$9,995,000* Clearfield Area School District Clearfield County, Pennsylvania General Obligation Bonds, Series of 2012

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1 This Preliminary Official Statement and the information contained herein are subject to completion, amendment or other change without notice. The Bonds may not be sold nor may offers to buy be accepted prior to the time the Preliminary Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the applicable securities laws of any such jurisdiction. PRELIMINARY OFFICIAL STATEMENT DATED AUGUST 20, 2012 NEW ISSUE-BOOK-ENTRY RATING: Moody s: (Enhanced) Moody s: (Underlying) (See Ratings herein) In the opinion of Bond Counsel, assuming compliance by the Issuer with certain covenants and requirements of the Internal Revenue Code of 1986, as amended (the Code ), and applicable regulations thereunder, interest on and accruals of original issue discount with respect to the Bonds are excluded from gross income for federal income tax purposes under existing law, as currently enacted and construed, and are not items of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, with respect to corporations (as defined for federal income tax purposes), such interest and accruals of original issue discount are taken into account in determining adjusted current earnings for the purpose of the alternative minimum tax. This opinion of Bond Counsel is subject to continuing compliance by the Issuer with its covenants to comply with requirements of the Code and applicable regulations thereunder. The Bonds have been designated by the Issuer as "qualified tax-exempt obligations," for purposes and effect contemplated by Section 265 of the Internal Revenue Code of 1986, as amended (concerning interest expenses relating to tax-exempt income of certain financial institutions). The Bonds are exempt from personal property taxes in Pennsylvania; and the interest on the Bonds is exempt from the Commonwealth of Pennsylvania s Corporate Net Income Tax and from its Personal Income Tax, or by any of its political subdivisions, under present statutory and case law (For further information concerning federal and state tax matters relating to the Bonds, see "TAX MATTERS" herein). $9,995,000* Clearfield Area School District Clearfield County, Pennsylvania General Obligation Bonds, Series of 2012 Dated: October 3, 2012 Principal Due: Initially March 1, 2013; thereafter on September 1, as shown on inside cover Interest Due: March 1 and September 1 First Interest Payment: March 1, 2013 The General Obligation Bonds, Series of 2012, in the aggregate principal amount of $9,995,000* (the "Bonds") will be issued in registered form in denominations of $5,000 or any integral multiple thereof. The Bonds will be registered in the name of Cede & Co., as the registered owner and nominee of The Depository Trust Company ("DTC"), New York, New York. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or any integral multiple thereof only under the book-entry only system maintained by DTC through its brokers and dealers who are, or act through, DTC Participants. The purchasers of the Bonds will not receive physical delivery of the Bonds. For so long as any purchaser is the beneficial owner of a Bond, that purchaser must maintain an account with a broker or a dealer who is, or acts through, a DTC Participant to receive payment of principal of and interest on the Bonds. See "BOOK-ENTRY ONLY SYSTEM" herein. If, under the circumstances described herein, Bonds are ever issued in certificated form, the Bonds will be subject to registration of transfer, exchange and payment as described herein. The Bonds are general obligations of the Clearfield Area School District, Clearfield County, Pennsylvania (the "School District") payable from its tax and other general revenues. The School District has covenanted that it will provide in its budget in each year, and will appropriate from its general revenues in each such year, the amount of the debt service on the Bonds for such year and will duly and punctually pay or cause to be paid from the sinking fund established under the Resolution or any other of its revenues or funds the principal of every Bond and the interest thereon on the dates, at the place and in the manner stated in the Bonds, and for such budgeting, appropriation and payment the School District pledged its full faith, credit and taxing power, within the limits provided by law (See Security and Taxpayer Relief Act herein). Interest on each of the Bonds is payable initially on March 1, 2013, and thereafter semiannually on March 1 and September 1 of each year until the maturity date of such Bond or, if such Bond is subject to redemption prior to maturity, until the date fixed for redemption thereof, if payment of the redemption price has been duly made or provided for. The School District has appointed Bankers Trust Company (the Paying Agent ), as paying agent and sinking fund depository for the Bonds. So long as Cede & Co., as nominee for DTC, is the registered owner of the Bonds, payments of the principal of, redemption premium, if any, and interest on the Bonds, when due for payment, will be made directly to DTC by the Paying Agent, and DTC will in turn remit such payments to DTC Participants for subsequent disbursement to the Beneficial Owners of the Bonds. If the use of the bookentry only system for the Bonds is ever discontinued, the principal of and redemption premium, if any, on each of the Bonds will be payable, when due, upon surrender of such Bond to the Paying Agent at its specified corporate trust office presently located in Camp Hill, Pennsylvania (or any successor paying agent at its designated office(s)) and interest on such Bond will be payable by check mailed to the person(s) in whose name(s) such Bond is registered as of the Record Date with respect to the particular interest payment date (See THE BONDS, infra). The Bonds are subject to optional redemption prior to maturity. (See Redemption of Bonds, infra). Proceeds of the Bonds will be applied toward payment of the costs of the acquiring, designing, constructing, furnishing and equipping alterations, additions, renovations to the Clearfield High School and other such improvements to the School District s existing school buildings and facilities, and to pay the costs of issuing the Bonds. The Bonds are an authorized investment for fiduciaries in the Commonwealth of Pennsylvania pursuant to the Pennsylvania Probate, Estate and Fiduciaries Code, Act of June 30, 1972, No. 164, P.L. 508, as amended and supplemented. MATURITIES, AMOUNTS, RATES AND PRICES/YIELDS {As Shown on Inside Cover} The Bonds are offered when, as and if issued, subject to withdrawal or modification of the offer without notice, and subject to the approving legal opinion of Eckert Seamans Cherin & Mellott, LLC, Bond Counsel, Harrisburg, Pennsylvania, to be furnished upon delivery of the Bonds. Certain other legal matters will be passed upon for the School District by Andrews & Beard, Altoona, Pennsylvania, School District Solicitor. Public Financial Management, Inc. serves as the School District s Financial Advisor in connection with the issuance of the Bonds. It is expected that the Bonds will be available for delivery in New York, New York, on or about October 3, Dated: *Estimated, subject to change Public Financial Management, Inc. Financial Advisor to the School District

2 $9,995,000* Clearfield Area School District Clearfield County, Pennsylvania General Obligation Bonds, Series of 2012 Dated: October 3, 2012 Principal Due: Initially on March 1, 2013; thereafter on September 1, as shown below Interest Due: March 1 and September 1 First Interest Payment: March 1, 2013 Maturity Date (March 1) Principal Interest Initial Offering Initial Offering Year Amount Rate Yield Price 2013 Maturity Date (September 1) Principal Interest Initial Offering Initial Offering Year Amount Rate Yield Price (A portion of the Bonds may be structured as Term Bonds. See "Invitation to Bid".) *Estimated, subject to change

3 CLEARFIELD AREA SCHOOL DISTRICT Clearfield County, Pennsylvania BOARD OF SCHOOL DIRECTORS David S. Glass... Mary Anne Jackson... Philip E. Carr... Susan E. Mikesell... Tim N. Morgan... Larry A. Putt... Richard D. Schickling... Dr. Michael Spencer... Jennifer Wallace... President Vice-President Member Member Member Member Member Member Member SUPERINTENDENT THOMAS B. OTTO, D.Ed. BUSINESS ADMINISTRATOR SAM MANEY SCHOOL DISTRICT SOLICITOR ANDREWS & BEARD Altoona, Pennsylvania BOND COUNSEL ECKERT SEAMANS CHERIN & MELLOTT, LLC Harrisburg, Pennsylvania FINANCIAL ADVISOR PUBLIC FINANCIAL MANAGEMENT, INC. Harrisburg, Pennsylvania PAYING AGENT BANKERS TRUST COMPANY Camp Hill, Pennsylvania SCHOOL DISTRICT ADDRESS 438 River Road, P.O. Box 710 Clearfield, Pennsylvania 16830

4 No dealer, broker, salesman or other person has been authorized by the School District to give information or to make any representations, other than those contained in this Preliminary Official Statement, and if given or made, such other information or representations must not be relied upon. This Preliminary Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. The information set forth herein has been obtained from the School District and from other sources, which are believed to be reliable, but the School District does not guarantee the accuracy or completeness of information from sources other than the School District. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Preliminary Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in any of the information set forth herein since the date hereof. INTRODUCTION... 1 PURPOSE OF THE ISSUE... 1 Sources and Uses of Bond Proceeds... 1 THE BONDS... 2 TABLE OF CONTENTS Page Description... 2 Security... 2 Payment of Principal and Interest... 2 Transfer, Exchange and Registration of Bonds... 3 State Enforcement of Debt Service Payments... 3 Sinking Fund... 3 BOOK-ENTRY ONLY SYSTEM... 4 REDEMPTION OF BONDS... 5 Optional Redemption... 5 Notice of Redemption... 5 Manner of Redemption... 6 THE SCHOOL DISTRICT... 6 Introduction... 6 Administration... 6 School Facilities... 7 Enrollment Trends... 7 SCHOOL DISTRICT FINANCES... 7 Introduction... 7 Financial Reporting... 7 Budgeting Process as modified by Act 1 of 2006 (Taxpayer Relief Act) as amended by Act No. 25 of Summary and Discussion of Financial Results... 9 Revenue TAXING POWERS AND LIMITS In General Act 1 of 2006 (The Taxpayer Relief Act) Bonds Subject to Act 1 Limits on Tax Increases Limitation on Estimated Ending Unreserved Undesignated Fund Balances Real Property Tax Other Taxes State Aid to School Districts DEBT AND DEBT LIMITS Debt Statement Debt Limit and Remaining Borrowing Capacity Page Debt Service Requirements Future Financing LABOR RELATIONS School District Employees Pension Program Other Post-Employment Benefits (OPEB) LITIGATION DEFAULTS AND REMEDIES TAX MATTERS Proposed Federal Tax Legislation Federal Tax Exemption Pennsylvania Tax Exemption Internal Revenue Code Covenants Qualified Tax-Exempt Obligations Tax Treatment of Premium CONTINUING DISCLOSURE UNDERTAKING RATING UNDERWRITING LEGAL OPINION FINANCIAL ADVISOR MISCELLANEOUS APPENDIX A - DEMOGRAPHIC AND ECONOMIC INFORMATION RELATING TO THE CLEARFIELD AREA SCHOOL DISTRICT Population... A-1 Employment... A-2 Income... A-4 Commercial Activity... A-5 Educational Institutions... A-5 Transportation... A-5 APPENDIX B - BOND COUNSEL OPINION APPENDIX C - AUDITED FINANCIAL STATEMENTS i

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6 PRELIMINARY OFFICIAL STATEMENT $9,995,000* Clearfield Area School District Clearfield County, Pennsylvania General Obligation Bonds, Series of 2012 INTRODUCTION This Preliminary Official Statement, including the cover page hereof and the Appendices hereto, is furnished by Clearfield Area School District, Clearfield County, Pennsylvania (the "School District") in connection with the offering of $9,995,000* aggregate principal amount of its General Obligation Bonds, Series of 2012 (the Bonds ), dated as of October 3, The Bonds are being issued pursuant to a Resolution of the Board of School Directors of the School District adopted on August 27, 2012 (the "Resolution"), and pursuant to the Local Government Unit Debt Act of the Commonwealth of Pennsylvania, Act of July 12, 1972, No. 185, P.L. 781, as re-enacted, amended and revised by Act No , as amended, supplemented and codified by Act No. 177 of 1996, 53 Pa. C.S.A et seq. (the "Act"). PURPOSE OF THE ISSUE Proceeds of the Bonds will be applied toward payment of the costs of the acquiring, designing, constructing, furnishing and equipping alterations, additions, renovations to the Clearfield High School and other such improvements to the School District s existing school buildings and facilities, and to pay the costs of issuing the Bonds. Sources and Uses of Bond Proceeds The following is a summary of the sources and uses of the proceeds from the issuance of the Bonds. Sources of Funds Bond Proceeds... Net Original Issue Premium/Discount... Total Sources of Funds... Uses of Funds Deposit to Project Fund... Costs of Issuance (1)... Total Uses of Funds... (1) Includes legal, financial advisor, printing, rating, underwriter s discount, CUSIP, municipal bond insurance policy (if applicable), paying agent, and miscellaneous costs. *Estimated, subject to change. 1

7 THE BONDS Description The Bonds will be issued in fully registered form, in denominations of $5,000 or any integral multiple thereof, will be in the aggregate principal amount of $9,995,000*, will be dated as of October 3, 2012 and will bear interest at the rates and mature in the amounts and at the times set forth on the inside cover page of this Preliminary Official Statement. Interest on the Bonds will be payable initially on March 1, 2013, and thereafter, semiannually on March 1 and September 1, until the principal sum is paid. When issued, the Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company ( DTC ), New York, New York. Purchasers of the Bonds (the Beneficial Owners ) will not receive any physical delivery of Bonds certificates, and beneficial ownership of the Bonds will be evidenced only by book entries. See BOOK ENTRY ONLY SYSTEM herein. Security The Bonds will be general obligations of the School District, payable from its tax and other general revenues. The School District has covenanted that it will provide in its budget for each year, and will appropriate from its general revenues in each such year, the amount of the debt service on the Bonds for such year, and will duly and punctually pay or cause to be paid from its Sinking Fund, as hereinafter defined, or any other of its revenues or funds, the principal of each of the Bonds and the interest thereon at the dates and place and in the manner stated on the Bonds, and for such budgeting, appropriation, and payment the School District irrevocably has pledged its full faith, credit and taxing power, which taxing power presently includes the power to levy ad valorem taxes on all taxable property within the School District, within the limits provided by law (See Taxpayer Relief Act herein). The Act presently provides for enforcement of debt service payments as hereinafter described (see Defaults and Remedies herein), and the Public School Code presently provides for the withholding and application of subsidies in the event of failure to pay debt service (see Commonwealth Enforcement of Debt Service Payments herein). Payment of Principal and Interest So long as Cede & Co., as nominee of DTC, is the registered owner of the Bonds, payments of principal of, redemption premium, if any, and interest on the Bonds, when due, are to be made to DTC and all such payments shall be valid and effective to satisfy fully and to discharge the obligations of the School District with respect to, and to the extent of, principal, redemption premium, if any, and interest so paid. If the use of the Book-Entry Only System for the Bonds is discontinued for any reason, Bond certificates will be issued to the Beneficial Owners of the Bonds and payment of principal, redemption premium, if any, and interest on the Bonds shall be made as described in the following paragraphs: The principal of the Bonds, when due upon maturity, will be paid to the registered owners of the Bonds, or registered assigns, upon surrender of the Bonds to Bankers Trust Company (the Paying Agent ), acting as paying agent and sinking fund depository for the Bonds, at its designated corporate trust office in Camp Hill, Pennsylvania (or to any successor paying agent at its designated office(s)). Interest is payable to the registered owner of a Bond from the interest payment date next preceding the date of registration and authentication of the Bond, unless: (a) such Bond is registered and authenticated as of an interest payment date, in which event such Bond shall bear interest from said interest payment date, or (b) such Bond is registered and authenticated after a Record Date (hereinafter defined) and before the next succeeding interest payment date, in which event such Bond shall bear interest from such interest payment date, or (c) such Bond is registered and authenticated on or prior to the Record Date preceding March 1, 2013, in which event such Bond shall bear interest from October 3, 2012, or (d) as shown by the records of the Paying Agent, interest on such Bond shall be in default, in which event such Bond shall bear interest from the date to which interest was last paid on such Bond. Interest shall be paid initially on March 1, 2013, and thereafter, semiannually on March 1 and September 1 of each year, until the principal sum is paid. Interest on each Bond is payable by check drawn on the Paying Agent, which shall be mailed to the registered owner whose name and address shall appear, at the close of business on the (15 th ) fifteenth day (whether or not a day on which the Paying Agent is open for business) next preceding the applicable interest payment date (the "Record Date"), on the registration books maintained by the Paying Agent, irrespective of any transfer or exchange of the Bond subsequent to such Record Date and prior to such interest payment date, unless the School District shall be in default in payment of interest due on such interest payment date. In the event of any such default, such defaulted interest shall be payable to the person in whose name the Bond is registered at the close of business on a special record date for the payment of such defaulted interest established by notice mailed by the Paying Agent to the registered owner of such Bond not less than ten (10) days preceding such special record date. *Estimated, subject to change. 2

8 If the date for payment of the principal of, premium, if any, or interest on such Bond shall be Saturday, Sunday, legal holiday or on a day on which banking institutions in the municipality where the principal corporate trust office of the Paying Agent is located are authorized by law or executive order to close, then the date of such payment shall be the next succeeding day which is not a Saturday, Sunday, legal holiday or on a day on which such banking institutions are authorized to close (a Business Day ), and payment on such subsequent Business Day shall have the same force and effect as if made on the nominal date established for such payment. Transfer, Exchange and Registration of Bonds Subject to the provisions described below under Book-Entry Only System, Bonds are transferable or exchangeable by the registered owners thereof upon surrender of Bonds to the Paying Agent, at its principal corporate trust office duly endorsed by, or accompanied by a written instrument or instruments of transfer in form and with guaranty of signature satisfactory to the Paying Agent, duly executed by the registered owner of such Bond or his duly authorized agent or legal representative. The Paying Agent shall enter any transfer of ownership of Bonds in the registration books and shall authenticate and deliver at the earliest practicable time in the name of the transferee or transferees a new fully registered Bond or Bonds of authorized denominations of the same maturity and interest rate for the aggregate principal amount which the registered owner is entitled to receive. The School District and the Paying Agent may deem and treat the registered owner of any Bond as the absolute owner thereof (whether or not a Bond shall be overdue) for the purpose of receiving payment of or on account of principal and interest and for all other purposes, and the School District and the Paying Agent shall not be affected by any notice to the contrary. The School District and the Paying Agent shall not be required to issue, or register the transfer or exchange of, any Bond during the period beginning at the opening of business on any Record Date for interest payments and ending at the close of business on such Interest Payment Date. Bonds may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations of the same maturity and interest rate. State Enforcement of Debt Service Payments Section 633 of the Public School Code presently provides that in all cases where the board of school directors of any school district fails to pay or to provide for the payment of any indebtedness at date of maturity or date of mandatory redemption, or any interest due on such indebtedness on any interest payment date, in accordance with the schedule under which the bonds were issued, the Secretary of Education shall notify such board of school directors of its obligation and shall withhold out of any Commonwealth of Pennsylvania (the Commonwealth ) appropriation due such school district an amount equal to the sum of the principal amount maturing or subject to mandatory redemption and interest owing by such school district, and shall pay over the amount so withheld to the bank or other person acting as sinking fund depository for such bond issue. These withholding provisions are not part of any contract with the holders of the Bonds, and may be amended or repealed by future legislation. There can be no assurance, however, that any payments pursuant to this provision will be made by the date on which such payments are due to the Bondholders. The effectiveness of Section 633 may be limited by the application of other withholding provisions contained in the Public School Code, such as provisions for withholding and paying over of appropriations for payment of unpaid teachers' salaries and unpaid charter school tuition. Enforcement may also be limited by bankruptcy, insolvency, or other laws or equitable principles affecting the enforcement of creditors' rights generally. Sinking Fund A sinking fund for the payment of debt service on the Bonds, designated "Clearfield Area School District, Series of 2012 Bonds Sinking Fund" (the "Sinking Fund"), has been created under the Resolution and is maintained by the Paying Agent as sinking fund depository. The School District shall deposit in the Sinking Fund a sufficient sum not later than the date when interest and/or principal is to become due on the Bonds so that on each payment date the Sinking Fund will contain an amount which, together with any other funds available therein, is sufficient to pay, in full, interest and/or principal then due on the Bonds. The Sinking Fund shall be held by the Paying Agent, as sinking fund depository, and invested by the Paying Agent in such securities or shall be deposited in such funds or accounts as are authorized by the Act, upon direction of the School District. Such deposits and securities shall be in the name of the School District, but subject to withdrawal or collection only by the Paying Agent, as sinking fund depository, and such deposits and securities, together with the interest thereon shall be a part of the Sinking Fund. The Paying Agent, as sinking fund depository, is authorized without further order from the School District to pay from the Sinking Fund the principal of and interest on the Bonds, as and when due and payable. 3

9 BOOK-ENTRY ONLY SYSTEM The information in this section has been obtained from materials provided by DTC for such purpose. The School District (herein referred to as the Issuer ) and the Underwriter do not guaranty the accuracy or completeness of such information, and such information is not to be construed as a representation of the School District or the Underwriter. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the securities (the "Securities"). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for the Securities, in the aggregate principal amount of such issue, and will be deposited with DTC. DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency'' registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.6 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants'') deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner'') is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities: DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from Issuer or Agent, on payment date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and 4

10 customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. A Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through its Participant, to Tender Agent, and shall effect delivery of such Securities by causing the Direct Participant to transfer the Participant's interest in the Securities, on DTC's records, to Tender Agent. The requirement for physical delivery of Securities in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC's records and followed by a book-entry credit of tendered Securities to Tender Agent's DTC account. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof. NEITHER THE ISSUER NOR THE PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY DTC PARTICIPANT, INDIRECT PARTICIPANT OR BENEFICIAL OWNER OR ANY OTHER PERSON WITH RESPECT TO: (1) THE BONDS; (2) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT; (3) THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON THE BONDS; (4) THE DELIVERY TO ANY BENEFICIAL OWNER BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY NOTICE WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE RESOLUTION TO BE GIVEN TO BONDHOLDERS; (5) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (6) ANY OTHER ACTION TAKEN BY DTC AS BONDHOLDER. The Issuer and the Paying Agent cannot give any assurances that DTC or the Participants will distribute payments of the principal or redemption price of and interest on the Bonds paid to DTC or its nominee, as the registered owner of the Bonds, or any redemption or other notices, to the Beneficial Owners or that they will do so on a timely basis, or that DTC will serve and act in the manner described in this Preliminary Official Statement. Mandatory Redemption REDEMPTION OF BONDS Bidders may elect to structure the issue to include term bonds, which term bonds, if selected by the bidder, will be subject to mandatory sinking fund redemptions prior to maturity, in the years and amounts as shown in the Invitation to Bid, upon payment of 100% of the principal amount of Bonds to be redeemed, together with accrued interest to the date fixed for redemption, or upon maturity, as applicable. Term bonds to be redeemed shall be selected by lot by the Paying Agent. In lieu of such mandatory redemption, the Paying Agent, on behalf of the School District, may purchase from money in the Sinking Fund, at a price not to exceed the principal amount plus accrued interest, or the School District may tender to the Paying Agent, all or part of the Bonds subject to being drawn for redemption in any such year. Optional Redemption The Bonds stated to mature on or after September 1, 2018 shall be subject to redemption prior to maturity, at the option of the School District, as a whole, or from time to time, in part (and if in part, in any order of maturity as selected by the School District and within a maturity by lot), on March 1, 2018, or on any date thereafter, in either case upon payment of a redemption price of 100% of the principal amount of such Bonds, together with accrued interest to the redemption date. Notice of Redemption So long as Cede & Co., as nominee of DTC, is the registered owner of the Bonds, however, the School District and the Paying Agent shall send redemption notices only to Cede & Co. See BOOK-ENTRY ONLY SYSTEM herein for further information regarding conveyance of notices to Beneficial Owners. 5

