School District No. 281 (Moscow) Latah County, State of Idaho

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1 PRELIMINARY OFFICIAL STATEMENT DATED JULY 19, 2013 This is a Preliminary Official Statement, subject to correction and change. The District has authorized the distribution of the Preliminary Official Statement to prospective purchasers and others. Upon the sale of the Bonds, the District will complete and deliver an Official Statement substantially in this form. School District No. 281 (Moscow) Latah County, State of Idaho $910,000 (1) $9,595,000 (1) General Obligation Bonds, Series 2013A General Obligation Bonds, Series 2013B (Taxable) (Tax-Exempt) DATED: Date of Delivery August 15, 2013 DUE: August 15, as shown on the inside cover MOODY S RATINGS Applied for (See State of Idaho Guaranty and Ratings herein.) BANK QUALIFIED School District No. 281 (Moscow), Latah County, Idaho (the District ) intends to designate the General Obligation Bonds, Series 2013B (Tax-Exempt) (the 2013B Bonds ) as qualified tax-exempt obligations for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended (the Code ) relating to the deductibility of interest expense by certain financial institutions. The District has not designated the General Obligation School Bonds, Series 2013A (Taxable) (the 2013A Bonds and together with the 2013B Bonds, the Bonds ) as qualified tax-exempt obligations. See TAX MATTERS herein. BOOK-ENTRY ONLY SYSTEM The Bonds will be issued in fully registered form under a book-entry only system and will be registered in the name of Cede & Co., as bond owner and nominee for The Depository Trust Company ( DTC ). DTC will act as initial securities depository for the Bonds. Individual purchases of the Bonds will be made in bookentry form, in the denomination of $5,000 or any integral multiple thereof. Purchasers will not receive certificates representing their interest in the Bonds purchased. PRINCIPAL AND INTEREST PAYMENTS Interest on the Bonds will be paid on February 15, 2014 and semiannually thereafter on August 15 and February 15 of each year to the maturity or earlier redemption of the Bonds. Principal of and interest on the Bonds will be payable to the persons in whose names such Bonds are registered (the Beneficial Owners ) at the address appearing upon the registration books at the close of business on the fifteenth day preceding the interest payment date and, if not a business day for the Paying Agent (hereinafter defined), the next preceding day that is a business day for the Paying Agent. The principal of and interest on the Bonds will be payable by the District s bond registrar and paying agent, currently Zions First National Bank (the Paying Agent ), to DTC which, in turn, will remit such principal and interest to the DTC participants for subsequent disbursement to the Beneficial Owners of the Bonds. PURPOSE See Purpose and Use of Proceeds herein. MATURITY SCHEDULE SEE INSIDE COVER REDEMPTION The 2013B Bonds will be subject to optional redemption prior to their stated maturities. The 2013A Bonds will not be subject to redemption prior to maturity. See Description of the Bonds 2013B Redemption Provisions. SECURITY The Bonds are general obligations of the District and the full faith, credit and resources of the District are pledged for the punctual payment of the principal of and interest on the Bonds. The District covenants and is obligated by law to levy annually ad valorem taxes without limitation as to rate or amount on all taxable property in the District sufficient to pay the principal of and interest on the Bonds. The Bonds do not constitute a debt or indebtedness of Latah County, the State of Idaho (except as described under the State of Idaho Guaranty ), or any political subdivision thereof other than the District. Payment of principal and interest on the Bonds will be further secured by the State of Idaho Sales Tax Guaranty Program and the Credit Enhancement Program. (See State of Idaho Guaranty herein.) TAX EXEMPTION 2013A BONDS: In the opinion of Hawley Troxell Ennis & Hawley LLP, Bond Counsel ( Bond Counsel ) interest on the 2013A Bonds IS INCLUDED in gross income subject to federal and Idaho income taxation pursuant to the Code. 2013B Bonds: In the opinion of Bond Counsel assuming continuous compliance with certain covenants described herein, interest on the 2013B Bonds is not included in gross income under present federal income tax laws pursuant to Section 103 of the Code and interest on the 2013B Bonds is NOT included in alternative minimum taxable income, as defined in Section 55(b)(2) of the Code, under present federal income tax laws, except that such interest is required to be included in calculating the adjusted current earnings adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations. Interest on the 2013B Bonds is NOT included in Idaho taxable income under present Idaho income tax laws. See TAX MATTERS herein for a description of this designation. DELIVERY The Bonds are offered when, as and if received and accepted by the original purchasers, subject to the final approving legal opinion of Bond Counsel. It is expected that the Bonds will be available for delivery to the Paying Agent on behalf of DTC by Fast Automated Securities Transfer on or about August 15, 2013 (the Date of Delivery ). (1) Preliminary, subject to change. This cover page contains certain information for quick reference only. It is not a summary of the issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision.

2 School District No. 281 (Moscow) Latah County, State of Idaho $910,000 (1) $9,595,000 (1) General Obligation Bonds, Series 2013A General Obligation Bonds, Series 2013B (Taxable) (Tax-Exempt) DATED: Date of Delivery DUE: August 15, as shown below MATURITY SCHEDULE 2013A Due Interest CUSIP Aug. 15 Amounts (1) Rates Yields , , ,000 MATURITY SCHEDULE 2013B Due Interest CUSIP Due Interest CUSIP Aug. 15 Amounts (1) Rates Yields Aug. 15 Amounts (1) Rates Yields , $ 530, , , , , , , , , , , , , , , , ,000 (1) Preliminary, subject to change. The CUSIP numbers herein are provided by CUSIP Global Services (CGS), which is managed on behalf of the American Bankers Association by Standard and Poor s, a division of the McGraw-Hill Companies, Inc. CUSIP is a registered trademark of the American Bankers Association. CUSIP numbers are provided for convenience of reference only. CUSIP numbers are subject to change. Neither the District nor the Underwriter (hereafter defined) takes any responsibility for the accuracy of such CUSIP numbers. This Official Statement does not constitute an offer to sell the Bonds in any jurisdiction in which or to a person to whom it is unlawful to make such an offer. No dealer, salesperson or other person has been authorized by the District or Piper Jaffray & Co., as underwriter (the Underwriter ), to give any information or to make any representations, other than those contained herein, in connection with the offering of the Bonds and, if given or made, such information or representations must not be relied upon. The District makes no representation regarding the accuracy or completeness of the information provided in Appendix C Book-Entry Only System, which has been furnished by DTC. Estimates and opinions are included and should not be interpreted as statements of fact. Summaries of documents do not purport to be complete statements of the provisions. 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, create an implication that there has been no change in the affairs of the District since the date hereof. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. This Preliminary Official Statement has been deemed final by the District, pursuant to Rule 15c2-12 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, except for information which is permitted to be excluded from this Preliminary Official Statement under said Rule 15c2-12. Certain statements contained in this Official Statement do not reflect historical facts, but are forecasts and forward-looking statements. No assurance can be given that the future results discussed herein will be achieved, and actual results may differ materially from the forecasts described herein. In this respect, words such as estimated, projected, anticipate, expect, intend, plan, believe and similar expressions are intended to identify forward-looking statements. All projections, assumptions and other forward-looking statements are expressly qualified in their entirety by the cautionary statements set forth in this Official Statement. In connection with this offering, the Underwriter may over allot or effect transactions that stabilize or maintain the market price of the Bonds at levels above those which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. ii

3 School District No. 281 (Moscow) Latah County, State of Idaho 650 N Cleveland St. Moscow, Idaho (208) Dawn Fazio Kim Campbell Jim Frenzel Aleisa Barber Margaret Dibble Board of Trustees Chair Vice Chair Trustee Trustee Trustee Greg Bailey Deb Adair School Administrative Staff Superintendent Business Manager Bond Counsel Hawley Troxell Ennis & Hawley LLP Boise, Idaho (208) Coeur d Alene, Idaho (208) Paying Agent/Registrar Zions First National Bank Boise, Idaho (208) iii

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5 Table of Contents Page Description of the Bonds... 1 Principal Amount, Date, Interest Rates and Maturities... 1 Redemption Provisions for the 2013A Bonds... 1 Redemption Provisions for the 2013B Bonds... 1 Notice of Redemption... 1 Paying Agent and Registration Features... 2 Authorization for Issuance... 2 Purpose and Use of Proceeds... 3 Purpose... 3 Sources and Uses of Funds... 3 Security for the Bonds... 3 General... 3 State of Idaho Guaranty... 4 The Guaranty; Pledge of State Sales Tax... 4 The Sales Tax Guaranty Program... 4 Credit Enhancement Program... 4 Guaranty Procedures... 5 State Treasurer to Monitor District s Fiscal Solvency... 6 Status of the Programs... 6 State of Idaho Financial and Operating Information... 6 Ratings... 6 Bond Levy Equalization Support Program... 7 Availability of the Levy Subsidy... 7 Bonded Indebtedness... 7 Debt Limitation... 7 Long-Term Borrowing... 8 Short-Term Borrowing... 8 Projected Debt Service Requirements... 9 Overlapping Debt Debt Ratios Debt Payment Record Future Financings Taxes and State Funding Overview Property Taxes Ad Valorem Tax Levy Rates for the District Representative Levy Rates Tax Year District Property Values Property Tax Collections Homeowner s Exemption Legislation Affecting Personal Property Tax Major Taxpayers State of Idaho School Finance General Appropriations to Public Schools Other Actions of the 2013 Legislature Impact of State Funding on the District The District Description Enrollment Average Daily Attendance Staff The Board of Trustees Key Administrative Officials Financial Factors Accounting Policies Financial Reporting Auditing Statement of Net Assets Changes in Net Assets General Fund Balance Sheet General Fund Statement of Revenues, Expenditures and Changes in Fund Balance Budgetary Process and Controls General Fund Adopted Budget Investment Policy Pension System Other Post-Employment Benefits Future GASB 45 Reporting v

6 Table of Contents, Continued Page Annual Required Contribution (ARC) Risk Management Demographic Information Legislative Referrals The Initiative Process Historical Initiative Petitions Tax Matters The 2013A Bonds The 2013B Bonds [Premium Bonds [Original Issue Discount Legal Matters Opinions of Bond Counsel Litigation Laws Relating to Municipal Reorganization Continuing Disclosure Current Compliance Official Statement Underwriting Concluding Statement Appendices: Form of Bond Counsel Opinion... Appendix A Financial Statements... Appendix B Book-Entry Only System...Appendix C Form of Information Reporting Agreement... Appendix D vi

7 PRELIMINARY OFFICIAL STATEMENT School District No. 281 (Moscow) Latah County, State of Idaho $910,000 (1) $9,595,000 (1) General Obligation Bonds, Series 2013A General Obligation Bonds, Series 2013B (Taxable) (Tax-Exempt) School District No. 281 (Moscow), Latah County, State of Idaho (the District ), a political subdivision and body corporate duly organized and existing under and by virtue of the laws of the State of Idaho (the State ) furnishes this Official Statement in connection with the offering of $910,000 (1) aggregate principal amount of General Obligation Bonds, Series 2013A (Taxable) (the 2013A Bonds ) and $9,595,000 (1) aggregate principal amount of General Obligation Bonds, Series 2013B (Tax-Exempt) (the 2013B Bonds ) (the Series 2013A Bonds and the Series 2013B Bonds referred to collectively as the Bonds ) dated the date of delivery as defined on the cover page (the Date of Delivery ). This Official Statement, which includes the cover page, inside cover page and appendices, provides information concerning the District and the Bonds. The information set forth herein has been obtained from the District and other sources that are believed to be reliable. The Underwriter has relied on the District with respect to the accuracy and sufficiency of such information and such information is not to be construed as a representation, warranty or guarantee by the Underwriter. So far as any statement herein includes matters of opinion, or estimates of future expenses and income, whether or not expressly so stated, they are intended merely as such and not as representations of fact. Description of the Bonds Principal Amount, Date, Interest Rates and Maturities The Bonds will be issued in the aggregate principal amount as shown on the cover page of this Official Statement and will be dated and bear interest from the Date of Delivery. The Bonds will mature on the dates and in the principal amounts and will bear interest, payable semiannually, until the maturity or earlier redemption of the Bonds as set forth on the inside cover page of this Official Statement. Interest on the Bonds will be computed on the basis of a 360-day year consisting of twelve 30-day months. Redemption Provisions for the 2013A Bonds Optional Redemption. The 2013A Bonds are not subject to optional redemption prior to maturity. Redemption Provisions for the 2013B Bonds Optional Redemption. The 2013B Bonds maturing on and after August 15, 2024 are subject to redemption at the option of the District, in whole or in part on August 15, 2023 and on any date thereafter at the price of par plus accrued interest, if any, to the date of redemption. For as long as the Bonds are in book-entry only form, if fewer than all of the 2013B Bonds of a maturity are called for redemption, the selection of 2013B Bonds within a maturity to be redeemed will be made by DTC in accordance with its operational procedures then in effect. See Appendix C attached hereto. If the 2013B Bonds are no longer held in book-entry only form, the Paying Agent would select the 2013B Bonds for redemption by lot in multiples of $5,000 within each maturity. Notice of Redemption Notice of Redemption (Book-Entry). So long as the Bonds are in book-entry only form, Zions First National Bank acting as paying agent and register (the Paying Agent ) shall notify DTC of an early redemption not less than 30 days prior to the date fixed for redemption, and shall provide such information as required by the letter of representation on file with DTC in connection with the issuance of the District s bonds. (1) Preliminary, Subject to change.

