchaser or agent in the making or disposing of any investment. Whenever in the Trust Agreement any moneys are required to be transferred by the District to the Trustee, such transfer may be accomplished by transferring a like amount of Permitted Investments. For purposes of acquiring any investments thereunder, the Trustee may commingle funds held by it under the Trust Agreement upon the written request of the District. Events of Default and Remedies of Certificate Owners Notice of Default; Remedies. If an Event of Default occurs of which the Trustee has been given or is deemed to have notice, then the Trustee shall promptly give written notice thereof to the Owner of each Outstanding Certificate within thirty days by first class mail, postage prepaid, unless such Event of Default shall have been cured before the giving of such notice; provided, however that unless such Event of Default consists of the failure by the District to make any Lease Payment when due, the Trustee may elect not to give such notice to the Certificate Owners if and so long as the Trustee in good faith determines that such Event of Default does not materially adversely affect the interests of the Certificate Owners or that it is otherwise not in the best interests of the Certificate Owners to give such notice. If an Event of Default shall happen, then and in each and every such case during the continuance of such Event of Default, the Trustee may, at the written direction of the Owners of a majority in aggregate value of the Certificates then Outstanding after being indemnified to its satisfaction shall, exercise any and all remedies available pursuant to law or granted pursuant to the Lease Agreement, including but not limited to mandamus; provided, however, that notwithstanding anything in the Trust Agreement or in the Lease Agreement to the contrary, there shall be no right under any circumstances to accelerate the maturities of the Certificates or otherwise to declare any Lease Payment not then in default to be immediately due and payable. Application of Funds. Any amounts collected by the Trustee in an event of default are required to be applied, first, to the payment of the fees and expenses of the Trustee incurred in connection with such event of default, and, second, to the payment of the whole amount of the amount then owing and unpaid with respect to the Certificates, together with interest on the overdue value and installments of interest at the rate of 10% per annum as set forth in the Lease (provided that such interest on overdue installments shall be paid only to the extent funds are available therefor following payment of value and interest on overdue principal, as aforesaid, and in case such moneys shall be insufficient to pay in full the whole amount so owing and unpaid with respect to the Certificates, then to the payment of such value without preference or priority of principal over interest, or of interest over principal, or of any installment of interest over any other installment of interest, ratably to the aggregate of such principal and interest. Upon an event of default, the Trustee has a first lien on the amounts held under the Trust Agreement for its fees, charges and expenses. Institution of Legal Proceedings. If one or more Events of Default shall happen and be continuing, the Trustee in its discretion may, and upon the written direction of the Owners of a majority in principal amount of the Certificates then Outstanding, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of the Owners of Certificates by a suit in equity or action at law, either for the specific performance of any covenant or agreement contained in the Trust Agreement, or in aid of the execution of any power granted in the Trust Agreement, or by mandamus or other appropriate proceeding for the A-17

94 enforcement of any other legal or equitable remedy as the Trustee shall deem most effectual in support of any of its rights or duties under the Trust Agreement. Non-waiver. Nothing in the Trust Agreement or in the Certificates, shall affect or impair the obligation of the District, which is absolute and unconditional, to pay or prepay the Lease Payments as provided in the Lease. No delay or omission of the Trustee or of any Owner of any of the Certificates to exercise any right or power arising upon the happening of any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein, and every power and remedy given by the Trust Agreement Trustee or to the Owners of Certificates may be exercised from time to time and as often as shall be deemed expedient by the Trustee or the Certificate Owners. Remedies Not Exclusive. No remedy conferred upon or reserved to the Trustee or to the Certificate Owners is intended to be exclusive of any other remedy, and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Trust Agreement or thereafter existing, at law or in equity or by statute or otherwise. In the event any remedial action shall be discontinued or abandoned, the Trustee and the Certificate Owners shall be restored to their former positions. Amendment of Trust Agreement The Trust Agreement may be amended by agreement among the parties thereto without the consent of the Owners of the Certificates, but only with the written consent of the Certificate Insurer, but only (a) to add to the covenants and agreements of any party, other covenants to be observed, or to surrender any right or power reserved to the Corporation or the District, (b) to cure, correct or supplement any ambiguous or defective provision contained in the Trust Agreement, (c) in any respect whatsoever in regard to questions arising thereunder, as the parties to the Trust Agreement may deem necessary or desirable and which shall not, in the opinion of Special Counsel, materially adversely affect the interests of the Owners of the Certificates, (d) for the purpose of conforming to or accommodating any amendment to the Lease Agreement which is permitted to be made thereto as described above, (e) to facilitate any amendment to the Lease which is permitted to be made thereto, or (f) if and to the extent permitted in the opinion of Special Counsel filed with the Trustee, the District and the Corporation, to make such additions, deletions or modifications as may be necessary or desirable to assure exemption from federal income taxation of interest on the Certificates. Any other amendment requires the approval of the Owners of a majority in aggregate principal amount of the Certificates then outstanding, with the written consent of the Certificate Insurer, provided that no such amendment may (a) extend or have the effect of extending the fixed maturity of any Certificate or reducing the interest rate represented thereby or extending the time of payment of interest, or reducing the amount of principal represented thereby or reducing any premium payable upon the prepayment thereof, without the express consent of the Owner of such Certificate, or (b) reduce or have the effect of reducing the percentage of Certificates required for the affirmative vote or written consent to an amendment or modification of the Trust Agreement, or (c) modify any of the rights or obligations of the Trustee without its written assent thereto. Defeasance If and when the obligations represented by any Outstanding Certificates shall be paid and discharged in any one or more of the following ways: A-18

95 (a) by well and truly paying or causing to be paid the principal of and interest and prepayment premiums (if any) represented by such Certificates Outstanding, as and when the same become due and payable; or (b) by depositing with the Trustee or any other fiduciary, under an escrow deposit and trust agreement which is acceptable in form and substance to the Certificate Insurer, security for the payment of Lease Payments relating to such Certificates as more particularly described in the Lease, said security to be held by the Trustee on behalf of the District to be applied by the Trustee or by such other fiduciary to pay or prepay such Lease Payments as the same become due, pursuant to the Lease. and if such Certificates are to be prepaid prior to the maturity thereof notice of such prepayment shall have been mailed pursuant to the Trust Agreement or provision satisfactory to the Trustee shall have been made for the mailing of such notice, then, notwithstanding that such Certificates shall not have been surrendered for payment, all rights thereunder of the Owners of such Certificates and all obligations of the Corporation, the Trustee and the District with respect to such Certificates shall cease and terminate, except only the obligation of the Trustee to pay or cause to be paid, from Lease Payments paid by or on behalf of the District from funds so deposited, all sums represented thereby when due. ASSIGNMENT AGREEMENT The Corporation and the Trustee will enter into the Assignment Agreement under which the Corporation assigns and sets over to the Trustee, for the benefit of the Owners of the Certificates, all of the Corporation's rights under the Lease Agreement (subject to certain exceptions), including the right of the Corporation to receive and collect Lease Payments, its right to receive and collect proceeds of condemnation and insurance awards and the right to exercise rights and remedies of the Corporation in the Lease Agreement to enforce payments of amounts thereunder. The Trustee accepts such assignment for the purpose of securing such payments due to and rights of the Owners of the Certificates, subject to the provisions of the Trust Agreement. A-19

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97 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2015 B-1

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181 APPENDIX C GENERAL INFORMATION ABOUT KINGS COUNTY The following information about Kings County (the County ) is included only for the purpose of supplying general information regarding the area of the District. The Refunding Certificates are not a debt of the County, the State of California (the State ) or any of its political subdivisions (other than the District), and none of the City, the County, the State or any of its political subdivisions (other than the District) is liable therefor. General GENERAL INFORMATION ABOUT KINGS COUNTY Kings County is located in the south central San Joaquin Valley. Kings County is home to the Lemoore Naval Air Station and three California State Correctional facilities, two in Corcoran and one in Avenal. The county has four incorporated communities: Lemoore, Hanford, Avenal, and Corcoran. Kings County, which covers an area of 1,396 square miles in central California, has its County seat in the City of Hanford. The population of Kings County is over 152,000, located in the four incorporated cities and in unincorporated parts of Kings County. The major employers of Kings County are the Avenal State Prison, the Corcoran State Prison and the Lemoore Naval Air Station. Agriculture is the major industry in Kings County with approximately 761,266 acres out of a total of 893,440 total Kings County acreage, dedicated or available for farming. The Santa Fe Railroad, Southern Pacific Railroad, and San Joaquin Railroad serve the Kings County. Population The table below shows population estimates for the cities in Kings County for the last five years, as of January 1. Kings County Population Estimates Calendar Years 2011 through Avenal 15,055 14,841 14,164 13,212 13,159 Corcoran 24,059 23,559 23,069 22,479 22,084 Hanford 54,658 54,860 55,122 55,234 55,804 Lemoore 24,701 24,695 25,096 25,225 25,325 Balance of County 34,060 33,819 33,676 33,792 33,349 Kings County Total 152, , , , ,721 Source: State Department of Finance, Demographic Research. C-1