11 Notice of any redemption shall be given by depositing a copy of the redemption notice in first class mail not less than thirty (30) days nor more than sixty (60) days prior to the date fixed for redemption addressed to each of the registered owners of Bonds to be redeemed, in whole or in part, at the addresses shown on the registration books; provided, however, that failure to give such notice by mailing, or any defect therein or in the mailing thereof, shall not affect the validity of any proceeding for redemption of other Bonds so called for redemption as to which proper notice has been given. On the date designated for redemption, notice having been provided as aforesaid, and money for payment of the principal and accrued interest being held by the Paying Agent, interest on the Bonds or portions thereof so called for redemption shall cease to accrue and such Bonds or portions thereof shall cease to be entitled to any benefit or security under the Resolution, and registered owners of such Bonds or portions thereof so called for redemption shall have no rights with respect to such Bonds, except to receive payment of the principal of and accrued interest on such Bonds to the date fixed for redemption. Any notice of redemption of Bonds may state that the redemption is conditioned upon the deposit of sufficient funds prior to the redemption date. If sufficient funds are not received, such notice of redemption shall be of no effect. If at the time of mailing of a notice of redemption the School District shall not have deposited with the Paying Agent (or, in the case of a refunding, with another bank or depositary acting as refunding escrow agent) money sufficient to redeem all Bonds called for redemption, the notice of redemption may state that it is conditional; i.e., that it is subject to the deposit of sufficient redemption money with the Paying Agent not later than the opening of business on the redemption date, and such notice shall be of no effect unless such money is so deposited. Manner of Redemption So long as Cede & Co., as nominee of DTC, is the registered owner of the Bonds, payment of the redemption price shall be made to Cede & Co. in accordance with the existing arrangements by and among the School District, the Paying Agent and DTC and, if less than all Bonds of any particular maturity of a series are to be redeemed, the amount of the interest of each DTC Participant, Indirect Participant and Beneficial Owner in such Bonds to be redeemed shall be determined by the governing arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. See BOOK-ENTRY ONLY SYSTEM herein for further information regarding redemption of Bonds registered in the name of Cede & Co. If a Bond is of a denomination larger than $5,000, a portion of such Bond may be redeemed. For the purposes of redemption, a Bond shall be treated as representing the number of Bonds that is equal to the principal amount thereof divided by $5,000, each $5,000 portion of such Bond being subject to redemption. In the case of partial redemption of a Bond, payment of the redemption price shall be made only upon surrender of such Bond in exchange for Bonds of authorized denominations in an aggregate principal amount equal to the unredeemed portion of the principal amount thereof. If the redemption date for any Bonds shall be a Saturday, Sunday, legal holiday or a day on which banking institutions in the Commonwealth are authorized or required by law or executive order to close, then the date for payment of the principal, premium, if any, and interest upon such redemption shall be the next succeeding day which is not a Saturday, Sunday, legal holiday or a day on which such banking institutions are authorized or required to close, and payment on such date shall have the same force and effect as if made on the nominal date of redemption. Introduction THE SCHOOL DISTRICT The Clearfield Area School District, Clearfield County, Pennsylvania (the School District ) is comprised of the Borough of Clearfield and the Townships of Bradford, Covington, Girard, Goshen, Knox, Lawrence and Pine (collectively, the Component Municipalities ). The School District covers approximately 365 square miles with Cameron and Elk Counties to its north and Coopers and Karthaus Townships to its west. Administration The School District is governed by a nine member Board of Directors (the School Board ), elected for four-year terms. The Superintendent is the chief administrative officer of the School District, with overall responsibility for all aspects of operations, including education and finances. The Business Administrator is responsible for budget and financial operations. Both of these officials are appointed by the School Board. {REMAINDER OF PAGE INTENTIONALLY LEFT BLANK} 6

12 School Facilities The School District operates three elementary schools, one middle school and one high school, as shown on the following table. TABLE 1 CLEARFIELD AREA SCHOOL DISTRICT FACILITIES Original Addition/ Rated Projected Construction Renovation Pupil Building Date Date(s) Grades Capacity Enrollment Elementary: Bradford Elementary K Centre Elementary K Clearfield Elementary K Girard/Goshen Elementary K ** Elementary/Secondary: Clearfield Middle School , Secondary: Clearfield High School **On June 25, 2012 the Board voted to permanently close the Girard-Goshen Elementary School. The students will remain in Clearfield Elementary School. Source: School District officials. Enrollment Trends The following Table 2 presents recent trends in school enrollment and projections of enrollment for the next five years, as prepared by School District officials. TABLE 2 CLEARFIELD AREA SCHOOL DISTRICT ENROLLMENT TRENDS Actual Enrollments Projected Enrollments School School Year Elementary Secondary Total Year Elementary Secondary Total ,198 1,372 2, ,157 1,113 2, ,203 1,269 2, ,173 1,046 2, ,183 1,208 2, ,195 1,016 2, ,133 1,203 2, ,200 1,000 2, (est.) 1,148 1,151 2, , ,171 Source: School District officials. Enrollments include special education students. Introduction SCHOOL DISTRICT FINANCES The School District budgets and expends funds according to procedures mandated by the Pennsylvania Department of Education. An annual operating budget is prepared by the Superintendent and the Business Administrator and submitted to the School Board for approval prior to the beginning of the fiscal year on July 1. Financial Reporting The School District keeps its books and prepares its financial reports according to a modified accrual basis of accounting. Major accrual items are payroll taxes and pension fund contributions payable, loans receivable from other funds, and revenues receivable from other governmental units. The School District s financial statements are audited annually by a firm of independent certified public accountants, as required by State law. The firm of Walter Hopkins & Company, LLP, serves as School District auditor. 7

13 Budgeting Process as modified by Act 1 of 2006 (Taxpayer Relief Act) as amended by Act No. 25 of 2011 In General. School districts budget and expend funds according to procedures mandated by the Pennsylvania Department of Education. An annual operating budget is prepared by school district administrative officials on a uniform form furnished by such Department and submitted to the board of school directors for approval prior to the beginning of the fiscal year on July 1. Procedures for Adoption of the Annual Budget. Under the Taxpayer Relief Act, all school districts of the first class A, second class, third class and fourth class (except as described below) must adopt a preliminary budget proposal (which must include estimated revenues and expenditures and proposed tax rates) no later than 90 days prior to the date of the election immediately preceding the fiscal year. The preliminary budget proposal must be printed and made available for public inspection at least 20 days prior to its adoption; the board of school directors may hold a public hearing on the budget; and the board must give at least 10 days public notice of its intent to adopt the final budget. If the adopted preliminary budget includes an increase in the rate of any tax levy, the preliminary budget must be submitted to the Pennsylvania Department of Education (PDE) no later than 85 days prior to the date of the election immediately preceding the fiscal year. PDE is to compare the proposed percentage increase in the rate of any tax with the school district s Index (see The Taxpayer Relief Act herein) and within 10 days, but not later than 75 days prior to the upcoming election, inform the school district whether the proposed percentage increase is less than or equal to the Index. If PDE determines that a proposed tax increase will exceed the Index, the school district must reduce the proposed tax increase, seek voter approval for the tax increase at the upcoming election, or seek approval to utilize one of the referendum exceptions authorized under The Taxpayer Relief Act. With respect to the utilization of any of the Taxpayer Relief Act referendum exceptions for which PDE approval is required (see The Taxpayer Relief Act herein), the school district must publish notice of its intent to seek PDE approval not less than one week before submitting its request for approval to PDE and, if PDE determines to schedule a public hearing on the request, a notice of the date, time and place of such hearing. PDE is required by the Taxpayer Relief Act to rule on the school district s request and inform the school district of its decision no later than 55 days prior to the upcoming election so that, if PDE denies the school district s request, the school district may submit a referendum question to the local election officials at least 50 days before the upcoming election, if it so chooses. If a school district seeks voter approval to increase taxes at a rate higher than the applicable Index, whether or not it first seeks approval to utilize one of the referendum exceptions available under the Taxpayer Relief Act, and the referendum question is not approved by a majority of the voters voting on the question, the board of school directors may not approve an increase in the tax rate greater than the applicable Index. Simplified Procedures in Certain Cases. The above budgetary procedures will not apply to a school district if the board of school directors adopts a resolution no later than 110 days prior to the election immediately preceding the upcoming fiscal year declaring that it will not increase any tax at a rate that exceeds the Index and that a tax increase at or below the rate of the Index will be sufficient to balance its budget. In that case, the Taxpayer Relief Act requires only that the proposed annual budget be prepared at least 30 days, and made available for public inspection at least 20 days, prior to its adoption, and that at least ten (10) days public notice be given of the board s intent to adopt the annual budget. No referendum exceptions are available to a school district adopting such a resolution. {REMAINDER OF PAGE INTENTIONALLY LEFT BLANK} 8

14 Summary and Discussion of Financial Results A summary of the General Fund balance sheet and changes in fund balances is presented in Tables 3 and 4 which follow. The budget, as adopted June 25, 2012, budgeted revenues of $31,433,372 and expenditures of $33,263,094, which includes a budgetary reserve of $200,000. Tables 4 and 5 show revenues and expenditures for the past four audited years, estimated , and the budget for TABLE 3 CLEARFIELD AREA SCHOOL DISTRICT SUMMARY OF COMPARATIVE GENERAL FUND BALANCE SHEET ASSETS Cash and Cash Equivalents... $5,088,101 $4,636,237 $5,684,979 $7,135,833 Taxes Receivable... 1,920,278 1,976,890 2,071,910 2,106,521 Due from Other Funds... 89, , , ,067 Due from Other Governmental Funds... 99, , , ,262 State Revenue Receivable , , , ,046 Federal Revenue Receivable , ,384 1,065, ,437 Other Governmental Receivables , Other Receivables , , ,719 Prepaid Expenses TOTAL ASSETS... $8,624,514 $9,060,003 $10,208,642 $12,045,885 LIABILITIES Due to Other Funds... $748,900 $544,425 $1,229,196 $250,000 Due to Other Governments , ,889 Accounts Payable , , , ,240 Accrued Salaries and Benefits... 1,817,575 1,840,095 1,855,687 1,888,990 Payroll Deductions and Withholdings , , , ,449 Deferred Revenues... 1,920,278 1,976,890 2,080,631 2,106,521 TOTAL LIABILITIES... $5,895,699 $5,660,990 $5,974,424 $5,299,089 FUND EQUITIES Restricted Fund Balance... $0 $0 $0 $2,051,908 Committed Fund Balance... 1,076,149 2,475,633 2,347,772 3,113,989 Unassigned Fund Balance... 1,652, ,380 1,886,446 1,580,899 TOTAL FUND EQUITIES... $2,728,815 $3,399,013 $4,234,218 $6,746,796 TOTAL LIABILITIES AND FUND EQUITIES... $8,624,514 $9,060,003 $10,208,642 $12,045,885 Source: School District Annual Financial Reports. 9

15 TABLE 4 CLEARFIELD AREA SCHOOL DISTRICT GENERAL FUND SUMMARY OF CHANGES IN FUND BALANCE* Actual Estimated Budgeted (1) 2013 (2) Beginning Fund Balance... $2,523,127 $2,728,817 $3,399,013 $4,234,218 $6,746,796 $6,335,624 Revenues over (under) Expenditure. 205, , ,205 2,509,651 (411,172) (1,829,722) Other , Ending Fund Balance... $2,728,817 $3,399,014 $4,234,218 $6,746,796 $6,335,624 $4,505,902 *Totals may not add due to rounding. (1) Estimated, subject to change and final audit. (2) Budget, as adopted June 25, Source: School District Annual Financial Reports and Budget. Revenue The School District received $32,287,918 (estimated) in revenue in and has budgeted for $31,433,372 in Local sources have increased as a share of the total revenue in the past five years, from 42.4 percent in to an estimated 43.0 percent in Revenue from State sources has decreased as a share of the total revenue from 53.1 percent to an estimated percent over this period. Federal and other revenue has decreased as a share from 4.5 percent to an estimated 4.4 percent during this period. {REMAINDER OF PAGE INTENTIONALLY LEFT BLANK} 10

16 TABLE 5 CLEARFIELD AREA SCHOOL DISTRICT SUMMARY OF SCHOOL DISTRICT GENERAL FUND REVENUES* (Years Ending June 30) REVENUE: Actual Estimated Budget Local Sources: (1) 2013(2) Real Estate... $9,742,349 $9,312,422 $9,255,012 $9,704,603 $10,701,516 $10,399,951 Total Act 511 Taxes... 1,569,620 1,499,325 1,366,016 1,468,294 1,278,891 1,280,000 Public Utility Taxes... 16,650 15,532 17,413 16,998 16,398 16,000 Payment in Lieu of Taxes... 99, , , , , ,000 Delinquent Taxes... 1,060,036 1,040,836 1,091,308 1,150, , ,000 Earnings from Investments , ,872 99,485 86,028 95,638 70,150 Rev. from Student Activities... 9,337 10,566 12,014 43,623 36,989 36,700 State Rev. Rcvd. From Other PA Public Schools ,000 25,000 25, Federal Rev. Rec'd from Other PA Schools , , ,568 60,319 53,045 0 Federal IDEA Pass Through Revenue , , , , , ,000 Rentals... 25,060 10,450 16,883 11,833 5,000 5,000 Contributions & Donations-Private Srcs ,000 5,490 0 Tuition... 39,845 65,178 43,332 35,980 12,508 63,000 Receipts from Other LEAS in PA Education... 57,675 59,979 55,515 60,025 63,445 0 Refunds of Prior Years' Expenditures... 92, ,232 85, , ,588 0 Other Sources... 16,716 20,201 20,356 17,392 13,603 12,500 Total Local Sources... $13,528,530 $13,026,688 $12,812,211 $13,789,508 $13,897,629 $13,383,301 State Sources: Instructional Subsidy... $11,543,894 $11,891,739 $10,976,355 $10,562,706 $11,629,570 $11,629,570 Charter Schools... 79, , , , Tuition Court placed & Institutionalized... 29,003 43,956 53,241 36,876 29,000 29,000 Ed. Empowerment/Sch. Imprv. Grants , Alternative Education... 21,540 22, Homebound instruction... 4,515 3, Vocational Education... 74,557 26,930 49,969 53,313 47,907 25,000 Driver Ed... 2,590 2,170 2,310 2,345 2,870 2,000 Special Education... 1,563,001 1,590,855 1,613,123 1,601,942 1,601,942 1,601,942 Educational Assistance Program (tutoring)... 65, ,384 73,515 62, Transportation... 1,112,811 1,104,951 1,158,073 1,107,151 1,100,000 1,100,000 Rentals and Sinking Fund Payments , , , , , ,600 Health Services... 56,761 54,415 52,496 49,917 48,272 46,000 State Property Tax Reduction Allocation , , , , ,049 Classrooms for the Future , PA Accountability Grant , , , , ,325 0 Revenue for Social Security , , , , , ,000 Revenue for Retirement , , , , , ,000 Other Sources ,264 8,971 11,281 5,000 0 Total State Sources... $16,912,757 $17,936,326 $16,952,009 $16,435,314 $16,981,520 $16,836,161 Federal Sources: Total Federal Sources... $1,442,482 $1,741,635 $3,277,532 $3,948,210 $1,407,334 $1,213,910 Other Sources: Total Other Sources... $0 $6,279,173 $50 $1,971,227 $1,435 $0 TOTAL REVENUE... $31,883,770 $38,983,822 $33,041,802 $36,144,258 $32,287,918 $31,433,372 *Totals may not add due to rounding. (1) Estimated, subject to change and final audit. (2) Budget, as adopted June 25, Source: School District Annual Financial Reports and Budget. 11

17 TABLE 5 (cont.) CLEARFIELD AREA SCHOOL DISTRICT SUMMARY OF SCHOOL DISTRICT GENERAL FUND EXPENDITURES* (Years Ending June 30) Actual Estimated Budget EXPENDITURES: (1) 2013(2) Instruction... $18,166,457 $18,623,182 $18,085,118 $18,712,604 $18,477,102 $18,915,311 Pupil Personnel , , , , , ,578 Instructional Staff... 1,130,542 1,275,065 1,338,854 1,331,920 1,363,885 1,216,434 Administration... 1,756,453 1,819,935 1,751,325 1,865,432 1,819,245 1,776,490 Pupil Health , , , , , ,065 Business , , , , , ,531 Operation and Maintenance of Plant Services 2,719,637 2,911,990 2,963,313 2,854,968 3,185,854 3,383,014 Student Transportation... 1,533,300 1,484,297 1,639,733 1,656,139 1,823,671 1,783,088 Central... 1,005,004 1,085,901 1,074,630 1,203,586 1,303,448 1,279,043 Other Support Services ,154 2, ,500 Operation of Noninstructional Services , , , , , ,090 Fac. Acq., Constr. & Improv , ,547 1,617, Refunds of Prior Years' Expenditures , ,660 33,407 Debt Service... 1,901,328 1,842,935 1,757,198 1,851,225 2,040,919 1,899,950 Debt Service - Refunded Bond Issues ,146, Fund Transfers... 1,304, ,000 1,341, , , ,000 Budgetary Reserve ,000 TOTAL EXPENDITURES... $31,678,079 $38,313,625 $32,206,597 $33,634,608 $32,699,090 $33,263,094 SURPLUS OF REVENUES OVER (UNDER) EXPENDITURES... $205,691 $670,197 $835,205 $2,509,651 ($411,172) ($1,829,722) *Totals may not add due to rounding. (1) Estimated, subject to change and final audit. (2) Budget, as adopted June 25, Source: School District Annual Financial Reports and Budget. {REMAINDER OF PAGE INTENTIONALLY LEFT BLANK} 12

18 TAXING POWERS AND LIMITS In General Subject to certain limitations imposed by the Taxpayer Relief Act, Act No. 1 of the Special Session of 2006, as amended (see The Taxpayer Relief Act (Act 1) herein), the School District is empowered by the School Code and other statutes to levy the following taxes: 1. A basic annual tax on all real property taxable for school purposes, not to exceed 25 mills on each dollar of assessed valuation, to be used for general school purposes. 2. An unlimited ad valorem tax on the property taxable for school purposes to provide funds: a. for minimum salaries and increments of the teaching and supervisory staff; b. to pay rentals due any municipality authority or non-profit corporation or due the State Public School Building Authority; c. to pay interest and principal on any indebtedness incurred pursuant to the Local Government Unit Debt Act, or any prior or subsequent act governing the incurrence of indebtedness of the school district; and d. to pay for the amortization of a bond or note issue which provided a school building prior to the first Monday of July, An annual per capita tax on each resident or inhabitant over 18 years of age of not more than $ Additional taxes subject to division with other political subdivisions authorized to levy similar taxes on the same person, subject, business, transaction or privilege, under Act No. 511, enacted December 31, 1965, as amended ( The Local Tax Enabling Act ). These taxes, which may include, among others, an additional per capita tax, a wage and other earned income tax, a real estate transfer tax, a gross receipts tax, a local services tax and an occupation tax, shall not exceed, in the aggregate, an amount equal to the product of the market valuation of real estate in the School District (as certified by the State Tax Equalization Board of the Commonwealth STEB ) multiplied by twelve mills. All local taxing authorities are required by the Local Tax Enabling Act to exempt disabled veterans and members of the armed forces reserve who are called to active duty at any time during the tax year from any local services tax and to exempt from any local services tax levied at a rate in excess of $10 those persons whose total income and net profits from all sources within the political subdivision is less than $12,000 for the tax year. The Local Tax Enabling Act also authorizes, but does not require, taxing authorities to exempt from per capita, occupation, and earned income taxes and any local services tax levied at a rate of $10 or less per year, any person whose total income from all sources is less than $12,000 per year. {REMAINDER OF THIS PAGE INENTIONALLY LEFT BLANK} 13

19 Act 1 of 2006 (The Taxpayer Relief Act) Under Pennsylvania Act No. 1 of the Special Session of 2006, as amended by Act No. 25 of 2011 ( The Taxpayer Tax Relief Act or Act 1 ), a school district may not, in fiscal year or in any subsequent fiscal year, levy any tax for the support of the public schools which was not levied in the fiscal year, raise the rate of any earned income and net profits tax if already imposed under the authority of the Local Tax Enabling Act (Act 511), or increase the rate of any tax for school purposes by more than the Index (defined below), unless in each case either (a) such increase is approved by the voters in the school district at a public referendum or (b) one of the exceptions summarized below is applicable and the use of such exception is approved by the Pennsylvania Department of Education (PDE): 1. to pay interest and principal on indebtedness incurred (i) prior to September 4, 2004, in the case of a school district which had elected to become subject to the provisions of the prior Homeowner Tax Relief Act, Act 72 of 2004, or (ii) prior to June 27, 2006, in the case of a school district which had not elected to become subject to Act 72 of 2004; to pay interest and principal on any indebtedness approved by the voters at referendum (electoral debt); and to pay interest and principal on debt refunding or refinancing debt for which one of the above exceptions is permitted, as long as the refunding or refinancing incurs no additional debt other than for costs and expenses related to the refunding or refinancing and the funding of appropriate debt service reserves; 2. to pay costs incurred in providing special education programs and services to students with disabilities, under specified circumstances; and 3. to make payments into the State Public School Employees Retirement System when the increase in the estimated payments between the current year and the upcoming year is greater than the Index, as determined by PDE in accordance with the provisions of Act 1. Any revenue derived from an increase in the rate of any tax allowed under the exception numbered 1 above may not exceed the anticipated dollar amount of the expenditure, and any revenue derived from an increase in the rate of any tax allowed pursuant to any other exception enumerated above may not exceed the rate increase required, as determined by PDE. If a school district s petition or request to increase taxes by more than the Index pursuant to one or more of the allowable exceptions is not approved, the school district may submit the proposed tax increase to a referendum. The Index (to be determined and reported by PDE by September of each year for application to the following fiscal year) is the average of the percentage increase in the statewide average weekly wage, as determined by the State Department of Labor and Industry for the preceding calendar year, and the employment cost index for elementary and secondary schools, as reported by the federal Bureau of Labor Statistics for the preceding 12-month period beginning July 1 and ending June 30. If and when a school district has a Market Value/Income Aid Ratio greater than 0.40 for the prior school year, however, the Index is adjusted upward by multiplying the unadjusted Index by the sum of 0.75 and such Aid Ratio. The Act 1 Index applicable to the School District in the current and prior fiscal years are as follows: Fiscal Year Index % % % % % In accordance with Act 1, the School District put a referendum question on the ballot at the May, 15, 2007, primary election seeking voter approval to levy (or increase the rate of) an earned income and net profits tax ( EIT ) or a personal income tax ( PIT ) and use the proceeds to reduce local real estate taxes by a homestead and farmstead exclusion. The referendum was NOT approved by the voters. A board of school directors may submit, but is not required to submit, a referendum question to the voters at the municipal election in 2009 or any later year seeking approval to levy or increase the rate of an EIT or a PIT for the purpose of funding homestead and farmstead exclusions, but the proposed rate of the EIT or PIT shall not exceed the rate that is required to provide the maximum homestead and farmstead exclusions allowable under law. Bonds Subject to Act 1 Limits on Tax Increases The Bonds described in this Preliminary Official Statement do not represent debt that was approved ( incurred ) by the board of school directors prior to the effective date of Act. Therefore the board of school directors may not apply to the Pennsylvania Department of Education (PDE) to use the Act 1 referendum exception for previously incurred debt if a tax increase greater than the Index is needed to provide for payment of principal or interest on the Bonds. The School District, however, has included sufficient new millage in its current year budget to cover the full amount of the debt service on the Bonds without exceeding the Act 1 Index (although the actual tax increase may have exceeded the Index as a result of the application of other approved exceptions to the Index). 14