8 Notice of Redemption (No Book-Entry). During any period in which the Bonds are not in book-entry only form, official notice of any redemption of the Bonds shall be given by the Paying Agent on behalf of the District by telecopy, facsimile, or similar electronic communications or by mailing a copy of an official redemption notice by first class mail, postage prepaid, at least 30 days and not more than 60 days prior to the date fixed for redemption, to the persons in whose names such bonds are registered (the Beneficial Owner(s) ) to be redeemed at the address shown on the bond register or at such other address as is furnished in writing by such Beneficial Owner to the Paying Agent, unless waived by any Beneficial Owner of the Bonds to be redeemed. Paying Agent and Registration Features Book-Entry System. The Bonds will be issued in fully registered form and, when issued, will be registered in the name of Cede & Co. as bond owner and as nominee for The Depository Trust Company ( DTC ). DTC will act as securities depository for the Bonds. Individual purchases and sales of the Bonds may be made in book-entry form only in minimum denominations of $5,000 within a single maturity and integral multiples thereof. Purchasers will not receive certificates representing their interest in the Bonds. See Appendix C attached hereto for additional information. Paying Agent. The principal of and interest on the Bonds will be payable by the Paying Agent to DTC, which, in turn, is obligated to remit such principal and interest to its participants ( DTC Participants ) for subsequent disbursement to the Beneficial Owners, as further described in Appendix C attached hereto. Interest on the Bonds shall be credited to the Beneficial Owners by the DTC Participants. Procedure in the Event of Revisions of Book-Entry Transfer System. If DTC resigns as the securities depository and the District is unable to retain a qualified successor to DTC, or the District has determined that it is in the best interest of the District not to continue the book-entry system of transfer or that interests of the Beneficial Owners of the Bonds might be adversely affected if the book-entry system of transfer is continued, the District will execute, authenticate and deliver at no cost to the Beneficial Owners of the Bonds or their nominees, Bonds in fully registered form, in the denomination of $5,000 or any integral multiple thereof within a maturity. Thereafter, the principal of the Bonds will be payable upon due presentment and surrender thereof at the principal office of the Paying Agent; interest on the Bonds will be mailed or caused to be delivered to the persons in whose names such Bonds are registered on the fifteenth day preceding the interest payment date and, if not a business day for the Paying Agent, the next preceding day that is a business day for the Paying Agent, and the Bonds will be transferable as provided in the Resolution (defined below). Authorization for Issuance The Bonds are issued pursuant to the applicable provisions of Chapter 11, Title 33, and Chapters 2 and 9,Title 57, Idaho Code, as amended (collectively, the Act ) and the resolution to be adopted on July 31, 2013 at a special board meeting (the Resolution ). A ballot measure allowing the District to issue general obligation bonds in the aggregate principal amount of up to $10,800,000 was approved by a favorable vote at an election held in the District on May 21, Final election results were as follows: Source: Latah County, May 21, Voter Tally Number of Votes Percentage of Total Votes Yes 2, % No 1, % Under Idaho law, a challenge to an election outcome must be filed within 40 days of the date of canvass. Latah County (the County ) canvassed the final election results on May 29, 2013; therefore the 40-day challenge period expired on July 8,

9 Purpose Purpose and Use of Proceeds The Bonds are being issued for the purpose of financing the costs of renovating, remodeling and adding to existing equipment and making safety and security improvements throughout the District and to pay the costs of issuance of the Bonds (the Project ). Sources and Uses of Funds The proceeds from the Bonds are to be applied as follows: Sources and Uses of Funds (2) Sources of Funds Par Amount of 2013A Bonds $ Par Amount of 2013B Bonds Total Sources of Funds $ Uses of Funds Project Deposit $ Issuance Costs (1), Underwriters Discount and Contingency Total Uses of Funds $ (1) Includes: bond counsel, paying agent, rating and credit enhancement fees. (2) Amounts will be provided in the final Official Statement. Security for the Bonds General The Bonds are general obligations of the District and the full faith, credit and resources of the District are pledged for the punctual payment of the principal of and the interest on the Bonds. The Bonds are secured by ad valorem taxes to be levied against all taxable property within the District. More specifically, for the purpose of paying the principal of and interest on the Bonds as the same will become due, the District will levy on all taxable property located within the District, in addition to all other taxes, direct annual taxes sufficient in amount to provide for the payment of principal of and interest on the Bonds. The taxes, when collected, are required to be applied solely for the purpose of payment of principal and interest on the Bonds and for no other purpose until the Bonds have been fully paid, satisfied and discharged. The District may, subject to applicable laws, apply other funds available to make payments with respect to the Bonds and thereby reduce the amount of future tax levies for such purpose. The Bonds have the benefit of the Sales Tax Guaranty and the Credit Enhancement Program, as described under the caption State of Idaho Guaranty. The Bonds will also be eligible for the Idaho School Bond Levy Equalization Support Program, which is described under the caption Bond Levy Equalization Support Program. Although the Bond Levy Equalization Support Program does not constitute security for the Bonds, it does provide a potential additional source of payment for the Bonds in the manner described. In compliance with the Sales Tax Guaranty Program (see State of Idaho Guaranty below), and the Resolution, at least 15 days prior to each interest or principal payment date for the Bonds, the District is required pursuant to the Resolution to transfer to the Paying Agent an amount sufficient to pay the principal of and interest on the Bonds then due and payable, and the Paying Agent is authorized and directed to apply such funds to said payment. (See State of Idaho Guaranty Guaranty Procedures. ) The Bonds do not constitute a debt or indebtedness of Latah County (the County ), the State (except as described below under State of Idaho Guaranty ), or any political subdivision thereof other than the District. 3

10 The Guaranty; Pledge of State Sales Tax State of Idaho Guaranty Payment of the principal and interest on the Bonds when due is guaranteed by the Idaho State School Bond Guaranty Program pursuant to the provisions of the Idaho School Bond Guaranty Act, Title 33, Chapter 53, Idaho Code (the Sales Tax Guaranty Program ) and the Credit Enhancement Program supported by the public school s endowment fund, pursuant to section , Idaho Code (the Credit Enhancement Program ) (the Sales Tax Guaranty Program and the Credit Enhancement Program, collectively referred to herein as the Programs ). School districts may have outstanding up to $20,000,000 of school bonds guaranteed by both the Programs and may obtain a guaranty solely by the Sales Tax Guaranty Program if bonds to be guaranteed or already guaranteed are in excess of $20,000,000. The Bonds are guaranteed by both Programs as further described herein. The Sales Tax Guaranty Program Any school district may apply to the Idaho State Treasurer (the State Treasurer ) for the State s guaranty of its eligible bonds. Pursuant to the Sales Tax Guaranty Program, the sales tax of the State is pledged to guarantee full and timely payment of the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, (i) refunding bonds issued on and after March 1, 1999, which meet certain requirements detailed below, (ii) for voter approved bonds which were voted on by the electorate prior to March 1, 1999 and (iii) voter-approved bonds for new projects which were voted on by the electorate on and after March 1, 1999, as such payments shall become due (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration) (the Guaranty ). The Guaranty is good for the life of the bond, even if the State Treasurer later determines a district is ineligible for future guaranties. See State Treasurer to Monitor District s Fiscal Solvency below. In addition, the Sales Tax Guaranty Program provides that the State pledges to and agrees with the holders of bonds guaranteed under the program that the State will not alter, impair, or limit the rights vested by the program with respect to bonds until the bonds, together with applicable interest, are fully paid and discharged. However, this pledge does not preclude an alteration, impairment, or limitation if adequate provision is made by law for the protection of the holders of the bonds. The District received a Certificate of Eligibility for the Bonds from the State Treasurer, issued on July 11, The Certificate of Eligibility evidences the District s eligibility for the Sales Tax Guaranty Program for 90 days from the date of issuance. Once the Bonds are issued pursuant to the Certificate, the Guaranty is in effect for so long as the Bonds are outstanding. Program Limitations. The State adopted a debt capacity policy on April 4, 2013 that caps the school bond guaranty program at the combined MADS (maximum annual debt service) of bonds issued by the Sales Tax Guaranty Program and The Idaho Bond Bank Authority at no greater than the prior Fiscal Year audited state sales tax revenue, divided by five (5). Credit Enhancement Program If approved to participate in the Sales Tax Guaranty Program, a school district may also apply to the Credit Enhancement Program. Pursuant to the Credit Enhancement Program, the endowment fund investment board (the Endowment Board ) is mandated to purchase notes issued by the State for the purpose of making debt service payments under the Sales Tax Guaranty Program. Under the Credit Enhancement Program, the following shall take effect in the event moneys from the sales tax are insufficient to pay the District s debt service payment under the Sales Tax Guaranty Program: (i) the Endowment Board may purchase on behalf of the public school endowment fund, or from other funds administered by the Endowment Board, notes from the State issued by the State Treasurer under such terms as are negotiated between the Endowment Board and the State Treasurer; or (ii) upon the request of the State Treasurer, the Endowment Board shall purchase on behalf of the public school endowment fund notes issued 4

11 by the State Treasurer, the proceeds of which shall be sufficient to pay debt service payments as they become due (the Notes ). The Notes shall bear interest at a rate equal to the annual rate of one year treasury bills, as published by the federal reserve, plus four hundred basis points, plus, for the first six months of the term of the Note, an amount, as determined by the Endowment Board, up to a maximum of fifty basis points, to cover all additional administrative and transaction costs related to the purchase of the Notes. The Notes will have a maximum term of one year, and may be renewed at the request of the State Treasurer; the Notes shall be repaid from the District s reimbursement payments pursuant to the Sales Tax Guaranty Program and the State may make additional payments on the Notes. The Endowment Board may require the State Treasurer to compel the District to modify its fiscal practices and its general operations if the Endowment Board determines that there is a substantial likelihood that the District will not be able to make future payments. Pursuant to the provisions of the Credit Enhancement Program, the Endowment Board shall make available $200,000,000 from the public school endowment fund for the purposes of purchasing Notes under this program, and the principal amount of bonds guaranteed by the Credit Enhancement Program shall not be greater than $800,000,000. The aggregate principal amount of school district bonds outstanding that may be guaranteed by the Credit Enhancement Program shall not exceed $20,000,000 per district. As of the date of this Official Statement the District will have only the Bonds guaranteed by the Credit Enhancement Program. The Endowment Board issued its Certificate of Approval of Credit Enhancement for the Bonds on July 11, 2013 to the District. The Certificate of Approval evidences the District s eligibility for the Credit Enhancement Program for 90 days following the issuance of the Certificate. Guaranty Procedures The Programs are for the protection of the bondholders. Ultimate liability for the payment of the Bonds remains with the District. Accordingly, the Sales Tax Guaranty Program contains provisions, including interception of state aid to the District, possible action to compel levy of a tax sufficient to reimburse the State for any payments made to bondholders pursuant to its Guaranty, and various oversight provisions to assure that the District, and not the State, will ultimately be responsible for debt service on the Bonds. Under the Sales Tax Guaranty Program, the District s Superintendent is required to transfer moneys sufficient for scheduled debt service payments on the Bonds to the Paying Agent at least 15 days before any principal or interest payment date for the Bonds. If the Superintendent is unable to transfer the scheduled debt service payment to the Paying Agent at least 15 days before the payment date, the Superintendent must immediately notify the Paying Agent and the State Treasurer. In addition, if the Paying Agent has not received the scheduled debt service payment at least 15 days prior to the scheduled debt service payment date for the Bonds the Paying Agent must notify the State Treasurer in writing at least 10 days prior to payment being due. The Sales Tax Guaranty Program further provides that if sufficient moneys have not been transferred to the Paying Agent, then the State Treasurer shall, on or before the scheduled payment date, transfer sufficient moneys to the Paying Agent to make the scheduled debt service payment. Payment by the State of a debt service payment on the Bonds discharges the obligation of the District to the bondholders for that payment to the extent of the State s payment, and transfers the District s obligation for that payment to the State. If one or more payments are made by the State Treasurer pursuant to the Sales Tax Guaranty Program, the State Treasurer shall immediately intercept any payments from any sources of operating moneys provided by the State to the District that would otherwise be paid to the District, and apply these intercepted payments to reimburse the State until all obligations of the District to the State arising from these payments are paid in full, including interest and penalties payable pursuant to the Sales Tax Guaranty Program. The State has no obligation to replace any moneys intercepted. The Sales Tax Guaranty Program obligates the District to reimburse all moneys drawn by the State Treasurer on its behalf, pay interest to the State on all moneys paid at not less than the average prime rate for national money center banks plus one percent (1%), and to pay any additional penalties, which may be imposed by the State Treasurer pursuant to the Sales Tax Guaranty Program at a rate of not more than five percent (5%) of the amount paid by the State pursuant to its Guaranty, for each instance payment is made. If the State Treasurer determines amounts obtained pursuant to the Sales Tax Guaranty Program will not be sufficient to reimburse the State within one year from a payment the State makes, the State Treasurer must pursue any legal action against the District necessary to compel it to levy and provide tax revenues sufficient to pay debt service and to meet its repayment obligations to the State. 5