182 Employment and Industry The District is included in the Hanford-Corcoran Metropolitan Statistical Area ( MSA ). The tables below provide information about employment by industry type for Kings County for calendar years 2010 through Annual figures are not yet available for the calendar year The unemployment rate in the Kings County was 10.9% in December 2015, up from a revised 10.3% in November 2015, and below the year-ago estimate of 11.7%. This compares with an unadjusted unemployment rate of 5.8% for California and 4.8% for the nation during the same period. HANFORD-CORCORAN MSA (Kings County) Annual Average Civilian Labor Force, Employment and Unemployment, Unemployment by Industry (March 2014 Benchmark) Civilian Labor Force (1) 59,300 59,000 58,900 58,100 57,400 Employment 49,800 49,600 50,100 50,300 50,500 Unemployment 9,600 9,400 8,800 7,800 6,900 Unemployment Rate 16.1% 15.9% 14.9% 13.5% 12.1% Wage and Salary Employment: (2) Agriculture 6,600 6,200 6,500 6,900 6,600 Mining and Logging Manufacturing 4,100 4,300 4,400 4,500 4,600 Wholesale Trade Retail Trade 3,900 4,000 4,000 4,100 4,200 Trans., Warehousing, Utilities Information Financial Activities 900 1,000 1, Professional and Business Services 1,700 1,200 1,300 1,300 1,400 Educational and Health Services 5,200 5,300 5,400 5,600 5,900 Leisure and Hospitality 2,700 2,800 2,800 2,900 3,000 Other Services Federal Government 1,200 1,200 1,100 1,100 1,100 State Government 6,000 5,900 5,700 5,400 5,300 Local Government 7,800 7,700 7,800 7,800 7,800 Total All Industries (3) 42,900 42,500 42,900 43,600 44,100 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (3) Totals may not add due to rounding. Source: State of California Employment Development Department. C-2

183 Largest Employers The following table shows the major employers in Kings County as of January 2016, in alphabetical order. KINGS COUNTY Major Employers - January 2016 Employer Name Location Industry Adventist Medical Center Hanford Hanford Hospitals Badasci & Wood Transport Lemoore Trucking California State Prison Corcoran State Govt-Correctional Institutions California State Prison Corcoran State Govt-Correctional Institutions Central Valley Meat Co Inc. Hanford Meat Packers (Mfrs) Del Monte Foods Hanford Canned Specialties (Mfrs) Hanford Comm Medical Center Hanford Health Services Hanford Regional Healthcare Hanford Physicians & Surgeons J G Boswell Co Corcoran Manufacturers Kings County Admin Hanford Government Offices-County Kings County Government Center Hanford Government Offices-County Kmart Lemoore Department Stores Lemoore High School Lemoore Schools Leprino Foods Co Lemoore Cheese Processors (Mfrs) Leprino Foods Co Lemoore Cheese Processors (Mfrs) Marquez Brothers Intl Inc. Hanford Mexican Food Products-Wholesale Olam Spices & Vegetables Hanford Agricultural Products Tachi Palace Hotel & Casino Lemoore Casinos US Naval Air Station Lemoore Federal Government-National Security US Naval Hospital Lemoore Hospitals Walmart Hanford Department Stores Walmart Distribution Center Hanford Distribution Centers (Whls) Walmart Supercenter Hanford Department Stores Warmerdam Packing Hanford Fruits & Vegetables-Growers & Shippers West Hills College-Lemoore Lemoore Schools-Universities & Colleges Academic Source: State of California Employment Development Department, extracted from The America's Labor Market Information System (ALMIS) Employer Database, st Edition. C-3

184 Effective Buying Income Effective Buying Income is defined as personal income less personal tax and nontax payments, a number often referred to as disposable or after-tax income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor s income, rental income (which includes imputed rental income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as disposable personal income. The following table summarizes the total household effective buying income for Kings County, the State and the United States for the period 2010 through Effective Buying Income data is not yet available for calendar year KINGS COUNTY, STATE OF CALIFORNIA AND THE UNITED STATES Effective Buying Income Median Household 2010 through 2014 Year Area Total Effective Buying Income (000 s Omitted) Median Household Effective Buying Income 2010 Kings County $1,953,315 $38,319 California 801,393,028 47,177 United States 6,365,020,076 41, Kings County $2,041,173 $38,001 California 814,578,458 47,062 United States 6,438,704,664 41, Kings County $2,053,198 $39,204 California 864,088,828 47,307 United States 6,737,867,730 41, Kings County $2,241,710 $43,288 California 858,676,636 48,340 United States 6,982,757,379 43, Kings County $2,225,910 $42,684 California 901,189,699 50,072 United States 7,357,153,421 45,448 Source: The Nielsen Company (US), Inc. C-4

185 Commercial Activity Summaries of historic taxable sales within Kings County during the past five years in which data is available are shown in the following tables. Figures are not yet available for calendar years 2014 or Total taxable sales during the first three quarters of calendar year 2014 in Kings County were reported to be $1,17 billion, a 7.1% increase over the total taxable sales of $1.09 reported during the first three quarters of calendar year KINGS COUNTY Annual Taxable Transactions Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands) Retail Stores Total All Outlets Number of Permits Taxable Transactions Number of Permits Taxable Transactions ,333 $787,342 1,998 $1,174, , ,260 2,082 1,188, , ,423 2,139 1,324, , ,699 2,173 1,385, , ,740 2,042 1,459,712 Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). Construction Activity Provided below are the building permits and valuations for Kings County for calendar years 2010 through Annual figures are not yet available for calendar year KINGS COUNTY Calendar Years 2010 through Total Building Permit Valuations (Valuations in Thousands) Permit Valuation New Single-family $26,005.9 $18,733.1 $38,696.1 $36,406.8 $44,537.7 New Multi-family 10, , , ,758.6 Res. Alterations/Additions 5, , , , ,706.7 Total Residential 42, , , , ,003.0 New Commercial 4, , , , ,323.6 New Industrial , , , ,137.9 New Other 51, , , ,240.0 Com. Alterations/Additions 36, , , , ,727.5 Total Nonresidential 51, , , , ,429.0 New Dwelling Units Single Family Multiple Family TOTAL Source: Construction Industry Research Board, Building Permit Summary. C-5

186 Transportation Kings County. Southern Pacific Railway freight service is provided through the San Joaquin Valley Railroad. An AMTRAK passenger station is close by with stops in the Cities of Corcoran and Hanford. Kings Area Rural Transit has daily commuter service. Highway access includes Interstate 5 which connects to California Highways 198, 41 and 43. State Highways 33 and 269 run through Avenal. Airports within 30 miles include - Fresno Air Terminal for freight and passenger service, Hanford Municipal Utility Airport with 4,200 foot runway is 10 miles away. There is also one privately owned airport in Avenal and it is the home of the Central California Soaring Club. C-6

187 APPENDIX D FORM OF LEGAL OPINION [Letterhead of Jones Hall, A Professional Law Corporation] Board of Education Pioneer Union Elementary School District th Avenue Hanford, CA Re: $2,595,000 Pioneer Union Elementary School District 2016 Refunding Certificates of Participation Members of the Board of Education: We have acted as special counsel in connection with the delivery by the Pioneer Union Elementary School District (the District ), of an Amended and Restated Lease Agreement dated as of May 1, 2016 (the Lease Agreement ), between the Local Facilities Finance Corporation (the Corporation ) as lessor and the District as lessee. Under a Trust Agreement dated as of May 1, 2016 (the Trust Agreement ), among the District, the Corporation and Wilmington Trust, National Association, as trustee (the Trustee ), the Trustee has executed and delivered 2016 Refunding Certificates of Participation (Refunding Certificates of Participation Series A of 2006) in the aggregate principal amount of $2,595,000 (the Refunding Certificates ) evidencing the direct, undivided fractional interests of the owners thereof in lease payments to be made by the District under the Lease Agreement (the Lease Payments ), which have been assigned by the Corporation to the Trustee under an Assignment Agreement dated as of May 1, 2016 (the Assignment Agreement ) between the Corporation and the Trustee. We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the District contained in the Lease Agreement and the Trust Agreement, and in certified proceedings and other certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion, under existing law, as follows: 1. The District is a school district duly organized and validly existing under the Constitution and laws of the State of California with the full power to enter into the Lease Agreement and the Trust Agreement and to perform the agreements on its part contained therein. D-1