20 Limitation on Estimated Ending Unreserved Undesignated Fund Balances Pennsylvania Act No (enacted December 23, 2003) prohibits a school district from increasing real property taxes for the school year or any subsequent school year, unless the school district has adopted a budget for such school year that includes an estimated ending unreserved undesignated fund balance which is not more than a specified percentage of the total budgeted expenditures, as set forth below: Estimated Ending Unreserved Undesignated Fund Balance Total Budgeted Expenditures: as a Percentage of Total budgeted Expenditures: Less than or equal to $11,999, % Between $12,000,000 and $12,999, % Between 13,000,000 and $13,999, % Between $14,000,000 and $14,999, % Between $15,000,000 and $15,999, % Between $16,000,000 and $16,999, % Between $17,000,000 and $17,999, % Between $18,000,000 and $18,999, % Greater than or equal to $19,000, % Estimated ending unreserved fund balance is defined in Act as that portion of the fund balance which is appropriable for expenditure or not legally or otherwise segregated for a specific or tentative future use, projected for the close of the school year for which a school district s budget was adopted and held in the general fund accounts of the school district. {REMAINDER OF PAGE INTENTIONALLY LEFT BLANK} 15

21 Table 6 shows the recent trend of tax rates levied by the School District. Table 7 shows the comparative trend of real property tax rates for the School District, Clearfield County, one borough and seven townships. TABLE 6 CLEARFIELD AREA SCHOOL DISTRICT TAX RATES Real Estate Wage Local Services Real Estate Transfer and Income Tax (mills) (%) (%) ($) Source: Source: Department of Community and Economic Development- Municipal Statistics TABLE 7 CLEARFIELD AREA SCHOOL DISTRICT COMPARATIVE REAL PROPERTY TAX RATES (Mills on Assessed Value) School District Bradford Township Clearfield Borough Covington Township Girard Township Goshen Township Knox Township Lawrence Township Pine Township Clearfield County Source: Source: Department of Community and Economic Development- Municipal Statistics Real Property Tax The real property tax (excluding delinquent collections) produced an estimated $10,701,516 in , approximately 33.1 percent of total revenue. The tax is levied on July 1 of each year. Taxpayers who remit within 60 days receive a 2 percent discount. After 60 days and before 120 days taxpayers pay face value. After 120 days and before 180 days taxpayers are assessed a 10 percent penalty. The following tables summarize recent trends of assessed and market valuations of real property and real property tax collection data. The last countywide assessment in Clearfield County was in

22 TABLE 8 CLEARFIELD AREA SCHOOL DISTRICT REAL PROPERTY ASSESSMENT DATA Market Assessed Year Value Value Ratio $615,492,000 $130,764, % $623,436,800 $131,479, % $664,874,400 $131,100, % $659,034,200 $130,668, % $685,506,186 $131,802, % Compound Average Annual Percentage Change % n/a Source: Pennsylvania State Tax Equalization Board. TABLE 9 CLEARFIELD AREA SCHOOL DISTRICT REAL PROPERTY ASSESSMENT DATA BY MUNICIPALITY Market Assessed Market Assessed Value Value Value Value Clearfield Area School District... $659,218,424 $130,668,682 $685,506,186 $131,802,979 Bradford Township ,963,196 24,586, ,321,790 24,753,612 Clearfield Borough ,614,585 33,951, ,755,977 34,081,098 Covington Township... 24,788,135 3,847,015 25,228,254 3,891,930 Girard Township... 22,413,370 4,141,396 22,951,598 4,118,099 Goshen Township... 16,509,620 2,948,833 18,401,540 2,964,522 Knox Township... 17,851,774 3,782,784 21,607,832 3,886,234 Lawrence Township ,871,572 56,403, ,631,029 57,088,652 Pine Township... 8,206,172 1,007,457 8,608,165 1,018,832 Clearfield County... 2,658,468, ,135,683 2,798,874, ,755,434 Source: Pennsylvania State Tax Equalization Board. TABLE 10 CLEARFIELD AREA SCHOOL DISTRICT ASSESSMENT BY LAND USE Residential... $72,770,656 $73,674,109 $74,042,595 $74,447,885 $75,037,261 Lots... 1,835,899 1,814,806 1,827,535 1,833,451 1,828,970 Industrial... 5,658,489 5,492,540 4,400,665 3,597,965 3,597,965 Commercial... 38,643,178 38,124,213 38,243,882 38,016,120 38,576,412 Agriculture... 8,128,408 8,615,615 8,829,600 9,057,327 9,067,667 Land... 2,928,398 2,961,030 2,956,587 2,911,615 2,888,414 Mineral , , , , ,290 Total... $130,764,106 $131,479,555 $131,100,271 $130,668,682 $131,802,979 Source: Pennsylvania State Tax Equalization Board. 17

23 TABLE 11 CLEARFIELD AREA SCHOOL DISTRICT REAL PROPERTY TAX COLLECTION DATA Current Year Total Collections Total Collections Current as Percent Current as Percent Year of Total Plus of Total Assessed Collections Adjusted Delinquent Adjusted Year Value Levy (July-June) Flat Billing Collections (1) Flat Billing $131,394,380 $11,016,106 $9,742, % $10,802, % ,921,275 10,317,364 9,312, % 10,353, % ,209,722 10,453,263 9,255, % 10,346, % ,607,313 10,923,113 9,704, % 10,855, % (est.) 137,681,580 11,922,309 10,399, % 11,349, % (1) Delinquent real property tax collection. (2) Beginning in the amount of the Levy is reduced by the amount of the Homestead/Farmstead Exemptions. The levy shown excludes the amount payable from the Property Tax and Rent Rebate Program funded pursuant to Act 1 of the Commonwealth. Source: School District officials. The ten largest real property taxpayers, together with 2012 assessed values are shown on Table 12 which follows. The aggregate assessed value of these ten taxpayers totals approximately 14.6 percent total assessed value. TABLE 12 CLEARFIELD AREA SCHOOL DISTRICT TEN LARGEST REAL PROPERTY TAXPAYERS 2012 Assessed Owner Property Value Wal-Mart Stores, Inc Distribution Warehouse $6,002,400 Bionol Clearfield LLC Ethanol Plant 4,866,750 Shawville Lessor Genco LLC Power Plant 1,760,000 Wal-Mart Stores, Inc Retail Store 1,670,400 Appalachian Wood Products, Inc Wood Products Manufacturer 1,206,300 Lowes Home Centers, Inc. Retail Home Improvement 1,077,600 ZRAJ Clearfield LTD Partnership Mall 722,114 Northern Health Facilities, Inc. Nursing Home 718,710 Allied Production Services, Inc. Metal Container Manufacturer 677,275 CNB Bank 494,175 $19,195,724 Source: School District officials. Other Taxes Under Act 511, the School District collected $1,278,891 (estimated) in other taxes in Its limit under Act 511, equal to 12 mills on the estimated market value of real property, was approximately $8,226,074. Among the Act 511 taxes collected are: Wage & Income Tax. A tax of 0.5 percent is levied on the earned income of residents. In the School District s share of the current collected portion of this tax yielded $1,135,000 (estimated) or 3.5 percent of total revenue. Local Services Tax (formerly Emergency and Municipal Services Tax which replaced Occupational Privilege Tax. A tax of $10.00 is levied on each person with an occupation. In the collected portion of this tax yielded $60,000 (estimated), or less than one percent of total revenue. 18

24 Real Estate Transfer. The School District levies a tax of 0.5 percent of the value of real estate transfers. In the collected portion of this tax yielded $83,891 (estimated) or less than one percent of total revenue. State Aid to School Districts Pennsylvania school districts receive financial assistance from the State in a number of forms, all subject to statutory provisions and annual appropriation by the Pennsylvania General Assembly. A basic instructional subsidy is allocated to all school districts based on (1) the per pupil market value of assessable real property in the school district; (2) the per pupil earned income in the school district; and (3) the school district's tax effort, as compared with the tax effort of other school districts in the State. Subsidies for special education, pupil transportation, vocational education, health service and debt service are also received by the school district. State law presently provides that the School District will receive reimbursement from the State for a portion of debt service on the Bonds after the Bonds financed have received final approval of the Department of Education. State reimbursement is based on the "Reimbursable Percentage" assigned to the Bonds and the School District's Aid Ratio. The School District officials have estimated that the "Reimbursable Percentage" of the Bonds will be a maximum of percent. The School District Aid Ratio for the school year is currently percent. The product of these two factors is percent which is the percentage of debt service which will be reimbursed by the State. In future years, this percentage may change as the School District's Aid Ratio changes, or by future legislation. Aid Ratio is a function of the market value per weighted average daily membership of the School District relative to the State. Debt Statement DEBT AND DEBT LIMITS Table 13 which follows shows the debt of the Clearfield Area School District as of August 3, 2012 including the issuance of the Bonds. TABLE 13 CLEARFIELD AREA SCHOOL DISTRICT DEBT STATEMENT (As of August 3, 2012) * Gross NONELECTORAL DEBT Outstanding General Obligation Bonds, Series of 2012 (last maturity 2037)... $9,995,000 General Obligation Bonds, Series of 2011 (last maturity 2026)... 9,820,000 General Obligation Note (SPSBA QSCB), Series of 2010 (last maturity 2028) (1)... 1,960,000 General Obligation Bonds, Series of 2009 (last maturity 2013)... 1,070,000 TOTAL NONELECTORAL DEBT... $22,845,000 LEASE RENTAL DEBT Guaranteed School Revenue Bonds, Series of 2011 (last maturity 2025) (2)... $4,097,950 TOTAL LEASE RENTAL DEBT... $4,097,950 TOTAL PRINCIPAL OF DIRECT DEBT... $26,942,950 *Includes the estimated Bonds offered through this Preliminary Official Statement. (1) Qualified School Construction Bonds ( QSCB ), issued by the Pennsylvania State Public School Building Authority ( SPSBA ). (2) This is lease rental debt approved by the Pennsylvania Department of Community and Economic Development that constitutes the School District s guaranty of a portion of the Clearfield County Industrial Development Authority s Guaranteed School Revenue Bonds, Series of 2011, issued on December 15, 2011 in the aggregate principal amount of $7,760,000, on behalf of the Clearfield County Career and Technology Center and applied by the Career Center toward the advance refunding, defeasance and redemption of certain prior outstanding Career Center debt, a portion of which prior debt the School District had guaranteed. 19

25 Table 14 presents the overlapping indebtedness and debt ratios of the School District. After issuance of the Bonds, the principal of direct debt of the School District will total $26,942,950. After adjustment for available funds and estimated State aid, the local effort of direct debt will total $21,650,925. TABLE 14 CLEARFIELD AREA SCHOOL DISTRICT BONDED INDEBTEDNESS AND DEBT RATIOS* (As of August 3, 2012) DIRECT DEBT Gross Local Effort or Net of Available Funds and Estimated Outstanding State Aid (1) Nonelectoral Debt... $22,845,000 $17,552,975 Lease Rental Debt... 4,097,950 4,097,950 TOTAL DIRECT DEBT... $26,942,950 $21,650,925 OVERLAPPING DEBT Clearfield County, General Obligation (2)... $404,910 $404,910 Municipal Debt... 32,074,721 32,074,721 TOTAL OVERLAPPING DEBT... $32,479,631 $32,479,631 TOTAL DIRECT AND OVERLAPPING DEBT... $59,422,581 $54,130,556 DEBT RATIOS Per Capita (2010)... $3, $2, Percent Assessed Value % 41.07% Percent Market Value % 7.90% *Includes the estimated Bonds offered through this Preliminary Official Statement. (1) The School District may, at any time, claim a credit against the gross principal of debt outstanding equal to the amount estimated to be reimbursed by state sources (2) Pro rata percent share of $1,653,222 estimated principal amount outstanding. {REMAINDER OF PAGE INTENTIONALLY LEFT BLANK} 20

26 Debt Limit and Remaining Borrowing Capacity The statutory borrowing limit of the School District under the Act is computed as a percentage of the School District s Borrowing Base. The Borrowing Base is defined as the annual arithmetic average of Total Revenues (as defined by the Act) for the three full fiscal years ended next preceding the date of incurring debt. The School District calculates its present borrowing base and borrowing capacity as follows: Total Revenues for $ 32,690,325 Total Revenues for $ 33,866,618 Total Revenues for (estimated) $ 32,003,241 Total $ 98,560,184 Annual Arithmetic Average (Borrowing Base) $ 32,853,395 Under the Act as presently in effect, no school district shall incur any nonelectoral debt or lease rental debt, if the aggregate net principal amount of such new debt together with any other net nonelectoral debt and lease rental debt then outstanding, would cause the net nonelectoral debt plus net lease rental debt to exceed 225% of the Borrowing Base. The application of the aforesaid percentage to the School District's Borrowing Base produces the following product: Remaining Legal Net Debt Borrowing Limit Outstanding* Capacity Net Nonelectoral Debt and Lease Rental Debt Limit: 225% of Borrowing Base $73,920,138 $26,942,950 $46,977,188 *Includes the principal amount of the estimated Bonds described herein; does not reflect credits against gross indebtedness that may be claimed for a portion of principal of debt estimated to be reimbursed by Commonwealth aid. Debt Service Requirements Table 15 presents the debt service requirements on the School District's outstanding general obligation and lease rental indebtedness including debt service on the Bonds. Table 16 presents data on the extent to which State Aid provides coverage for debt service and lease rental requirements. The School District has never defaulted on the payment of debt service. {REMAINDER OF PAGE INTENTIONALLY LEFT BLANK} 21

27 TABLE 15 CLEARFIELD AREA SCHOOL DISTRICT DEBT SERVICE REQUIREMENTS* Other Outstanding Lease General Series Rental Obligation of 2012 Total Year Debt Debt (1) Principal Interest Subtotal Requirements $488,720 $1,724, ,148 1,313, , , , , , , , , , , , , , , , , , , , , , , , , , , Total $5,586,711 $14,722,485 *Totals may not add due to rounding. (1) Includes QSCB debt service which is net of Federal Reimbursement Subsidy Rate of 4.830% as well as estimated sinking fund earnings rate of 2.000%. TABLE 16 CLEARFIELD AREA SCHOOL DISTRICT COVERAGE OF DEBT SERVICE AND LEASE RENTAL REQUIREMENTS BY STATE AID* (est.) State Aid Received... $16,836, (est.) Debt Service Requirements... 1,899,950 Maximum Future Debt Service Requirements after Issuance of Bonds... Coverage of (est.) Debt Service Requirements times Coverage of Maximum Future Debt Service Requirements after Issuance of Bonds... *Assumes current State Aid Ratio. See "State Aid to School Districts." 22

28 Future Financing The School District is contemplating future financing up to $24 million in the next 1-2 years. School District Employees LABOR RELATIONS There are presently 375 employees of the School District, including 220 teachers and administrators, and 155 support personnel including secretaries, custodial and maintenance staff, cafeteria staff, and teacher aides. The School District's teachers are represented by the Clearfield Education Association, an affiliate of the Pennsylvania State Education Association (PSEA), under a contract with the School District, which expires on June 30, Support staff (maintenance staff and cafeteria workers) are represented by Clearfield Area Custodial, Maintenance, Cleaning and Food Service Technicians Education Support Professionals, an affiliate of PSEA/NEA under a contract, which expires June 30, The Clearfield Area Education Support Professionals Association, an affiliate of PSEA/NEA, under a contract, which expires June 30, 2014, represents secretaries and teacher aides. Pension Program School districts in Pennsylvania are required to participate in a statewide pension program administered by the State Public School Employees Retirement Board. All of the School District's full-time employees, part-time employees who work more than 80 days in a school year, and hourly employees who work over 500 hours a year participate in the program. The PSERS Board of Trustees has set the fiscal year employer retirement contribution rate at percent of payroll. Both the School District and the Commonwealth are responsible for paying a portion of the employer's share. Employers are divided into two groups; school entities and non-school entities. School entities are responsible for paying 100 percent of the employer share of contributions to PSERS. The Commonwealth reimburses the employer for one-half the payment for employees. Recent School District payments have been as follows: $1,032, , , , (estimated)... 1,297, (budgeted)... 1,767,661 The School District is current in all payments. The PSERS complete report is available on the PSERS website on the Internet: Source: PSERS Financial Highlights. 23

29 Other Post-Employment Benefits (OPEB) The School District is obligated under collective bargaining agreements to provide in the future health insurance coverage for current and future retired employees, and to provide retirement severance pay for existing employees. The estimated net OPEB Obligation for fiscal year ended June 30, 2011 was $821,053. For a full description of the School District s OPEB plan, see Appendix C- Audited Financial Statements Note 12. LITIGATION At the time of settlement, the School Board and the Solicitor will deliver a certificate stating that there is no litigation pending with respect to the Bonds, the Resolution or the right of the School District to issue said Bonds. Currently, there is no litigation pending or threatened. DEFAULTS AND REMEDIES In the event of failure of the School District to pay or cause to be paid the interest on or principal of the Bonds, as the same becomes due and payable, the holders of the Bonds shall be entitled to certain remedies provided by the Act. Among the remedies, if the failure to pay shall continue for 30 days, is the right of holders of the Bonds to recover the amount due by bringing an action in assumpsit in the Court of Common Pleas. The Act provides any judgment shall have an appropriate priority upon the funds next coming into the treasury of the School District. The Act also provides that upon a default of at least 30 days, holders of at least 25 percent of the Bonds may appoint a trustee to represent them. The Act provides certain other remedies in the event of default, and further qualifies the remedies hereinbefore described. Federal Tax Exemption TAX MATTERS Bond Counsel is expected to issue its opinion that, under existing law, the interest on and accruals of original issue discount with respect to the Bonds (a) are excluded from gross income for Federal income tax purposes and (b) are not items of tax preference within the meaning of Section 57 of the Internal Revenue Code of 1986, as amended (the Code ), for purposes of the federal alternative minimum tax imposed by Section 55 of the Code on individuals and corporations; however, it should be noted: with respect to corporations (as defined for federal income tax purposes), such interest and accruals are taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed by Section 55 of the Code on such corporations. Accruals of original issue discount with respect to a Bond allocable to an owner of the Bond under a constant yield method of accrual (a) are not included in gross income for federal income tax purposes, and (b) are added to such owner s tax basis in the Bond for the purpose of determining gain or loss for federal income tax purposes upon sale, exchange, redemption or other disposition of the Bond. The opinions set forth in the preceding two sentences are subject to the condition that the Issuer comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that interest on and accruals of original issue discount with respect to the Bonds be (or continue to be) excluded from gross income for federal income tax purposes. Failure to comply with such requirements could cause the interest on and accruals of original issue discount with respect to the Bonds to be included in gross income retroactively to the date of issuance of the Bonds. The Issuer has covenanted to comply with all such requirements. The Issuer has designated the Bonds as Qualified Tax-Exempt Obligations within the meaning of Section 265(b)(3) of the Code. Bond Counsel expresses no opinion regarding other federal tax consequences arising with respect to the Bonds. The Issuer will issue its certificate to the effect that on the basis of the facts, estimates and circumstances in existence on the date of delivery of the Bonds, it is not expected that proceeds of the Bonds will be used in a manner that would cause the Bonds to be or become "arbitrage bonds" as described in Section 103(b)(2) and Section 148 of the Code, as contemplated by the United States Treasury regulations relating to "arbitrage bonds." 24

30 Pennsylvania Tax Exemption Bond Counsel is also of the opinion that the Bonds are exempt from personal property taxes in Pennsylvania; and the interest on the Bonds is exempt from Pennsylvania Corporate Net Income Tax and from personal income taxation by the Commonwealth of Pennsylvania, or by any of its political subdivisions, under present statutory and case law. Internal Revenue Code Covenants The Code contains provisions relating to the tax-exempt status of interest on obligations issued by government entities which apply to the Bonds. These provisions include, but are not limited to, requirements relating to the use and investment of the proceeds of the Bonds and the rebate of certain investment earnings derived from such proceeds to the United States Treasury Department on a periodic basis. These and other requirements of the Code must be met by the Issuer subsequent to the issuance and delivery of the Bonds in order for interest thereon to be and remain exempt from federal income taxes. The Issuer has covenanted that it will make no use of the proceeds of such issue which would cause the Bonds to be arbitrage bonds, and has further covenanted to comply with the rebate and other requirements of Section 103 and 148 of the Code, and the regulations thereunder, during the term of such issue. Officers of the Issuer will execute a certificate concerning the use of the Bonds in conformity with Section 103 and Section 141 through 150 of the Code and the regulations thereunder. Qualified Tax-Exempt Obligations Under the Code, financial institutions will be denied 100% of their interest expenses deductions that are allocable, by formula, to tax exempt obligations acquired after August 7, 1986; the former provisions of the Internal Revenue Code of 1954 with respect to a 20% disallowance continues to apply with respect to tax-exempt obligations acquired on or before August 7, These provisions are effective for tax years beginning after December 31, The 20% disallowance rule applies in place of the 100% disallowance rule in the case of "qualified tax-exempt obligations" under Section 265(b)(3) of the Code. The Issuer has designated the Bonds as Qualified Tax-Exempt Obligations within the meaning of Section 265(b)(3) of the Code. The Issuer reasonably anticipates that it, together with any subordinate entities, will not issue more than $10,000,000, aggregate principal amount, of tax-exempt obligations during the calendar year The Bonds described in this Preliminary Official Statement have been designated or have been deemed designated by the Issuer as "Qualified Tax-Exempt Obligations for purposes and effect contemplated by Section 265 of the Code (concerning expenses and interest relating to tax-exempt income of certain financial institutions). A financial institution purchasing or holding the Bonds may wish to consult its professional tax advisors to determine the effect on the interest expense disallowance relating to tax-exempt obligations upon its federal income tax liability. Federal Alternative Minimum Tax Calculations Under the Code, the federal alternative minimum taxable income of a corporation is based in part upon the adjusted current earnings of the corporation, which includes interest on and accruals of original issue discount with respect to the Bonds held by the corporation, although such interest and accruals of original issue discount with respect to the Bonds may not be includable in gross income for calculations of regular federal income tax liability. A prospective corporate purchaser of the Bonds may wish to consult its professional tax advisors as to the potential impact upon its income tax liability. Taxable Social Security and Railroad Retirement Benefits Calculation Interest on and accruals of original issue discount with respect to the Bonds are included in modified adjusted gross income in determining the portion of Social Security or railroad retirement benefits to be included in an individual taxpayer's gross income for federal income tax purposes. A prospective purchaser of the Bonds who is receiving Social Security or railroad retirement benefits may wish to consult his or her professional tax advisors as to the effect interest income derived from the Bonds may have upon his or her income tax liability. Property and Casualty Insurance Company Income Taxes Under the Code, a property and casualty insurance company, in any taxable year, must reduce its deduction for "losses incurred" by a percentage of the tax-exempt interest received by such property and casualty insurance company during the taxable year. In addition, a portion of the dividends received by a property and casualty insurer attributable to tax-exempt income is not deductible by the insurer for federal income tax purposes. 25