12 The District may use property taxes or other moneys to replace intercepted funds if the moneys are derived from taxes originally levied to make the payment but which were not timely received by the District; taxes from a supplemental levy made to make the missed payment or to replace the intercepted moneys; moneys transferred from the undistributed reserve, if any, of the District, or any other source of money on hand and legally available. A District may not replace operating funds intercepted by the State with moneys collected and held to make payments on the Bonds if that replacement would divert moneys from the payment of future debt service on the Bonds and increase the risk that the Guaranty would be called upon an additional time. Since the inception of the Programs, the State has not been called upon to pay the principal of or interest on any bonds guaranteed under the State Sales Tax Guaranty Program or the Credit Enhancement Program. State Treasurer to Monitor District s Fiscal Solvency The Sales Tax Guaranty Program also charges the State Treasurer with the responsibility to monitor, evaluate and, at least annually, report his or her findings as to the fiscal solvency of each school district. Pursuant to the Sales Tax Guaranty Program, the State Treasurer will receive annual statements of the financial condition of the District and a copy of the complete audit of the financial statements of the District, which is prepared pursuant to Section , Idaho Code. The State Treasurer is also required to report his conclusions regarding the fiscal solvency of the District at least annually to the Governor, the Legislature, the Endowment Board and the State Superintendent of Public Instruction. In addition, the State Treasurer must immediately report any circumstances suggesting that the District will be unable to meet its debt service obligations and immediately recommend a course of remedial action. Status of the Programs The State has guaranteed the following under the Programs as of June 13, 2013: State Tax Guaranty Program and State Sales Tax Guaranty Progam (1) Credit Enhancement Program Number of School Districts Number of bond issues Total principal guaranteed $ 753,162,286 $ 497,314,286 (1) Districts included in the Sales Tax Guaranty Program column may also have bonds that are secured by both programs. Source: Office of the Idaho State Treasurer. State of Idaho Financial and Operating Information The State s Comprehensive Annual Financial Report ( CAFR ) may be obtained on the internet at Such information contained on the internet shall not be considered to be a part of this OFFICIAL STATEMENT and is not provided in connection with the offering of the Bonds. Ratings As noted on the cover page of this Official Statement, the District has applied for an underlying rating for the Bonds from Moody s Investors Service. The ratings once assigned will reflect only the views of the rating agency and an explanation of the significance of the ratings may be obtained from the rating agency. There is no assurance that the ratings will be retained for any given period of time or that the ratings will not be revised downward or withdrawn entirely by the rating agency if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of the ratings will be likely to have an adverse effect on the market price of the Bonds. 6

13 Bond Levy Subsidy Program Bond Levy Equalization Support Program In 2002, the State created a bond levy equalization support program (the Bond Levy Subsidy Program ) which provides for a subsidy payment (the Levy Subsidy ) from the State to school districts to offset a portion of the costs of annual bond interest and redemption payments made on bonds issued pursuant to voter authorizations adopted on or after September 15, Availability of the Levy Subsidy To determine the amount of the subsidy payment, the Idaho State Department of Education (the DOE ) calculates a value index (the Value Index ) annually for each school district based on the following three components: (i) the district s market value per support unit for equalization divided by two; (ii) the average annual seasonally adjusted unemployment rate in the county in which a plurality of the district s market value for assessment purposes (the Taxable Assessed Value ) is located; and (iii) the per capita income in the county in which a plurality of the district s Taxable Assessed Value is located. The Levy Subsidy payment to a district is determined by multiplying one, minus the district s Value Index, times the district s average annual principal and interest on bonded indebtedness, subject to the provisions that every district with a Value Index of less than 1.5 will receive a minimum payment of no less than 10% of its average annual interest payments. The DOE disburses Levy Subsidy payments no later than September 1 of each year. For newly-authorized bonds, school districts receive their first Levy Subsidy payment on September 1 of the year following the calendar year in which the bonds were issued. To be entitled to a Levy Subsidy payment from the DOE, a district is required to annually report the status of all qualifying bonds to the DOE by January 1 of each year, including bonds approved by the voters that have not been issued. Information submitted includes the following: (1) the actual or estimated bond interest and redemption payment schedule; (2) any qualifying bond that has been paid in full; and (3) other information as may be required by the DOE. The 2013 Legislature appropriated $17,400,000 for Levy Subsidy for Fiscal Year 2014 disbursement, which will be disbursed to qualifying schools on September 1, Benefit of Levy Subsidy to the District Amounts available for Levy Subsidy payments are subject to appropriation by the State Legislature each year. Based on information provided by the DOE, the District s value index for Fiscal Year 2013 (a fiscal year begins on July 1 and ends the following June 30) is approximately which would entitle the District to receive an annual subsidy payment equal to ten percent of the average annual interest cost on the Bonds. The Value Index for future fiscal years (beginning with Fiscal Year 2014) will be recalculated annually by the DOE and provided each August, shortly after the beginning of the applicable fiscal year. Based on information provided by the District, the District s Value Index for Fiscal Year 2014 is not expected to exceed the 1.50 index cap. If the District s Value Index is above 1.50 for any fiscal year during the repayment of the Bonds, the District will not receive a subsidy payment for that fiscal year. The District is eligible to receive a Levy Subsidy for the Bonds beginning September 2014 which will apply to Fiscal Year 2014 and Fiscal Year 2015 payments. The District has covenanted in the Resolution to comply with the information requirements of the DOE to receive the Levy Subsidy. Bonded Indebtedness Debt Limitation Section , Idaho Code, establishes limits on bonded indebtedness for school districts in Idaho. An elementary school district that employs not less than 6 teachers, or a school district operating an elementary school or schools, and a secondary school or schools, or issuing bonds for the acquisition of a secondary school or schools, may issue bonds in an amount not to exceed 5 percent of the Taxable Assessed Value plus all 7

14 taxable property excluded from taxation pursuant to Idaho Code, G (the Full Market Value ), less the Aggregate Outstanding Indebtedness (hereinafter defined); and no other school district shall issue bonds in an amount that exceeds at any time 2 percent of the Taxable Assessed Value thereof less the Aggregate Outstanding Indebtedness. Aggregate Outstanding Indebtedness means the sum of unredeemed outstanding bonds, minus all moneys in the bond interest and redemption funds, and minus the sum of all taxes levied for the redemption of such principal of the bonds. The Full Market Value, Aggregate Outstanding Indebtedness and the unexhausted debt-incurring power of a district shall each be determined as of the date of approval by the electors in the school bond election. The Bonds are general obligation bonds subject to this debt limitation. Debt limitation is calculated as shown in the following table. General Obligation Debt Capacity (As of the Date of Delivery) The following table shows the general obligation debt capacity of the District. Full Market Value (as of September 2012) $ 1,665,172,917 General Obligation Debt Capacity: (5% of Full Market Value) $ 83,258,646 Less: Outstanding Debt subject to limit 10,505,000 Plus: Other Statutory Adjustments 0 (1) (2) Remaining Legal General Obligation Debt Capacity $ 72,753,646 Percent of Capacity Issued 12.61% (1) Represents voter-approved general obligations of the District, and the effects of this Bond issue. (2) Plus all moneys in the bond interest redemption fund, less the sum of all taxes levied for the redemption of such principal of the Bonds (See Debt Limitation above.) Source: Audited Financial Report for the Year Ended June 30, Long-Term Borrowing Outstanding Long-Term Debt (As of the Date of Delivery; includes the Bonds) General Obligation Bonds Date of Issue Date of Maturity Amount Issued Amount Outstanding Series 2013A (1) 8/15/2013 8/15/ , ,000 Series 2013B (1) 8/15/2013 8/15/2033 9,595,000 9,595,000 Total Outstanding Long-term Debt $ 10,505,000 $ 10,505,000 (1) This issue. Preliminary, subject to change. Source: Audited Financial Report for the Year Ended June 30, 2012 and the District. Short-Term Borrowing Under the Idaho Code, the District is permitted to borrow up to an amount not to exceed 75 percent of: (a) the taxes levied but uncollected for the current Fiscal Year (the fiscal year includes July 1 to June 30), exclusive of taxes raised or required to be raised to pay the principal of outstanding bonded indebtedness of the District; (b) (c) anticipated distribution from the public school income fund not yet collected for the current Fiscal Year; and other revenues anticipated, and not yet collected for the current Fiscal Year. 8

15 If the tax levy or budget for any Fiscal Year has not been completed, then the amount borrowed cannot exceed 75 percent of the taxes levied or State funds or other revenues received by the District in the previous Fiscal Year. The District does not currently have any short-term notes outstanding, nor does it have plans to issue any notes at this time. Projected Debt Service Requirements The 2013A Bonds (1) The 2013B Bonds (1) Calendar Total Year Principal Interest Principal Interest Debt Service 2013 $0 $0 $0 $0 $ ,000 19, , , ,000 12, , , ,000 4, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 73, , ,000 37, ,750 Totals $910,000 $35,000 $9,595,000 $5,271,100 $15,811,100 (1) This issue. Preliminary, subject to change. 9

16 Overlapping Debt The estimated portion of general obligation debt of taxing jurisdictions that overlap the District is called overlapping debt. The portion of overlapping debt allocated to the District s property owners is summarized below. Summary of Overlapping Debt Overlapping District Taxable Assessed Value Overlapping Outstanding Debt (1) Percent Overlap City of Moscow $ 1,050,182,652 $ 1,575, % (1) Overlapping Debt includes all voter approved general obligation bonds. Self-supporting bonds are excluded. Source: Office of the County Assessor Debt Ratios The following table presents information regarding the District s Direct Debt, including the effects of the Bonds, and the estimated portion of the debt of overlapping taxing districts allocated to the District s property owners. Taxable Assessed Value (1) $ 1,320,460,577 Full Market Value (2) $ 1,665,172,917 Estimated Population (3) 24,080 Debt Information Net Direct Debt (Includes Bonds; Excludes refunded bonds) (4) $ 10,505,000 Estimated Net Overlapping Debt (4) 1,575,000 Total Net Direct and Overlapping Debt (4) $ 12,080,000 Bonded Debt Ratios To Taxable Assessed Value Net Direct Debt (4) 0.80% Net Direct and Overlapping Debt (4) 0.91% Per Capita Taxable Assessed Value 54,836 Bonded Debt Ratios to Full Market Value Net Direct Debt (4) 0.63% Net Direct and Overlapping Debt (4) 0.73% Per Capita Full Market Value 69,152 Bonded Debt Ratios Per Capita Net Direct Debt (4) $ 436 Per Capita total Net Direct and Net Overlapping Debt (4) $ 502 (1) The Taxable Assessed Value is the value against which tax levies are applied. (2) Each year all taxable property must be assessed at 100 percent of the current market value (referred to as either the Full Market Value or Full Taxable Value ). (3) Source: The District (4) Net Direct Debt and Net Overlapping Debt includes all property tax-supported bonds. Self-supporting bonds and limited tax obligations, such as revenue bonds and capital leases, are excluded. 10

17 Debt Payment Record The District has promptly met principal and interest payments on outstanding bonds and other indebtedness in the past ten years when due. Additionally, no refunding bonds have been issued for the purpose of preventing an impending default. Future Financings Other than the Bonds, the District has no authorized but unissued bonds outstanding, nor does it anticipate issuing additional long-term debt within the next two years. Taxes and State Funding Overview This section describes the process for levying and collecting taxes, as well as receipt of State resources. The District s financial statements and recent budgets are summarized herein under Financial Factors. Significant recent changes to State funding sources are described below and under the heading entitled State of Idaho School Finance. Operating Resources. The District receives revenues from two primary sources for operations: State and local sources. In Fiscal Year 2012, State sources represented 53.4 percent of the District s total General Fund revenues, local sources represented 44.5 percent. See Financial Factors--General Fund Statement of Revenues, Expenditures and Changes in Fund Balance herein. The District expects to receive approximately 49.0 percent of Fiscal Year 2014 budgeted General Fund revenues from State sources and 50.7 percent from Fiscal Year 2014 local sources. Resources for Capital Projects. The District may pay for capital improvements from unappropriated resources, voter-approved general obligation bonds, voter-approved special plant facilities levies, and donations. General obligation bond levies and special plant facilities levies are property tax levies that are certified above and beyond all other amounts certified to be levied and collected. Property Taxes Tax Levy Procedure. Prior to the commencement of each Fiscal Year, the Board adopts a resolution to adopt its annual budget and approve submission of its property tax levies to the Board of County Commissioners. The budget and tax levy process is described under Financial Factors--Budgetary Process and Controls herein. The District s tax levy is certified to the Board of County Commissioners in September. Ad Valorem taxes, including delinquent taxes and penalties, are collected by the treasurer of the County. The taxes are due and payable in two equal installments on December 20 of the tax year (the Tax Year is each January 1 through December 31) and June 20 of the following year. The treasurer of the County disburses tax receipts to the District approximately one month after the statutory payable dates. The District may levy the following ad valorem taxes for the following purposes: Supplemental Levy. Pursuant to Idaho Code Section (5), after at least seven consecutive annual elections wherein the electors of a school district approve a supplemental levy in an amount equal to or greater than 20% of the district s total general maintenance and operations fund, a school district may submit the question of an indefinite term supplemental levy for approval by a majority of the electors. In 1991, the electors of the District approved the District s question of an indefinite levy and in the years 1995, 2002, 2007 and 2011 approved increases to the indefinite levy. The District currently certifies the amount of $9,586,000 for its indefinite supplemental levy. Emergency, Judgment and Tort Levies. Taxes may be levied and collected for the purpose of paying for a specific, unanticipated expenditure, judgment, or legal claim for which funds were not budgeted in the prior year. The District has levied a Tort Levy in each of the past five years. Tuition Levy. When a pupil leaves the school district of his residence to attend a nonresident school, the receiving district is authorized to charge for the tuition of its nonresident pupils where tuition has not been waived. The resident district is authorized pursuant to section , Idaho Code, to make a levy above 11