188 2. The Lease Agreement and the Trust Agreement have been duly approved by the District and constitute valid and binding obligations of the District enforceable against the District in accordance with their respective terms. 3. The Refunding Certificates have been validly executed and delivered by the Trustee under the Trust Agreement and, by virtue of the assignment made under the Assignment Agreement, the owners of the Refunding Certificates are entitled to the benefits of the Lease Agreement. 4. The portion of the Lease Payments designated as and comprising interest and received by the owners of the Refunding Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that for the purpose of computing the alternative minimum tax imposed on such corporations (as defined for federal income tax purposes), such interest is required to be taken into account in determining certain income and earnings. The Refunding Bonds are qualified tax-exempt obligations within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986, as amended (the Code ), such that in the case of certain financial institutions (within the meaning of section 265(b)(5) of the Code), a deduction is allowed for 80 percent of that portion of such financial institutions' interest expense allocable to interest payable on the Bonds. The opinions set forth in the preceding sentences are subject to the condition that the District comply with all requirements of the Code that must be satisfied subsequent to the delivery of the Lease Agreement in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The District has covenanted in the Lease Agreement and the Trust Agreement and other instruments relating to the Refunding Certificates to comply with each of such requirements. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of delivery of the Lease Agreement. We express no opinion regarding other federal tax consequences arising with respect to the ownership, sale or disposition of the Bonds, or the amount, accrual or receipt of interest represented by the Refunding Certificates. 5. The portion of the Lease Payments designated as and comprising interest and received by the owners of the Refunding Certificates is exempt from personal income taxation imposed by the State of California. The rights of the owners of the Refunding Certificates and the enforceability of the Lease Agreement, the Trust Agreement and the Assignment Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in accordance with principles of equity or otherwise in appropriate cases. Respectfully submitted, Jones Hall, A Professional Law Corporation D-2

189 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE $2,595, REFUNDING CERTIFICATES OF PARTICIPATION Evidencing the Direct, Undivided Fractional Interests of the Owners Thereof in Lease Payments to be Made by the PIONEER UNION ELEMENTARY SCHOOL DISTRICT to the Local Facilities Finance Corporation CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (this Disclosure Certificate ) is dated May 3, 2016 and is executed and delivered by the Pioneer Union Elementary School District (the District ) in connection with the execution and delivery of the captioned certificates of participation (the Refunding Certificates ). The Refunding Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of May 1, 2016 (the Trust Agreement ), by and among the District, the Local Facilities Finance Corporation and Wilmington Trust, National Association as trustee for the Refunding Certificates (the Trustee ). The District hereby covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the holders and beneficial owners of the Refunding Certificates and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth above and in the Trust Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 2, the following capitalized terms have the following meanings: Annual Report means any Annual Report provided by the District under and as described in Sections 3 and 4. Annual Report Date means the date not later than nine months after the end of each fiscal year of the District (currently June 30 th ), commencing March 31, Dissemination Agent means, initially, Isom Advisors, A Division of Urban Futures, Inc., or any successor Dissemination Agent designated in writing by the District and which has filed with the District and the Paying Agent a written acceptance of such designation. Listed Events means any of the events listed in Section 5(a). MSRB means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule. Official Statement means the final official statement executed by the District in connection with the issuance of the Refunding Certificates. E-1

190 Participating Underwriter means O Connor & Company Securities, Inc., the original underwriter of the Refunding Certificates required to comply with the Rule in connection with offering of the Refunding Certificates. Rule means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. Trustee means Wilmington Trust, National Association, or any successor thereto. Section 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing not later than March 31, 2017 with the report for the fiscal year, provide to the MSRB in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4. Not later than 15 Business Days prior to the Annual Report Date, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the District) has not received a copy of the Annual Report, the Dissemination Agent shall contact the District to determine if the District is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. The filing of the Official Statement for the Refunding Certificates shall satisfy the filing of the initial Annual Report. If the District s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the District hereunder. (b) If the District does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the District shall provide (or cause the Dissemination Agent to provide) in a timely manner to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A, with a copy to the Paying Agent and Participating Underwriter. (c) With respect to each Annual Report, the Dissemination Agent shall: (i) (ii) determine each year prior to the Annual Report Date the thenapplicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and if the Dissemination Agent is other than the District, file a report with the District certifying that the Annual Report has been provided under this Disclosure Certificate, and stating the date it was provided. E-2

191 Section 4. Content of Annual Reports. The District s Annual Report shall contain or incorporate by reference the following: (a) Audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District s audited financial statements are not available by the Annual Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) To the extent not contained in the audited financial statements filed on or before the Annual Report Date, the following information shall be included in the Annual Report: (i) (ii) (iii) (iv) (v) (vi) the most recently adopted budget, or interim report showing budgeted figures, which is available at the time of filing the Annual Report; average daily attendance in the District on an aggregate basis for the most recently completed fiscal year; pension plan contributions for the most recently completed fiscal year; a summary of the outstanding principal amounts of short-term borrowings, lease obligations and other long-term borrowings of the District for the most recently completed fiscal year; assessed valuation of taxable properties in the District for the most recently completed fiscal year; assessed valuation of properties of the top twenty taxpayers for the most recently completed fiscal year; (vii) property tax collection delinquencies for the District for the most recently completed fiscal year or if not available at the time of the filing of the Annual Report for the prior fiscal year, if available from the County, and (viii) such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. (c) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which are available to the public on the MSRB s internet web site or filed with the Securities and Exchange Commission. The District shall clearly identify each such other document so included by reference. E-3

192 Section 5. Reporting of Significant Events. (a) The District shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Refunding Certificates: (1) Principal and interest payment delinquencies. (2) Non-payment related defaults, if material. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security. (7) Modifications to rights of security holders, if material. (8) Bond calls, if material, and tender offers. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the securities, if material. (11) Rating changes. (12) Bankruptcy, insolvency, receivership or similar event of the District. (13) The consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material. (14) Appointment of a successor or additional trustee or the change of name of a trustee, if material. (b) Whenever the District obtains knowledge of the occurrence of a Listed Event, the District shall, or shall cause the Dissemination Agent (if not the District) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Certificates under the Bond Resolution. (c) The District acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), and (a)(14) of this Section 5 contain the qualifier if material and that subparagraph (a)(6) also contains the qualifier "material" with E-4

193 respect to certain notices, determinations or other events affecting the tax status of the Lease Payments relating to the Refunding Certificates. The District shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that it determines the event s occurrence is material for purposes of U.S. federal securities law. Whenever the District obtains knowledge of the occurrence of any of these Listed Events, the District will as soon as possible determine if such event would be material under applicable federal securities law. If such event is determined to be material, the District will cause a notice to be filed as set forth in paragraph (b) above. (d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the District in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District. Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. Section 7. Termination of Reporting Obligation. The District s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). Section 8. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Isom Advisors, A Division of Urban Futures, Inc. Any Dissemination Agent may resign by providing 30 days written notice to the District and the Paying Agent. Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) (b) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at E-5

194 the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Bond Resolution for amendments to the Bond Resolution with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the District to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be filed in the same manner as for a Listed Event under Section 5(c). Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 11. Default. If the District fails to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Bond Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance. E-6

195 Section 12. Duties, Immunities and Liabilities of Dissemination Agent. (a) The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. The Dissemination Agent will have no duty or obligation to review any information provided to it by the District hereunder, and shall not be deemed to be acting in any fiduciary capacity for the District, the Bondholders or any other party. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. (b) The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and shall be reimbursed for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: May 3, 2016 PIONEER UNION ELEMENTARY SCHOOL DISTRICT By: Name: Title: E-7

196 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Name of Issue: Pioneer Union Elementary School District (the District ) $2,595,000 Pioneer Union Elementary School District 2016 Refunding Certificates of Participation Date of Issuance: May 3, 2016 NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Certificates of Participation as required by the Continuing Disclosure Certificate executed by the District in connection with the execution and delivery of the Refunding Certificates captioned above. The District anticipates that the Annual Report will be filed by. Dated: PIONEER UNION ELEMENTARY SCHOOL DISTRICT By: Its: E-8

197 APPENDIX F BOOK-ENTRY ONLY SYSTEM The following description of the Depository Trust Company ( DTC ), the procedures and record keeping with respect to beneficial ownership interests in the Refunding Certificates, payment of principal, interest and other payments on the Refunding Certificates to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Refunding Certificates and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Neither the District nor the Paying Agent take any responsibility for the information contained in this Section. No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Refunding Certificates, (b) Certificates representing ownership interest in or other confirmation or ownership interest in the Refunding Certificates, or (c) prepayment or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Refunding Certificates, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current "Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC. 1. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the securities (in this Appendix, the Certificates ). The Refunding Certificates will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Certificate will be issued for each maturity of each series of the Refunding Certificates, in the aggregate principal amount of such maturity, and will be deposited with DTC. If, however, the aggregate principal amount of any maturity exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount of such issue. 2. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is F-1

198 a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at The information contained on this Internet site is not incorporated herein by reference. 3. Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Refunding Certificates on DTC s records. The ownership interest of each actual purchaser of each Certificate ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Refunding Certificates are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive Certificates representing their ownership interests in Certificates, except in the event that use of the book-entry system for the Refunding Certificates is discontinued. 4. To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Certificates with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Refunding Certificates; DTC s records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Certificates may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Refunding Certificates, such as prepayments, tenders, defaults, and proposed amendments to the Certificate documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Refunding Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. 6. Prepayment notices will be sent to DTC. If less than all of the Refunding Certificates within an issue are being prepaid, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be prepaid. F-2

199 7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Refunding Certificates unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Refunding Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Prepayment proceeds, distributions, and interest payments on the Refunding Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts, upon DTC s receipt of funds and corresponding detail information from District or 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, Paying Agent, or District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of prepayment proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of District or 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. 9. DTC may discontinue providing its services as securities depository with respect to the Refunding Certificates at any time by giving reasonable notice to District or Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Certificates are required to be printed and delivered. 10. The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Certificate certificates will be printed and delivered to DTC. 11. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that District believes to be reliable, but District takes no responsibility for the accuracy thereof. F-3