31 The Code provides generally that these provisions are effective for tax years beginning after December 31, 1986, and with respect to obligations acquired after August 7, 1986, but a property and casualty insurer should consult its professional tax advisors for a full explanation of the effect of these provisions upon its income tax liability. Tax on Excess Passive Net Income of S Corporation An S Corporation may be subject to federal income taxation on passive investment income including interest on and accruals of original issue discount with respect to the Bonds, if the S corporation has subchapter C earnings and profits at the close of the taxable year and the S corporation's passive investment income exceeds 25% of its gross receipts for the taxable year. A prospective purchaser of the Bonds which is an S Corporation should consult its professional tax advisors as to the effect of interest income from the Bonds on its tax liability. Branch Profits Tax Interest on and accruals of original issue discount with respect to the Bonds held by a foreign corporation could be subject to a branch profits tax imposed by Section 884 of the Code. A prospective foreign corporate purchaser of the Bonds may wish to consult its professional tax advisors as to the impact of the branch profits tax on its United States tax liability. Interest Reporting Requirements Under the Code, all taxpayers are required to report on their federal income tax returns the amount of interest received or accrued during the year that is exempt from federal income tax. This provision applies to interest on all tax-exempt obligations including the Bonds. Market Discount A tax-exempt bond such as a Bond if acquired by purchase, other than at original issuance, is a "market discount bond" if the bond is purchased at a price less than its stated principal amount (or, in the case of a bond issued with original issue discount, its issue price increased for accruals of original issue discount), with such difference being the amount of "market discount". If a holder recognizes gain on the disposition of a market discount bond (including by early redemption or gift), a portion of the gain (up to the amount of market discount that accrued while the bond was held by such holder) will be treated as ordinary income and not as capital gain. For this purpose, market discount accrues on a straight-line basis or, if elected by the holder, on a constant interest rate basis; the election, on a bond-by-bond basis, is irrevocable once made. The holder of a market discount bond may elect to include the market discount in income as taxable interest income as the market discount accrues. The current inclusion election, once made, applies to all market discount obligations acquired by such holder on or after the first day of the first taxable year in which the election applies, and may not be revoked without the permission of the Internal Revenue Service. If the current inclusion election is made, the holder's tax basis in the market discount bond is increased by the amount of market discount accruals included in income. Original Issue Discount The difference between the final offering price to the public of the Bonds maturing on, 20 (the "OID Bonds") and the maturity amount of such OID Bonds is treated as original issue discount. Because of the possibility of transfers, redemption or other disposition prior to maturity, the Code provides rules for the accrual of original issue discount on any tax-exempt obligation including any securities issued in the form of the Bonds. Original issue discount on the OID Bonds is treated as accruing in the manner provided by the Code with respect to original issue discount on taxable securities, except that the rules with respect to acquisition premium and de minimis original issue discount that apply to taxable securities will not apply to taxexempt securities. Generally, an appropriate portion (depending on the holding period of the OID Bond by each purchaser) of the total amount of original issue discount payable at the maturity of the OID Bond will, upon disposition or payment of an OID Bond, be treated as a return of capital, rather than as taxable gain, for federal income tax purposes. The portion so treated will be determined by allocating the total original issue discount over the term of each OID Bond through a series of adjustments to the issue price for each accrual period. The adjustment to the issue price for each accrual period is determined by multiplying the issue price at the beginning of such accrual period (the issue price as increased by adjustments for all prior accrual periods) by the appropriate fraction of such OID Bond's original yield to maturity and subtracting any current interest payment thereon during such accrual period. Owners of OID Bonds should consult their professional tax advisors as to the precise determination for federal income tax purposes for interest accrued on and original issue discount accrued with respect to such OID Bonds upon any purchase, sale, redemption or other disposition or payment of such OID Bonds, and as to the state and local tax consequences of owning such OID Bonds. 26

32 Tax Treatment of Premium The Bonds maturing on September 1, through and including will be reoffered at a price in excess of the principal amount thereof (the Premium Bonds ). Under the Code, the difference between the principal amount of a Premium Bond and the cost basis of such Premium Bond to an owner thereof is bond premium. Under the Code, bond premium is amortized over the term of a Premium Bond (i.e., the maturity date of a Premium Bond or its earlier call date) for federal income tax purposes. An owner of a Premium Bond is required to decrease his or her basis in such Premium Bond by the amount of the amortizable bond premium attributable to each taxable year (or portion thereof) he or she owns such Premium Bond. The amount of the amortizable bond premium attributable to each taxable year is determined on an actuarial basis at a constant interest rate determined with respect to the yield on a Premium Bond compounded on each interest payment date. The amortizable bond premium attributable to a taxable year is not deductible for federal income tax purposes. Owners of Premium Bonds (including purchasers of Premium Bonds in the secondary market) should consult their own tax advisors with respect to the precise determination for federal income tax purposes of the treatment of bond premium upon sale, redemption or other disposition of Premium Bonds and with respect to the state and local consequences of owning and disposing of Premium Bonds. The foregoing is not intended as an exhaustive list of the provisions of federal tax law which may have an effect on individuals and corporations holding the Bonds or receiving interest thereon. Prospective purchasers should consult with their tax advisors regarding the effect of holding the Bonds or receiving interest thereon may have on their affairs, including, but not limited to, the effect of state and local tax laws. CHANGE IN LAW From time to time, certain legislative proposals may be introduced, or are pending, in the Congress of the United States, including some that carry retroactive effective dates, that, if, enacted, could alter or amend the federal tax matters described above or affect the market value of the Bonds. No prediction can be made whether or in what form any such proposal or proposals might be enacted into law or whether, if enacted, the same would apply to bonds issued prior to enactment. Bond Counsel gives no assurance that any future legislation or clarifications or amendments to the Code, if enacted into law, will not cause the interest on the Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise prevent the Beneficial Owners from realizing the full current benefit of the tax status of the interest on the Bonds. Prospective purchasers of the Bonds are encouraged to consult their own tax advisors regarding any pending or proposed federal legislation, as to which Bond Counsel expresses no view. From time to time, certain legislative proposals may be introduced, or be pending, in the Pennsylvania General Assembly that if enacted, could alter or amend the Issuer's taxing authority. No prediction can be made whether or in what form any such proposal or proposals might be enacted into law or whether, if enacted, the same would apply to bonds issued prior to enactment. CONTINUING DISCLOSURE UNDERTAKING In accordance with the requirements of the Rule 15c2-12 (the Rule ) promulgated by the Securities and Exchange Commission (the SEC ), the School District (being an obligated person with respect to the Bonds, within the meaning of the Rule), will agree to provide the following to the Municipal Securities Rulemaking Board (the MSRB ) in an electronic format as prescribed by the MSRB, either directly or indirectly through a designated agent: (A) Annually, not later than 275 days following the end of each fiscal year, beginning with the fiscal year ending June 30, 2013, the following financial information and operating information for the School District: financial statements for the most recent fiscal year, prepared in accordance with generally accepted accounting principles for local government units a summary of the budget for the current fiscal year the assessed value and market value of all taxable real estate for the current fiscal year the taxes and millage rates imposed for the current fiscal year the real property tax collection results for the most recent fiscal year, including (1) the real estate levy imposed (expressed both as a millage rate and an aggregate dollar amount), (2) the dollar amount of real estate taxes collected that represented current collections (expressed both as a percentage of such fiscal year s levy and as an aggregate dollar amount), (3) the amount of real estate taxes collected that represented taxes levied in prior years (expressed as an aggregate dollar amount), and (4) the total amount of real estate taxes collected (expressed both as a percentage of the current year s levy and as an aggregate dollar amount) a list of the ten (10) largest real estate taxpayers and, for each, the total assessed value of real estate for the current fiscal year pupil enrollment figures, including enrollment at the end of the most recent fiscal year, current enrollment and projected enrollment for the beginning of the next fiscal year, including a breakdown between elementary and secondary enrollment (to the extent reasonably feasible); (B) If not submitted as part of the annual financial information, then when and if available, audited financial statements for the School District; 27

33 (C) In a timely manner not in excess of ten (10) business days after the occurrence of the event, notice of the occurrence of any of the following events with respect to the Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax-exempt status of the Bonds, or other material events affecting the tax-exempt status of the Bonds; (7) modifications to rights of holders of the Bonds, if material; (8) bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the School District; (13) the consummation of a merger, consolidation, or acquisition involving the School District or the sale of all or substantially all of the assets of the School District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material; and (D) in a timely manner, notice of a failure of the School District to provide the required annual financial information specified above, on or before the date specified above. With respect to the filing of annual financial and operating information, the School District reserves the right to modify from time to time the specific types of information provided or the format of the presentation of such information to the extent necessary or appropriate as a result of a change in legal requirements or a change in the nature of the School District or its operations or financial reporting, but the School District will agree that any such modification will be done in a manner consistent with the Rule. The events listed in (C) above are those specified in the Rule, not all of which may be relevant to the Bonds. The School District may from time to time choose to file notice of the occurrence of other events, in addition to the events listed in (C) above, but the School District does not commit to provide notice of the occurrence of any events except those specifically listed in (C) above. The School District acknowledges that its undertaking pursuant to the Rule described herein is intended to be for the benefit of the holders and beneficial owners of the Bonds and shall be enforceable by the holders and beneficial owners of the Bonds, but the right of the holders and beneficial owners of the Bonds to enforce the provisions of the School District s continuing disclosure undertaking shall be limited to a right to obtain specific enforcement, and any failure by the School District to comply with the provisions of the undertaking shall not be an event of default with respect to the Bonds. The School District s obligations with respect to continuing disclosure described herein shall terminate upon the prior redemption or payment in full of all of the Bonds or if and when the School District is no longer an obligated person with respect to the Bonds, within the meaning of the Rule. The MSRB has been designated by the SEC to be the central and sole repository for continuing disclosure information filed by issuers of municipal securities since July 1, Information and notices filed by municipal issuers (and other obligated persons with respect to municipal securities issues) are made available through the MSRB s Electronic Municipal Market Access (EMMA) System, which may be accessed on the internet at During the past five (5) years, the School District has been in compliance with respect to all prior written undertakings under the Rule to provide continuing disclosure with respect to its outstanding securities, with the following exception(s): The School District failed to file in a timely manner the required annual financial and operating information for fiscal year ending June 30, 2009 and June 30, 2010; however, as of the September 7, 2011 the School District submitted such information to the MSRB and the same is now available through the MSRB s EMMA System. Once the School District was in compliance for these fiscal years it put procedures in place to ensure that future filings would be accomplished on a timely basis. For fiscal year ending June 30, 2011, the required audited financial statements and financial and operating information were filed in a timely manner. RATING Moody s Investors Service is expected to assign its enhanced rating of based upon the additional security provided by the Commonwealth of Pennsylvania's Act 150 School District Intercept Program, and an underlying municipal Bond rating of to this issue of Bonds. Such rating reflects only the view of such organization and any desired explanation of the significance of such rating should be obtained from the rating agency furnishing the same, at the following address: Moody s Investors Service, 7 World Trade Center, 250 Greenwich Street, New York, New York Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance that any such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency, if circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. 28

34 UNDERWRITING The Underwriter has agreed to purchase the Bonds from the School District, subject to certain conditions precedent, and will purchase all of the Bonds if any of such Bonds are purchased. The Bonds will be purchased at a total purchase price of $, which includes an original issue premium of $ less underwriter s discount of $. LEGAL OPINION The Bonds are offered with the approving legal opinion of Eckert Seamans Cherin & Mellott, LLC, Bond Counsel, Harrisburg, Pennsylvania. Certain legal matters will be passed upon for the School District by Andrews & Beard, Altoona, Pennsylvania, School District Solicitor. FINANCIAL ADVISOR The School District has retained Public Financial Management, Harrisburg, Pennsylvania as financial advisor (the "Financial Advisor") in connection with the preparation, authorization and issuance of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in the Preliminary Official Statement. Public Financial Management is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities. The Financial Advisor's contract with the School District prohibits it from participating in the underwriting of any of the School District's debt. MISCELLANEOUS This Preliminary Official Statement has been prepared under the direction of the School District by Public Financial Management, Harrisburg, Pennsylvania, in its capacity as Financial Advisor to the School District. The information set forth in this Preliminary Official Statement had been obtained from the School District and from other sources believed to be reliable. Insofar as any statement herein includes matters of opinion or estimates about future conditions, it is not intended as representation of fact, and there is no guarantee that it is, or will be, realized. Summaries or descriptions of provisions of the Bonds, the Resolution, and all references to other materials not purporting to be quoted in full are only brief outlines of some of the provisions thereof. Reference is hereby made to the complete documents, copies of which will be furnished by the School District or the Financial Advisor upon request. The information assembled in this Preliminary Official Statement is not to be construed as a contract with holders of the Bonds. The School District has authorized the distribution of this Preliminary Official Statement. CLEARFIELD AREA SCHOOL DISTRICT CLEARFIELD COUNTY, PENNSYLVANIA By: /s/ Mr. David S. Glass President, Board of School Directors 29

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36 APPENDIX A Demographic and Economic Information Relating to the Clearfield Area School District

37 Population Table A-1 which follows shows recent population trends for the School District, Clearfield County and the Commonwealth of Pennsylvania (the State ). The School District's population decreased from 20,230 to 19,134 between 2000 and 2010, a decrease of 1,096 over this period. Table A-2 shows 2010 estimates of the age composition and average number of persons per household in Clearfield County and for the State. Average household size for the County was smaller than the Statewide average. TABLE A-1 RECENT POPULATION TRENDS Compound Average Annual Percentage Change School District... 20,230 19, % Clearfield County... 83,382 81, % Pennsylvania... 12,281,054 12,702, % Source: US Bureau of the Census, Decennial Census and Pennsylvania State Data Center, 2000 & 2010 General Population and Housing Characteristics: Pennsylvania. TABLE A-2 AGE COMPOSITION Persons Per Years Years Years Household Clearfield County % 62.6% 17.5% 2.37 Pennsylvania Source: U.S. Bureau of the Census, 2010 Census Summary File 1. A-1

38 Employment Table A-3 shows the NonFarm jobs for the Clearfield Micropolitan Statistical Area (MSA) for June TABLE A-3 DUBOIS MICROPOLITAN STATISTICAL AREA June 2012 NONFARM JOBS (CLEARFIELD COUNTY) Industry Employment Net Change from: Establishment Data Jun 2012 May 2012 Apr 2012 Jun 2011 May 2012 Jun 2011 TOTAL NONFARM 32,400 32,200 32,000 32, TOTAL PRIVATE 27,500 27,200 27,000 27, GOODS-PRODUCING 4,200 4,000 4,000 4, Construction, Natural Resources, and Mining 1,600 1,500 1,500 1, Manufacturing 2,600 2,500 2,500 2, SERVICE-PROVIDING 28,200 28,200 28,000 28, Trade, Transportation, and Utilities 8,700 8,800 8,700 8, Transportation, Warehousing, and Utilities 3,200 3,300 3,300 3, Trade 5,500 5,500 5,400 5, Wholesale Trade Retail Trade 4,700 4,700 4,600 4, Financial Activities 1,100 1,100 1,100 1, Professional and Business Services 1,800 1,800 1,800 1, Education and Health Services 6,900 6,800 6,800 6, Leisure and Hospitality 2,600 2,600 2,500 2, Other Services 1,900 1,800 1,800 1, Government 4,900 5,000 5,000 5, Local Government 3,100 3,100 3,100 3, Data benchmarked to March 2012 ***Data changes of 100 may be due to rounding*** Source: Pennsylvania State Employment Service website Civilian Workforce Data A-2

39 Table A-4 shows recent trends in labor force, employment and unemployment for Clearfield County and the State. The unemployment rate for Clearfield County has been higher than the statewide average. TABLE A-4 RECENT TRENDS IN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT* (Clearfield County) Compound Average Annual % (1) Rate Clearfield County Civilian Labor Force (000) % Employment (000) % Unemployment (000) % Unemployment Rate Pennsylvania Civilian Labor Force (000) 6, , , , , , % Employment (000) 6, , , , , , % Unemployment (000) % Unemployment Rate *Residence data. As of June Source: Pennsylvania State Employment Service. A-3

40 Major employers located within Clearfield County include: Name Industry Sector Wal-Mart Associates Inc Transportation and Warehousing Dubois Regional Medical Center Health Care and Social Assistance State Government Public Administration Dubois Area School District Educational Services Clearfield Hospital Health Care and Social Assistance Cen-Clear Child Services Inc Health Care and Social Assistance Clearfield Area School District Educational Services Paris Cleaners Inc Other Services Christ the King Manor Health Care and Social Assistance Dubois Continuum of Care Community Health Care and Social Assistance Clearfield County Controller Public Administration Source: Center for Workforce Information & Analysis 4th Quarter 2011 Final. Income The data on Table A-5 shows trends in per capita income for Clearfield County and the State over the period. Per capita income in the County is somewhat lower than per capita income in the State over this period. TABLE A-5 TRENDS IN PER CAPITA INCOME* Compound Average Annual Percentage Change Clearfield County... $16,010 20, % Pennsylvania... 20,880 26, % *Income is defined by the Bureau of the Census as the sum of wage and salary income, non-farm self-employment income, net self-employment income, Social Security and Railroad retirement income, public assistance income, interest, dividends, pensions, etc. before deductions for personal income taxes, Social Security, etc. School District income is the populationweighted average for political subdivisions. Source: Pennsylvania State Data Center and U.S. Census Bureau, American Community Survey. A-4

41 Commercial Activity Table A-6 shows recent trends for retail sales estimates in Clearfield County and the State. TABLE A-6 TOTAL RETAIL SALES (Millions of Dollars) Clearfield County... $1,304,358 $1,151,646 $1,178,450 $1,286,824 $1,283,977 Pennsylvania... NR 180,948, ,483, ,193, ,149,727 NR: Not Reported. Source: Sales and Marketing Management Magazine Educational Institutions Located in Clearfield County is the Pennsylvania State University, Dubois Campus in Dubois, about 20 miles west of the School District. Pennsylvania State University main campus in State College, Pennsylvania is about 45 miles east of the School District. Clarion State University in Clarion is about 40 miles west of the County. A branch campus of Lock Haven University is located in Clearfield with an approximate enrollment of 300. Indiana University of Pennsylvania in Indiana is about 40 miles southwest of the County. Transportation Clearfield County is served by about 42 miles of Interstate Highway 80, about 890 miles of State and Federal Highways, and about 570 miles of secondary and municipal roads. Interstate 80, U.S. Route 322, State Routes 153, 879 and 970, traverse the School District. A-5

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43 APPENDIX B BOND COUNSEL OPINION

44 FORM OF OPINION OF BOND COUNSEL The form of the approving legal opinion of Eckert Seamans Cherin & Mellott, LLC, Bond Counsel, is set forth below. The actual opinion will be delivered on the date of delivery of the Bonds and may vary from the form set forth to reflect circumstances both factual and legal at the time of such delivery. Recirculation of this Official Statement shall create no implication that Eckert Seamans Cherin & Mellott, LLC, has reviewed any of the matters set forth in such opinion subsequent to the date thereof. CLEARFIELD AREA SCHOOL DISTRICT Clearfield County, Pennsylvania $9,995,000 General Obligation Bonds, Series of 2012 To the Purchasers of the October, 2012 Above-Described Bonds: We have acted as Bond Counsel in connection with the issuance and sale by the Clearfield Area School District, Clearfield County, Pennsylvania (the Issuer ) of its $9,995,000, aggregate principal amount, General Obligation Bonds, Series of 2012 (the Bonds ). The Bonds have been issued pursuant to a Resolution (the Resolution ) adopted by the Board of School Directors on August 27, 2012, which, inter alia, accepted the Bond Purchase Proposal (the Purchase Proposal ) submitted by, 2012, pursuant to an internet auction of the Bonds (the Purchaser ). The Bonds are issuable in the denomination of $5,000 and whole multiples thereof and are in fully registered form. The Bonds are dated and bear interest from the Date of Delivery. Interest on the Bonds is payable semiannually on each March 1 and September 1, commencing on March 1, 2013, until payment of the principal thereof has been duly made or provided for. The Bonds bear interest at the rates and mature on the dates and in the amounts as set forth in the final pricing schedule prepared by Public Financial Management, Inc., and dated, 2012, based on the Purchase Proposal submitted by the Purchaser and thereafter adjusted as permitted by the Issuer s Invitation to Bid, dated as of August, As Bond Counsel, we have examined, among other things, the proceedings related to the issuance and delivery of the Bonds, as filed with the Department of Community and Economic Development of the Commonwealth of Pennsylvania (the Commonwealth ), an executed counterpart of the Resolution, the form of the Bonds, the Local Government Unit Debt Act, 53 Pa.C.S et seq., as amended, the Constitution of the Commonwealth and such other public records, certificates, instruments, and documents as we have deemed necessary or appropriate in order to enable us to render an informed opinion as to the matters set forth herein. We have not been engaged nor have we undertaken to review the accuracy, completeness or sufficiency of the Official Statement, dated, 2012 (the Official Statement ) or other offering material relating to the Bonds (except to the extent, if any, stated in the Official

45 To the Purchaser of the Above-Described Bonds October, 2012 Page 2 Statement) and we express no opinion relating thereto (excepting only the matters set forth as our opinion in the Official Statement). The Issuer has certified, among other things, that it reasonably anticipates that it will not issue more than $10,000,000, principal amount, of tax exempt obligations during the current calendar year, and has designated the Bonds as Qualified Tax Exempt Obligations within the meaning of Section 265(b)(3) of the Internal Revenue code of 1986, as amended (the Code ). As to questions of fact material to our opinion, we have relied upon the representations of the Issuer contained in the certified proceedings relating to the issuance of the Bonds and other certifications of public officials, including the opinion of the Solicitor to the Issuer as to certain matters relating to the Issuer, furnished to us without undertaking to verify the same by independent investigation. Based on such examination and the certifications and representations of fact contained in the proceedings relating to the issuance of the Bonds, which we have not verified independently, we are of the opinion, as of the date hereof and under existing law, as follows: 1. The Bonds are valid and binding general obligations of the Issuer. 2. Pursuant to The Public School Code of 1946, as amended (the School Code ) all taxable real property in the territory of the Issuer is subject to ad valorem taxation without limitation as to rate or amount to pay debt service on the Bonds. However, under the Taxpayer Relief Act, Special Session Act 1 of 2006, as amended by Act 25 of 2011 (collectively, "Act 1"), an increase of the Issuer's ad valorem tax rate above an index established under Act 1, as amended, if necessary to fund debt service on the Bonds, may be imposed only upon either approval by the citizens within the geographical territory comprising the School District in a referendum vote or, if eligible pursuant to Act 1, as amended, approval by the Pennsylvania Department of Education. The Issuer has effectively covenanted to include the amount of the debt service on the Bonds for each fiscal year in which such sums are due in its budget for that year, to appropriate such amounts to the payment of such debt service and to punctually pay or cause to be paid the debt service on the Bonds at the dates and places and in the manner stated in the Bonds. For such budgeting, appropriation and payment, the Issuer has pledged its full faith, credit and taxing power. 3. The interest on and accruals of original issue discount with respect to the Bonds (a) are excluded from gross income for federal income tax purposes pursuant to the Code, and (b) are not items of tax preference within the meaning of Section 57(a)(5) of the Code for purposes of federal alternative minimum tax imposed by Section 55 of the Code on individuals and corporations; however, with respect to corporations (as defined in the Code for federal income tax purposes), such interest and accruals of original issue discount are taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax. Accruals of original issue discount with respect to a Bond allocable to a registered owner of the Bond (as defined therein) under a constant yield method of accrual (a) are not included in gross income for federal