18 the maintenance and operation levy for the purpose of paying tuition costs of its students who, under the authorization of the board of trustees of the district, attend school in another district either in or out of Idaho. The District currently does not have a Tuition Levy and has not had one in the past five years. Plant Facilities Levy. Section , Idaho Code, provides for a school district to request voter approval of an annual plant facilities levy. The annual dollar amount of the levy requested is limited to an amount that does not exceed four-tenths of one percent (0.4%) of the Taxable Market Value of a school district as of December 31 of the year immediately prior to the year of election. The collection term of a plant facilities levy is limited to 10 years. The District has not had a plant facilities levy in the past five years. Bond Levy. Subject to voter approval and debt limitations (see Bonded Indebtedness-Debt Limitation herein), the District may levy an ad valorem property tax for the purposes of repaying voter approved debt for specific capital projects. The District currently does not have a bond levy but will certify a bond levy in September 2013 to repay the Bonds. Ad Valorem Tax Levy Rates for the District (Levy Rate per $1,000 of Taxable Assessed Value) Tax Year Supplemental M&O Tort Total Levy Rate Source: Idaho State Department of Education, Tax Levies for School Purposes, and the District. Overlapping Taxing Districts. The overlapping taxing districts within the District have the statutory power to levy regular property taxes. Representative levy rates for each type of overlapping district from the County are listed below: Representative Levy Rates Tax Year 2012 Representative Levy Taxing District Rates Per $1,000 Latah County Latah County Library City of Moscow Moscow Bonds HB Moscow School District No North Latah Highway Moscow Cemetery Genesee Joint Fire District Viola-Rock Cemetery Moscow Fire District Troy Recreation Source: Associated Taxpayers of Idaho. 12

19 The County Assessor annually assigns valuation of market value for assessment purposes to all taxable real and personal property within the County. The following table shows the history of total property values for the District during the last six years. District Property Values Tax Year Full Market Value (1) % Annual Change in Full Market Value Homeowner's Exemption (2) Taxable Assessed Value (3) % Annual Change in Net Market Value Urban Renewal (4) ,665,172, % 344,712,340 1,320,460, % 27,194, ,645,607, % 368,353,780 1,277,253, % 29,445, ,639,650, % 389,812,813 1,249,838, % 29,247, ,612,938, % 393,222,191 1,219,716, % 25,325, ,580,601, % 381,714,630 1,198,887, % 17,743, ,493,174, ,347,145 1,150,827,099 16,412,315 (1) Each year all taxable property must be assessed at 100 percent of the current market value. (2) Homeowner s Exemption adjusts annually by the percentage change in the Idaho Housing Price Index. See Homeowner s Exemption herein. (3) Taxable Assessed Value is the Full Market Value less statutory exemptions. Statutory exemptions include a homeowner s exemption and property tax reductions, known as the Circuit Breaker Property Tax Relief Program. The Taxable Assessed Value is the value against which tax levies are applied. (4) Incremental value assessed to that portion of the Urban Renewal Areas that lie within the District. Source: Idaho State Tax Commission, September 30, Property Tax Collections Ad valorem taxes, including delinquent taxes and penalties, are collected by the treasurer of the County. The taxes are due and payable in two equal installments on December 20 of the Tax Year and June 20 of the following year. The District receives tax receipts in January and July, one month following collection by the County. District Property Tax Collection Tax Year Total Certified Levied Taxes Collected Percent Collected 2012 $ 9,886,862 $ 5,673, % (1) ,864,796 7,730, % ,862,682 7,763, % ,882,948 7,826, % ,864,228 7,816, % (1) Reflects only first half tax collections due on December 20th. Second half tax collections are due June 20th and remitted to the District no later than the end of July. Source: Office of the County Treasurer, May

20 Homeowner s Exemption The homeowner s exemption provides a permanent exemption from ad valorem taxation for 50% of the market value for assessment purposes of a homeowner s primary residence including up to one acre of the land value, up to a maximum of $81,000 (the Homeowner s Exemption ) for Tax Year 2013, which represents a decrease from Tax Year The maximum amount of the Homeowner s Exemption is adjusted annually by the percentage change in the Idaho Housing Price Index as determined by the United States Office of Federal Housing Enterprise Oversight. History of Homeowner s Exemption Tax Year Maximum Exemption % Change 2013 $ 81, % , % , % , % ,471 Source: Idaho State Tax Commission Legislation Affecting Personal Property Tax The Bonds are secured by an unlimited tax on taxable property in the District. Taxable property includes real property and personal property. In 2008, the Legislature amended Idaho Code Section KK to exempt the first $100,000 of personal property tax value effective the year after the state general fund revenues increase 5% over the fiscal 2008 base year. The 2013 Legislature adopted HB 315 which creates a new $3,000 exemption on a de minimus item of taxable property, includes operating property in the exemption (which was excluded in the 2008 legislation) and triggers the $100,000 exemption on business personal property on January 1, Section KK contains a provision for appropriations from the State sales tax receipts to taxing districts to replace the lost revenues, estimated at $20,000,000. Because of the replacement provision, the District does not expect HB 315 to have an effect on the District s finances. However, there is no assurance the Legislature will appropriate sufficient moneys in future years to replace the lost revenues. 14

21 Major Taxpayers Following is a list of the District s top ten taxpayer accounts by Taxable Assessed Value. The District (Top Ten Taxpayer Accounts) (As of January 2013) Owner Type of Business District Taxable Value % of District's Tax Assessed Value Avista Corp. Utility $ 18,122, % P.E.M. Management Palouse Mall 15,602, % Hill Rental Properties Real Estate 14,123, % The Grove Apartments Real Estate 12,980, % Wal-Mart Real Estate Bus. Trust Commercial Real Estate 10,940, % Frontier Communications NW Communication 7,401, % Good Samaritan Society Senior Care Services 5,310, % Hagadone Hospitality Best Western Hotel 4,658, % Eastside Marketplace Retail Businesses 4,618, % Madee, LLC Real Estate 4,075, % Top 10 Taxpayers 97,831, % All other District Taxpayers 1,222,628, % Total District Taxpayers (Tax Year 2012) $ 1,320,460, % Source: Office of each County Assessor and/or Treasurer. State of Idaho School Finance General The Legislature appropriates state and federal moneys for support of public school districts (the Schools Appropriation ). The Schools Appropriations are deposited into the Public School Income Fund for further distribution by the DOE to school districts pursuant to a formula set forth in Idaho Code Section and accompanying rules and regulations of the DOE. See State Support to the District below. The State sets an annual budget based on the State s fiscal year which begins on July 1 and ends on the following June 30. Both the executive and legislative branches play a role in the budget setting process. All State agencies, including the DOE, submit a budget request to the Division of Financial Management (the DFM ) in the Governor s office and to the Legislative Services Office not later than September 1 of each year. The Governor, through DFM, then prepares a proposed budget for the subsequent fiscal year, and the Governor submits this budget recommendation to the Legislature within five days after the commencement of the annual legislative session in early January. The Governor s budget recommendation is based on revenue projections developed by DFM. A joint committee composed of the Senate Finance Committee and the House Appropriations Committee ( JFAC ) then initiates legislative action on the state budget. Taking into account the Governor s recommendation, JFAC hears presentations of, or reviews without hearings, budget requests of all State agencies and drafts a series of appropriation bills that are sent to the entire legislative body. The JFAC budget is based on the revenue projections of a joint legislative economic outlook committee. Upon passage by each legislative body, the appropriation bills for each agency are sent to the Governor for signature. The Governor has line item veto power for distinct appropriations. The Idaho Constitution requires a balanced budget, stating that appropriations must match the projected revenues currently provided for by law. 15

22 The Legislature usually adjourns before April 15, once it has adopted a budget, set appropriations for the upcoming fiscal year, and, if necessary, revised the current fiscal year s budget. The appropriations, as enacted by the Legislature, constitute the limit for each agency s authorized expenditures, subject to limited flexibility for emergency situations and/or unanticipated revenue. If during the course of a fiscal year the Governor determines anticipated revenues expected to be available fail to meet the Legislature s authorized expenditures, the Governor may issue an executive order to reduce ( Holdback ) the spending authority on file in the office of the State Controller for any department, agency, or institution of the State. Beginning July 1, 2003, the State established an Education Stabilization Fund (the Stabilization Fund ). The Stabilization Fund acts as a reserve account from which the State can draw funds to make up revenue shortfalls and into which funds are deposited in times of surplus. Appropriations to Public Schools The State has taken a number of actions in the last five fiscal years to manage the School Appropriations in reaction to the 2008 Recession and the continuing weakness in the economy which adversely affected State General Fund revenues. General Fund revenues in the Fiscal Year ended June 30, 2008, the last full year before the 2008 Recession, were $3,151,399,000, but declined to $2,510,307,000 in the Fiscal Year ended June 30, 2010, and recovered to $2,818,616,000 in the Fiscal Year ended June 30, In this environment, the State utilized one-time monies from federal American Recovery and Reinvestment Act ( ARRA ) and State endowment funds and withdrew funds from the Stabilization Fund to partially offset the reduction in appropriations from the State General Fund in order to sustain the School Appropriations. Notwithstanding these actions, the overall Schools Appropriations have declined in absolute dollars from Fiscal Year 2009 to Fiscal Year 2013 even though the statewide student population increased from approximately 275,000 to approximately 285,000 over the same period. School Appropriations for Fiscal Year 2009 through Fiscal Year 2014 are presented in the table below. Historical State Appropriations Fiscal Years General Fund $1,308,365,400 $ 1,279,818,600 $ 1,223,580,400 $ 1,214,280,400 $ 1,148,615,300 $ 1,333,445,100 Transfer - Public Education Stabilization Fund 0 (4) ,255,500 85,097,600 (1) Dedicated Funds: (2) 74,567,600 66,873,400 68,547,400 91,054,700 64,146,200 64,405,700 Title 14 ARRA Stimulus Funds ,406, ,248,800 0 Federal Funds 215,223, ,121, ,941, ,587, ,588, ,000,000 Total State Appropriation $1,598,156,500 $ 1,566,813,100 $ 1,561,069,300 $ 1,582,328,500 (3) $ 1,710,854,300 $ 1,697,948,400 (1) Because the State received ARRA stimulus funds for education, the 2009 Legislature appropriated $85,097,000 back to the Stabilization Fund from the general fund to replenish this amount and reserve for future use. (2) Includes Lottery Receipts, Endowment Fund Receipts, Miscellaneous Receipt Balances, and Cigarette Taxes and Lottery Income. (3) Does not include $59,934,000 of one-time funds received in July 2011 but attributed to Fiscal Year 2011 under Federal Education Maintenance of Effort Requirements. Districts could use these funds as discretionary funds and thus were able to restore their fund balances, but the additional funding was a one-time event resulting from a surplus in the General Fund at June 30, The Legislature made no provision for a similar contribution to public schools from the surplus at the end of Fiscal Year 2012 or Fiscal year Rather, the Legislature indicated its intent to treat surpluses in future years in a manner consistent with prior practice, which was to make a deposit into the Stabilization Fund. The balance in the Stabilization Fund at June 30, 2012 was $37,000,000, an increase from $11,000,000 at June 30, (4) Based on revenue projections and appropriations by the 2013 Legislature, the expected balance in the Stabilization Fund at June 30, 2013 will be $49,242,000. Source: Idaho Legislature 2013 Sine Die Report State of Idaho Major Reserve Fund Balances. 16