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201 APPENDIX G KINGS COUNTY INVESTMENT POLICY AND SUMMARY OF POOLED FUNDS G-1

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204 TABLE OF CONTENTS I. AUTHORITY 4 II. POLICY STATEMENT 4 III. POOLED INVESTMENT FUND OVERSIGHT COMM. 4 IV. INVESTMENT OBJECTIVES 5 A. SAFETY OF PRINCIPAL 5 1. Credit Risk 2. Interest Rate Risk B. LIQUIDITY 5 C. PUBLIC TRUST 5 D. MAXIMUM RATE OF RETURN 6 V. STANDARDS OF CARE 6 A. PRUDENCE 6 B. ETHICS AND CONFLICT OF INTEREST 6 C. DELEGATION OF AUTHORITY 7 VI. SAFEKEEPING AND CUSTODY 7 A. DEPOSITORY INSTITUTIONS 7 B. AUTHORIZED FINANCIAL DEALER AND INSTITUTIONS 7 C. INTERNAL CONTROLS 8 D. SAFEKEEPING 9 E. VOLUNTARY DEPOSITORS 9 F. WITHDRAWAL OF FUNDS FOR EXTERNAL INVESTMENT 9 VII. SUITABLE AND AUTHORIZED INVESTMENTS 10 A. INVESTMENT TYPES 10 B. RESTRICTIONS ON AUTHORIZED INVESTMENTS 11 C. COMPETITIVE BIDDING 11 D. COLLATERALIZATION 12 VIII. INVESTMENT PARAMETERS 12 A. DIVERSIFICATION 12 B. MAXIMUM MATURITIES 12 Page 2

205 IX. REPORTING 12 A. METHODS 12 B. INTEREST CALCULATION AND APPORTIONMENT 13 X. POLICY EXCEPTIONS AND REVISIONS 13 A. EXEMPTION 13 B. AMENDMENTS 14 XI. SCHEDULES 1. LIST OF AUTHORIZED FINANCIAL INSTITUTIONS AND DEALERS INVESTMENT PARAMETERS 16 XII. APPENDIX A. POLICY STATEMENT AND AUTHORIZED PRACTICE TREASURY RESTRICTIONS ON WITHDRAWAL FOR EXTERNAL INVESTMENTS 17 XIII. GLOSSARY OF TERMS 19 3

206 I. AUTHORITY Kings County Ordinance No.557, adopted on January 14, 1997 as an urgency ordinance, delegated to the County Director of Finance the authority to continue to invest or reinvest the funds of the County and the funds of other depositors in the County treasury, pursuant to Section et seq., inclusive of Section 53684, of the California Government Code. The County Director of Finance, as agent of the county, trustee, and fiduciary, assumes full responsibility for the investment program. The Board of Supervisors shall annually review the Director of Finance s performance and may annually renew this delegation of authority for a one-year period pursuant to Government Code The Board of Supervisors may also revoke the investment authority by County ordinance. II. POLICY STATEMENT Annually, the County Director of Finance shall prepare an Investment Policy, pursuant to G.C and G.C , that will be reviewed by the County Treasury Oversight Committee and rendered for approval to the Board of Supervisors and local agencies. The purpose of this Statement of Investment Policy (Policy) is to establish cash management and investment guidelines for the County Director of Finance, who is responsible for the stewardship of the Kings County Investment Pool. Each transaction and the entire portfolio must comply with California Government Code Section et seq., Section et seq., and this policy. All portfolio activities will be judged by the Standard of the Prudence and ranking of investment objectives. Those activities which violate its spirit and intent will be deemed to be contrary to the policy. III. POOLED INVESTMENT FUND OVERSIGHT COMMITTEE In accordance with California Government Code Section et seq., the Board of Supervisors, in consultation with the County Director of Finance, has created a County Treasury Oversight Committee (Resolution No , December 5, 1995) to allow local agency representatives participation in the policies that guide the investment of depositor funds. The primary responsibilities of the committee include: (a) to review and monitor the County Director of Finance s Statement of Investment Policy, (b) to cause an annual audit to be conducted to determine the County Treasury's compliance, and (c) to establish criteria for depositor withdrawal of funds for the purpose of investing or depositing outside the County Treasury pool. The meeting of the Oversight Committee shall be open to the public and subject to the Ralph M. Brown Act. A member of the Oversight Committee may not be employed by an entity that has contributed to the campaign for any member of a legislative body of any local agency that has deposited funds into the county treasury, in the previous three years or during the period that the employee is a member of the committee. While serving on the Oversight Committee, a member may not directly or indirectly raise money for any member of a legislative body of any local agency that has deposited funds into the county treasury. Finally, a member may not secure employment with, or be employed by, bond underwriters, bond counsel, security brokerages or dealers, or a financial 4

207 services firms, with whom the Director of Finance is doing business during the period that the person is a member of the committee or for one year after leaving the committee. The Oversight Committee is not allowed to direct individual investment decisions, select individual investment advisors, brokers, or dealers, or impinge on the day-to-day operations of the County treasury and investment operations. IV. INVESTMENT OBJECTIVES The Pooled Investment Fund shall be prudently invested in order to earn a reasonable return, while awaiting application for governmental purposes. The specific objectives for the Pooled Investment Fund are ranked in order of importance. A. SAFETY OF PRINCIPAL - The preservation of principal is the primary objective. Each transaction shall seek to ensure that capital losses are avoided, whether they are from securities default or erosion of market value. The objective will be to mitigate credit risk and interest rate risk. 1. Credit Risk is the risk of loss due to the failure of the security issuer or backer. Credit risk is mitigated by: (a) limiting investments to the safest types of securities; (b) prequalifying the financial institutions, broker/dealers, intermediaries, and advisors with which the Treasury will do business; and (c) diversifying the investment portfolio so that potential losses on individual securities will be minimized. 2. Interest Rate Risk is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. Interest rate risk is mitigated by: (a) structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity, and (b) by investing operating funds primarily in shorter-term securities. B. LIQUIDITY - As a second objective, the Pooled Investment Fund should remain sufficiently flexible to enable the County Director of Finance to meet all operating requirements which may be reasonably anticipated in any depositor s fund. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands (static liquidity). No more than 35% of the portfolio may be invested in securities maturing in three to five years and during peak tax collection no more than 30%. Percent restrictions shall be applicable only for the date of purchase. Any future percent deviations due to cash flow demands reducing the total investment portfolio shall not be considered out of compliance. Furthermore, since all possible cash demands cannot be anticipated, the portfolio shall consist largely of securities with active secondary or resale markets (dynamic liquidity). C. PUBLIC TRUST - In managing the Pooled Investment Fund, the County Director of Finance and the authorized investment staff should avoid any transactions that might impair public confidence in Kings County and the participating local agencies. Investments should be made with precision and care, considering the probable safety of the capital as well as the probable income to be derived. 5

208 D. MAXIMUM RATE OF RETURN - As the fourth objective, the Pooled investment Fund is designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on investment is of least importance compared to the safety and liquidity objectives described above. The core of investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. Securities can be sold prior to maturity for the following reasons: (1) a declining credit security to minimize loss of principal; (2) a security swap to improve the quality, yield, or target duration in the portfolio; (3) the liquidity needs of the portfolio require that the security be sold; (4) a call notification of a make-whole bond which, given unfavorable market conditions, could deteriorate the price of the bond on the redemption date, or (5) to realize a profit. If there is a realized loss of principal, the loss will first be allocated against the interest earned in the current quarter on the sold security. If the security s current interest is not sufficient to cover the loss, then the Director of Finance may allocate the loss against a profit realized from selling a security in the same quarter, and/or the total current and future portfolio interest earnings. In the event of an imminent loss of principal for which the security s interest would not be sufficient to cover the loss, the Director of Finance may withhold from the total current and future portfolio interest earnings to reserve against a future maximum anticipated actual loss. V. STANDARD OF CARE A. PRUDENCE - The County Director of Finance, as a trustee and therefore a fiduciary, is subject to the Prudent Investor Standard which states, When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, the county treasurer shall act with care, skill, prudence, and diligence under the circumstances then prevailing, specifically including, but not limited to, the general economic conditions and the anticipated needs of the county and other depositors, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the county and the other depositors. The standard of prudence to be used by investment staff shall be the "prudent person" standard, which provides, Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital, liquidity needs, as well as the probable income to be derived. This standard shall be applied in the context of managing an overall portfolio. When investing, reinvesting, purchasing, acquiring, exchanging, selling and managing public funds the County Director of Finance shall act with the care, skill, prudence and diligence to meet the aims of the investment objectives listed in order in Section IV., Investment Objectives. Investment staff acting in accordance with written procedures and this Policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and the liquidity and the sale of securities are carried out in accordance with the terms of this policy. 6