46 To the Purchaser of the Above-Described Bonds October, 2012 Page 3 income tax purposes, and (b) are added to such registered owner s tax basis in the Bond for the purpose of determining gain or loss for federal income tax purposes upon sale, exchange, redemption or other disposition of the Bond. The opinions set forth in the preceding two sentences are subject to the condition that the Issuer comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that interest on and accruals of original issue discount with respect to the Bonds be (or continue to be) excluded from gross income for federal income tax purposes. Failure to comply with such requirements could cause the interest on and accruals of original issue discount with respect to the Bonds to be included in gross income retroactive to the date of issuance of the Bonds. The Issuer has covenanted to comply with such requirements. 4. The Bonds are Qualified Tax-Exempt Obligations under Section 265(b)(3) of the Code. 5. The Bonds are exempt from personal property taxes in Pennsylvania; the interest on the Bonds is exempt from Pennsylvania Corporate Net Income Tax and from Pennsylvania state and local personal income tax. 6. Under the Probate, Estates and Fiduciaries Code of Pennsylvania, the Bonds are an authorized investment for fiduciaries and personal representatives, as defined in said Code, in Pennsylvania. No opinion is expressed as to other tax consequences that may accrue to an owner of the Bonds as a result of purchase or ownership of the same except as specifically set forth herein. It is 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 that their enforcement also may be subject to the exercise of judicial discretion in appropriate cases. Very truly yours, ECKERT SEAMANS CHERIN & MELLOTT, LLC

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48 APPENDIX C AUDITED FINANCIAL STATEMENTS

49 CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania AUDITOR S REPORT June 30, 2011

50 Governmental Budget CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania JUNE 30, 2011 TABLE OF CONTENTS EXHIBIT PAGE INDEPENDENT AUDITORS REPORT A i&2 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) B 3 20 BASIC FINANCIAL STATEMENTS: Statement of Net Assets C 21 & 22 Statement of Activities D 23 & 24 Balance Sheet Governmental Funds E 25 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets F 26 Statement of Revenues, Expenditures and Changes in Fund Balances Funds G 27 & 28 Reconciliation of the Governmental Fund Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities H 29 Statement of Net Assets Proprietary Fund I 30 Statement of Revenues, Expenses and Changes in Fund Net Assets Proprietary Fund J 31 Statement of Cash Flows Proprietary Fund K 32 & 33 Statement of Fiduciary Net Assets Fiduciary Funds L 34 Notes to Financial Statements M SCHEDULE PAGE SUPPLEMENTARY INFORMATION: Statement of Revenues, Expenditures and Changes in Fund Balances and Actual General Fund 1 51 & 52

51 PAGE REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAUDIT1NG STANDARDS 53 & 54 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A & 56 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 65 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 66 & 67

52 WALTER HOPKINS & COMPANY, L.L.P. CERTiFIED PUBLiC ACCOUNTANTS EXHIBITA Walter Hopkins FrankW. Fulton, CPA Robert L. Mitchell. CPA Samuel P. Bachelier Francis H. Elensky, CPA Fred C. Lucas, Jr., CPA John H. Musser, CPA Katherine B. Eckley, CPA Erik.1. Elensky, CPA Matthew T. Foster, CPA, MBA INDEPENDENT AUDITOR S REPORT To the Board of Directors Clearfield Area School District Clearfield, Pennsylvania We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Clearfield Area School District, as of and for the year ended June 30, 2011, which collectively comprise the Clearfield Area School District s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Clearfield Area School District s management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Clearfield Area School District, as of June 30, 2011, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 1 and 10 to the financial statements, the Clearfield Area School District adopted the provisions of GASS Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. In accordance with Government Auditing Standards, we have also issued our report dated February 20, 2012, on our consideration of the Clearfield Area School District s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, I

53 EXHIBIT A (Continued) and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and budgetary comparison information on pages 3 through 20 and 51 through 52 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operation, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Clearfield Area School District s financial statements as a whole, The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Ci2j? LI? WALTER HOPKINS & COMPANY, L.L.P. Clearfield, Pennsylvania February 20,

54 EXHIBIT B CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania MANAGEMENT S DISCUSSION Required Supplementary June AND ANALYSIS Information (RSI) 30, 2011 (MD&A) The discussion and analysis of Clearfield Area School District s financial performance provides an overall review of the District s financial activities for the fiscal year ended June 30, The intent of this discussion and analysis is to look at the District s financial performance as a whole. Readers should also review the financial statements and accompanying notes to the financial statements to enhance their understanding of the District s financial performance. The Management s Discussion and Analysis (MD&A) is an element of the reporting model adopted by the Governmental Accounting Standards Board (GASB) in their Statement No. 34 Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments issued in June Certain comparative information between the current year and the prior year is required to be presented in the MD& A. FINANCIAL HIGHLIGHTS The assets of the Clearfield Area School District exceeded its liabilities at the close of the most recent fiscal year by $23,425,959 (net assets government-wide). Net assets are allocated into three categories: Invested in capital assets, net of related debt, Restricted, and Unrestricted. Invested in capital assets, net of related debt represents the net asset value of all capitalized assets of the District less the debt associated with those assets. The restricted balance of $3,988,821 is required to be used for future anticipated capital needs and satisfaction of existing debt covenants. The unrestricted balance of $5,668,321 consists of two separate amounts. A portion of the unrestricted balance, $3,113,989, has been committed for anticipated substantial increases in the District s state retirement contributions while the balance of $2,554,332 may be used to meet the government s ongoing obligations to citizens and creditors. The governments total net assets increased by $3,320,852. This is the sixth year in a row the District has increased its net assets. An increase in total net assets is one of the key indicators that a district is financially healthy. As of the close of the current fiscal year, the Clearfield Area School District s govemmental funds reported a combined ending fund balance of $8,683,709, an increase of $2,560,074 from the prior year. Approximately $1,580,899 of this amount is available for spending at the government s discretion while $1,936,913 must be used for capital projects in accordance with section 1432 of the municipal code, $2,051,908 is restricted to satisfy the subsequent year debt covenant obligations, and $3,113,989 is committed for the scheduled launch in the PSERS retirement contribution rate. At the end of the current fiscal year, the unassigned fund balance for the general fund was $1.580,899, or 4.71 percent of the total budgeted general fund expenditures. 3

55 EXHIBIT B (Continjp) OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of three parts: management s discussion and analysis (this section), the basic financial statements, and the required supplementary information. The basic financial statements include two kinds of statements that present different views of the District: The first two statements are government-wide financial statements, the Statement of Net Assets and the Statement of Activities, These provide both long-term and short-term information about the District s overall financial status. The remaining statements are fund financial statements that focus on individual parts of the District s operations in more detail than the government-wide financial statements. The governmental fund statements tell how general District services were financed in the short-term as well as what remains for future spending. Proprietary fund statements offer short-term and long-term financial information about the activities the District operates similar to a business in the private sector, which for this District is the Food Service Fund. Fiduciary fund statements provide information about financial relationships where the District acts solely as a trustee or agent for the benefit of others to whom the resources in question belong. The financial statements also include notes that explain some of the information in statements and provide more detailed data. the financial Figure A-I shows how the required parts of the Financial Section are arranged and relate to one another: Figure A-I Required Components of Clearfield Area School District s Financial Report F 1 Management Basic Required Discussion Financial Supplementary & Analysis Statements Information r Government- Fund Notes to the Wide Financial Financial Financial Statements Statements Statements 4

56 EXHIBIT B (Continued) Figure A-2 summarizes the major features of the District s financial statements, including the portion of the District they cover and the types of information they contain. The remainder of this overview section of management s discussion and analysis explains the structure and contents of each of the statements. Figure A-2 Major Features of Clear-field Area School District s Government-wide and Fund Financial Statements Fund Statements. Government- Governmental Proprietary Fiduciary wide Statements Funds Funds Funds Scope Entire District The activities of Activities the Instances in which the (except the District that District operates District is the trustee or Fiduciary funds) are not similar to private agent to someone else s proprietary or business Food resources Scholarships, fiduciary, such as Services Foundations, and Student education, Activity Accounts administration and student activities Required Statement of Net Balance Sheet Statement of Net Statement of Fiduciary financial Assets Statement of Assets Net Assets statements Statement of Revenues, Statement of Statement of Changes in Activities Expenses and Revenues, Fiduciary Net Assets Changes in Fund Expenses and Balance Changes in Net Assets Statement of Cash Flows Accounting Accrual Modified accrual Accrual Accrual accounting and basis and accounting and accounting and accounting and economic resources focus measurement economic current financial economic focus resources focus resources focus resources focus Type of All assets and Only assets All assets and All assets and liabilities, assetlliability liabilities, both expected to be liabilities, both both short-term and long information financial and used up and financial and term capital, and short- liabilities that capital, and shortterm and long- come due during term and longterm the year or soon term thereafter; no capital assets included Type of inflow- All revenues and Revenue for All revenues and All revenues and outflow expenses during which cash is expenses during expenses during year; information year, regardless received during or year; regardless regardless of when cash of when cash is soon after the of when cash is is received or paid received or paid end of the year; received or paid expenditures when goods or services have been received and payment is due during the year or soon thereafter 5

57 EXHIBIT B (Continued) Government-wide Statements The government-wide statements report information about the District as a whole using accounting methods similar to those used by private-sector companies. The statement of net assets includes all of the government s assets and liabilities. All of the current year s revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two government-wide statements report the District s net assets and how they have changed. Net assets, the difference between the District s assets and liabilities, are one way to measure the District s financial health or position. Over time, increases or decreases in the District s net assets are an indication of whether its financial health is improving or deteriorating, respectively. To assess the overall health of the District, you need to consider additional non-financial factors, such as changes in the District s property tax base and the performance of the students. The government-wide financial statements of the District are divided into two categories: Governmental Activities All of the District s basic services are included here, such as instruction, administration and student activities. Property taxes and state and federal subsidies as well as grants finance most of these activities. Business-type Activities The District operates a food service program and charges fees to staff, students and visitors to help cover the costs of operation. Fund Financial Statements The District s fund financial statements provide detailed information about the most significant funds not the District as a whole. Some funds are required by state law and by bond issue requirements. Governmental Funds Most of the District s activities are reported in the governmental funds, which focus on the determination of financial position and change in financial position, not on income determination. They are reported using an accounting method called modified accrual accounting which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District s operations and the services it provides. Governmental fund information helps the reader determine whether there are more or fewer financial resources that can be spent in the near future to finance the District s programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is reconciled in the financial statements. Proprietary Funds These funds are used to account for the District activities that are similar to business operations in the private sector: or where the reporting is on determining net income, financial position, changes in financial position, and a significant portion of funding through user charges. When the District charges customers for services it provides whether to outside customers or to other units in the District these services are generally reported in proprietary funds. The Food Service Fund is the District s proprietary fund and is the same as the business-type activities we report in the government-wide statements, but provide more detail and additional information, such as cash flows. Fiduciary Funds The District is the trustee, or fiduciary, for the student activity funds maintained in the District. The District s fiduciary activities are reported in a separate Statement of Fiduciary Net Assets. We exclude these activities from the District s other financial statements because the District cannot use these assets to finance its operations. 6

58 EXHIBIT B (Continued) GOVERNMENT-WIDE FINANCIAL ANALYSIS The District s Total Net Assets were $23,425,959 at June 30, 2011 as compared to $20,105,107 at June 30, Table A-I provides a condensed comparison of the years. Table A-I Net Assets (Government-wide) Fiscal Year Ended June 30, Governmental Business-tve Govern mental Business-type Activities ActivIties Total Activities Activities Total Assets: Current arid other Assets $ 13,031,601 1,173,584 14,205,185 $ 10,723,916 $ 603,192 $ 11,327,108 Non-current assets 18,472, ,998 18,588,817 17,243, ,738 17,367,866 Total Assets $ 31,504,420 1,289,582 32,794,002 $ 27,967,044 $ 727,930 $ 28,694,974 Liabilities: Current and other Liabilities $ 4,127, ,181 4,812,923 $ 4,372,671 $ 130,557 $ 4,503,228 Long-term liabilities 4,529,385 25,735 4,555,120 4,077,650 8,989 4,086,639 Total Liabilities 8,657, ,916 9,368,043 8,450, ,546 8,589,867 Net Assets: invested in capital assets, net of related debt 13,652, ,998 13,768,817 12,653, ,738 12,777,866 Restricted 3,988, ,988,821 4,234, ,234,262 Unrestricted 5,205, ,668 5,668,321 2,629, ,646 3,092,979 Total Net Assets 22,847, ,666 23,425,959 19,516, ,384 20,105,107 Total Liabilities and Net Assets $ 31,504,420 1,289,582 32,794,002 $ 27,967,044 $ 727,930 $ 28,694,974 Of the District s $23,425,959 net assets, approximately $13,768,817, (58.78%), is invested in capital assets (buildings, land, land improvements and equipment net of related debt). The remaining net assets are a combination of restricted and unrestricted amounts. The District has the following restricted balances as of June 30, 2011: $1,936,913, (8.27%), is restricted for capital projects and $2,051,908, (8.76%), is restricted for subsequent year debt covenant obligations. The District has also committed $3,113,989, (13.29%), of its unrestricted balance for the projected launch in the District s PSERS retirement contribution rate. The remaining Unrestricted amount of $2,554,332, (10.90%), can be used at the District s discretion. 7

59 EXHIBIT B (Continued) The results of this year s operations as a whole are reported in the Statement of Activities. All expenses are reported in the first column. Specific charges, grants, revenues and subsidies that directly relate to specific expense categories are presented to determine the final amount of the District s activities that are supported by other general revenues. The two largest general revenues are the Basic Education Subsidy provided by the Commonwealth of Pennsylvania, and the local taxes assessed to community taxpayers Table A-2 takes the information from that statement and rearranges it slightly so you can see the total revenues for the year. Table A-2 Changes in Net Assets (Government-wide) Fiscal Year Ended June 30, ji pi Governmental Business-type Governmental Business-type Activities Activities Total Activities Activities Total Revenues: Program Revenues: Charges for svcs $ 151, ,765 $ 635,227 $ $ 461,425 $ 620,661 Operating grants and contributions 8,147, ,254 9,046,385 8,691, ,518 9,643,836 Capital grants and contributions 1785, ,765, , ,427 General Revenues: Property taxes 11,749, ,749, , ,299,506 Othertaxes 1,588, ,588,446 1,483, ,483,589 Grants, Subsidies and Contributions, unrestricted 10,562, ,562,706 10,976, ,976,355 Investn,entearnings 87,482 6,077 93, , ,862 Transfers Other 162, , , ,499 Total Revenues $ 34,214,416 $ 1,389,096 $ 35,603,512 $ 33,167,422 $ 1,419,313 $ 34,586,735 8

60 EXHIBIT B (Continued) Table A-2 Changes in Net Assets (Government-wide) Fiscal Year Ended June 30, (Cont.) Governmental Business-type Governmental Business-type Activities Activities Total Activities Activities Total Expenses: Instruction $ 19,408,640 $ 0 $ 19,408,640 $ 18,639,469 $ 0 $ 18,639,469 Instructional student support 2,786, ,786,522 2,815, ,815,198 Admin & FinI support 3,274, ,274,498 3,172, ,172,339 Oper and maint of plant 2,977, ,977,782 3,156, ,839 Pupil transportation 1,699, ,699,674 1,681, ,681,637 Student activities 566, , , ,834 Community svcs 24, ,631 20, ,852 Interest of longterm debt 131, , , ,856 Unallocated depreciation exp 14, ,512 13, ,968 Food Services 0 1,398,814 1, ,264,684 1,264,684 Total Expenses $ 30,883,846 $ 1,398,814 $ 32,282,660 $ 30,338,992 $ 1,264,684 $ 31,603,676 Increase (decrease) in Net Assets $ 3,330,570 $ (9,718) $ 3,320,852 $ 2,828,430 $ 154,629 $ 2,983,059 Tables A-3 and A-4 below present the expenses of both the Governmental Activities and the Businesstype Activities of the District. Table A-3 shows the District s eight largest functions instructional programs, instructional student support, administrative, operation and maintenance of plant, pupil transportation, student activities, community services, and food services as well as each program s net cost (total cost less revenues generated by the activities). This table also shows the net costs offset by the other unrestricted grants, subsidies and contributions to show the remaining financial needs supported by local taxes and other miscellaneous revenues. 9

61 EXHIBIT B (Continued) Table A-3 Governmental Activities Fiscal Year Ended June 30, Z211 &2i2 Total Cost of Net Cost of Total Cost of Net Cost of FunctionslPrograms Services Services Services Services Instruction $ 19408,640 $ 13,369,171 $ 18,639,469 $ 11,944,450 Instructional student support 2,786,522 2,155,057 2,815,198 2,086,131 Admin & Fin I 3,274,498 3,053,055 3,172,339 3,067,671 Operation and maint of plant 2,977,782 2,768,765 3,156,839 3,068,851 Pupil Transportation 1,699, ,869 1,681, ,564 Student activities 566, , , ,161 Community services 24,631 4,635 20,852 3,786 Interest on long-term debt 131,485 (1,633,719) 292,856 (58,571) Unallocated depreciation expense 14,512 14,512 13,968 13,968 Total governmental activities $ 30,883,846 $ 20,820,049 $ 30,338,992 $ 21,137,011 Less: Unrestricted grants and subsidies 10,562,706 10,976,355 Total needed from local taxes and other revenues $ 10,257,343 $ 10,160,656 Table A-4 reflects the activities of the Food Service program, the only Business-type activity of the District. 10

62 EXH1BIT B (Continued) Table A-4 Business-type Activities Fiscal Year Ended June 30, 2il Total Cost Net Cost Total Cost Net Cost 2! 2! 2! 2! FunctionslPrograms Services Services Services Services Food Services $ 1,398,814 $ 15,795 $ 1,264,684 $ (149,259) Less: Investment earnings (6,077) (5,370) Transfers 0 0 Miscellaneous 0 0 Total Susiness4ype activities $ 9,718 $ (154,629) The Statement of Revenues, Expenses and Changes in Fund Net Assets for this proprietary fund will further detail the actual results of operations. FINANCIAL ANALYSIS OF THE GOVERNMENT S FUNDS As noted earlier, the Clearfield Area School District uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds The focus of the Clearfield Area School District s governmental funds is to provide information on the near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Clearfield Area School District s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the Clearfield Area School District s governmental funds reported combined ending fund balances of $8,683,709 which is an increase of $2,560,074, (41.81%), from the prior year. The General Fund is the chief operating fund of the Clearfield Area School District. At the end of the current fiscal year, the unassigned fund balance of the general fund was $1,580,899. As a measure of the General Fund s liquidity, it may be useful to compare the General Fund to total budgeted expenditures of the next fiscal year. The unassigned fund balance represents 4.78 percent of the budgeted expenditures, which is slightly below the recommended range of 5 to 10 percent. The unassigned fund balance is the amount of ending fund balance remaining after removing substantial restrictions explained previously in the report. The Clearfield Area School District originally projected a deficit for the current fiscal year and utilization of fund reserves in the amount of $309,926. However, during the current fiscal year the Clearfield Area School District s general fund total fund balance actually increased by $2,509,651. Key factors that contributed to this growth were as follows: 11

63 EXHIBIT B (Continued) Revenues Current and delinquent real estate tax collections exceeded the budgeted amounts resulting in $379,100 of additional real estate tax revenue. Earned income tax and local services tax collections are budgeted conservatively due to the poor economic conditions in the District. However, the school year remained positive for both taxes and resulted in increases of $106,000 and 9,000 respectively. Several large properties sold in the district during the school year resulting in additional real estate transfer tax revenue of $58,000. Interest income is budgeted very conservatively. Investment income exceeded anticipated amounts by $21,000 Admissions to school sponsored events, tuition paid by other LEA s, and rentals of the District s facilities exceeded budgeted amounts by $38,400 collectively. ARRA IDEA and Title I funds not budgeted were received in the amounts of $210,000 and $252,000 respectively. E-rate reimbursements were not included in the budget; however, the District received reimbursements of $138,000 during the school year. Basic education and special education funding exceeded the Governor s Budget by $65,000 and $11,000 respectively. The transportation cost index was higher than what was anticipated resulting in transportation revenue of $7,000 Vocational education and rental/sinking fund subsidies are budgeted conservatively. exceeded anticipated amounts by $34,500 collectively. additional Revenues The cyber/charter school reimbursement rate was reduced resulting in a decline of $18,000 under the amount budgeted. The Educational Assistance Program and Accountability Block Grant revenues were reduced during the year by $3,000 and $36,000 respectively. The district retirement contribution rate was reduced after the budget was finalized resulting in a reduction of retirement subsidy revenue of $60,000. Title I and Title II grant revenues were less than anticipated by $107,000 collectively. Due to a change in the reimbursement process, ACCESS revenue declined by $179,

64 EXHIBIT B (Continued) Expenditures The budget included several positions that were not filled for the current school year as well as extra periods that were not needed. This resulted in a savings of $434,000 in salaries and related benefits. The District has a claims-based health insurance plan and a claims-based dental insurance plan. Health and dental insurance expenditures were $267,000 less than was anticipated for the school year. The District realized a $67,000 and $27,000 savings in anticipated tuition reimbursement expenditures and unemployment claims expenditures respectively Various special education services normally contracted with the local intermediate unit were brought back to the District at a savings of $121,000. Utilities are budgeted conservatively based on possible rate increases and a volatile energy market. The District had a $205,000 favorable variance in utilities for the school year. District transportation costs are budgeted conservatively. The District realized a $97,000 savings in anticipated transportation costs. During administration implemented a policy to limit the amount of cellular telephones in the District that resulted in a savings of $44,000. The Clearfield County Career and Technology Center tuition is based on average daily membership percentage. The District s costs were $177,000 less than anticipated. The District budgeted $193,000 as a budgetary reserve which is used to cover unexpected expenditures that can not be anticipated while developing the budget. None of the budgetary reserve was used for these purposes during the year. A retirement severance incentive was offered at a cost of $222,000 to the District. Workers Compensation premiums exceeded projected amounts by $19,000. ARRA grant expenditures totaling $43,000 and professional services totaling $70,000 were not budgeted in the school year. Cyber/Charter tuition continues to rise at an alarming rate. amounts by $124,000. Tuition costs exceeded anticipated The Clear-field Area School District also operates a Capital Projects Fund which is authorized under section 1431 of the municipal code. Expenditures from this fund are limited to: capital outlays, including the acquisition or construction of capital facilities and other capital assets. Capital projects funds exclude those types of capital related outflows, financed by proprietary funds or for assets that will be held in trust for individuals, private organizations, or other governments (Private-Purpose Trust Funds). The Clearfield Area School District s Capital Projects Fund total fund balance was $1,936,913 at June 30, It increased by $50,423, (2.67%), from the prior year. The key factor that contributed to this increase was a $250,000 transfer from the General Fund. The funds will be used to help finance future projects. 13