23 State Funding Schedule (Fiscal Year 2013) Payment Date Payment Amount (1) August 15 30% October 1 30% November 15 20% February 15 10% May 15 10% July 15 Final payment adjustment for the Fiscal Year ending the previous June 30. (1) Percentages are an approximation of the distribution to be received; final amounts may vary. Reform Legislation For the last several legislative sessions, the Legislature has enacted various programs to enable school districts to control their expenditures in circumstances of uncertain and volatile funding. None of these legislative initiatives adversely affects the District s ability to pay debt service on the Bonds, which is funded from local property tax revenues allowed to be levied without limitation as needed to pay debt service on the Bonds. The 2009 and 2010 Legislatures enacted legislation to allow districts to reopen salary and benefit provisions in negotiated agreements upon the determination of a financial emergency, as defined in such enactments (the Financial Emergency Legislation ). The 2011 Legislature enacted a series of bills making significant changes in the public education system in Idaho (the Reform Legislation ). The Reform Legislation included three primary components: modifications to the labor relations and professional negotiations process and entitlements; changes to teacher contracts, including instituting a pay-for-performance system; and technology initiatives requiring implementation of online delivery of education and providing laptops to students. Because the portion of the Reform Legislation relating to labor negotiations limited the length of negotiated agreements to one year, it simultaneously repealed the Financial Emergency Legislation. The Reform Legislation was subjected to a voter referendum at the November 2012 general election and all three components of the Reform Legislation were defeated. In light of the defeat of the Reform Legislation, the Governor announced in January 2013 the formation of a broad-based task force to make recommendations on future education reform proposals prior to the 2014 legislative session. The 2013 Legislation, as defined below, also created an interim committee comprised of legislators to be appointed by the Legislative leadership to study of how to improve and strengthen Idaho's K- 12 educational system and report its findings to the 2014 Legislature. Accordingly, the consideration of significant proposals on the scale of the Reform Legislation was deferred until However, in the meantime the 2013 Legislature enacted several bills to address certain of the consequences of the defeat of the Reform Legislation. The 2013 Legislation includes: (1) because an effect of the rejection of the Reform Legislation was to reinstate the Financial Emergency Legislation, the 2013 Legislature reviewed and modified the requirements for declaring a financial emergency. (2) the 2012 Legislature had allocated approximately $30,600,000 for appropriation under the Reform Legislation as adopted. The rejection of the Reform Legislation had the effect of depriving these funds of legal basis for expending them. The 2013 Legislation reallocated this amount, in accordance with funding formulas existing prior to the Reform Legislation, so that school districts received funds for Fiscal Year 2013 that they had expected. 17

24 (3) the Reform Legislation had provided funding to hire additional math and science teachers, or pay for the necessary online math and science classes, but the defeat of the Reform Legislation eliminated this funding, and so the 2013 Legislation restored funding for math and science courses. (4) the Reform Legislation had provided that school districts publish their budgets on-line, and that contract negotiations are conducted in public meetings. The 2013 Legislation restored these provisions. The most significant component of the Reform Legislation relating to the negotiation of contracts with certified (teacher) contracts was the enactment of the last best offer provision. This provision enabled a school district to impose its last best offer for salary and benefit contractual provisions in the event negotiations over contracts reached an impasse. The 2013 Legislation did not restore this provision, however the Idaho Attorney General has opined that because a District is required to deliver contracts by July 1 of each year, the District may do so on the basis of its last best offer even if the negotiations are not at an impasse. Other Actions of the 2013 Legislature The 2013 Legislature created a funding formula to appropriate state general fund monies to be used by charter schools for facility funding. The amount of moneys for public charter school facilities will be based upon a percentage of the average amount of facility levy funds being raised by school districts, on a per-student basis. Approximately $1,400,000 was appropriated for Fiscal Year 2014 for this purpose. This does not apply to the District. The 2013 Legislature adopted HB 218 that made technical corrections to the provisions of Idaho Code relating to issuance of school bonds. This legislation takes effect July 1, 2013, and applies to the issuance of the Bonds, as applicable. The principal substantive amendment in HB 218 is the increase from 20 years to 30 years for the allowable maturity of school bonds. The 2013 Legislature also adopted certain reforms to the state property tax. See 2013 Legislation Affecting Personal Property Tax herein. Impact of State Funding on the District In Fiscal Year 2012, the most current available audited numbers, the dedicated and appropriated funding sources from the State account for approximately 53.4 percent of the District s budgeted General Fund revenue. A summary of funds the District has received from the State over the past five years follows: State Support to the District (Fiscal Years) August $2,723,271 $ 2,770,128 $ 2,864,289 $ 3,212,863 $ 3,399,454 $ 3,315,268 October 2,721,929 2,771,545 2,874,399 3,231,689 3,411,745 3,323,969 November 1,831,614 1,855,215 1,919,632 2,156,371 2,275,029 2,218,474 February 1,201, ,135 1,070,196 1,065, ,022 1,166,809 May/June 965,918 1,112,992 1,054,973 1,278,273 1,321,618 1,258,247 Total (1) $ 9,443,916 $ 9,304,015 $ 9,783,489 $ 10,944,422 $ 11,406,868 $ 11,282,767 (1) Totals may not track due to rounding. Source: The District. The District Idaho school districts are political subdivisions empowered to provide elementary and secondary educational services. Their operations are supported primarily by State funds, property taxes (the most significant local revenue source), and federal grants. School districts are governed by a board of trustees elected by the voters of the school district. The chief administrative officer is a superintendent chosen by the board of trustees. 18

25 Description The District encompasses approximately 118 square miles in Moscow, Idaho with an estimated population of 24,080 (1). The District s administrative offices are in the City of Moscow (the City ), The District serves the community of Moscow and unincorporated areas of Latah County within its boundaries. (1) Source: The District Enrollment Following is a table showing the historic and projected enrollment for the District. Historical and Projected Enrollment Fiscal Year Elementary Middle Secondary Total ADA 2015 (1) ,293 NA 2014 (1) ,293 NA 2013 (2) ,293 2, (3) 1, ,311 2, (3) 1, ,339 2, (3) 1, ,353 2, (3) 1, ,404 2, (3) 1, ,448 2,305 (1) Estimates based on District s projections. The District makes no assurance that the projections will be achieved; actual results may differ materially from the forecasts shown above. (2) Actual enrollment as of May 25, (3) Historical enrollment as of Fall each year. Source: The District. Average Daily Attendance The amount of State funding provided to each school district is determined, in part, by support units calculated for each district, which units are calculated largely based on average daily attendance ( ADA ) at each district. In the event a district s annual ADA drops for a period of one year, Idaho Code provides for only a minimal percentage decrease in funding to allow the district one year to adjust to the lower ADA. Although the District s ADA has remained relatively stable to date, students of the District could be recruited to a number of area charter schools or could petition to enroll in a neighboring school district, which would result in a loss of state funding based on the District s decreased ADA. Staff The District employs 343 persons in the following capacities: 159 certified teachers; 24 supervisory and clerical personnel; 18 maintenance employees; 92 teachers aides; 17 food service employees; 13 administrators and 20 bus drivers. The District s FY 2014 teacher contracts are currently in process. 19

26 The Board of Trustees The District is governed by a five member Board serving staggered, four-year terms of office. The Board is a policy-making body whose primary function is to establish policies for the District, to oversee the property, facilities and financial affairs of the District and to appoint the District s chief administrative officer, the superintendent. The members of the Board serve without compensation. Following is a table showing the current Board membership, the occupation and the date of expiration of each member s current term. Name Position Occupation Term Expires June 30 Dawn Fazio Chair Business Owner 2015 Kim Campbell Vice Chair Plant Science Prof Jim Frenzel Trustee EE Professor 2017 Aleisa Barber Trustee Home Maker 2015 Margaret Dibble Trustee Plant Scientist 2015 Key Administrative Officials The day-to-day affairs of the District are managed by a professional administrative staff which includes the following principal officials: Greg Bailey, Superintendent: Mr. Bailey has been an educator for 27 years, of which 21 years have been in some form of education administration. In the past five years Mr. Bailey has been in the position of superintendent of the Mountain View School District, which provides educational services in Elk City, Kooskia, and Grangeville. During those five years he has worked with a ten million dollar annual budget and has successfully passed five supplemental levies. Mr. Bailey was appointed superintendent effective July 1, 2013 upon the retirement of Mr. Dale Kleinert, who served as an Idaho educator, administrator and Superintendent of the District for the District in Moscow for the past 31 years. Deb Adair, Business Manager: Deb Adair has served as Moscow School District s Business Manager / Treasurer since She has an undergraduate degree in Organizational Management from Whitworth University and is a Certified Administrator of School Finance and Operations. When Ms. Adair joined the District, she was contributing over twenty-five years of experience from the private sector in the areas of leadership and employee development, quality systems, human resources and accounting. Financial Factors Accounting Policies The basis of accounting for all governmental funds of the District, including the General Fund, is the modified accrual basis of accounting. Their revenues are recognized when they become measurable and available as net current assets. Their expenditures are generally recognized when the related fund liability is incurred. Financial Reporting The financial statements of the District are prepared in accordance with accounting principles generally accepted in the United States of America ( GAAP ), as prescribed by the Governmental Accounting Standard Board ( GASB ). In addition to presenting the financial position, results of operations and changes in financial position of the District s funds, the financial statements reconcile differences in reporting activities between the budgetary basis, as presented in the annual approved budget, and the generally accepted accounting principles as is used in the preparation of the financial report. GASB 34. The District has implemented the financial reporting model required by GASB Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments. The District follows the business-type activities reporting requirements of GASB-34 that provides a comprehensive one-column look at the District s financial activities. 20

27 The District s basic financial statements consist of government-wide financial statements, fund financial statements and notes to the basic financial statements. The government-wide financial statements include the following statements: (1) Statement of Net Assets. This statement presents information on all of the District s assets and liabilities at the end of a given fiscal year. Net assets are what remain after the liabilities have been paid or otherwise satisfied. (2) Statement of Activities. This statement presents information showing how the District s net assets changed over a Fiscal Year by tracking revenues, expenses and other transactions. All changes in net assets are reported as soon as the underlying event occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in the audited financial statements that will only result in cash flows in future fiscal periods, such as uncollected taxes and earned but unused, vacation leave. Fund Accounting. The District maintains three major governmental funds and one fiduciary fund. Financial statements for such funds provide more detailed information on specific funds, rather than on the District as a whole. General Fund. This fund is used to account for all expendable financial resources, except those required to be accounted for in another fund. Debt Service Fund. This fund is used to account for revenue sources that are legally restricted for the payment of general long-term debt principal, interest and related expenditures. Capital Construction Projects Fund. This fund accounts for the resources accumulated and expenditures made for the acquisition and construction of capital assets. Special Revenue Fund. Special Revenue Funds are used to account for the proceeds of specific revenue sources that are generally restricted to expenditures for specific purposes. The District has 16 Special Revenue Funds. Additional information on the District s accounting methods is available in the District s audited financial statements, a copy of which is attached hereto. Auditing Each State municipal corporation, with annual expenditures in excess of $250,000, must obtain an audit and examination of its funds and account groups at least once each year pursuant to Idaho Code as required in B. Municipalities having annual expenditures of less than $50,000, with the exception of those entities receiving federal assistance, are exempt from this requirement. Municipalities with annual expenditures more than $100,000 but less than $250,000 must obtain a biennial audit. All State school districts, regardless of amount of annual expenditures and pursuant to Idaho Code , must obtain an audit annually. The required audit may be performed by independent public accountants certified by the State as capable of auditing municipal corporations. The District audits for the fiscal years 2008 through 2012 were performed by Hayden & Ross, P.A. of Moscow, Idaho (the District s Auditor ). The audit reports indicate the financial statements fairly present the District s financial condition and the results of its operations and the cash flows of its proprietary fund types are in conformance with GAAP. Accordingly, the District s Auditor did not perform any procedures relating to any of the information in this Official Statement. The audited financial statements of the District as of June 30, 2012 are attached to this Official Statement as Appendix B. Any prior historical audits would need to be obtained from the District. Summaries of the District s Net Assets and Changes in Net Assets follow. The Statement of Net Assets and Changes in Net Assets are in conformance with GASB-34. The Statement of Net Assets presents information on all the District s assets and liabilities with the difference between the two reported as net assets. 21

28 Assets Statement of Net Assets (Fiscal Years) Cash and investments 3,939,158 (1) $ 5,353,410 $ 5,029,964 $ 5,186,074 $ 4,327,351 Property taxes 359, , , , ,629 Other governement 3,568,000 4,031,839 3,620,304 3,153,189 3,276,930 Capital assets 274, , , , ,207 Total Curent Assets $ 4,202,210 $ 9,915,761 $ 9,251,227 $ 8,810,328 $ 8,022,117 Non-deprecitated capital assets 533, , , , ,161 Depreciated assets 4,452,471 4,269,987 3,999,149 4,714,636 4,750,197 Liabilities Total Non-current Assets $ 4,985,632 $ 4,803,148 $ 4,532,310 $ 5,247,797 $ 5,283,358 Accounts payable and other current liabilities 3,460,730 3,736,325 3,243,679 3,670,456 3,659,263 Other benefits and accrued compensated absences 296, , , ,632 76,192 Current long-term obligations Non current long-term obligations ,477 34,884 Total Liabiities $ 3,757,551 $ 4,042,639 $ 3,484,207 $ 3,930,565 $ 3,770,339 Net Assets Invested in capital assets, net of related debt 4,985,632 4,803,148 4,532,310 4,714,636 5,283,358 Restricted for: Capital projects 0 187, , , ,857 Grant programs 42,873 47,358 84, ,734 61,860 Unrestricted 4,340,944 5,638,353 5,449,246 4,424,807 3,561,061 Total Net Assets $ 9,369,449 $ 10,676,270 $ 10,299,330 $ 9,594,399 $ 9,535,136 (1) The District utilized fund balance that accumulated as a result of one-time funds from ARRA and the State to balance the budget. The District has taken measures to cut future expenses to preserve fund balance. Source: Audited financial statements of the District. 22