209 B. ETHICS AND CONFLICT OF INTEREST - Treasury staff involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. The investment staff shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. The investment staff shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the treasury. Pursuant to Government Code Section 27133(d), the County Director of Finance, individual Treasury employees, or any member of the County Treasury Oversight Committee may not accept honoraria, gifts, and gratuities from advisors, brokers, dealers, bankers, or other persons with whom the County Treasury conducts business in an amount exceeding $ C. DELEGATION OF AUTHORITY - Authority to manage the investment program is granted to the County Director of Finance by the Kings County Board of Supervisors. The moneys invested will be actively managed by the Director of Finance and his/her staff, who shall carry out established written procedures and internal controls for the operation of the investment program consistent with this Policy. No person may engage in an investment transaction except as provided under the terms of this Policy and the procedures established by the Director of Finance. The Director of Finance shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate staff. (See also Safekeeping and Custody, Internal Controls VI B. below). The authority to execute investment transactions for the portfolio shall be limited to the Assistant Director of Finance - Treasury, the Treasury Manager, and in the absence of the Treasury Manager, the Accounting Specialist-Treasury Operations. VI. SAFEKEEPING AND CUSTODY A. DEPOSITORY INSTITUTIONS As far as possible, all money belonging to, or in the custody of the County Director of Finance shall be deposited for safekeeping in state or national banks selected by the Director of Finance, or may be invested as set forth in Section VII. To be eligible to receive funds, the bank shall have received an overall rating of not less than satisfactory in its most recent evaluation by the appropriate federal financial supervisorial agency of its record of meeting the credit needs of California s communities pursuant to Section 2906 of Title 12 of the United States Code. B. AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS - Schedule 1- Statement of Authorized Firms, on page 15, is a list of County Director of Finance approved financial institutions and broker/dealers authorized to provide investment services to the Treasury. Authorized firms can be added or deleted only with the Director of Finance s approval. Any changes will result in modification to Schedule 1, but will not be considered a revision to this policy. Changes to authorized firms shall be reported to the County Treasury Oversight Committee and Board of Supervisors within two (2) weeks. The authorized parties include mostly "primary" dealers selected on the basis of creditworthiness, capital adequacy, availability of investment inventory, and experience in trading in authorized investments. Firms utilized for money market mutual funds must either attain the highest ranking or the highest letter and numerical rating provided by not less than two of the three largest nationally recognized 7

210 statistical-rating organizations (NRSRO) OR have retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years experience (i) investing in the securities and obligations as authorized in G.C , or (ii)managing money market mutual funds; and have assets under management in excess of five hundred million dollars ($500,000,000). All financial institutions and broker/dealers who desire to become qualified firms for County Treasury investment transactions must supply the audited financial statements, proof of National Association of Securities Dealers (NASD) certification, proof of State registration, completed broker/dealer questionnaire, and certification of having read the Kings County Investment Policy. An annual review of the financial condition of qualified firms will be conducted by the Treasury Manager. The Treasury shall not do any investment business with any broker, brokerage, dealer, or securities firm that has, within any consecutive 48-month period following January 1, 1996, made a political contribution, in an amount exceeding the limitations contained in Rule G-37 of the Municipal Securities Rulemaking Board, to any member of the Board of Supervisors or any candidate for those offices. Firms must provide corporate policy statements regarding compliance with political contributions limitations of Rule G-37. C. INTERNAL CONTROLS - The County Director of Finance is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the investment portfolio are protected from loss, theft, or misuse. The internal control structure is designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. Daily, or when next available, the County Director of Finance or designee will (1) Review and initial all Investment Purchase Orders to verify compliance with the overall Policy, Investment Parameters, and Authorized Institutions. (2) Review and initial the Daily Balance Sheet to insure continuous compliance of portfolio investments (percentage distribution ) to the Policy and Investment Parameters. Weekly, the County Director of Finance or designee will verify that the Portfolio Percentage Report by investment type is balanced to the Daily Balance Sheet. Monthly, all funds maintained by the County Director of Finance, including cash in treasury, deposits in transit, Kings County Department of Finance s checking account balance, and investment holdings will be audited by the County Department of Finance Accounting Division. Quarterly, the County Director of Finance or designee will report compliance of the investment portfolio to the Director of Finance s Statement of Investment Policy. (See Section IX. Reporting Methods on page12) 8

211 Annually, the County Treasury Oversight Committee shall hire an external auditor to conduct an independent review to assure compliance of the Director of Finance s investment activities with the Statement of Investment Policy. D. SAFEKEEPING - All securities purchased either outright or on repurchase agreements shall be held in safekeeping by a third party bank trust department acting as agent for the County under terms of a custody agreement executed by the bank and the Director of Finance. The only exceptions authorized are purchases from Local Agency Investment Fund (LAIF), collateralized time deposits, collateralized bank money market accounts, and investments in money market mutual funds. E. VOLUNTARY DEPOSITORS - If a local agency determines the agency has excess funds which are not required for immediate use and with the consent of the County Director of Finance, the legislative or governing body may, by resolution or minute order, authorize the deposit of excess funds into the County Treasury for the purpose of investment pursuant to Government Code Section At no time will the County Treasury accept deposits of personal funds unless by Court order. The County Director of Finance shall, on a case by case basis, determine the terms and conditions under which a city, public district, or any public or municipal corporations located within Kings County, and not required to deposit their funds in the County Treasury, may voluntarily deposit funds for investment purposes. The County Director of Finance shall evaluate each proposed deposit request prior to approving the deposit into the Treasury. The County Director of Finance must make a finding that the proposed deposit will not adversely affect the interests of the other depositors in the County Investment pool, prior to approving the deposit. F. WITHDRAWAL OF FUNDS FOR EXTERNAL INVESTMENT -The County Treasury Oversight Committee's approved policy statement on "Treasury Restrictions on Withdrawal for External Investment" establishes the terms and conditions for Treasury depositors withdrawing funds for investment outside the County investment pool. (See Appendix A on page 17 and 18) Any local agency, public entity, or public official that has funds on deposit in the County Treasury investment pool and that seeks to withdraw funds for the purpose of investing or depositing those funds outside the County Treasury pool, shall submit a resolution or minute order approved by the legislative or governing body requesting the withdrawal of the funds. Funds withdrawn shall become the responsibility of the requesting legislative body, and the Director of Finance will be held harmless from liability. The County Director of Finance shall evaluate each proposed withdrawal for its consistency with the County Treasury Oversight Committee policy prior to approving the withdrawal. The County Director of Finance must also make a finding that the proposed withdrawal will not adversely affect the interests of the other depositors in the County Treasury pool, prior to approving the withdrawal. 9

212 VII. SUITABLE AND AUTHORIZED INVESTMENTS A. INVESTMENT TYPES - The County treasury may invest money among the following authorized investments and within the limits imposed by Government Code et seq. or et seq., or as more further restricted in Schedule 2-Investment Parameters on page 16: 1. United States Treasury Bills, Notes, Bonds, and Certificates of Indebtedness, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest. 2. Registered state warrants or treasury notes or bonds of the State of California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the State or by a department, board, agency, or authority of the State. 3. Registered treasury notes or bonds of any of the other 49 states including bonds payable solely out of the revenues from revenue-producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 states, in addition to California. 4. Bonds, notes, warrants, or other evidences of indebtedness of any local agency within the State of California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency, or by a department, board, agency, or authority of the local agency. 5. Federal agency or United States government-sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises. 6. Banker's Acceptances (BA) otherwise known as Bills of Exchange or Time Drafts, both domestic and foreign, drawn on and accepted by a commercial bank. 7. Commercial Paper (CP) of "prime" quality issued by corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars ($500,000,000). 8. Negotiable Certificates of Deposit issued by a nationally or state chartered bank or a savings association or federal association, or by a federally- or state-licensed branch of a foreign bank. 9. Certificates of Deposit Account Registry Service (CDARS) placed with a local CDARS member. CDARS are fully insured as to principal and interest that may be accrued by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). 10. Collateralized Time Deposits issued by a nationally or state-chartered bank or savings and loan association within the State of California with an overall rating of not less than satisfactory 10

213 in its most recent evaluation by the appropriate federal financial supervisorial agency of its record of meeting the credit needs of California s communities pursuant to Section 2906 of Title 12 of the United States Code. 11. Repurchase Agreements or Reverse Repurchase Agreements, or Securites Lending Agreement purchased in compliance with the Government Code 53601(j). Repurchase agreements must be issued by nationally or state-chartered banks or primary security dealers with whom the County Director of Finance has entered into a Master Repurchase Agreement. 12. Medium Term Corporate Notes (MTN), defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. 13. Shares of Beneficial Interest issued by diversified management companies (1) that invests in the securities and obligations as authorized by subdivision (a) to (k), inclusive, or subdivisions (m) to (o) inclusive of Government Code 53601, and that comply with the investment restrictions of Article 2 of the Government Code (commencing with Section 53630), or (2) that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of (15 U.S.C. Sec 80a-l, and following.) 14. Local Agency Investment Fund (LAIF) an investment pool created by Government Code in which the State Treasurer invests pooled political subdivision funds. 15. Notes, Bonds, or other obligations secured by a valid first priority security interest in eligible securities listed in Section having a market value at least equal to that required by Section Shares of beneficial interest issued by joint powers authority organized pursuant to Government Code Section that invests as authorized in subdivision (l) (2) of Government Code Section Supranational Debt Obligations United States dollar-denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), or Inter- American Develoment Bank (IADB) only, eligible for purchase and sale within the United States. Authorized by CGC (q) and this policy. B. RESTRICTIONS ON AUTHORIZED INVESTMENTS- In accordance with G.C , the County Treasury shall not invest any funds in inverse floaters, range notes, or mortgage derived interest-only strips. Additionally, no funds shall be invested in any security that could result in zero interest accrual if held to maturity. No funds shall be invested in Medium Term Corporate Notes with a make-whole call provision that, at time of purchase, are priced at a premium. No shares of beneficial interest will be purchased where the principal dollars invested are subject to daily net asset value (NAV) adjustments of the fund's portfolio except for the CalTrust Heritage Money Market Fund Select, managed by Wells Fargo. The Treasury shall not 11