65 EXHIBIT B (Continued) GENERAL FUND BUDGET During the fiscal year, the Board of School Directors (The Board) authorizes revisions to the original budget to accommodate differences from the original budget to the actual expenditures of the District. All adjustments are again confirmed after the Annual Financial Report is substantially completed, which is after the end of the fiscal year, as permitted by state law. A schedule showing the District s original and final budget amounts compared with amounts actually paid and received is provided in the financial statements. The District applies for federal, state, and local grants and these grants cannot always be anticipated during the budget process. If additional grants are received during the year these grants are added to the revenue and expenditure budgets. Transfers between specific categories of expenditures and financing uses normally occur during the year. The Budgetary Reserve of $193,282 is used for opportunities or expenditures for improvements and enhancements to District operations that were unforeseen at the time the budget was adopted. None of the budgetary reserve was used for these reasons during the year. SIGNIFICANT BUDGET VARIANCES Table A-S General Fund Actual to Budget Variances For the Fiscal Year Ended June 30, 2011 Account % of Number Name Budget Actual Difference Budget Revenues: 6000 Local Sources $ 12,502,050 $ 13,789,508 1,287, % 7000 State Sources 18,760,569 16,435,314 (2,325,255) 87.61% 8000 Federal Sources 1,959,050 3,948,210 1,989, % 9000 OtherSources 0 1,971,227 1,971, % Total Revenues and Sources 33,221,669 36,144,259 2,922, % Expenditures: 1000 Instruction 19,057,694 18,712, , J 2000 Support Services 11,494,430 10,615, , % 3000 Non-instructional 616, ,382 34, % 4000 Capital Outlay 0 1,617,803 (1,617,803) 0.00% 5000 Other Uses 2,363,032 2,105, , % Total Expenditures and Uses 33,531,596 33,634,608 (103,013) % Net Change in Fund Balance (309,926) 2,509,651 2,819,

66 REVENUES: EXHIBIT B (Continued) Local Revenues Due to the installment method of paying real estate taxes, the District is receiving more current real estate collections. Delinquent tax collections also exceeded anticipated amounts for the school year. Earned income tax and local services tax collections were budgeted conservatively due to poor economic conditions; however, collections exceeded expectations for the school year. Several large properties sold in resulting in additional real estate transfer tax revenue. Investment income was budgeted conservatively because of the market; however, exceeded expectations. income Admissions, tuition, and rental income exceeded anticipated amounts. The District received additional ARRA-IDEA funding for the school year. E-rate reimbursements received during the year were not included in the budget. There was a decline in ACCESS pass-through revenues due to a change in the reimbursement process. State Revenues Basic education and special education funding exceeded the Governor s Budget. The transportation cost index was higher than anticipated resulting in additional transportation revenue. Vocational education and rental/sinking fund subsidies are budgeted conservatively. revenue came in above estimated amounts. Actual The cyber/charter school reimbursement rate declined for the school year. The Educational Assistance Program and Accountability Block Grant revenues were reduced by the Department of Education during the school year. The District s state retirement contribution rate was reduced after the formulation of the budget. Federal Revenues Typically federal awards are budgeted on a yearly basis per individual project. However, federal revenue is matched to federal expenditures according to award requirements. During the District had a favorable variance in ARRA-Title I revenues and an unfavorable variance in Title I and Title II revenues. 15

67 EXPENDITURES: EXHIBIT B (Continued) The budget included several positions that were not filled for the current school year as well as extra periods that were not needed. The District s claim-based insurance programs resulted in lower expenditures than was originally projected for the current school year. Tuition reimbursement expenditures and unemployment claims were less than anticipated for the school year. The District continues to take back positions when available and therefore realized a substantial savings in lu special education services. Utility expenditures came in under conservatively budgeted amounts. The District budgets transportation costs conservatively. Administration decided to limit the number of district-owned cellular telephones beginning in the school year. The district realized substantial savings in vocational technical school tuition. The District sets aside funds to be used to finance unexpected expenditures during the school year. None of the reserve funds were utilized during the school year. A retirement severance incentive was offered to the professional staff late in the school year. The District s workers compensation experience factor continues to rise more quickly than anticipated. Several ARRA expenditures were not budgeted for the school year. Cyber/Charter school tuition continues to rise at an alarming rate. CAPITAL ASSET AND DEBT ADMINISTRATION CAPITAL ASSETS At June 30, 2011 the District had $18,348,307 invested in a broad range of capital assets, including land, land improvements, buildings, and furniture and equipment. Table A-6 provides a breakdown of the various classes of capital assets for the years respectively. 16

68 EXHIBIT B (Continued) Table A-S Governmental Activities Capital Assets net of depreciation For the Fiscal Year Ended June 30, Site Improvements $ 693,242 $ 735,326 Buildings & Improvements 16,565,309 15,401,419 Furniture & Equipment 1,089,756 1,050,968 The District completed the following renovation projects during the school year: roof - $1,778,023. High School, DEBT ADMINISTRATION As of July 1, 2010, the District had total outstanding bonds payable of $4,590,000. During the period July 1, 2010 to June 30, 2011 the District was awarded a $1,965,000 Qualified School Construction Bond for the high school roof and made principal payments toward its bonds in the amount of $1 735,000. Table A-7 lists the components of the District s outstanding debt for the current and prior years respectively. Table A-7 Outstanding Debt For the Fiscal Year Ended June 30, Bonds and Loans Payable $ 4,820,000 $ 4,590,000 Compensated Absences 733, ,304 Total Outstanding Debt $ 5,553,403 $ 5,330,304 More detailed information about long-term liabilities is included in the Notes to the Financial Statements. 17

69 EXHIBIT BIContinued) GASB 45 AND THE OPEB LIABILITY The Governmental Accounting Standards Board issued Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, in June The Statement establishes standards for the measurement, recognition, and display of OPEB expense/expenditures and related liabilities (assets), note disclosures, and if applicable, required supplementary information (RSl) in the financial reports of state and local governmental employers. Implementation is required in three phases based on a government s total annual revenues in the first fiscal year ending after June 15, The definitions and cutoff points for that purpose are the same as those in GASB Statement No. 34. The Clearfield Area School District is considered a phase 2 government for implementation purposes and was required to begin calculating any applicable liability beginning in the fiscal year. GASB 45 requires plan sponsors to perform periodic actuarial valuations to determine annual accounting costs for OPEB plans, and to keep a running tally of the extent to which these annual amounts are over or under funded. Statement 45 applies to just about any benefit that is provided after retirement except for pension benefits: medical insurance, pharmacy, dental, vision, and hearing benefits plus life insurance and long-term care insurance, when provided separately from a pension plan. The philosophy driving the accounting standard is that the postemployment benefits are part of the compensation that is paid to employees in return for their services, and the cost of these benefits should be recognized while the employees are providing those services, rather than after they have retired. The Annual OPEB Cost represents the cost to be expensed during the year for postemployment benefits under GASB 45. Currently, the District expenses the actual benefits paid during the year. The cumulative difference between the Annual OPEB Cost and the benefits paid during the year resulted in a Net OPEB Obligation of $821,053 at June 30, 2011 and $520,947 at June 30, 2010 and is recorded as a liability on the balance sheet of the District for each year respectively. GASB 54 Statement 54 was released March 11, 2009 and is effective for periods beginning after June 15, The statement addresses two issues: new general fund balance classifications and reclassification of certain special revenue funds. In regard to new fund balance classifications, the objective of Statement 54 is to improve the usefulness and understandability of governmental fund balances by providing more clearly defined categories to increase transparency. The following are the new fund balance categories: Non-spendable, Restricted, Committed, Assigned and Unassigned. Fund balances are classified according to the level of constraints for which amounts can be spent. Special revenue funds were also addressed in Statement 54. The new definition for special revenue funds is to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. The term proceeds of specific revenue sources established that one or more specific restricted or committed revenues should be the foundation for a special revenue fund and they should be expected to continue to comprise a substantial portion of the inflows reported in the fund. Prior to the school year, the District carried two special revenue funds: Athletic Fund and Capital Reserve Fund. During the school year, the District complied with Statement 54 by including the Athletic Fund revenue and expenditures in the General Fund and reclassifying the Capital Reserve Fund as a Capital Projects Fund. 18

70 EXHIBIT B (Continued) ECONOMIC FACTORS AND NEXT YEAR S BUDGET AND RATES The tax base in Clearfield County has remained level with only minimal growth in our local tax base. In an effort to promote economic development and growth, the Clearfield Area School District has participated with the County to implement several programs that encourage employers to move their facilities into the area. The District is currently participating in the Local Economic Revitalization Tax Act (LE.R.T.A.) and the Keystone Opportunity Zone programs. Both of these programs offer tax breaks for new development in the county. The programs have been successful in bringing commercial business into the area, and it appears that development is going to continue in these areas. In addition, the District has been working with several local organizations involved with promoting economic development. This has been labeled the Yes We Can initiative. The District has been experiencing declining student enrollment for several years and this trend is expected to continue based on enrollment projections by the Pennsylvania Department of Education. As our district enrollment continues to decrease we will need to continue to monitor our building capacity, participation in various programs, and class size when making facility, staffing and program decisions. In years past the District has received at or near minimum state subsidy increases which do not cover the increases in operating costs. The District is exploring all options in order to control cost increases and reduce the increasing burden being placed on our community members. Staffing reductions, when available, have been made as a result of this decline. The District will continue to evaluate staffing assignments in the future. The general fund revenue budget for the year, $31,380,476, is $1,841,193 less than the final budget for This represents a 5.54% decrease in budgeted revenues. The decrease in revenues is primarily due to the loss of federal ARRA revenues. The budget does include a 3 mill increase in real estate taxes. The general fund expenditure budget for the year, $33,106,420, is $425,175 less than the final budget for , which is a decrease of 1.27%. The decrease in expenditures is primarily the result of collapsed professional positions reduced by the launch of the PSERS employer contribution rate, The budget required the use of $1,725,944 of unassigned fund balance to balance. FUTURE CONSIDERATIONS In July 2011 the Clearfield Area Board of School Directors approved a project to renovate the Clearfield Area High School located at 2831 Washington Avenue, Clearfield, Pennsylvania. The project includes a complete building renovation as well as an addition to the existing structure. The future site will house grades 7 through 12 and serve as the District s Junior-Senior High School. The building will also be the future home for the District s Administration Offices and Technology Department. The total project is expected to cost approximately $33,000,000 and it will be financed with general obligation bonds. Three separate bond series will be issued to maximize the bank qualified limit of $10,000,000. General Obligation Bonds, Series of 2011 in the amount of $9,820,000 were settled October 31, 2011 with the first interest payment scheduled for March 1, The remaining two bond issues are scheduled to be issued in 2012 and 2013 respectively. In November 2010 District Administration became aware that the roof at the Girard-Goshen Elementary School, 8962 Gillingham Road, Frenchville, PA was deemed unsafe and immediately relocated all students and staff to the Clearfield Elementary School, 700 High Level Road, Clearfield, PA To date the Girard-Goshen Elementary School still remains vacant and legal proceedings against all involved parties has begun. The Clearfield Area Board of School Directors is currently considering whether to renovate all four existing elementary schools or renovate and expand the Clearfield Elementary School to house all students in grades K through 6. A final decision has not been made in regard to this matter as of the date of this report. 19

71 EXHIBIT B (Continued) Finally, tuition costs for outside cyber/charter services have been rising at an alarming rate. Costs have risen from $18889 in to a staggering $645,791 in To complicate matters, the Commonwealth has eliminated reimbursing LEAs for a percentage of their actual costs. To address this issue, the District decided to start Clearfield Cyber Services, an alternative to outside cyber/charter services. Clearfield Cyber Services allows a student to remain on the District s rolls, take cyber education courses, and receive a Clearfield Area School District diploma at the completion of the program. The cost of the program is 50-70% less than outside cyber/charter services with the ultimate goal being to bring the student back into the public education system. CONTACTING THE DISTRICT FINANCIAL MANAGEMENT The Clearfield Area School District financial report is designed to provide our citizens, taxpayers, parents, students, investors and creditors with a general overview of the District s finances and to show the Board s accountability for the money it receives. If you have questions about this report or wish to request additional financial information, please contact Samuel J. Maney, CPA, Business Administrator at the Clearfield Area School District, 438 River Road, Clearfield, PA 16830, and (814)

72 EXHIBIT C CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania STATEMENT OF NET ASSETS JUNE 30, 2011 Governmental Business-Type Activities Activities Total ASSETS: Current assets: Cash and cash equivalents $ 8,822,746 $ 912,609 $ 9,735,355 Taxes receivable - net 2,064, ,064,391 Due from other governments 823, ,262 Other receivables 813,719 83, ,324 State revenue receivable 250,046 8, ,218 Federal revenue receivable 257, , ,741 Inventories 0 50,894 50,894 Total Current Assets 13,031,601 1,173,584 14,205,185 Noncurrent Assets: Capital Assets: Site improvements (net of accumulated depreciation) ,242 Building and building improvements (net of accumulated depreciation) 16,565, ,309 Furniture and equipment (net of accumulated depreciation) 1,089, ,998 1,205,754 Long-term prepayments 124, ,512 Total Noncurrent Assets 18,472, ,998 18,588,817 TOTALASSETS $ 31,504,420 $ 1,289,582 $ 32,794,002 The accompanying notes are an integral part of these financial statements. 21

73 22 The accompanying notes are an integral part of these financial statements. TOTAL LIABILITIES AND NET ASSETS $ 31,504,420 $ 1,289,582 $ 32,794,002 TOTAL NET ASSETS 22,847, ,666 23,425,959 Invested in capital assets, net of related debt 13,652, ,998 13,768,817 Restricted 3988, ,988,821 Unrestricted 5,205, ,668 5,668,321 NET ASSETS: TOTAL LIABILITI ES 8,657, ,916 9,368,043 Total Noncurrent Liabilities 4,529,385 25,735 4,555,120 Other postemployment benefits (OPEB) 817,703 3, ,053 Long-term portion of compensated absences 681,682 22, ,067 Noncurrent liabilities: Bonds and notes payable (net) 3,030, ,030,000 Total Current Liabilities 4,127, ,181 4,812,923 Payroll deductions and withholdings 431, ,449 Current liabilities: LIABlLITIE: Internal balances $ (659,067) $ 659,067 $ 0 Due to other governments 1, ,889 Activities Activities Total Governmental Business-Type Accounts payable 645, ,145 Current portion of long-term debt 1,790, ,790,000 Current portion of compensated absences 29, ,336 Accrued salaries and benefits 1,888,990 12,612 1,901,602 Deferred revenues 0 13,502 13,502 JUNE 30, 2011 STATEMENT OF NET ASSETS Clearfield, Pennsylvania CLEAR FIELD AREA SCHOOL DISTRICT EXHIBIT C (Continued)

74 CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011 Program Revenues Indirect Charges Operating Capital Expenses For Grants and Grants and Functions/Programs Expenses Allocation Services Contributions Contributions Governmental Activities: Instruction $ 19,408,640 $ 0 $ 99,950 $ 5,939,519 $ 0 Instructional student support 2,788, Administrative and financial support services 3,274, ,443 0 Operation and maintenance of plant services 2,977, , ,183 0 Pupil transportation 1,699, ,115,805 0 Studentactivities 566, ,878 21,720 0 Community services 24, ,996 0 Interest on long-term debt 131, ,765,204 Unallocated depreciation expense 14, Total Governmental Activities 30,883, ,462 8,147,131 1,765,204 Business-Type Activities: Food services 1,398, , ,254 0 Total Primary Government $ 32,282,660 $ 0 $ 635,227 $ 9,046,385 $ 1,765,204 General Revenues: Taxes: Property taxes, levied for general purposes, net Public utility realty, earned income and per capita taxes levied for general purposes, net Grants, subsidies, and contributions not restricted Investment earnings Miscellaneous income Total General Revenues, Special Items, Extraordinary Items and Transfers Changes in Net Assets Net Assets -July 1,2010 Net Assets -June30, 2011 The accompanying notes are an integral part of these financial statements. 23

75 EXHIBIT D Net (Expense) Revenue and Changes in Net Assets Business- Governmental Type Activities Activities Total $ (13,369,171) $ 0 $ (13,369,171) (2,155,057) 0 (2,155,057) (3,053,055) 0 (3,053,055) (2,768,765) 0 (2,768,765) (583,869) 0 (583,869) (504,704) 0 (504,704) (4,635) 0 (4,635) 1,633, ,633,719 (14,512) 0 (14,512) (20,820,049) 0 (20,820,049) 0 (15,795) (15,795) (20,820,049) (15,795) (20,835,844) 11,749, ,749,261 1,588, ,588,446 10,562, ,562,706 87,482 6,077 93, , ,724 24,150,619 6,077 24,156,696 3,330,570 (9,718) 3,320,852 19,516, ,384 20,105,107 $ 22,847,293 $ 578,666 $ 23,425,959 24

76 EXHIBIT E CLEARFIELD AREA SCHOOL DISTRICT Clearfielci, Pennsylvania BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2011 Total General Capital Governmental Fund Projects Funds ASSETS: Cash and cash equivalents $ 7,135,833 $ 1,686,913 $ 8,822,746 Taxes receivable (net) 2,106, , Due from other funds , Due from other governments 823, ,262 State revenue receivable 250, ,046 Federal revenue receivable 257, ,437 Otherrevenue receivable 813, ,719 TOTAL ASSETS $ 12,045,885 $ 1,936,913 $ 13,982,798 LIABILITIES AND FUND BALANCES: LIABILITIES: Due to other funds $ 250,000 $ 0 $ 250,000 Due to other governments 1, ,889 Accounts payabte 620, ,240 Accrued salaries and benefits 1, ,888,990 Payroll deductions and withholdings 431, ,449 Deferred revenues 2,106, ,106,521 TOTAL LIABILITIES 5,299, ,299,089 FUND BALANCES: Restricted 2,051,908 1,936,913 3,988,821 Committed 3,113, ,113,989 Unassigned 1,580, ,580,899 TOTAL FUND BALANCES 6,746,796 1,936,913 8,683,709 TOTAL LIABILITIES AND FUND BALANCES $ 12,045,885 $ 1,936,913 $ 13,982,798 The accompanying notes are an integral part of these financial statements. 25

77 EXHIBIT F CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2011 TOTAL FUND BALANCES - GOVERNMENTAL FUNDS $ 8,683,709 Amounts reported for governmental activities in the statement of net assets are different because: Capital Assets used in governmental activities are not financial resources, and therefore, are not reported as assets in governmental funds. The cost of assets is $36,264,647, and the accumulated depreciation is $17,916, ,348,307 Long-term prepayments in governmental activities are not financial resources, and therefore, are not reported as assets in governmental funds. Long-term prepayments at year end consist of: Net issuance costs $ 87,569 Deferred refunding charges 36, ,512 Property taxes receivable will be collected this year, but are not available soon enough to pay for the current period s expenditures and therefore, are deferred in the funds. 2,064,391 Long-term liabilities, including bonds payable, are not due and payable in the current period, and therefore, are not reported as liabilities in the funds. Long-term liabilities at year end consist of: Bond payable $ 4,820,000 Accrued interest on bonds 24,905 Other postemployment benefits (OPEB) 817,703 Compensated absences 711,018 (6,373,626) TOTAL NET ASSETS - GOVERNMENTAL ACTIVITIES $ 22,847,293 The accompanying notes are an integral part of these financial statements. 26

78 EXHIBIT G CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2011 Total General Capital Governmental Fund Projects Funds REVENUES: Local sources $ 13,789,508 $ 1,238 $ 13,790,746 State sources 16,435, ,435,314 Federal sources 3,948, ,948,210 TOTAL REVENUES 34,173,032 1,238 34,174,270 EXPENDITURES: Current: Instruction 18,712, ,712,604 Support services 10,615,934 40,839 10,656,773 Noninstructional services 582,382 30, ,014 Facility acq., const., and improvement 1,617, ,344 1,747,147 Total Current Expenditures 31528, ,815 31,729,538 Debt Service: Principal 1,735, ,735,000 Interest and fiscal charges 116, ,225 Total Debt Service 1,851, ,851,225 Refund of prior year receipts 4, ,660 TOTAL EXPENDITURES 33,384, ,815 33,585,423 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES $ 788,424 $ (199,577) $ 588,847 The accompanying notes are an integral part of these financial statements. 27

79 JUNE EXHIBIT G (Continued) CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2011 Total General Capital Governmental Fund Projects Funds OTHER FINANCING SOURCES (USES): Bond issued $ 1,965,000 $ 0 $ 1,965,000 Interfund transfers (250,000) 250,000 0 Sale of fixed assets 6, ,227 TOTAL OTHER FINANCING SOURCES (USES) 1,721, ,000 1,971,227 NET CHANGE IN FUND BALANCES 2,509,651 50,423 2,560,074 FUND BALANCE - JULY ,237,145 1,886,490 6,123,635 FUND BALANCE - 30, 2011 $ 6,746,796 $ 1,936,913 $ 8,683,709 The accompanying notes are an integral part of these financial statements. 28

80 EXHIBIT H CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania RECONCILIATION OF THE GOVERNMENTAL FUND STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011 TOTAL NET CHANGE IN FUND BALANCE - GOVERNMENTAL FUNDS $ 2,560,074 Amounts reported for governmental activities in the statement of activities are different because: Capital outlays are reported in governmental funds as expenditures. However, in the statement of activities, the cost of those assets are allocated over their estimated useful lives as depreciation expense. This is the amount by which depreciation exceeded capital outlays in the period. Capital outlays $ 1,886,182 Depreciation expense $ 725,588 1,160,594 Because some property taxes will not be collected for several months after the District s fiscal year ends, they are not considered as available revenues in the governmental funds. Deferred tax revenues increased by this amount this year. 33,919 Bond proceeds are other financing sources in the governmental funds, but the borrowing increases long-term liabilities in the statement of net assets. (1,965,000) Repayment of bond principal and loans payable are expenditures in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. 1,735,000 In the statement of activities, certain operating expenses - compensated absences are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used. This amount represents the difference between the amount earned versus the amount used. 23,232 Bond issuance costs are included as expenditures in the governmental funds. These costs are recorded as long-term prepayments in the statement of net assets and are amortized over the term of the borrowing. 69,097 Interest on bonds and loans payable are recognized at the time of payment in the governmental funds but must be accrued at year end for the statement of net assets. 13,345 OPEB liability is a required part of the government wide financial statements. (299,691) CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 3,330,570 The accompanying notes are an integral part of these financial statements. 29

81 EXHIBIT I CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania STATEMENT OF NET ASSETS PROPRIETARY FUND JUNE 30, 2011 Food Service ASSETS: Current assets: Cash $ 912,609 Due from other governments 126,476 Other receivables 83,605 Inventories 50,894 Total Current Assets 1,173,584 Noncurrent assets: Machinery and equipment (net of accumulated depreciation) 115,998 TOTAL ASSETS $ 1, LIABILITI ES: Current liabilities: Due to other funds $ 659,067 Accrued salaries and benefits 12,612 Deferred revenues 13,502 Total Current Liabilities 685,181 Noncurrent liabilities: Long-term portion of compensated absences 22,385 Other postemployment benefits (OPEB) 3,350 Total Noncurrent Liabilities 25,735 TOTAL LIABILITIES 710,916 NET ASSETS: Invested in capital assets, net of related debt 115,998 Unrestricted 462,668 TOTAL NET ASSETS 578,666 TOTAL LIABILITIES AND NET ASSETS $ 1,289,582 The accompanying notes are an integral part of these financial statements. 30