29 Changes in Net Assets (Fiscal Years) Revenues: Program Revenues: Charges for services $ 613,474 $ 630,440 $ 672,749 $ 716,622 $ 692,074 General Revenues: Property taxes, levied for general purposes 7,734,793 7,732,185 7,665,906 7,731,728 7,861,373 Federal and State aid for general purposes 9,407,355 10,352,870 10,862,079 11,348,232 11,262,995 Other local revenue 176, , , , ,916 Investment earnings 15,574 21,684 16, , ,605 Total Revenues 17,947,827 18,933,046 19,525,915 20,193,609 20,266,963 Expenses: Instructional services 11,932,877 12,013,504 12,132,060 12,292,515 11,775,046 Supporting services 2,787,230 2,468,492 2,549,351 2,361,800 2,343,845 General administration 2,993,316 2,762,602 3,030,413 3,055,986 2,601,438 Maintenance/Custodial 1,740,500 1,648,615 1,668,184 1,754,422 2,283,068 Transportation 872, , , , ,283 Loss on disposal of assets ,644 Community Services 219, , , , ,510 Post employment benefits 0 63, Non-capital equipment ,030 0 Other Non-instructional 664, , , , ,571 Interest on long-term debt Depreciation, unallocated 37,347 37,347 37,347 38,143 93,644 Total Expenses 21,247,773 20,741,103 21,189,022 21,418,983 20,766,049 Increase (decrease) in net assets (1,306,821) 373, ,931 59,260 1,572,976 Net assets - July 1 10,676,270 10,302,302 9,594,399 9,535,139 7,962,160 Total Net Assets $ 9,369,449 $ 10,676,270 $ 10,299,330 $ 9,594,399 $ 9,535,136 Source: Audited financial statements of the District. 23

30 A five-year summary of the District s General Fund Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balance follows. General Fund statements are prepared in accordance with GAAP. Assets General Fund Balance Sheet (Fiscal Years) Cash and Investments $ 3,118,799 $ 4,491,933 $ 4,141,923 $ 4,133,731 $ 3,011,890 Due from other funds 242, , , , ,523 Taxes receivable 359, , , , ,629 Accounts Receivable 3,042,697 3,633,055 3,170,716 3,109,628 3,217,944 Total Assets $ 6,762,944 $ 8,623,189 $ 7,879,657 $ 7,677,974 $ 6,614,986 Liabilities and Fund Equity Liabilities Overdraft 714, , ,073 1,246,274 1,175,164 Accounts payable 115,523 78, ,091 67, ,420 Accrued payroll and benefits 2,128,069 2,148,996 2,082,907 2,138,554 2,082,231 Payable to other funds 78,505 87,727 82,599 70,862 73,961 Deferred revenue 291, , , , ,553 Total liabilities $ 3,327,932 $ 3,491,371 $ 3,029,670 $ 3,730,141 $ 3,675,329 Fund Balance Reserved 2,042,527 2,401,215 2,126, , ,614 Unreserved - undesignated 1,392,485 2,730,603 2,723,767 3,203,268 2,199,043 Total fund balance 3,435,012 5,131,818 4,849,987 3,947,833 2,939,657 Total liabilities and fund equity $ 6,762,944 $ 8,623,189 $ 7,879,657 $ 7,677,974 $ 6,614,986 Source: Audited financial statements of the District. 24

31 General Fund Statement of Revenues, Expenditures and Changes in Fund Balance (Fiscal Years) Revenues: Local sources $ 7,878,004 $ 7,988,797 $ 7,909,186 $ 8,062,358 $ 8,267,729 Earnings on investments State sources 9,633,621 10,602,321 9,881,196 11,781,814 11,672,386 Federal sources 244, ,088 1,412, Total Revenues 17,755,798 18,768,206 19,202,736 19,844,172 19,940,115 Expenditures: Instruction 11,114,705 10,937,992 10,940,990 11,230,799 11,034,433 Support 7,641,141 7,283,767 7,201,609 7,382,727 7,142,712 Total Expenditures 18,755,846 18,221,759 18,142,599 18,613,526 18,177,145 Excess (Deficiency) of revenues over expenditures (1,000,048) 546,447 1,060,137 1,230,646 1,762,970 Other Financing Sources: Operating transfer in 46,242 53,584 49,717 42,116 35,936 Operating transfers out (743,000) (318,200) (207,700) (264,586) (238,693) Total Other Financing Sources (696,758) (264,616) (157,983) (222,470) (202,757) Excess of revenues and other financing sources over expenditures and other financing uses (1,696,806) (1) 281, ,154 1,008,176 1,560,213 Fund Balances, July 1 5,131,818 4,849,987 3,947,833 2,939,657 1,379,444 Fund Balances, June 30 $ 3,435,012 $ 5,131,818 $ 4,849,987 $ 3,947,833 $ 2,939,657 Source: Audited financial statements of the District. (1) The District utilized fund balance that accumulated as a result of one-time funds from ARRA and the State to balance the budget. The District has taken measures to cut future expenses to preserve fund balance. Budgetary Process and Controls The board of trustees of each school district is required to prepare a budget, no later than 28 days prior to its annual meeting and in prescribed form, call a public hearing, and at that public hearing, or at a special meeting held no later than 14 days after the public hearing, adopt a budget for the ensuing year. Notice of the hearing must be posted, and published as prescribed in Section , Idaho Code, and a record of the hearing kept by the clerk of the Board. From the time the notice is posted until the date of the hearing, a copy of the budget must be available for public inspection at all reasonable times at the administrative offices of the school district. The board will also prepare and publish, as a part of the notice, a summary statement of the budget for the current and ensuing years. This statement will show amounts budgeted for all major classifications of income and expenditures as set forth within the provisions of section , Idaho Code, with the total amounts budgeted for salary and wage expenditures in each classification shown separately. The statement shows amounts actually expended for the 2 previous years for the same classification for purposes of comparison. The budgeted dollar amounts of revenue in those categories and approved within the adopted budget shall be the same as presented to the respective county commissioners for tax levy purposes. 25

32 General Fund Adopted Budget (Fiscal Years) Adopted Amended Beginning Fund Balance $ 2,868,167 $ 3,372,216 Revenues: Local Property Taxes 9,774,041 9,731,127 Earnings on Investments 13,000 12,000 Other Local Sources 75,000 80,338 State Sources 9,876,835 10,164,140 Transfers In 380,750 22,200 Total Revenues 20,119,626 20,009,805 Total Rev. + Fund Bal. $ 22,987,793 $ 23,382,021 Expenditures: Salaries 12,104,255 12,825,587 Benefits 4,723,922 4,884,113 Purchased Services 1,573,187 1,630,596 Supplies & Materials 701, ,703 Capital Outlay 182, ,443 Insurance & Judgements 142, ,920 Transfers Out 215, ,000 Unappropriated Balances 2,749,480 1,461,659 Contingency Reserve 595, ,000 Total Expenditures $ 22,987,793 $ 23,382,021 Source: Audited financial statements of the District. Investment Policy Chapter 12 of Title 67, Idaho Code, provides authorization for the investment of funds as well as specific direction as to what constitutes an allowable investment. District procedures are consistent with the Idaho Code. Idaho Code limits investments to the following general types: (a) certain revenue bonds, general obligation bonds, local improvement district bonds and registered warrants of State and local governmental entities; (b) time deposits accounts, tax anticipation and interest-bearing note; (c) bonds, treasury bills, debentures or other similar obligations issued or guaranteed by agencies or instrumentalities of the government of the State of Idaho or of the United States; and (d) repurchase agreements. The District has not adopted a formal investment policy, but is governed by Idaho Code Local governments, including the District, are also authorized to invest in the Local Government Investment Pool (the LGIP ), which is managed by the Idaho State Treasurer s Office. Information on the LGIP investments is available from the Idaho State Treasurer at This inactive textual reference to the website is not a hyperlink and the website, by such reference, is not incorporated herein. The District does invest in the LGIP. Investments are stated at cost, except for investments in the deferred compensation agency fund, which are reported at market value. Interest income on such investments is recorded as earned in the General Fund of the District unless otherwise specified by law. 26

33 Pension System The District s employees are covered under the Public Employee Retirement System of Idaho ( PERSI ). PERSI is the administrator of a multiple-employer cost-sharing defined benefit public employee retirement system. A retirement board (the PERSI Board ), appointed by the governor and confirmed by the legislature, manages the system which includes selecting investment managers to direct the investment, exchange and liquidation of assets in the managed accounts and to establish policy for asset allocation and other investment guidelines. The retirement board is charged with the fiduciary responsibility of administering the plan. PERSI is the administrator of six fiduciary funds, including two defined benefit retirement plans, the Public Employee Retirement Fund Base Plan ( PERSI Base Plan ) and the Firefighters Retirement Fund ( FRF ); two defined contribution plans, the Public Employee Retirement Fund Choice Plans 401(k) and 281(k); and two Sick Leave Insurance Reserve Trust Funds, one of State employers and one for school district employers. Net assets for all funds administered by PERSI and all other funds administered by PERSI decreased over $22.6 million during Fiscal Year 2012 and increased $1.9 billion for Fiscal Year 2011 and $1.0 billion over Fiscal Year The decrease in the defined benefit plans in Fiscal Year 2012 was primarily due to a gross investment return for the year of 1.6% combined with benefits paid and administrative expenses exceeding contributions received. The investment return for Fiscal Year 2011 was 20.7%. According to PERSI, the negative cash flow reflected in Fiscal Year 2012 is normal for a mature plan and has been included in the Board s long-range actuarial planning. PERSI membership is mandatory for eligible employees of participating employers. Employees must be: (i) working 20 hours per week or more; (ii) teachers working a half-time contract or greater; or (iii) persons who are elected or appointed officials. Membership is mandatory for State agency and local school district employees, and membership by contract is permitted for participating political subdivisions such as cities and counties. On July 1, 2012, PERSI had 65,270 active members, 26,683 inactive members (of whom 10,823 are entitled to vested benefits), and 37,150 annuitants. As of July 1, 2012, there were 752 participating employers in the PERSI Base Plan. Total membership in PERSI was 129,102. As of July 1, 2012, PERSI s actuarial value of assets total $11,306.2 million and the actuarial liabilities funded by PERSI total $13,349.7 million. This means that as of July 1, 2012 PERSI is 84.7 percent funded. GASB Statement 25 (Reporting Standards for defined benefit pension plans) has replaced Projected Benefits Obligations ( PBO ) as the measure of pension plan funding status. As required by GASB Statement 25, the PERSI Schedule of Funding Progress shows a Funded Ratio of 84.7% and an amortization period of 14.8 years for the PERSI Base Plan, based on contribution rates established as of the valuation date. The Schedule of Employer Contributions shows that PERSI employers have contributed at least 100% of the Actuarially Required Contributions (ARC). Annual actuarial valuations for PERSI are provided by the private actuarial firm of Milliman, which has provided the actuarial valuations for PERSI since PERSI s inception. As a result of the statutory requirement that the amortization period for the unfunded actuarial liability be 25 years or less, contribution rate increases for the three years beginning July 1, 2011, as proposed by the actuary, were reviewed and approved by the Retirement Board on December 8, 2009, and are shown below: Contribution Rate Increases Member General/ Teacher Fire/ Police Employer General/ Teacher Fire/ Police Contribution Rates: 6.23% 7.69% 10.39% 10.73% Planned Contribution Rates: Effective July 1, % 8.36% 11.32% 11.66% Effective July 1, % 9.03% 12.24% 12.58% Effective July 1, % 10.04% 13.65% 13.99% (1) The proposed rate increase was originally planned to commence effective July 1, 2012, but has been postponed until 2013, and each subsequent increase has been correspondingly postponed one year. Source: Public Employees Retirement System of Idaho 2012 Comprehensive Annual Finance Report for Fiscal Year Ended June 30,

34 On July 1, 2012, the PERSI actuary confirmed that the current schedule of contribution rates will at least meet the normal costs of the system as they accrue if the scheduled contribution rate increases are reflected. Based on improved funding status, the PERSI Board has postponed the scheduled rate increases for one year. Accordingly, the contribution rate increase to 6.79% originally proposed to occur on July 1, 2011, is now postponed to July 1, 2013 and each subsequent rate increase is postponed by one year. Therefore, as of June 1, 2012, the employee contribution rate was 6.23%, and the employer contribution rate was 10.39%. The July 1, 2011, actuarial valuation confirmed that contribution rates are sufficient to pay normal cost rate of 13.93% if further scheduled rate increases are affected. The District s required and paid contributions to PERSI for the fiscal years ended June 30, 2012, 2011, and 2010 were $1,658,106, $1,639,816, and $1,634,522, respectively. Contribution requirements of PERSI and its members are established and may be amended by the Retirement Board. PERSI issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained at, documents/investments /FY12/AR-FY2012.pdf (which website is provided purely for convenience and is not incorporated or made a part of this Official Statement by this reference). Other Post-Employment Benefits Fiscal year-end 2009 is the first year of recognition of a non-current liability for Other Post-Employment Benefits (OPEB) pursuant to the requirements of GASB Statement 45. The District Employee Group Benefits Plan is a single-employer plan that provides health insurance benefits to eligible retirees and their dependents from the time of retirement until the employee/retiree reaches age 65 and becomes eligible for Medicare benefits. Retirees pay 100% of the premium cost for themselves and their dependents. The annual required contribution (ARC) for the plan has been determined under the protected unit credit cost method as of June 30, Several assumptions were made by the consulting actuaries in determining the ARC, including use of a 45 percent participation rate, and a 4.25 percent discount rate for this valuation, which is considered reasonable for school districts. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year, and amortize any unfunded actuarial liabilities (or funding excess) over a period of twenty-five years. The District funds the benefits on a pay-as-you-go basis from the general assets. The following table shows the components of the District's net OPEB obligation to provide access to district healthcare benefits for those retirees who have not yet reached age 65 and become eligible for benefits under Medicare. The annual required contribution is recorded as a non-current liability. Future GASB 45 Reporting GASB Statement 45 requires the District to update the information every two years. Due to the cost of calculating the liability the District did not update the information for Fiscal Year Additionally, the District decided not to seek future valuations due to cost. Following discussions the District has had with its auditor, future audits are expected to have qualified opinions from the District s Auditor based on noncompliance with GASB Statement 45. Annual Required Contribution (ARC) Normal Cost as of June 30, ,563 Actuarial Accrued Liability (AAL) 2,039,700 Actuarial Value of Assets 0 Unfunded Actuarial Accrued Liability (UAAL) 0 Risk Management The District is exposed to various risks of loss. A description of the risks is provided in the District s audited financial statements. The audited financial statement for Fiscal Year 2012 is attached hereto as Appendix B. 28