214 invest in financial options and futures contracts directly, but may purchase authorized investments of callable securities with imbedded call provisions. The Treasury will not purchase an authorized investment below the credit quality restriction of Schedule 2 - Investment Parameters, but may elect to hold an instrument to maturity that has been later downgraded by the nationally recognized statistical-rating organization i.e. Moody's, Standard and Poors, or Fitch. C. COMPETITIVE BIDDING - Bids for investment products shall be taken from a minimum of three authorized institutions. Awards will be made giving consideration to safety, liquidity, a balanced portfolio, and diversification. Exceptions to the above would involve repurchase agreements, securities possessing unique characteristics which would make competitive bidding impractical, or market circumstances in which competitive bidding could be adverse to the best interest of the Director of Finance's investment program. D. COLLATERALIZATION - In accordance with California Government Code 53652, (j) full collateralization of public deposits is required for collateralized time deposits, collateralized bank money market accounts, and repurchase agreements. The Director of Finance may waive collateralization for that portion of any deposit that is fully insured by the FDIC per Government Code VIII. INVESTMENT PARAMETERS A. DIVERSIFICATION - The investments will be diversified by security type and institution within the percent restrictions of Government Code 53601, , 53635, , and or as further defined in Schedule 2, Investment Parameters. Percent restrictions shall be applicable only for the date of purchase. Any future percent deviations due to cash flow demands reducing the total investment portfolio shall not be considered out of compliance. Maximum investment amounts in any issuer name shall be limited as provided in the Investment Parameters on page 16. B. MAXIMUM MATURITIES - Maturity limitations for each instrument type shall be restricted as provided in Government Code 53601, , 53635, and or as further defined in Schedule 2 - Investment Parameters on page 16. No investment shall be made in any security, other than a security underlying a repurchase agreement authorized in this policy, which at the time of investment has a term remaining to maturity in excess of five years, unless a legislative body has granted express authority to make that investment either specifically or as part of an investment program approved by that legislative body no less than three months prior to the investment. IX. REPORTING A. METHODS - The County Director of Finance or designee shall prepare an investment report at least quarterly, including a succinct management summary that provides a clear picture of the status of the investment portfolio. This summary will be prepared in a manner, which will allow the reader to ascertain whether investment activities have conformed to the investment policy. 12

215 The report will be provided within 30 days following the end of the quarter covered by the report and submitted to the County Board of Supervisors, County Administrative Officer, Finance Director, other members of the County Treasury Oversight Committee, and pool participants. The report will include the following: 1. A Statement of Compliance with the Investment Policy. 2. A listing of individual securities and moneys held at the end of the reporting period to include: (a) The type of instrument. (b) The name of the issuer. (c) Purchase date, maturity date, and days to maturity. (d) Issuers rating.(long term or short term, as appropriate) (e) Par and dollar amount invested in each security. (f) The current market value of securities as of the date of the report and the source of the valuation. 3. A statement estimating the ability of the County Treasury to meet its pool's expenditure requirement for the next six months. 4. A statement of the method of interest accounting used. 5. Portfolio Sector Allocation and Quality Allocation graphs. 6. A Statement of Interest Earnings Report for the Quarter. 7. If applicable, a description of any of the local agency's funds, investments, or programs, that are under the management of contracted parties, but excluding funds deposited into the Local Agency Investment Fund administered by the State Treasurer. B. QUARTERLY INTEREST CALCULATION AND APPORTIONMENT - Gross interest for the quarter is the total interest earned on an accrual basis on the Treasury portfolio investments for that quarter. Administrative expenses pursuant to G.C are deducted to arrive at net interest to be apportioned. Administrative expenses consist of audit expenses, direct banking expenses, not otherwise recovered directly from Treasury depositors, safekeeping fees, plus quarterly prorated Treasury operational expenses from the department cost allocation plan. The net earnings for the quarter are divided by the Treasury's total average daily balance creating an "interest allocation factor" or daily interest factor for each average dollar invested. Multiply the "interest allocation factor" by the quarterly average daily balance of each fund to determine the interest earnings for each fund. Interest is apportioned quarterly to all depositors in the Treasury pool. The "interest allocation factor" can be converted into the annualized quarterly interest rate; multiply the factor by the number of days in the year, and divide that answer by the number of days in the quarter. X. POLICY EXCEPTIONS & REVISIONS 13

216 A. EXEMPTION - Any previously legal investments, that settled prior to the effective date and that no longer meet the current guidelines of this Policy, shall be exempted from the new requirements. At maturity or liquidation, such moneys shall be reinvested only as provided by this Policy. Moneys held by a trustee or fiscal agent and pledged to the payment or security of bonds or other indebtedness, or obligations under a lease, installment sale, or other agreement of a local agency, or certificates of participation in those bonds, indebtedness, or lease installment sale, or other agreements, may be invested in accordance with the statutory provisions governing the issuance thereof. The proceeds of sales, or funds set aside for the repayment, of any notes or other indebtedness issued shall not be invested for a term that exceeds the term of the notes. B. AMENDMENTS - This policy shall be reviewed at least on an annual basis. Any changes shall be submitted by the Director of Finance to the County Treasury Oversight Committee for consideration and comments, and the Board of Supervisors for review and approval. 14

217 KINGS COUNTY DIRECTOR OF FINANCE'S SCHEDULE 1 - STATEMENT OF AUTHORIZED FIRMS The Treasury is authorized to conduct investment security transactions with the following investment firms and broker/dealers, many of which are designated by the Federal Reserve Bank as primary government dealers. Security transactions with firms, other than those appearing on this list, are prohibited. A. Firms designated by the Federal Reserve Bank as Primary Government Dealers or a division of a Primary Dealer: UBS Financial Services Inc., an affiliate of UBS Securities LLC RBC Capital Markets, LLC Jefferies LLC B. 1. Banks identified as one of the top 100 banks in the world, or 2. Banks, brokers or dealers whose transactions are guaranteed by one of the top 100 banks in the world, or 3. Banks, brokers or dealers whose parent company is one of the top 100 banks in the world. C. Firms designated for the purchase of money market mutual funds pursuant to G.C (l) and (p): BlackRock Bank of America Corporation CalTrust Heritage Money Market Fund Select, managed by Wells Fargo D. Firms designated for repurchase agreements with Master Repurchase Agreements on file: UBS Financial Services Inc., an affiliate of UBS Securities LLC E. State of California, Local Agency Investment Fund F. Purchases directly from major issuers of commercial paper, bankers acceptances, negotiable certificates of deposit, or collateralized time deposits, meeting the requirements set forth in section 53635, 53601(g), 53601(i), 53601(n), respectively, and of the California Government Code. To ensure compliance with the County Director of Finance's Investment Policy, firms designated in A and C above are supplied a complete copy of the policy and must certify having read it. Dated: January 1, 2016 Rebecca Valenzuela, CPA, CGMA, Director of Finance 15