82 EXHIBIT J CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania STATEMENT OF REVENUES. EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30, 2011 Food Service OPERATING REVENUES: Food service revenue $ 483,765 OPERATING EXPENSES: Salaries 496,235 Employee benefits 159,374 Purchased property services 83,537 Other purchased service 7,325 Supplies 637,176 Depreciation 14,207 Dues and fees 785 Other operating expenditures 175 TOTAL OPERATING EXPENSES 1,398,814 OPERATING INCOME (LOSS) (915,049) NONOPERATING REVENUES (EXPENSES): Earnings on investments 6,077 State sources 78,099 Federal sources 821,155 TOTAL NONOPERATING REVENUES (EXPENSES) 905,331 CHANGE IN NET ASSETS (9,718) TOTAL NET ASSETS - JULY 1, ,384 TOTAL NET ASSETS - JUNE 30, 2011 $ 578,666 The accompanying notes are an integral part of these financial statements. 31

83 JULY EXHIBIT K CLEARFIELD AREA SCHOOL DISTRICT Clearuield, Pennsylvania STATEMENT OF CASH FLOWS PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30, 2011 Food Service CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from users and other operating revenue $ Cash payments to employees for services (82,810) Cash payments to suppliers for goods and services (719,507) NET CASH (USED FOR) OPERATING ACTIVITIES (319,673) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: State sources 78,315 Federal sources 819,637 NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES 897,952 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Capital outlay (5,467) NET CASH (USED FOR) CAPITAL AND RELATED FINANCING ACTIVITIES (5,467) CASH FLOWS FROM INVESTING ACTIViTIES; Earnings on investments 6,077 CASH - NET CASH PROVIDED BY INVESTING ACTIVITIES 6,077 NET INCREASE IN CASH 578,889 1, CASH - JUNE 30, 2011 $ 912,609 The accompanying notes are an integral part of these financial statements. 32

84 EXHIBIT K (Continued) CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania STATEMENT OF CASH FLOWS PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30, 2011 Reconciliation of operating income to net cash provided by (used for) operating activities: Food Service OPERATING INCOME (LOSS) $ (915,049) Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities: Depreciation 14,207 (Increase) decrease in accounts receivable 308 (Increase) decrease in inventories 9,491 Increase (decrease) in advances from/to other funds 555,558 Increase (decrease) in accrued salaries and benefits 495 Increase (decrease) in deferred revenue (1,429) Increase (decrease) in long-term portion of compensated absences 16,331 Increase (decrease) in other postemploymerit benefits (OPEB) 415 TOTAL ADJUSTMENTS 595,376 NET CASH (USED FOR) OPERATING ACTIVITIES $ (319,673) The accompanying notes are an integral part of these financial statements. 33 V

85 EXHIBIT L CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2011 Activity Fund ASSETS: Cash $ 84,842 TOTAL ASSETS $ 84,842 LIABILITIES $ 84,842 NET ASSETS 0 TOTAL LIABILITIES AND NET ASSETS $ 84,842 The accompanying notes are an integral part of these financial statements. 34

86 EXHIBIT M CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The District s financial statements are prepared in accordance with generally accepted accounting principles (GAAP). The Governmental Accounting Standards Board (GASB) is responsible for establishing GAAP for state and local governments through its pronouncements (Statements and Interpretations). Governments are also required to follow the pronouncements of the Financial Accounting Standards Board (FASB) issued through November 30, 1989 (when applicable), that do not conflict with or contradict GASB pronouncements. Although the District has the option to apply FASB pronouncements issued after that date to its business-type activities and enterprise funds, the District has chosen not to do so. The more significant accounting policies established in GAAP and used by the District are discussed below. A. Reporting Entity The Board of Directors, a nine member group, is the level of government which has governance responsibilities over all activities related to public elementary and secondary school education within the jurisdiction of the local independent school district. The board receives funding from local, state and federal government sources and must comply within the concomitant requirements of these funding source entities. However, the board is not included in any other governmental reporting entity as defined in Section 2100, Codification of Governmental Accounting and Financial Reporting Standards, since board members are elected by the public and have decision making authority, the power to designate management, the responsibility to significantly influence operations and primary accountability for fiscal matters. Clearfield Area School District provides public education services to residents of Clearfield County. The district operates four elementary schools, a middle school housing fifth to eighth grade students and a high school with ninth to twelfth grade students. Total enrollment for grades K-12 for the school year approximated 2,400 students. B. Basic Financial Statements Government-Wide Statements The District s basic financial statements include both government-wide (reporting the District as a whole) and fund financial statements (reporting the District s major funds). Both the government-wide and fund financial statements categorize primary activities as either governmental or business type. In the government-wide Statement of Net Assets, both the governmental and businesstype activities columns (a) are presented on a consolidated basis by column, (b) and are reported on a full accrual, economic resource basis, which recognizes all long-term assets and receivables as well as longterm debt and obligations. The District s net assets are reported in three parts invested in capital assets, net of related debt; restricted net assets; and unrestricted net assets. The District first utilizes restricted resources to finance qualifying activities. Government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the school district. As a general rule, the effect of interfund activity has been eliminated from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely, to a significant extent, on fees and charges for support. 35

87 EXHIBIT M (Continued) The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable within a specific function or segment Program revenues include charges to customers who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment In addition, program revenues include grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not property included among program revenues are reported instead as general revenues. C. Basic Financial Statements Fund Financial Statements The financial transactions of the District are reported in individual funds in the fund financial statements. Each fund is accounted for by providing a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures/expenses. The emphasis in fund financial statements is on the major funds in either the governmental or business-type activities categories. Nonmajor funds by category are summarized into a single column. GASB No. 34 sets forth minimum criteria (percentage of the assets, liabilities, revenues or expenditures/expenses of either fund category or the governmental and enterprise combined) for the determination of major funds. 1. Governmental Funds: The focus of the governmental funds measurement (in the fund statements) is upon determination of financial position and changes in financial position (sources, uses, and balances of financial resources) rather than upon net income. The District reports these major governmental funds and fund types: a. The general fund is the District s primary operating fund. It is used to account for and report all financial resources except those required to be accounted for in another fund. b. The capital projects fund accounts for transfers from other funds and related investment earnings for capital outlays not accounted for in another fund. The District has no non-major governmental funds. The activities reported in government-wide financial statements. these funds are reported as governmental activities in the 2. Proprietary Fund: The focus of proprietary fund measurement is upon determination of operating income, changes in net assets, financial position, and cash flows. The generally accepted accounting principles applicable are those similar to businesses in the private sector. The District reports the following proprietary fund type: a. Enterprise funds are required to be used to account for operations for which a fee is charged to external users for goods or services and the activity is financed with debt that is solely secured by a pledge of the net revenues. The activities reported in these funds are reported as business-type activities in the government-wide financial statements. The District uses the enterprise fund to account for the operation of the cafeteria. 36

88 EXHIBIT M (Continued) Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the proprietary fund s principal ongoing operations. The principal operating revenues of the school district s enterprise fund are food service charges. Operating expenses for the school district s enterprise fund include food production costs, supplies, administrative costs, and depreciation on capital assets. All revenues or expenses not meeting this definition are reported as nonoperating revenues and expenses. 3. Fiduciary Funds: Fiduciary Funds are used to report assets held in a trustee or agency capacity for others and therefore are not available to support the District s programs. The reporting focus is on net assets and changes in net assets and is reported using accounting principles similar to proprietary funds. The District s fiduciary fund is presented in the fiduciary fund financial statements by type (pension, private purpose and agency). Because by definition these assets are being held for the benefit of a third party (other local governments, private parties, pension participants, etc.) and cannot be used to address activities or obligations of the government, these funds are not incorporated into the governmentwide statements. the District The fiduciary fund is used to account for the operation of the student activity accounts of D. Basis of Accounting Basis of accounting refers to the point at which revenues or expenditures/expenses are recognized in the accounts and reported in the financial statements. It is related to the timing of the measurements made regardless of the measurement focus applied. The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting as are the proprietary fund and the fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met, Net assets (total assets less total liabilities) are used as a practical measure of economic resources and the operating statement includes all transactions and events that increased or decreased net assets. Depreciation is charged as expense against current operations and accumulated depreciation is reported on the statement of net assets. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers tax revenue to be available if collected within 60 days of the end of the fiscal period. Revenue from federal, state and other grants designated for payment of specific school district expenditures is recognized when the related expenditures are incurred; accordingly, when such funds are received, they are recorded as deferred revenues until earned. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. E. Budgets and Budgetary Accounting An operating budget is adopted prior to the beginning of each year for the General Fund on a modified accrual basis of accounting. The General Fund is the only fund for which a budget is legally required. 37

89 EXHIBIT M (Continued) The Pennsylvania School Code dictates specific procedures relative to adoption of the School District s budget and reporting of its financial statements, specifically: The School District, before levying annual school taxes 1 is required to prepare an operating budget for the succeeding fiscal year. The School District is required to publish notice by advertisement, at least once in two newspapers of general circulation in the municipality in which it is located, and within fifteen days of final action, that the proposed budget has been prepared and is available for public inspection at the administrative office of the School District. Notice that public hearings will be held on the proposed operating budget must be included in the advertisement; such hearings are required to be scheduled at least ten days prior to when final action on adoption is taken by the Board. Legal budgetary control is maintained at the sub-function/major object level. The Board of School Directors may make transfers of funds appropriated to any particular item of expenditure by legislative action in accordance with the Pennsylvania School Code. Management may amend the budget at the sub-function/sub-object level without Board approval. Appropriations lapse at the end of the fiscal period. Budgetary information reflected in the financial statements is presented at or below the level of budgetary control and includes the effect of approved budget amendments. The budget for the year ended June 30, 2011 was approved by the Board of Directors on June 21, 2010 in the amount of $33,390,892 with a tax millage of mills for Clearfield County. Included in the General Fund budget are program budgets as prescribed by the federal and state agencies funding the program. These budgets are approved on a program by program basis by the federal and state funding agencies. F. Financial Statement Amounts 1. Cash and Cash Equivalents: The District has defined cash and cash equivalents to include cash on hand, demand deposits, and all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. 2. Receivables and Payables: Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as due to/from other funds. Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as internal balances. Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. 3. Inventories: On government-wide financial statements, the district feels the inventory will be immaterial in amount and has decided to remove it from the statement of net assets. A physical inventory of the Cafeteria Fund food and supplies was taken as of June 30, The inventory consisted of government donated commodities which were valued at estimated fair market value, and purchased commodities and supplies, both valued at cost using the first-in, first-out (FIFO) method. 38

90 EXHIBIT M (Continued) 4. CapitalAssets: Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the school district as assets with an initial, individual cost of more than $1,500 and an estimated useful life in excess of one year. In addition, capital assets purchased with long-term debt may be capitalized regardless of the thresholds established. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. All reported capital assets are depreciated using the straight-line method over the following estimated useful lives: Assets Years Buildings 20 to 40 Building improvements 20 to 40 Land improvements 20 Furniture 20 Equipment 5 to 20 Proprietary fund equipment purchases are capitalized in the proprietary fund at cost and depreciated on a straight-line basis over 11 years. 5. Long-Term Obligations: In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental or business type activity columns in the statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 6. Government-wide and Proprietary Fund Net Assets: Government-wide and proprietary fund net assets are divided into three components: Invested in capital assets, net of related debt consist of the historical cost of capital assets less accumulated depreciation and less any debt that remains outstanding that was used to finance those assets. 39

91 EXHIBIT M (Continued) 7. Governmental Fund Balances: Restricted consists of net assets that are restricted by the District s creditors (for example, through debt covenants), by the state enabling legislation (through restrictions on shared revenues), by grantors (both federal and state), and by other contributors. Unrestricted all other net assets are reported in this category. Effective July 1, 2010, the District adopted the provisions of GASB Statement No, 54, Fund Balance Reporting and Governmental Fund Type Definitions. The objective of the statement is to enhance the usefulness of fund balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fund type definitions. As prescribed by GASB Statement No. 54, governmental funds report fund balance in classifications based primarily on the extent to which the District is bound to honor constraints on the specific purposes for which amounts in the funds can be spent. Fund balance for governmental funds can consist of the following: Nonspendable Fund Balance includes amounts that are (a) not in spendable form, or (b) legally or contractually required to be maintained intact. The not in spendable form criterion includes items that are not expected to be converted to cash, for example: inventories, prepaid amounts, and long-term notes receivable. Restricted Fund Balance includes amounts that are restricted for specific purposes stipulated by external resources providers, constitutionally or through enabling legislation. Restrictions may effectively be changed or lifted only with the consent of resource providers. Committed Fund Balance includes amounts that can only be used for the specific purposes determined by a formal action of the District s highest level of decision-making authority, the District s school board. Commitments may be changed or lifted only by the District taking the same formal action that imposed the constraint originally (for example: resolution and ordinance). Assigned Fund Balance includes amounts intended to be used by the District for specific purposes that are neither restricted nor committed. Intent is expressed by (a) the school board or (b) a body (a budget, finance committee, or business manager) to which the assigned amounts are to be used for specific purposes. Assigned amounts also include all residual amounts in governmental funds (except negative amounts) that are not classified as nonspendable, restricted, or committed. Unassigned Fund Balance this residual classification is used for all remaining amounts. 8. Statement of Cash Flows: For purposes of the statement of cash flows, the District considers all highly liquid investments (including restricted assets) with a maturity of three months or less when purchased to be cash equivalents. 9. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 40

92 EXHIBIT M (Continued) NOTE 2 JOINTLY GOVERNED ORGANIZATIONS: Clearfield Area School District and five neighboring districts jointly participate in the operation of the Clearfield County Career and Technology Center. The purpose of the Clearfield County Career and Technology Center (CCCTC) is to provide students with training in various fields of education. The Clearfield County Career and Technology Center Board is comprised of one member from each sponsoring school for a total of six with another member from each school as alternates. This board, called the Joint Operating Committee, is the governing board for policy making decisions. The Clearfield County Career and Technology Center receives its funding for operations from the member schools based on the number of students in attendance times the money needed to operate. During the year ended June 30, 2011, the Clearfield Area School District paid the Clearfield County Career and Technology Center $872,943 for operating expenses. The results of the operation of the Clearfield County Career and Technology Center are not included with the audit report of the Clearfield Area School District. NOTE 3- CASH AND CASH EQUIVALENTS: Pennsylvania statutes provide for investment of governmental funds into certain authorized investment types including U.S. Treasury bills, other short-term U.S. and Pennsylvania government obligations, and insured or collateralized time deposits and certificates of deposit. The statutes do not prescribe regulations related to demand deposits; however, they do allow the pooling of governmental funds for investment purposes. In addition to the investments authorized for governmental funds, fiduciary fund investments may also be made in corporate stocks and bonds, real estate and other investments consistent with sound business practice. The deposit and investment policy of the District adheres to state statutes and prudent business practice. Governmental funds are either maintained in demand deposits, highly liquid money market funds, or pooled for investment purposes in the Pennsylvania School District Liquid Asset Fund (PSDLAF) or the Pennsylvania Local Government Investment Trust (PLGIT) and are captioned as Cash and Cash Equivalents in the Balance Sheet. These amounts are stated at cost, which approximates market. There were no deposit transactions during the year that were in violation of either the state statutes or the policy of the District. Deposits: Deposits are carried at fair value. A reconciliation of deposits at June 30, 2011 as shown on the financial statements is as follows: Custodial Credit Risk: Carrying amount of deposits $9,820,197 Total cash and cash equivalents $ General fund $7,135,833 Capital projects fund 1,686,913 Proprietary fund 912,609 Fiduciary fund 84,842 Total cash and cash equivalents $9,820,197 Custodial credit risk for deposits is the risk that, in the event of a bank failure, a government s deposits may not be returned to it. The District s policy is to collateralize deposits by state law. 41

93 EXHIBIT M (Continued) At June 30, 2011 the District s carrying amount of bank deposits was $9,820,197 and the bank balance was $10,891,796. Of the bank balance, $250,000 is covered by Federal Depository Insurance and $10,641,796 is collateralized in accordance with Act 72 of the Pennsylvania State Legislature which requires the financial institutions to pool collateral for all government deposits and have the deposits held by an approved custodian in the nancial institution s name. NOTE 4 REAL ESTATE AND PER CAPITA TAXES AND DEFERRED REVENUE: Real Estate Property Taxes: Real estate property taxes attach as an enforceable lien on property on January 1. Taxes are collected at a 2% discount through October 15; face amount due from October 16 through December 15; and 10% penalty added after December 15. The County Assessment Office calculates the yearly tax levy and distributes the individual tax duplicates to the school district s appointed tax collectors. The tax collectors are responsible for tax collections. Tax revenues are recognized in the period in which they are remitted by the tax collectors. The school district, in accordance with GAAP, recognized the delinquent and unpaid taxes receivable reduced by an allowance for uncollectible taxes as determined by the administration. A portion of the net amount estimated to be collectible which was measurable and available within 60 days was recognized as revenue and the balance deferred in the government-wide financial statements. The balances at June 30, 2011 are as follows: Allowance Net Gross for Estimated Taxes Uncollectible Revenue to be Receivable Taxes Collectible Real Estate $2j.QZi $42130 $2, NOTE 5- DUE FROM OTHER GOVERNMENTS: Amounts due from other governments represent receivables for revenues earned by the school district. At June 30, 2011, the following amounts are due from other governmental units: NOTE 6 CHANGES IN CAPITAL ASSETS: Governmental Activities Various Intermediate Units $ Capital asset activity for the year ended June 30, 2011 was as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital Assets Being Depreciated Site Improvements $ 841,678 $ 0 $ 0 $ 841,678 Building and Building Improvements 27,301,304 1,671, ,972,861 Furniture and Equipment 6,235, , ,450,108 Total Assets Being Depreciated 34,378, ,

94 EXHIBIT M (Continued) Less Accumulated Depreciation For: Site Improvements 106,352 42, ,436 Building and Building Improvements 11,899, , ,407,552 Furniture and Equipment 5,184, ,360,352 Total Accumulated Depreciation 17,190, ,340 Total Capital Assets Being Depreciated, Net $ $1,160,594 $ 0 $18,346,307 Business-Type Activities: Capital Assets Being Depreciated Equipment $ 279,634 $ 5,467 $ 0 $ 285,101 Less Accumulated Depreciation For Equipment 154, ,103 Business-Type Activities Capital Assets, Net $_J24738 $ (8,740) $ 0 $ follows: Depreciation expense was charged to functionslprograms of the primary government as Governmental Activities: Instructional services $449,864 Support services 261,212 Unallocated depreciation expense Total depredation expense governmental activities $725,588 Business-type Acthities: Cafeteria $ 14,207 Total Depreciation expense business-type activities $ 14,207 NOTE 7- GENERAL LONG-TERM DEBT: General Obligation Bonds, Series of 2009 On April 1, 2009, the Clearfield Area School District issued General Obligations Bonds, Series of 2009, totaling $6,205,000. The purpose of this issue was to refund the Series of 2003 General Obligation Bonds and pay off a commercial loan. On October 6, 2010, the Clearfield Area School District issued Qualified School Construction Bonds, Series of 2010, totaling $1,965,000. The purpose of this issue was to fund a reroofing project at the Clearfield Area High School. Currently, there remains $187,192 in unspent funds after the roof project was complete. These funds must be spent on other acceptable projects by October 6, The funds are reflected in cash and cash equivalents in the financial statements. 43

95 EXHIBIT M (Continued) The following is a schedule of the debt activity during the fiscal year ended June 30, 2011: Total General Series of Series of Long-Term Debt Balance July 1, 2010 $4,590,000 $ 0 $4,590,000 Borrowings 0 1,965,000 1,965,000 Principal paid (1j35,000) 0 (1,735,000) Balance June 30, 2011 $2.855,000 $ $4,820,000 The following is a schedule of the annual requirements to amortize the school district s debt and interest: Year Ending June 30 Principal Interest Total 2012 $1,790,000 $ 74,716 $1,864, ,192,500 30,090 1,222, ,500 3, , ,500 3, , ,500 3, , ,500 16, , ,500 16, , ,000 5, ,011 $4, $ $4,973,243 Compensated Absences: Under the system of financial accounting and reporting for Pennsylvania School Systems, the School District accrues for certain accumulated employee benefits, such as unpaid vacation and sick pay. Calculation of this amount is determined by the appropriate vacation, sick and retirement lump-sum payments which would be available to employees if they would leave or retire from the School District and is adjusted for expected turnover rates of employees. Accrued benefit days, multiplied by appropriate salary amounts, are reflected as a noncurrent liability unless retirements are likely within the upcoming fiscal year. Those costs are reflected as a liability of the General Fund under Governmental Activities and Business-Type Activities at June 30, 2011 and totaled $733,403. NOTE 8-NET ASSETS: Net assets reflected on the Statement of Net Assets for the governmental activities consist of the following items: Invested in capital assets, net of related debt $13,652,819 Restricted: Amounts for capital projects $1,936,913 Debt obligations 2,051,908 3,988,821 Unrestricted 5,205,653 $22,847,293 44

96 EXHIBIT M (Continued) NOTE 9 FUND BALANCES: following items: Fund balances reflected on the Balance Sheet for governmental funds consist of the Restricted: Amounts for capital projects $1,936,913 Debt obligations 2,051,908 $3,988,821 Comm itted: Future retirement increase 3,113,989 Unassigned 1, $&683,709 NOTE 10 ADOPTION OF NEW ACCOUNT1NG PRINCIPLE: The District adopted the provisions of GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, during its year ended June 30, As the District s Capital Reserve Fund no longer meets the criteria to be reported as a special revenue fund, it is now included in the District s Capital Projects Fund. The effect of this adoption was to increase the Districts Capital Project Fund balance by $1,886,490 at July 1, In addition, the District s Athletic Fund, formerly reported as a special revenue fund, was included in the General Fund, as it no longer meets the criteria to be reported as a special revenue fund. The effect of this restatement was to increase the District s General Fund balance by $2,927 at July 1, NOTE 11 - RETIREMENT PLAN: Substantially all employees of the school are participating members of the Public School Employees Retirement System (P.S.E.R.S.), a multiple-employer public employee retirement system. Total school contribution for the year ended June 30, 2011, was 856,955. The following is a summary of the benefit and contribution provision of the retirement system as required by GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers. Plan Description: Name of Plan: Type of Plan: The Public School Employees Retirement System (the System). Governmental cost sharing multiple-employer defined benefit plan. Benefits: Retirement and disability, legislatively mandated ad hoc cost-of-living adjustments, healthcare insurance premium assistance to qualifying annuitants. Authority: The Public School Employees Retirement Code (Act No. 96 of October 2, 1975, as amended) (24 Pa. C.S ). 45