35 Demographic Information Situated along the Washington/Idaho border, with a County population of over 37,000 in 2011, Moscow is the largest city in the County and home to the University of Idaho. With the Palouse River, the Snake River and the Columbia River all within the vicinity of Moscow, the area is known for hiking, fishing, mountain bike trails and sightseeing. Source: U.S. Census Quick Facts. Historic populations for the City, County and State follow: Year City of Moscow Latah County State of Idaho ,800 38,184 1,596, ,080 37,704 1,585, ,842 37,314 1,571, ,338 38,046 1,499, ,252 37,857 1,293, ,329 37,295 1,006,749 Source: US Census Bureau. Latah County Major Employers (for 2012) Range of Employer (1) Employees Industry University of Idaho 4,000-4,999 Education Gritman Medical Center Hospital Moscow School District #281 (2) 343 Education City of Moscow Government Bennett Lumber Products Manufacturing Disability Action Center-Northwest Inc Social Assistance Evangelical Lutheran Good Samaritan Society Health Care Latah County Government Moscow Food Co-Op Retail University Inn Best Western Hospitality Wal-Mart Retail Economic Modeling LLC Professional Services Northwest River Supplies Retail & Manufacturing U.S. Forest Service Government Rosauer's Supermarkets Retail Potlatch School District # Education Safeway Retail Troy School District # Education (1) Some employers may not be included on this list because they have not signed a consent form. (2) The District. Source: Idaho Department of Labor, as of December

36 Latah County Retail Sales Tax History (1) Through May (2) Amounts include tax, penalty and interest received during the reporting period. Source: Idaho State Tax Commission, Fiscal Year-End Reports. Source: Bureau of Economic Analysis, November Idaho and Latah County Total Personal and Per Capita Income Latah County State of Idaho Personal Income Personal Income Year ($ in Millions) Per Capita Income ($ in Millions) Per Capita Income 2011 $ 1,199 $ 31,809 $ 52,821 $ 33, ,150 30,816 50,565 32, ,102 29,840 48,898 31, ,139 31,189 50,399 33, ,077 29,762 49,231 31,804 Building Permits. Residential building permits are an indicator of growth within a region. The number and valuation of new single-family and multi-family residential building permits in the unincorporated area of Latah County are listed below and a listing of permits issued for the City follows: Latah County Unincorporated Areas Construction Building Permits Year Buildings Total Permits New Residents New Non-Residents Repairs Construction 2013 (1) ,410, , ,748 2,426, ,641,416 1,182, ,683 5,718, ,371,492 1,200, ,200 5,816, ,891,219 1,461,321 1,075,476 6,428, ,950, ,046 1,011,946 5,952, ,232,122 2,042, ,305 9,026,696 (1) Through May Source: Idaho Construction Report. City of Ammon Planning Department. (The City of Ammon began collecting Idaho Construction data following the discontinuation by Wells Fargo). 30

37 Nonagricultural Wage & Salary Employment by Place of Employment and Latah County (1) Labor Force and Employment Trends Annual Average 2012 (2) Civilian Labor Force 17,577 17,348 17,525 17,737 17,251 16,906 Unemployed 1,132 1,211 1,259 1, Total Employment 16,445 16,137 16,266 16,719 16,575 16,456 Percent of Labor Force Unemployed 6.4% 7.0% 7.2% 5.7% 3.9% 2.7% By Place of Work Nonfarm Payroll Jobs 14,935 14,736 14,800 15,044 15,493 15,380 Total Private 8,456 8,154 8,339 8,321 8,956 8,946 Goods producing 1, ,021 1,207 1,308 Service Producing (Inc. Gov.) 13,931 13,759 13,805 14,023 14,286 14,072 Private Service Producing 7,452 7,177 7,344 7,300 7,749 7,638 Mining and Logging Construction Manufacturing Trade, Transportation, and Utilities 2,242 2,023 2,091 2,119 2,277 2,251 Wholesale Trade Retail Trade 1,867 1,657 1,713 1,832 1,979 1,944 Transportation, Warehouse and Utilities Information Financial Activities Professionals and Business Services Education and Health Services 1,659 1,633 1,614 1,559 1,531 1,529 Leisure and Hospitality 1,705 1,661 1,708 1,648 1,814 1,835 Other Services Government, All 6,479 6,582 6,461 6,723 6,537 6,434 Federal State 4,859 4,945 4,806 5,058 4,876 4,788 Local 1,439 1,445 1,447 1,457 1,460 1,444 (1) Includes all of Latah County. (2) As of February Source: State of Idaho, Idaho Commerce and Labor. Higher Education Founded in 1889, the University of Idaho ( U of I ) is a comprehensive community college located in Moscow, Idaho. U of I offers degrees and certificates in a wide spectrum of academic transfer, professional-technical, and general education programs. Approximately 12,493 students are enrolled and the university has granted 109,719 degrees. The U of I serves a five city region with its main campus in Moscow and satellite campuses in Boise, Coeur d Alene, Idaho Falls, and Twin Falls. Other schools of higher education near Moscow include Washington State University, located 11 miles away, Lewis and Clark College, located approximately 30 miles away, each of which are four year universities, and North Idaho College, a community college, 84 miles from Moscow. 31

38 Transportation Moscow is serviced by the Pullman/Moscow Airport (PUW), which is approximately five miles from the U of I and two miles from downtown Pullman, and the Spokane International Airport is only a 1.5 hour drive from Moscow. Legislative Referrals Referrals are proposed laws that originate from the Legislature to be voted on by the people. In Idaho, both houses of the Legislature must vote and must pass by two-thirds of its members to refer a statute or constitutional amendment for a popular vote. Such referrals cannot be vetoed by the governor. The Initiative Process Article I, Section 3 of the Idaho Constitution provides that the people of the State have reserved to themselves the power of initiative and referendum, pursuant to which measures to enact or repeal laws can be placed on the statewide general election ballot for consideration by the voters. The initiative and referendum powers relate only to laws; the Idaho Supreme Court has ruled that the Idaho Constitution cannot be amended by initiative or referendum. In 1997, the Idaho Legislature enacted significant procedural pre-requisites including signature distribution requirements, to qualify an initiative or referendum measure for submittal to the electors. Any person may file a proposed measure with the signatures of 20 qualified electors of the State with the Idaho Secretary of State s office. The Idaho Attorney General is required by law to review and make recommendations (if any) on the petition to the petitioner before issuing a certificate of review to the Secretary of State. The petitioner then, within 15 working days, files the measure with the Secretary of State for assignment of a ballot title and submittal to the Attorney General. The Attorney General, within 10 working days thereafter, shall provide a ballot title for the measure. Any elector that submitted written comments who is dissatisfied with the ballot title certified by the Attorney General may petition the Idaho Supreme Court seeking a revision of the certified ballot title. Once the ballot title has been certified and the form of the petition has been approved by the Secretary of State, the proponents of the measure will print the petition and, during an 18 month circulation period or until April 30 in an election year, whichever occurs first, may start gathering the petition signatures necessary to place the proposed measure on the ballot. To be placed on a general election ballot, not less than four months prior to the election, the proponents must submit to the Secretary of State petitions signed by a number of qualified voters equal to at least 6% of the qualified electors, i.e., registered voters, at the immediately previous general election. The 2013 Legislature adopted SB 1108 which increases the number of registered voters needed to place an initiative or referendum the ballot by requiring signatures of 6% of the registered voters in at least a majority of the State s 35 legislative districts, as well as 6% of the total registered voters of the State. Proponents of measures are permitted to compensate persons obtaining signatures for the petition, but in such instances the petition must contain a notice of such payment to the elector whose signature is being sought. 32

39 Historical Initiative Petitions According to the Elections Division of the Idaho Secretary of State, the number of initiative petitions that have qualified for the ballot in the past decade, and the number that have passed in the general elections in the years since 1992 are as follows: Historic Initiative Petitions Number of Number of Year of Initiatives that Initiatives that General Election Qualified Passed Source: Elections Division, Idaho Secretary of State; 2012 Initiative History Elections Division. Tax Matters The 2013A Bonds In the opinion of Bond Counsel, interest on the 2013A Bonds is included in gross income subject to federal and state income taxation. The 2013B Bonds In the opinion of Hawley Troxell Ennis & Hawley LLP, Bond Counsel, assuming continuous compliance with certain covenants described below, interest on the 2013B Bonds is not included in gross income under present federal income tax laws pursuant to Section 103 of the Code and is exempt from all State of Idaho income taxes under present State income tax laws, and interest on the 2013B Bonds is not included in alternative minimum taxable income as defined in Section 55(b)(2) of the Code under present federal income tax laws except that such interest is required to be included in calculating the adjusted current earnings adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations as described below. The Code imposes several requirements that must be met with respect to the 2013B Bonds in order for the interest thereon to be excluded from gross income and alternative minimum taxable income (except to the extent of the aforementioned adjustment applicable to corporations). Certain of these requirements must be met on a continuous basis throughout the term of the 2013B Bonds. These requirements include: (a) limitations as to the use of proceeds of the 2013B Bonds, and (b) limitations on the extent to which the proceeds of the 2013B Bonds may be invested in higher yielding investments. The Board will covenant that they will take all steps to comply with the requirements of the Code to the extent necessary to maintain the exclusion of interest on the 2013B Bonds from gross income and alternative minimum taxable income (except to the extent of the aforementioned adjustments applicable to corporations) under present federal income tax laws. Bond Counsel s opinion as to the exclusion of interest on the 2013B Bonds from gross income and alternative minimum taxable income (to the extent described above) is rendered in reliance on these covenants, and assumes continuous compliance therewith. The failure or inability of the District to comply with these requirements could cause the interest on the 2013B Bonds to be included in gross income, alternative minimum taxable income or both from the date of issuance. Section 55 of the Code contains a 20 percent alternative minimum tax on the alternative minimum taxable income of corporations. Under the Code, for taxable years beginning after 1989, 75 percent of the excess of a corporation s adjusted current earnings over the corporation s alternative minimum taxable income (determined without regard to this adjustment and the alternative tax net operating loss deduction) is included 33

40 in the corporation s alternative minimum taxable income for purposes of the alternative minimum tax applicable to the corporation. Adjusted current earnings includes interest on the 2013B Bonds. The Code contains numerous provisions that may affect an investor s decision to purchase the 2013B Bonds. Beneficial Owners should be aware that the ownership of tax exempt obligations by particular persons and entities, including, without limitation, financial institutions, insurance companies, recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, foreign corporations doing business in the United States and certain Subchapter S corporations, may result in adverse federal tax consequences. Bond Counsel s opinion relates only to the exclusion of interest on the 2013B Bonds from gross income and alternative minimum taxable income as described above and will state that no opinion is expressed regarding other federal tax consequences arising from the receipt or accrual of interest on ownership of the 2013B Bonds. Beneficial Owners should consult their own tax advisors as to the applicability of these consequences. Amendments to the federal tax laws could be proposed or enacted in the future, and there can be no assurance that any such future amendments which may be made to the federal tax laws will not adversely affect the value of the 2013B Bonds, the exclusion of interest on the 2013B Bonds from gross income or alternative minimum taxable income or both from the date of issuance of the 2013B Bonds or any other date, or result in other adverse federal tax consequences. The District intends to designate the 2013B Bonds as qualified tax-exempt obligations pursuant to the small issuer exception provided by Section 265(b)(3)(B) of the Code which affords banks and thrift institutions purchasing the 2013B Bonds more favorable treatment of their deduction for interest expense than would otherwise be allowed under Section 265(b)(2) of the Code for taxable years of such financial institutions ending after December 31, The Internal Revenue Service (the Service ) has an ongoing program of auditing tax-exempt obligations to determine whether, in the view of the Service, interest on such tax-exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the Service will commence an audit of the 2013B Bonds. If an audit is commenced, under current procedures the Service may treat the District as the taxpayer and the Bondholders may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the 2013B Bonds until the audit is concluded, regardless of the ultimate outcome. General The opinions expressed by Bond Counsel are based on existing law as of the date of delivery of the Bonds. No opinion is expressed as of any subsequent date nor is any opinion expressed with respect to pending or proposed litigation. Amendments to the federal or state laws may be pending now or could be proposed in the future that, if enacted into law, could adversely affect the value of the Bonds, the tax status of the 2013A Bonds, the exclusion of interest on the 2013B Bonds from gross income or alternative minimum taxable income or both from the date of issuance of the 2013B Bonds or any other date, or that could result in other adverse tax consequences. In addition, future court actions or regulatory decisions could affect the market value of the Bonds. For example, although the U.S. Supreme Court recently decided that the U.S. Constitution does not preclude the current practice that states grant more favorable tax treatment to bonds issued by issuers inside the state than bonds issued outside that state, the pendency of such case caused uncertainty until it was decided. There can be no assurance that other cases may from time to time create uncertainty or could result in a change in the treatment for state tax purposes of obligations such as the Bonds, or a change in the market value of the Bonds. Owners of the Bonds are advised to consult with their own tax advisors with respect to such matters. [Premium Bonds The initial public offering price of certain maturities of the Bonds (the Premium Bonds ), as shown on the inside cover, are issued at original offering prices in excess of their original principal amount. The difference between the amount of the Premium Bonds at the original offering price and the principal amount payable at maturity represents bond premium under the Code. As a result of requirements of the Code relating to the amortization of bond premium, under certain circumstances an initial owner of a Bond may realize a taxable gain upon disposition of such a bond, even though such bond is sold or redeemed for an amount equal to the 34