218 SCHEDULE 2 INVESTMENT PARAMETERS (Revised 11/18/15) AUTHORIZED INVESTMENTS DIVERSIFICATION PURCHASE RESTRICTIONS MATURITY CREDIT QUALITY (NRSRO) U.S. Treasury notes, bills, bonds or other 95% Max. None Max. 5 years N/A certificates of indebtedness Notes, participations, or obligations issued by 85% Max. None Max. 5 years N/A Federal agencies or United States governmentsponsored enterprises (GSE) Bonds, notes, warrants or certificates of 20% or None Max. 5 years unless L/T rating A or A2 or better indebtedness issued by the State of California or local agencies or County of Kings or any other State $20mm Max. prior BOS approval Bankers Acceptances 40% Max. Max. $5mm any one name Max. 180 days S/T rating A-1 or P-1 L/T rating (if Outstanding) AA- or Aa3 or better Commercial paper of corporations organized and operating within the U.S. with total assets exceeding $500 mm State of California Local Agency Investment Fund Negotiable CD's issued by National or State chartered banks or a federally- or state- licensed branch of a foreign bank Certificates of Deposit Account Registry Service (CDARS) 40% Max. Max. 10% in any one name, No Extendable CP Max. Dollars allowed by State Treasurer 25% Max. (CDs + CDARS) 25% Max (CDs + CDARS) G.C & conditions apply Collaterized Time Deposits. 10% Max. Collateral policy restrictions G.C (n) Repurchase Agreements with collateral 10% Max. Master Repurchase and Tri-Party restricted to U. S. Treasury, Federal Agencies, Custodial Agreements to be on or United States government-sponsored file. enterprises (GSE) 102% haircut Reverse Repurchase Agreements or Securities Lending on U.S. Treasury & Federal Agency Securities in portfolio Corporate Notes on U.S. Corp or U.S. Subsidiary of a foreign corp. 10% Max with approval of the Director of Finance Max. 270 days. S/T rating A-1 or P-1 L/T rating (if Outstanding) AA- or Aa3 or better Overnight liquidity N/A Max. Transactions allowed by State Treasurer G.C policy restrictions Max. 3 years L/T rating AA- or Aa3 or better G.C (j) Reverse Repurchase and Securities Lending restrictions Max. 3 years Max. 24 months Max. 1 year Max. 92 days unless guaranteed spread 100% FDIC/NCUA insured as to Principal and Interest 30% Max. Max. $15mm any one name Max. 5 years L/T rating AA- or Aa3 or better Make - Whole Call Restrictions Asset Backed Securities on U.S. Corp. 0% Max. Not authorized Not authorized Not Authorized Money Market mutual funds that invest in eligible securities meeting Government Code requirements. 20% Max. 10% per fund Fund 5 years or more old NAV pricing restriction No front or back loads Overnight liquidity L/T rating: Highest rating from two NRSRO, i.e. AAA, Aaa, etc. Retain Investment Advisor per G.C (l) & (p) Supranationals Washington dollar denominated IBRD, IFC or IADB 20% Max. 10% per Name Max. 10% in any one name Max. 5 years L/T rating: Highest rating from two NRSRO, i.e. AAA, Aaa, etc. 16

219 APPENDIX A COUNTY TREASURY OVERSIGHT COMMITTEE Policy Statement and Authorized Practice Approved March 4, 1996 Treasury Restrictions on Withdrawal for External Investment Authorization: Pursuant to Government Code Section and Kings County Board of Supervisor's Resolution No , dated December 5, 1995, the Kings County Treasury Oversight Committee is authorized to establish criteria on the withdrawal of funds on deposit in the County Treasury investment pool for the purpose of investing or depositing those funds outside the County Treasury pool. Request for Withdrawal: Any local agency, public entity, or public official that has funds on deposit in the County Treasury investment pool and that seeks to withdraw funds for external deposit or investment, shall first submit a request by resolution or minute order approved by the legislative or governing body for withdrawal of the funds. Assessment of Withdrawal Impact: The County Director of Finance shall evaluate all requests for withdrawal to determine if the interests of the other Treasury depositors in the County Treasury pool will be adversely affected. If the County Director of Finance determines that the combined number of requests or total dollar amount requested is sufficient to constitute a "run on the treasury", no withdrawal requests shall be processed until the County Treasury Oversight Committee has reviewed the treasury financial position and assists the Director of Finance in establishing an action plan. Approval or Disapproval: The County Director of Finance shall approve all requests upon the finding that other Treasury depositors will not be adversely affected. If other Treasury depositors are perceived to be adversely impacted, the County Director of Finance may postpone action on any withdrawal request until the County Treasury Oversight Committee has reviewed the situation. Approved Withdrawal Criteria: Approved withdrawals will be processed dependent on availability of funds, the type of investments required to be liquidated, market conditions, settlement periods, and dollar amounts to be withdrawn. The following are target goals for withdrawals: a. If adequate liquidity exists in short term investments and requires minimal liquidation and settlement, withdrawals of amounts up to $1,000, shall be processed immediately upon the County Director of Finance's approval. b. If the County Treasury liquidity position is such as to require liquidation of more difficult investment(s), the below processing times shall apply based on the withdrawal dollar amounts and market factors. (1). If the withdrawal amount is less than $1,000,000.00, and favorable market conditions exist, requests shall be processed within three workdays. 17

220 (2). If the withdrawal amount is greater than $1,000,000.00, or unfavorable market conditions exist, requests shall be processed within five workdays. Disclaimer of Liability: Any and all funds withdrawn from the County Treasury investment pool for the purpose of investing or depositing such funds outside the pool shall become the responsibility of the legislative body requesting the action. The County Director of Finance or County of Kings shall in no manner be held responsible or liable for withdrawn funds or investments purchased with said funds. The request of any legislative body, by resolution or minute order, authorizing the withdrawal of funds for deposit or investment outside the County Treasury investment pool must provide a disclaimer of liability. The Director of Finance shall not honor any such withdrawal request if a disclaimer clause is not provided. 18

221 GLOSSARY OF TERMS AGENCIES OR FEDERAL AGENCIES: Federal sponsored agency securities including discount notes, or interest bearing notes, and bonds. The agencies were created by Congress to reduce the cost of capital for certain borrowing sectors of the economy deemed to be important enough to warrant assistance, such as farmers, homeowners, and students. ASKED PRICE: The lowest price at which a dealer is willing to sell a security. BANKERS ACCEPTANCES (BA'S): A time draft or bill of exchange that is accepted payment by banks engaged in financing of international trade. The accepting institution guarantees payment of the bill as well as the issuer. BID: Price at which someone is willing here and now to purchase a security. BOOK VALUE: The value at which a security is carried on the inventory list or other financial records of an investor. The Book Value my differ significantly from the security s current value in the market. BROKER: Person or firm acting as intermediary between buyer and seller. CALLABLE BOND: A bond issue in which all or part of its outstanding principal amount may be redeemed before maturity by the issuer under specified conditions. CERTIFICATES OF DEPOSIT (CD'S): A time deposit with a specific maturity evidenced by a certificate. They are issued in two forms negotiable and collateralized. Negotiable Certificates of Deposit: May be sold by one holder to another prior to maturity. The issuing bank agrees to pay the amount of the deposit plus interest earned to the BEARER of the certificate at maturity. Collateralized Time Deposits: These certificates are collateralized and are not money market instruments since they cannot be traded in the secondary market. They are issued on a fixed maturity basis and fixed payee. CERTIFICATE OF DEPOSIT ACCOUNT REGISTRY SERVICES (CDARS): Certificates of Deposit that are placed by a member bank with commercial banks, savings banks, savings and loan associations, or credit unions, such that the principal and all accrued interest during the term of the certificate are fully insured by either the FDIC OR NCUA. COLLATERAL: Securities pledged by a bank to secure deposits of public funds, or an asset pledged by a borrower to a lender. COMMERCIAL PAPER: An unsecured short-term promissory note issued by corporations with maturities ranging from 2 to 270 days. 19

222 COUNTY TREASURY OVERSIGHT COMMITTEE: A committee established by Board of Supervisors Resolution No , dated December 5, 1995 to allow local agency representatives participation in the policies that guide the investment of depositor funds. The primary responsibilities include: (1) review and monitor the County Director of Finance's investment policy, (2) cause an annual audit to be conducted to determine the county treasury's compliance, and (3) establish criteria for depositor withdrawal of funds for the purpose of investing or depositing outside the county treasury pool. COUPON RATE: The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value. DEALER: A dealer, as opposed to a broker, acts as a principal in all transaction, buying and selling for his own account. DEBENTURE: A longer-term debt instrument issued by a corporation that is unsecured by other collateral. Hence, only the good faith and credit standing of the issuer backs the security. DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery vs. payment and delivery vs. receipt. Delivery vs. payment is delivery of securities with an exchange of money for the securities. Delivery vs. receipt is delivery of securities with an exchange of a signed receipt for the securities. DISCOUNT: The difference between the cost price of a security and its maturity when quoted at lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount. DISCOUNT SECURITIES: Non-interest bearing money market instruments that are issued at a discount and redeemed at maturity for full face value, e.g. U.S. Treasury Bills DIVERSIFICATION: A process of investing assets among a range of security types by sector, maturity, and quality rating. DOLLAR WEIGHTED AVERAGE MATURITY: The sum of the amount of each outstanding investment multiplied by the number of days to maturity, divided by the total amount of outstanding investments. FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions and individuals, e.g. S&L's, small business firms, students, farmers, farm cooperatives, and exporters. FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits, currently up to $250,000 per deposit. FEDERAL FARM CREDIT BANKS (FFCB): is a nationwide system of lending institutions that provide credit and related services to farmers, ranchers, producers and harvesters of agricultural products, and other farm related businesses. 20