97 EXHiBIT M (Continued) Annual Financial Report: The System issues a comprehensive annual financial report (CAFR) that includes financial statements and required supplementary information for the plan. A copy of the report may be obtained by writing to Diane J. Wart, Office of Financial Management, Public School Employees Retirement System, P. 0. Box 125, Harrisburg PA The CAFR is also available on the Publications page of the PSERS website. Funding Policy: Authority: The contribution policy is established in the Public School Employees Retirement Code and requires contributions by active members, employers, and the Commonwealth. Contribution Rates: Member Contributions Active members who joined the System prior to July 22, 1983, contribute at 5.25 percent (Membership Class T-C) or at 6.50 percent (Membership Class T-D) of the member s qualifying compensation. Members who joined the System on or after July 22, 1983, and who were active or inactive as of July , contribute at 6.25 percent (Membership Class T-C) or at 7.50 percent (Membership Class T-D) of the members qualifying compensation. Members who joined the System after June 30, 2001, contribute at 7.50 percent (automatic Membership Class T-D). For all new hires and for members who elected Class T-D membership, the higher contribution rates began with service rendered on or after January 1, Employer Contributions Contributions required of employers are based upon an actuarial valuation. For fiscal year ended June 30, 2011, the rate of employer s contribution was 5.64 percent of covered payroll. The 5.64 percent rate is composed of a pension contribution rate of 5.00 percent for pension benefits and 0.64 percent for healthcare insurance premium assistance. NOTE 12 OTHER POSTEMPLOYMENT BENEFIT OBLIGATION (OPEB): GASB 45 requires plan sponsors to perform periodic actuarial valuations to determine annual accounting costs for OPEB plans, and to keep a running tally of the extent to which these annual amounts are over or under funded. GASB 45 was effective starting in fiscal year for a Phase I government, fiscal year for a Phase II government and fiscal year for a Phase Ill government. OPEB accounting under GASB 45 was adopted for the fiscal year by the Clearfield Area School District The valuation date is the date that all participant and other pertinent information is collected and liabilities are measured. This date may not be more than 24 months prior to the beginning of the fiscal year. This valuation date is July 1, 2010, which is coincident with the beginning of the fiscal year. Furthermore, GASB 45 requires actuarial valuations to occur at least biennially for governmental entities with 200 or more plan participants. Therefore, the results of this valuation may be used for the fiscal year and may also be the basis for the fiscal year, unless significant changes occur that would affect the results of this valuation. GASB 45 applies to just about any benefit that is provided after retirement except for pension benefits: medical insurance, pharmacy, dental, vision, and hearing benefits plus life insurance and long-term care insurance, when provided separately from a pension plan. The philosophy driving the accounting standard is that the postemployment benefits are part of the compensation that is paid to 46

98 EXHIBIT M (Continued) employees in return for their services, and the cost of these benefits should be recognized while the employees are providing those services, rather than after they have retired. This philosophy has already been applied for years to defined benefit pensions; GASB 45 extends the same thinking to all other postemployment benefits. The Annual OPEB Cost represents the cost to be expensed during the year for postemployment benefits under GASB 45. Prior to GASS 45, the District expensed the actual benefits paid during a year The cumulative difference between the Annual OPEB Cost (new method) and the benefits paid during a year (old method) results in a Net OPEB Obligation to be included on the balance sheet of the District. Once all expected future benefit payments have been discounted to a liability as of the valuation date, an actuarial cost method is applied to allocate the liability to past service (Accumulated Postemployment Benefit Obligation, or APSO), the current year s accrual (Normal Cost) and future accruals. The Normal Cost, plus an amortization of the unfunded APBO, if any, comprise the Annual Required Contribution (despite the name of this accounting term, contributions in excess of payas-you-go costs are optional, not required), or ARC. There are a variety of amortization methodologies available to establish the recognition pattern of the unfunded APBO. The available methodologies generate a wide range of results and have a significant impact on the ARC. In the first year during which GASB 45 is effective, the Annual OPEB Cost equals the ARC. In later years, if a Net OPEB Obligation exists due to cumulative employer contributions differing from cumulative Annual OPEB Costs, then an adjustment is made to the ARC in order to determine the Annual OPEB Cost. The estimated net OPEB obligation at June 30, 2011 was calculated as follows: Fiscal Year Accumulated Postemployment Benefit Obligation as of July 1,2010 $7.961,400 Normal Cost 290,236 Amortization of unfunded liability 781,802 Annual Required Contribution for fiscal year ended June 30, ,072,038 Adjustment to Annual Required Contribution (31,332) Annual OPER Cost for fiscal year ending June 30, 2011 $1,040,706 Notes: 1. Amortization method is closed 15-year revel dollar amortization, beginning in fiscal year (13 years remaining). 2. Annual OPEB Cost (AOC) is amount expensed under GASB

99 EXHIBIT M (Continued) Annual OPEB Cost for fiscal year ending June 30, 2011 $1,040,706 Contributions for fiscal year ending June 30, Annual expense difference 300,106 Net OPEB Obligation as of July 1, Estimated net OPEB obligation as of June 30, 2011 $ 821,053 Notes: 1. Estimated contributions shown have been set equal to expected net claims paid. 2. The difference between the Annual OPEB Cost and the contributions represents the increase in the annual expense from the current method (prior to GASB 45). The cumulative sum of these annual differences over time is the Net OPEB Obligation and represents a liability on the balance sheet. GASB 45 Schedule of Funding Progress: Unfunded UAL as a Actuarial Accrued Percentage of Actuarial Value of Accrued Liability Funded Covered Covered Valuation Assets Liability (UAL) Ratio Payroll Payroll Date (a) (b) (b a) (a/b) (c) ((b-.-a)ic) July 1, 2010 $0 $7,961,400 $7,961,400 $0 $15,677, % July 1, ,260,600 6,260, ,543, % GASB 45 Schedule of Employer Contributions: Annual Percentage of Fiscal Year OPEB Annual OPEB Cost Net OPEB Ended Cost Contributed Obligation June 30, 2011 $1,040, % $821,053 June 30, , % 520,947 June 30, , % 267,822 The summary of principal plan provisions is intended only to describe the essential features of the Plan for valuation purposes. Eligibility for benefits and benefit amounts are determined by the Plan Administrator and are based on the full and complete plan provisions, not on this summary. 1. Type of plans covered: Medical and pharmacy benefits and cash payments are covered by this valuation. The District self-insures healthcare benefits. 2. Eligibility for healthcare coverage: Professional staff: Eligible for incentive upon retirement under PSERS superannuation or early retirement provisions after completing 25 years of PSERS service, including 10 years with the District. Else, Act 110/43. Support staff: Eligible to purchase coverage upon retirement under PSERS superannuation or early retirement provisions. 48

100 EXHIBIT M (Continued) 3. Duration of healthcare benefits: Professional staff: Retiree coverage may continue until age 65, or death or qualification for Medicare if earlier. Spouse and surviving spouse coverage may continue until age 65, or death, or qualification for Medicare if earlier. Support staff: Retiree coverage may continue until age 65, or death or qualification for Medicare if earlier. Spouse and surviving spouse coverage may continue until age 65, or death, or qualification for Medicare if earlier. 4. Participant contributions for healthcare coverage: Professional staff: Retirees qualifying for the incentive receive a $12,000 payment to a Health Reimbursement Account (HRA) at the time of retirement that can be used to pay future premiums. If the HRA is exhausted prior to age 65, the retiree and/or spouse may purchase coverage by paying the full premium amount. Under Act 110/43 the retiree and/or spouse pay the full premium amount. Support staff: The retiree and/or spouse pay the full premium amount. 5. Monthly premium rates used in the valuation: PPO Group Retiree Retiree/Spouse Teachers $461 $1,242 Administrators 453 1,220 Secretaries 476 1,284 Maintenance 479 1, Cash payment: Professional staff: None Support staff: Upon retirement under PSERS superannuation or early retirement, participants receive a payment as follows: Secretaries: $60 for each year of continuous employment. Maintenance: $65 for each year of continuous employment. NOTE 13 COMMITMENTS AND CONTINGENCIES: Litigation: The District is the defendant in tax appeal litigation arising principally in the normal course of operations. In the opinion of the District, the outcome of these lawsuits will not have a materially adverse effect on the accompanying combined financial statements and accordingly, no provision for loss has been recorded. In November, 2010, the District became aware that the roof at the Girard-Goshen Elementary School was deemed unsafe. As of the date of this report, the school remains closed. Legal proceedings against all involved parties have commenced. 49

101 EXHIBIT M (Continued) Grant Programs: The District participates in numerous state and federal grant programs, which are governed by various rules and regulations of the grantor agencies. Costs charged to the respective grant programs are subject to audit and adjustment by the grantor agencies; therefore, to the extent that the District has not complied with the rules and regulations governing the grants, refunds of any money received may be required and the collectibility of any related receivables at June 30, 2011 may be impaired. In the opinion of the District, there are no significant contingent liabilities relating to compliance with the rules and regulations governing the respective grants; therefore, no provision has been recorded in the accompanying combined financial statements for such contingencies. Risk Management: The District is exposed to various risks of losses related to torts, theft of, damage to, and destruction of assets, errors, and omissions, injuries to employees and natural disasters. It is the policy of the District to purchase commercial insurance for the risks of loss to which it is exposed, including workers compensation and employee health and accident insurance. Settled claims resulting from these risks have not exceeded commercial insurance coverage. NOTE 14 SUBSEQUENT EVENTS: On July 25, 2011, the Board adopted a resolution authorizing the District to incur lease rental debt in the maximum principal amount of $4,097,950 being a pro rata portion of the principal and interest on the guaranteed School Building Revenue Bond Series of 2011 in the maximum principal amount of $9,995,000 to be authorized and issued by the Clearfield County Industrial Development Authority for the benefit of the Clearfield County Career and Technology Center. The District believes that this resolution will not have a significant impact on the District s financial statements. On October 31, 2011, the Clearfield Area School District issued General Obligations Bonds, Series of 2011 totaling $9,820,000. Proceeds of the bonds will be applied toward payment of the costs of the acquiring, designing, constructing, furnishing, and equipping alterations, additions, renovations to the Clearfield Area High School and other improvements to the District s existing school buildings. The bond proceeds are part of a $33,000,000 project to renovate the Clearfield Area High School to become the District s Junior-Senior High School and to construct the future home for the District s administrative offices and technology department. Two additional bond issues are scheduled to be issued in 2012 and 2013, respectively. The District evaluated the effects of all subsequent events from the end of the year through February 20, 2012, the date the financial statements were available to be issued, and determined that other than the above items, there were no other events to report during that period. 50

102 SCHEDULE 1 CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2011 Variance With Actual Final Budget Budgeted Amounts (Budgetary Positive Original Final Basis) (Negative) REVENUES: Local sources $ 12,472,500 $ 12,502,050 $ 13,789,508 $ 1,287,458 State program sources 18,735,569 18,760,569 16,435,314 (2,325,255) Federal program sources 1,872,897 1,959,050 3,948,210 1,989,160 TOTAL REVENUES 33, ,221,669 34,173, ,363 EXPENDITURES: Current: Regular programs 12,760,776 12,832,842 12,658, ,470 Special programs 3,858,721 3,868,346 3,972,157 (103,811) Vocational programs 1,683,247 1,679,432 1,489, ,928 Other instructional programs 679, , ,571 84,503 Support services: Pupil personnel services 896, , , Instructional staff services 1,322,061 1,364,235 1,331,920 32,315 Administrative services 1,925,303 1,896,013 1,865,432 30,581 Pupil health 495, , ,316 2,359 Business services 385, , ,415 79,440 Operation and maintenance of plant services 3,421,290 3,421,168 2, ,200 Student transportation services 1,730,469 1,730,469 1,656,139 74,330 Central and other support services 1,285,867 1,296,936 1,203,586 93,350 Other support services 1,500 1,500 2,374 (874) The accompanying notes are an integral part of these financial statements. 51

103 SCHEDULE 1 (Continued) CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2011 Variance With Actual Final Budget Budgeted Amounts (Budgetary Positive Original Final Basis) (Negative) Operation of noninstructional services: Student activities $ 411,975 $ 607,979 $ 557,751 $ 50,228 Community services 5,000 8,460 24,631 (16,171) Facility acq., const., and improvement 0 0 1,617,803 (1,617,803) Debt service 1, ,919,750 1,851,225 68,525 Refund of prior year receipts 0 0 4,660 (4,660) TOTAL EXPENDITURES 32,782,925 33,088,313 33,384,608 (296,295) EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 298, , , ,068 OTHER FINANCING SOURCES (USES): Bonds issued 0 0 1,965,000 1,965,000 Transfers out (414,685) (250,000) (250,000) 0 Budgetary reserve (193,282) (193,282) 0 193,282 Sale of fixed assets 0 0 6,227 6,227 TOTAL OTHER FINANCING SOURCES (USES) (607,967) (443,282) 1,721,227 2,164,509 NET CHANGE IN FUND BALANCES (309,926) (309,926) 2,509,651 2,819,577 FUND BALANCE - JULY 1, ,431,853 3,431,853 4,237, ,292 FUND BALANCE - JUNE 30, 2011 $ 3,121,927 $ 3,121,927 $ 6,746,796 $ 3,624,869 The accompanying notes are an integral part of these financial statements. 52

104 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors Cleartield Area School District Clearfield, Pennsylvania We have audited the financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of Clearfield Area School District, as of and for the year ended June 30, 2011, which collectively comprise the Clearfield Area School District s basic financial statements and have issued our report thereon dated February 20, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Clearfield Area School District s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of ClearfJeld Area School Districts internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Clearfield Area School District s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether Clearfield Area School District s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 53

105 This report is intended solely for the information and use of management, the Board of Directors, others within the entity, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. 3J4 A42&16& WALTER HOPKINS & COMPANY, LL.P. Clearfield, Pennsylvania February 20,

106 independent AUDITOR S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CiRCULAR A-133 To the Board of Directors Clearlield Area School District Clearfield, Pennsylvania Compliance We have audited Clearfield Area School District s compliance with the types of compliance requirements described in the 0MB Circular A-133 Compliance Supplement that could have a direct and material effect on each of Clearfield Area School District s major federal programs for the year ended June 30, Clearfield Area School District s major federal programs are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of Clearfield flea School Districts management. Our responsibility is to express an opinion on Clearfield Area School District s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A-i 33, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and 0MB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Clearfield Area School District s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of Clearfield Area School District s compliance with those requirements. In our opinion, Clearlield Area School District complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Internal Control Over Compliance Management of Clearfield Area School District is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered Clearfield Area School District s internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-i33, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Clearfield Area School District s internal control over compliance. 55

107 A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of management, the Board of Directors, others within the entity, federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. ELJ Pj WALTER HOPKINS & COMPANY, L.LP. Clearfield, Pennsylvania February 20,

108 D CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE Federal Pass Through Grant Period Grantor Program Source CFDA Grantor s Beginning! Title Code Number Number Ending Date U.S. DEPARTMENT OF EDUCATION (Passed through the Pennsylvania Department of Education): Title I Improving Basic Programs Indirect A July 1, 2010/ Sept. 30, 2011 Title I Improving Basic Programs Indirect B May 22, 2009? Sept. 30, 2011 Title I Improving Basic Programs - ARRA Indirect O-0088B May 22, 2009/ Sept. 30, 2011 Title I-A Academic Achievement Indirect A July 7, 2010/ Award Sept. 30, 2011 Title I-A Academic Achievement Indirect B May 22, 2009? Award Sept. 30, 2010 Title I-A Academic Achievement Indirect A July 8, 2008/ Sept. 30, 2009 Title Il-A Improving Teacher Quality Indirect A July 7, 2010/ Sept. 30, 2011 Title Il-A Improving Teacher Quality Indirect B May 22, 2009? Sept. 30, 2010 Title II - Enhancing Education Indirect B May 22, 2009/ through Technology Sept. 30, 2010 Title IV-A Drug-Free Schools Indirect Sept. 9, 2009? Sept. 30, 2010 See Auditor s Report. 57

109 Accrued or Accrued or Total (Deferred) (Deferred) Program or Received Revenue at Revenue Revenue at Award Amount fortheyear JuLy 1, 2010 Recognized Expenditures June30, 2011 $ 921,778 $ 869,572 $ 0 $ 910,082 $ 910,082 $ 40, , , , , , , ,287 81,611 5, ,000 5,000 5,000 7,200 7, ,215 6, ,000 1,956 1, , , , ,118 11, ,690 0 (1,866) 1,866 1, ,600 69,600 52,122 17,478 17, ,237 4,631 8,146 (3,515) (3,515) 0 58

110 CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2011 Federal Pass Through Grant Period Grantor Program Source CFDA Grantor s Beginningl Title Code Number Number Ending Date U.S. DEPARTMENT OF EDUCATION (Continued) (Passed through the Pennsylvania Department of Education): Title VI Rural and Low Income Indirect Oct. 29, 2010! Sept. 30, 2011 Title VI Rural and Low Income Indirect Jan. 7, Sept. 30, 2010 State Fiscal Stabilization Funds -ARRA Indirect July 1,2010! June 30, 2011 State Fiscal Stabilization Funds - ARRA Education Jobs - ARRA Indirect July 1, 2009/ June 30, 2010 Indirect Aug. 10, 2010/ Sept. 30, 2011 Special Education - IDEA Received from Central Intermediate Indirect July 1,2010/ Unit#10 June 30, 2011 Special Education - IDEA Received from Central Intermediate Indirect July 1, 2009/ Unit #10 June 30, 2010 Special Education - IDEA - ARRA Received from Central Intermediate Indirect Feb. 17, 2009! Unit#10 Sept. 30, 2011 TOTAL U.S. DEPARTMENT OF EDUCATION See Auditor s Report. 59

111 Accrued or Accrued or Total (Deferred) (Deferred) Program or Received Revenue at Revenue Revenue at Award Amount for the Year July 1, 2010 Recognized Expenditures June 30, 2011 $ 67,143 $ 67,143 $ 0 $ 67,143 $ 67,143 $ (4,336) 4,336 4, ,458,791 1,458, ,458,791 1,458, ,475, , , , , , , , , , , , , , , ,912 24, , , ,385 $ 5,182,502 $ 1,306,731 $ 4,671,894 $ 4,671,894 $ 796,123 60

112 CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2011 Federal Pass Through Grant Period Grantor Program Source CFDA Grantor s Beginning! Title Code Number Number Ending Date U.S. DEPARTMENT OF AGRICULTURE: (Passed through the Pennsylvania Department of Education): Summer Food Indirect July 1, 2010! June 30, 2011 Summer Food Indirect July 1, 2009/ June 30, 2010 After School Snacks Indirect July 1, 2010/ June 30, 2011 After School Snacks Indirect July 1, 2009/ June 30, 2010 Lunch HI/LOW Indirect July 1, 2010! June 30, 2011 Lunch Hl/LOW Indirect July 1, 2009/ June 30, 2010 Fresh Fruit & Vegetable Indirect July 1,2010/ June 30, 2011 Fresh Fruit & Vegetable Indirect July 1,2009/ June 30, 2010 Severe Need Breakfast Indirect July 1, 2010/ June 30, 2011 Severe Need Breakfast Indirect July 1, 2009! June 30, 2010 NSLP Equipment-ARRA Indirect July 1,2009/ June 30, 2010 NSLP Equipment-ARRA Indirect July 1, 2009/ June 30, 2010 See Auditor s Report. 61

113 Accwed Accrued or Total (Deferred) (Deferred) Program or Received Revenue at Revenue Revenue at Award Amount for the Year July 1, 2010 Recognized Expenditures June 30, 2011 N/A $ 26,594 $ 0 $ 38,664 $ 38,664 $ 12,070 N/A 8,914 8, N/A 2, ,855 2, N/A N/A 452, , ,425 78,977 N/A 83,779 83, N/A 38, ,108 45,108 6,532 N/A 2,836 2, N/A 106, , ,253 20,576 N/A 21,216 21, N/A (383) (383) N/A (383) (383)

114 CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2011 Federal Pass Through Grant Period Grantor Program Source CFDA Grantor s Beginning) Title Code Number Number Ending Date Food Nutrition Service - Lunch Indirect N/A July 1, June 30, 2011 Food Nutrition Service - Lunch Food Nutrition Service - Breakfast-Needy Food Nutrition Service - Breakfast-Needy Indirect N/A July / June 30, 2010 Indirect N/A July 1, 2010/ June 30, 2011 Indirect N/A July 1, 2009/ June 30, 2010 (Passed through the Pennsylvania Department of Agriculture) National School Lunch Program Indirect July 1, 2010/ June 30, 2011 TOTAL U.S. DEPARTMENT OF AGRICULTURE U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES: (Passed through Pennsylvania Department of Public Welfare) July 1, 2010/ Medical Assistance Indirect June 30, 2011 TOTAL U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES TOTAL FEDERAL FINANCIAL ASSISTANCE Footnotes: (a) Total amount of commodities received from Department of Agriculture. (b) Beginning inventory at July 1. (c) Total amount of commodities used. (d) Ending inventory at June 30. (1) State expenditure. See Auditor s Report. 63

115 Program or Award Amount Total Received for the Year Accrued or Accrued or (Deferred) (Deferred) Revenue at Revenue Revenue at July 1,2010 Recognized Expenditures June 30, 2011 N!A 34,611 0 (1) 40,701 (1) 40,701 6,090 N/A 6,331 6, N/A 7,150 0 (1) 8537 (1) 8,537 1,387 N/A 1,433 1, N/A (a) 75,850 (b) 0 (c) 75,850 (c) 75,850 (d) 0 868, , , , ,780 N/A 20, ,404 20, , ,404 20,404 $ 6,071,303 $ 1,430,515 $ 5,562,691 $ 5,562,691 0 $ 921,903 64

116 CLEARFIELD AREA SCHOOL DISTRICT Clearfleld, Pennsylvania NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS JUNE 30, 2011 NOTE 1 SIGN IFICANT ACCOUNTING POLICIES: The accompanying schedule of expenditures of federal awards includes the federal grant activity of the Clearfield Area School District and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of 0MB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the general purpose financial statements. NOTE 2 STATE MATCHING FUNDS: State matching funds for the National School Lunch Program are included in the Schedule of Federal Financial Assistance at the request of the Pennsylvania Department of Education. NOTE 3- USDA COMMODITIES: Nonmonetary assistance is reported in the Schedule at the fair market value of the USDA commodities received and disbursed. NOTE 4 RELATIONSHIP TO FEDERAL FINANCIAL REPORTS: Amounts reported in the accompanying schedule agree with the amounts reported in the related federal financial report. NOTE 5 FEDERAL FINANCIAL ASSISTANCE SUBJECT TO THE 25% RULE: The amount expended under federal financial assistance programs subject to the 25% rule was 79.50% percent and was calculated as follows: a. Amount expended under CFDA# ; ; ; ; ; and $ b. Total federal financial assistance (which does not include the state lunch program of $49,238) $ c. Percent of a. divided by b % 65

117 CFDA CLEARFIELD AREA SCHOOL DISTRICT Clearfield, Pennsylvania SCHEDULE OF FINDINGS AND QUESTIONED COSTS JUNE A. SUMMARY OF AUDIT RESULTS 1. The auditor s report expresses an unqualified opinion on the financial statements of the Clearfield Area School District. 2. No reportable conditions relating to the audit of the financial statements are reported in the Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards. 3. No instances of noncompliance material to the financial statements of the Clearfield Area School District were disclosed during the audit. 4. No reportable conditions relating to the audit of the major federal award programs are reported in the Independent Auditor s Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with 0MB Circular A-I The auditor s report on compliance for the major federal award programs for the Clearfield Area School District expresses an unqualified opinion. 6. No audit findings relative to the major federal award programs for the Clearfield Area School District were disclosed during the audit. 7. The programs tested as major programs were: I) Title I Improving Basic Programs (including ARRA) and Academic Achievement Award CFDA # and # ) State Fiscal Stabilization Funds ARRA 3) Education Jobs Funding ARRA CFDA.# # ) Special Education IDEA (including ARRA) CFDA # and # The threshold for distinguishing type A and B programs was $300, The Clearfield Area School District was determined to be a low risk auditee. B. FINDINGS FINANCIAL STATEMENTS AUDIT None 66

118 C. FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS AUDIT 1) Title I Improving Basic Programs (including ARRA) and Academic Achievement Award CFDA # and # ) State Fiscal Stabilization Funds ARRA CFDA # ) Education Jobs Funding ARRA-- CFDA# ) Special Education IDEA (including ARRA) CFDA#84027 and # None 67