41 original owner s cost of acquiring such bond. All owners of Bonds are advised that they should consult with their own tax advisors with respect to the tax consequences of owning and disposing of Bonds, whether the disposition is pursuant to a sale of the Bonds or other transfer, or redemption.] [Original Issue Discount The initial public offering price of certain maturities of the Bonds (the Discount Bonds ), as shown on the inside cover page hereof, is less than the amount payable on such Bonds at maturity. The difference between the amount of the Discount Bonds payable at maturity and the initial public offering price of the Discount Bonds will be treated as original issue discount for federal income tax purposes. The original issue discount on the Discount Bonds is treated as accruing over the respective terms of such Discount Bonds on the basis of a constant interest rate compounded at the end of each six-month period (or shorter period from the date of original issue) ending on February 15 and August 15 with straight line interpolation between compounding dates. In the case of a purchaser who acquires the Discount Bonds in this offering, the amount of original issue discount accruing each period (calculated as described in the preceding sentence) constitutes interest which is excluded from gross income, alternative minimum taxable income and Idaho taxable income under the conditions and subject to the exceptions described in the preceding paragraphs and will be added to the owner s basis in the Discount Bonds. Such adjusted basis will be used to determine taxable gain or loss upon disposition of the Discount Bonds (including sale or payment at maturity). Beneficial Owners who purchase Discount Bonds in the initial offering at a price other than the original offering price shown on the inside cover page hereof and owners who purchase Discount Bonds after the initial offering should consult their own tax advisors with respect to the tax consequences of the ownership of the Discount Bonds. Beneficial Owners who are subject to state or local income taxation (other than Idaho state income taxation) should consult their tax advisor with respect to the state and local income tax consequences of ownership of the Discount Bonds. It is possible that, under the applicable provisions governing determination of state and local taxes, accrued original issue discount on the Discount Bonds may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment.] Legal Matters Opinions of Bond Counsel Legal matters incident to the authorization, issuance and sale of Bonds by the District are subject to the approving legal opinion of Bond Counsel, substantially in the form attached hereto as Appendix A. Bond Counsel has reviewed this document only to confirm that the portions of it describing the Bonds and the authority to issue the Bonds, the security for the Bonds and tax matters relative to the Bonds present a fair summary of such matters. Litigation To the best of the District s knowledge there is no litigation pending questioning the validity of the Bonds or the power and authority of the District to issue the Bonds. To the best of the District s knowledge there is no litigation pending which would materially affect the finances of the District or affect the District s ability to meet debt service requirements on the Bonds. Laws Relating to Municipal Reorganization Idaho Code Section permits school districts, as taxing districts of the State of Idaho, to file a petition for federal bankruptcy relief, in accordance with Title IX of the United States Bankruptcy Code (the Bankruptcy Code ). Prior to filing such petition, the taxing district is required to adopt a resolution authorizing the filing. The statute authorizes the taxing district to take any of the following actions to consummate a plan of readjustment pursuant to its bankruptcy proceedings, including cancellation and remission of moneys payable under bonds, warrants or other obligations issued by the district; issuance of refunding bonds on certain conditions, adoption of necessary ordinances, assessment, levy and collection of taxes to enforce collections necessary pursuant to the plan of readjustment, cancellation and reduction of taxes or special assessments for bonds refunded under the plan as a result of reduction in debt service accomplished by such refunding and to take any other actions necessary for accomplishment of the plan. Prior to refunding bonds or levying any taxes of special assessments, the taxing district is required to provide notice and hold a hearing prior to the adoption of the plan for readjustment requiring such actions. Notwithstanding Idaho 35

42 Code, interpretations of the Bankruptcy Code generally lead to the dismissal of petitions in bankruptcy filed by municipalities if the municipality is not insolvent or has the ability to meet its obligations as they become due. Continuing Disclosure The District intends to enter into an Continuing Disclosure Agreement (the Undertaking ) for the benefit of the Beneficial Owners of the Bonds to send certain information annually and to provide notice of certain events to certain information repositories pursuant to the requirements of Section (b) (5) of Rule 15c2 12 (the Rule ) adopted by the Securities and Exchange Commission (the Commission ) under the Securities Exchange Act of The proposed form of the Undertaking is set forth under Appendix D Form of Information Reporting Agreement, attached hereto. A failure by the District to comply with the Undertaking will not constitute a default under the Resolution and Beneficial Owners of the Bonds are limited to the remedies described in the Undertaking. A failure by the District to comply with the Undertaking must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Bonds and their market price. Current Compliance The District currently has no outstanding bonds, nor has had any outstanding bonds in the last five years. Official Statement The District has deemed this Preliminary Official Statement pursuant to Securities and Exchange Commission Rule 15c2-12 as final as of its date except for the omission of information dependent upon the pricing of the issue and the completion of the underwriting agreement, such as offering prices, interest rates, selling compensation, aggregate principal amount, principal amount per maturity, Date of Delivery, rating, and other terms of the Bonds dependent on the foregoing matters. Underwriting The 2013A Bonds are being purchased by the Underwriter. The purchase contract provides that the Underwriter will purchase all of the 2013A Bonds, if any are purchased, at a price of [ ] percent of the par value of the 2013A Bonds, plus accrued interest. The 2013A Bonds will be reoffered at an average price of [ ] percent of the par value of the 2013A Bonds. After the initial public offering, the public offering prices may be varied from time to time. The 2013B Bonds are being purchased by the Underwriter. The purchase contract provides that the Underwriter will purchase all of the 2013B Bonds, if any are purchased, at a price of [ ] percent of the par value of the 2013B Bonds, plus accrued interest. The 2013B Bonds will be reoffered at an average price of [ ] percent of the par value of the 2013B Bonds. After the initial public offering, the public offering prices may be varied from time to time. The Underwriter has entered into an agreement with Pershing LLC which enables the Underwriter to distribute certain new issue municipal securities underwritten by or allocated to the Underwriter which could include the Bonds. Under the agreement, the Underwriter could share with Pershing LLC a portion of the fee or commission paid to the Underwriter. The Underwriter has entered into a separate agreement with Charles Schwab & Co., Inc. that enables Charles Schwab & Co., Inc. to distribute certain new issue municipal securities underwritten by or allocated to the Underwriter which could include the Bonds. Under that agreement, the Underwriter will share with Charles Schwab & Co., a portion of the fee or commission paid to the Underwriter. 36

43 Concluding Statement The information contained herein should not be construed as representing all conditions affecting the District or the Bonds. Additional information may be obtained from the District. The statements relating to the Resolution are in summarized form, and in all respects are subject to and qualified in their entirety by express reference to the provisions of such document in its complete form. The information assembled herein is not to be construed as a contract with the Beneficial Owners of the Bonds. SCHOOL DISTRICT NO. 281 (MOSCOW), LATAH COUNTY, STATE OF IDAHO /S/ Dawn Fazio Chair, Board of Trustees 37

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45 Appendix A Form of Bond Counsel Opinion

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47 Hawley Troxell Ennis & Hawley LLP 877 Main Street, Suite 1000 P.O. Box 1617 Boise, Idaho [Date of Delivery] Board of Trustees School District No. 281 (Moscow) Latah County, State of Idaho 650 N. Cleveland Street Moscow, Idaho Re: School District No. 281 (Moscow), Latah County, State of Idaho General Obligation Bonds, Series 2013A (Taxable); General Obligation Bonds, Series 2013B (Tax-Exempt) This is to certify that we have acted as Bond Counsel in connection with the issuance by School District No. 281 (Moscow), Latah County, State of Idaho (the District ), of its $ General Obligation Bonds, Series 2013A (Taxable) (the 2013A Bonds ), and $ General Obligation Bonds, Series 2013B (Tax-Exempt) (the 2013B Bonds, and together with the 2013A Bonds, the Bonds ), dated the date hereof, and issued pursuant to a Resolution of the District adopted, 2013 (the Resolution ). The Bonds represent the general obligation bonds in the aggregate principal amount of up to $10,800,000 authorized at an election held in the District on May 21, The Bonds are being issued under the authority of chapter 11 of Title 33 and chapters 2 and 9 of Title 57, Idaho Code, as amended. We have examined the Constitution and laws of the State of Idaho and such certified proceedings and other papers as we deem necessary to render this opinion. Our services as Bond Counsel have been limited to the preparation of the legal proceedings and supporting certificates authorizing the issuance of the Bonds under the applicable laws of the State of Idaho and to a review of the transcript of such proceedings and certifications. As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation. Our examination has been limited to the foregoing as they exist or are in effect as of the date hereof. Our opinion is limited to the matters expressly set forth herein, and we express no opinion concerning any other matters.

48 School District No. 281 (Moscow) [Date of Delivery] Page 2 The Bonds bear interest from their date at the rates per annum payable pursuant to the provisions of the Resolution, and mature on the dates in each of the designated years and in the principal amounts set forth below: 2013A Bonds August 15 Year Amount Maturing Interest Rate % (Per Annum) August 15 Year B Bonds Amount Maturing Interest Rate % (Per Annum) The Bonds are issuable as fully registered bonds in the denomination of $5,000 or any integral multiple thereof. The 2013A Bonds are not subject to optional call and redemption prior

49 School District No. 281 (Moscow) [Date of Delivery] Page 3 to maturity. The 2013B Bonds are subject to optional call and redemption prior to maturity in the manner and upon the terms set forth therein and in the Resolution. Based upon the foregoing, we are of the opinion that, under existing law: 1. The Bonds have been duly authorized, executed, and delivered under the Constitution and the laws of the State of Idaho. 2. The Bonds are valid and legally binding general obligations of the District, enforceable in accordance with their terms except to the extent such enforcement is limited by the bankruptcy laws of the United States of America and by the reasonable exercise of the sovereign police power of the State of Idaho. 3. Provision has been made for the levy and collection each year of ad valorem taxes on all the taxable property within the District sufficient to pay the principal of and interest on the Bonds as the same become due, and all of the taxable property in the District is subject to the levy of ad valorem taxes to pay the same without limitation as to rate or amount. 4. The interest on the 2013A Bonds is not excluded from gross income of the owners thereof for federal and state income tax purposes. 5. The interest on the 2013B Bonds is not includable in gross income of the owners of the 2013B Bonds 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 corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings. The foregoing opinion set forth in this paragraph 5 assumes that the District will comply with certain covenants in the Resolution relating to requirements of the Internal Revenue Code of 1986, as amended (the Code ). 6. To the extent that interest on the 2013B Bonds is not includable in gross income of the owners thereof for federal income tax purposes, interest on the 2013B Bonds is exempt from taxes imposed by the Idaho Income Tax Act, as amended. 7. The District has properly designated the 2013B Bonds as qualified tax-exempt obligations pursuant to Section 265(b)(3) of the Code. 8. Based upon the certificate of eligibility issued to the District by the Treasurer of the State of Idaho, payment of the interest and the principal of the Bonds when due is guaranteed by the sales tax collected by the State of Idaho under the provisions of the Idaho School Bond Guaranty Act, Title 33, chapter 53, Idaho Code. Based upon the certificate of approval of credit enhancement issued to the District by the State of Idaho Endowment Fund Investment Board,

50 School District No. 281 (Moscow) [Date of Delivery] Page 4 payment of the principal of and interest on the 2013B Bonds when due is guaranteed by the school district bond credit enhancement program under Title 57, chapter 7, Idaho Code. It is to be understood that the rights of the holders of the Bonds and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditors rights heretofore or hereafter enacted to the extent constitutionally applicable, and their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. Ownership of tax-exempt obligations, including the 2013B Bonds, may result in collateral federal income tax consequences to certain taxpayers. Prospective purchasers of the 2013B Bonds should consult their own tax advisors as to the applicability of any such collateral consequences. Very truly yours, HAWLEY TROXELL ENNIS & HAWLEY LLP

51 Appendix B Financial Statements The District s Auditor has not performed any further review of the District s general purpose financial statements since the date of the audit contained herein.

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