223 FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open-market operations. FEDERAL HOME LOAN BANKS (FHLB): The institutions that regulate and lend to savings and loan association. The Federal Home Loan Banks play a role analogous to that played by the Federal Reserve Banks vis-à-vis member commercial banks. FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) : is a federally chartered and stockholder-owned corporation. Freddie Mac purchases mortgage loans from qualified financial institutions and resales these loans in the form of guaranteed mortgage securities. FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA was chartered under the Federal National Mortgage Association Act in FNMA is a federal corporation working under the auspices of the Department of Housing and Urban Development (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder-owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest. FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent member, while the other Presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of Government Securities in the open market as a means of influencing the volume of bank credit and money. FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress and consisting of a seven member Board of Governors in Washington, D.C., 12 regional Federal Reserve Banks, their 24 branches, and all national and state banks that are members of the system. FLOATER: A derivative that has its coupon determined by using the yield of other securities. FUTURES: Futures contracts are the units of trading at a commodity exchange. They are legally binding agreements made within the confines of an exchange trading area. All futures contracts call for the purchase or sale of a physical commodity of financial instrument on dates from one month to more than two years in the future. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae) Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, and other institution. Security holder is protected by full faith and credit of the U.S. Government. Ginnie MAE securities are backed by the FHA, VA, or FMHM mortgages. The term "passthroughs" is often used to describe Ginnie Maes. GOVERNMENT-SPONSORED ENTERPRISES (GSE): General term for several privately owned, publicly chartered agencies created to reduce borrowing costs for certain sectors of the economy such as 21

224 farmers, homeowners and students. The GSEs that issue debt instruments include: Federal Home Loan Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Federal Farm Credit System, Federal Agricultural Mortgage Corporation, and the Student Loan Marketing Association. LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable sales can be done at those quotes. LOCAL AGENCY INVESTMENT FUND (LAIF): The aggregate of all funds from political subdivisions that are placed in the custody of the California State Treasurer for investment and reinvestment. MARKET RISK: The risk that the value of a security will rise or decline as a result of changes in market conditions. MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold. MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase--reverse repurchase agreements that establishes each party's rights in the transaction. A master agreement will often specify, among other things, the right of the buyer-lender to liquidate the underlying securities in the event of default by the seller-borrower. MATURITY: The date upon which the principal or stated value of an investment becomes due and payable. MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper, banker s acceptances, etc.) are issued and traded. MONEY MARKET MUTUAL FUND: Mutual funds that invest solely in money market instruments (short-term debt instruments, such as Treasury bills, commercial paper, bankers acceptances, etc.). NATIONALLY RECOGNIZED STATISTICAL-RATING ORGANIZATION (NRSRO) Independent credit rating agencies which are utilized to analyze and rate the quality of the issuers underlying debt. OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for an offer.) OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank as directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool. OPTIONS: The buyer of a call option has the right to buy the underlying security at fixed price. The option seller is obligated to sell the security if the buyer chooses to exercise the option. 22

225 PORTFOLIO: Collection of securities held by an investor. PRIMARY DEALER: A group of government securities dealers who submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC)- registered securities broker-dealer, banks and a few unregulated firms. PRUDENT PERSON RULE: An investment standard. In California the law requires that a fiduciary, such as a trustee, may invest money only in a list of securities approved by the State, the authorized investments. The trustee may invest in a security if it is one, which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital. QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim exemption from the payment of any sales or compensating use or ad valorem taxes under the laws of this state, which has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability and which has been approved by the Public Deposit Protection Commission to hold public deposits. RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond or the current income return. REINVESTMENT RISK: The risk that a fixed-income investor will be unable to reinvest income proceeds from a security holding at the same rate of return currently generated by that holding. REPURCHASE AGREEMENT (RP or REPO): A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. The security "buyer" in effect lends the "seller" money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RP extensively to finance their positions. Exception: When the Fed is said to be doing RP, it is lending money, this is increasing bank reserves. REVERSE REPURCHASE AGREEMENT: A dealer of securities buys securities from an investor with an agreement to sell them at a fixed price on a fixed date. The security "buyer" in effect lends the "seller" or "investor" money for the period of the agreement, and the terms of the agreement are structured to compensate the dealer for this. Investors use reverse-repos to meet temporary cash shortages without liquidating the investments. SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection. SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution. SECURITY: Any investment instrument authorized for purchase under Government Code or 23

226 SECURITIES AND EXCHANGE COMMISSION (SEC): Agency created by Congress to protect investor in securities transactions by administering securities legislation. SECURITIES LENDING AGREEMENT: An agreement under which a local agency agrees to transfer securities to a borrower who, in turn, agrees to provide collateral to the local agency. During the term of the agreement, both the securities and the collateral are held by a third party. At the conclusion of the agreement, the securities are transferred back to the local agency in return for the collateral. SUPRANATIONALS: An international organization, or union, whereby member states transcend national boundaries or interests to share in the decision-making and vote on issues pertaining to the wider grouping. SURPLUS FUNDS: All moneys are not required to meet the banks demands on the treasury to redeem check warrants on any given day are considered "surplus funds" for investments. TREASURY BILLS: A non-interest bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months, or one year. TREASURY NOTES: A interest bearing security issued by the U.S. Treasury to finance the Federal debt with a maturity range of from zero to ten years. TREASURY BOND: Long-term U.S. Treasury securities having initial maturities between ten to thirty years. TRI-PARTY CUSTODIAL AGREEMENT: A third party custodian bank agrees to safekeep the repo collateral in a segregated custody account for the client. The custodian bank independently prices the collateral and ensures that the collateral is properly securitized. UNIFORM NET CAPITAL RULE (SEC RULE 15C3-1): Securities and Exchange Commission requirement that member firms as well as nonmember broker-dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one-reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash. YIELD: The rate of annual income return on an investment expressed as a percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. (b) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period of the date of purchase to the date of maturity of the bond. YIELD-TO-CALL (YTC): The rate of return an investor earns from a bond assuming the bond is redeemed (called) prior to its nominal maturity date. 24

227 YIELD CURVE: A graphic representation that depicts the relationship at a given point in time between yields and maturity for bonds that are identical in every way except maturity. A normal yield curve may be alternatively referred to as a positive yield curve. YIELD-TO-MATURITY: The rate of return yielded by a debt security held to maturity when both interest payments and the investor s potential capital gain or loss are included in the calculation of return. 25

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229 Kings County Treasurer's Statement of Interest Earnings For the Period July 1, September 30, 2015 YIELD TRENDS POOLED INVESTMENT ACCOUNT: Gross Yield History* Gross Interest Earnings (on Accrual Basis) $555,799 Quarter Pool LAIF Less: Administrative Expenses (97,010) Sep % % Banking Expenses (8,694) Jun % % Net Interest Earnings Apportioned $450,096 Mar % % Dec % % Portfolio Return of Investment: Sep % % Average Pooled Funds Invested $253,508,544 Jun % % Gross Yield on Investments % Mar % % Net Yield on Investments % Dec % % Sep % % Treasury Return on Investment: Jun % % Average Pooled Funds In Treasury $265,183,130 Mar % % Gross Yield Pooled Treas Funds % Dec % % Net Yield on Pooled Treasury Funds % Sep % % Jun % % DIRECT INVESTMENT ACCOUNT: Mar % % Average Direct Funds Invested $0 Dec % % Sep % % TOTAL AVERAGE FUNDS INVESTED: $253,508,544 Jun % % *The yield history represents gross portfolio yields; costs have not been deducted. Kings County Treasurer's Liquidity Projections for the Period October 1, September 30, 2016 (In Thousands) A B C D E F G ACTUAL TREASURER'S TREASURER'S TREASURER'S INVESTMENTS ESTIMATE MONTH/ RECEIPTS DISBURSEMENTS SURPLUS or MONTH PORTFOLIO TOTAL SURPLUS YEAR ACTUAL ACTUAL (DEFICIT) (A-B) YEAR MATURITIES LAIF (D+E) (F+C) Jul-15 37,579 62,536 (24,957) Jul-16 5,000 41,783 46,783 21,826 Aug-15 29,532 52,231 (22,699) Aug-16 1,546 21,826 23, Sep-15 62,135 51,625 10,510 Sep ,183 Oct-14 40,570 53,273 (12,703) Oct-15 4,000 50,000 54,000 41,297 Nov-14 59,578 46,578 13,000 Nov-15 2,000 41,297 43,297 56,297 Dec ,065 75,491 26,574 Dec ,000 50,000 76,574 Jan-15 41,374 45,704 (4,330) Jan-16 5,000 50,000 55,000 50,670 Feb-15 46,221 44,865 1,356 Feb ,000 50,000 51,356 Mar-15 59,269 46,641 12,628 Mar ,000 50,000 62,628 Apr-15 82,105 62,155 19,950 Apr ,000 50,000 69,950 Apr-15 47,053 55,257 (8,204) May-16 2,000 50,000 52,000 43,796 Jun-15 57,871 59,884 (2,013) Jun ,796 43,796 41,783 TOTALS 665, ,240 9,112 19,546 Sufficient liquidity exists to meet the mandated six months cash flow expenditure requirements. The historical receipts have been adjusted for expected non-re-occurring participant activity.

230 KINGS COUNTY POOLED INVESTMENTS PORTFOLIO STATISTICS Book Value by Investment Type as of September 30, 2015 LAIF - Local Agency Investment Pool 20% Medium Term Notes 12% Rabobank MMA Deposit Acct - 2% Government Agency Coupon Securities 66% Market Value Quality Allocation as of September 30, 2015 N/R 20% A1 1% Aa2 7% Aa3 6% AAA 66%