OFFICIAL STATEMENT dated December 16, 2009 BONDS ARE NOT BANK QUALIFIED

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1 OFFICIAL STATEMENT dated December 16, 2009 NEW ISSUE BONDS ARE NOT BANK QUALIFIED BOOK-ENTRY ONLY MOODY S RATINGS: District: A1 Washington State School District Credit Enhancement Program: Aa1 (See Ratings and Appendix C - Washington State School District Credit Enhancement Program herein.) In the opinion of Bond Counsel, under existing federal law and assuming compliance by the District with applicable requirements of the Internal Revenue Code of 1986, as amended (the Code ), that must be satisfied subsequent to the issue date of the Bonds, interest on the Bonds is excluded from gross income for federal income tax purposes and is not subject to the federal alternative minimum tax. However, interest on the Bonds received by certain S corporations may be subject to tax, and interest on the Bonds received by foreign corporations with United States branches may be subject to a foreign branch profits tax. Receipt of interest on the Bonds may have other federal tax consequences for certain taxpayers. (See Tax Exemption and Certain Other Federal Tax Consequences herein.) SUMNER SCHOOL DISTRICT NO. 320 PIERCE COUNTY, WASHINGTON $40,961,211 UNLIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2010A (TAX-EXEMPT) DATED: Date of Delivery (Expected to be January 6, 2010) DUE: December 1, as shown on the inside cover Sumner School District No. 320, Pierce County, Washington (the District ) provides this Official Statement in connection with the issuance of Unlimited Tax General Obligation Bonds, Series 2010A (Tax-Exempt) (the Bonds ). The Bonds mature on December 1, in each of the years and amounts set forth on the inside cover, subject to optional redemption as hereinafter described, and will bear interest from their Date of Delivery to their respective maturities or date of prior redemption at the rates per annum as shown on the inside cover. The District sold its Unlimited Tax General Obligation Bonds, Series 2009B (Taxable Qualified School Construction Bonds - Tax Credit) (the Series 2009B Bonds ) in a separate offering, expected to close on December 29, The Bonds will be issued as fully registered bonds under a book-entry system, initially registered to Cede & Co., as nominee of The Depository Trust Company ( DTC ), New York, New York, which will act as securities depository for the Bonds. Individual purchases of the Bonds will be made in the principal amount of $5,000, or integral multiples thereof within a single maturity except that one Bond maturing in 2010 will be in the denomination of $5,000 or any integral multiple thereof plus $1,211. The purchasers will not receive certificates representing their interest in the Bonds, as long as the Bonds are in book-entry form. Interest will be payable semiannually on December 1 and June 1, commencing June 1, The Washington State Fiscal Agent, currently The Bank of New York Mellon, New York, New York, will serve as registrar, paying agent and transfer agent (the Registrar ) for the Bonds. For so long as the Bonds are held by DTC in book-entry format, principal and interest payments will be made as described herein, see The Bonds - Book-Entry System. The Bonds constitute valid and legally binding general obligations of the District. For as long as any of the Bonds are outstanding, the District has irrevocably pledged to levy taxes annually without limitation as to rate or amount on all of the taxable property within the District in an amount sufficient, together with other money legally available and to be used therefor, to pay when due the principal of and interest on the Bonds, and the full faith, credit and resources of the District have been pledged irrevocably for the annual levy and collection of those taxes and the prompt payment of that principal and interest. The Bonds do not constitute a debt or indebtedness of Pierce County (the County ), the State of Washington (the State ), or any political subdivision thereof other than the District. The proceeds of the Bonds will be used for the purpose of paying costs to: reconstruct and modernize Lakeridge Middle School; acquire land for future school sites; modernize Sumner High School and modernize Victor Falls, Bonney Lake and Maple Lawn Elementary Schools and Sumner Middle School (the Projects ); and issue, sell and deliver the Bonds. The Bonds are subject to redemption prior to their stated maturity dates. (See The Bonds Redemption and Purchase, - Authorization, - Security and - Purpose and Use of Proceeds herein.) The District has not designated the Bonds as qualified tax-exempt obligations within the meaning of Section 265(b)(3)(B) of the Code. See Certain Other Federal Tax Consequences herein. Payment of principal of and interest on the Bonds when due is guaranteed by the full faith, credit, and taxing power of the STATE OF WASHINGTON under the provisions of the Washington State School District Credit Enhancement Program. See Appendix C attached hereto and titled WASHINGTON STATE SCHOOL DISTRICT CREDIT ENHANCEMENT PROGRAM. The Bonds are offered by the Underwriter when, as and if issued by the District, subject to the opinion as to legality and tax exemption of the Bonds by Foster Pepper PLLC, Seattle, Washington, Bond Counsel. The Bonds, in book-entry form, are expected to be available through the facilities of DTC for delivery by Fast Automated Securities Transfer on or about January 6, 2010, (the Date of Delivery ). This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire official statement to obtain information essential to making an informed investment decision. D.A. DAVIDSON & CO.

2 SUMNER SCHOOL DISTRICT NO. 320 PIERCE COUNTY, WASHINGTON $40,961,211 UNLIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2010A (TAX-EXEMPT) Year MATURITY SCHEDULE DATED: Date of Delivery (estimated to be January 6, 2010) DUE: December 1, as shown below Amount Interest Rate Yield Price (% of Par) CUSIP No $ 1,006, % 0.350% % TM ,200, UA , TN , UB , TP , UC , TQ , TR ,075, TS ,505, TT ,975, TU ,500, TV ,100, UD ,275, TW ,000, TX ,135, UE ,125, TY ,925, TZ5 1 CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services. The CUSIP numbers are included above for convenience of the holders and potential holders of the Bonds. No assurance can be given that the CUSIP numbers for the Bonds will remain the same after the date of issuance and delivery of the Bonds. 2 Bifurcated maturity. 3 Bonds priced to the call date of December 1, i

3 SUMNER SCHOOL DISTRICT NO. 320 PIERCE COUNTY, WASHINGTON 1202 Wood Avenue Sumner, Washington (253) * Officials of the District: Board of Directors...Greg Hanon, President Mike Pavlik, Vice President Jeff DeMarre Rick Hendricks Sherm Voiles Superintendent... Dr. Gilbert A. Mendoza Assistant Superintendent, Administrative Services...Craig Spencer Executive Director of Business Services... Debbie Campbell Certain Pierce County Officials: Assessor/Treasurer...Dale Washam Director of Budget and Finance and ex officio Treasurer of the District... Patrick L. Kenney Underwriter D. A. DAVIDSON & CO. Columbia Center th Avenue, Suite 3100 Seattle, Washington (206) Bond Counsel FOSTER PEPPER PLLC 1111 Third Avenue, Suite 3400 Seattle, Washington (206) * Neither the information on the District s website nor any links from that website are a part of this Official Statement, and such information cannot be relied upon to be accurate as of the date of this Official Statement, nor should any such information be relied upon to make investment decisions regarding the Bonds. ii

4 No dealer, broker, salesman or other person has been authorized by the District to give any information or to make any representations, other than those contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the District. The information in this Official Statement was obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. The Underwriter has reviewed the information in the Official Statement in accordance with, as a part of, its responsibilities under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of the information. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale hereunder shall create any implication that there has been no change in the financial condition or operations of the District described herein since the date hereof. This Official Statement contains, in part, estimates and matters of opinion that are not intended as statements of fact, and no representation or warranty is made as to the correctness of such estimates and opinions or that they will be realized. The following descriptions of the Bonds and Bond Resolution (as defined herein) and all references to other documents or materials not claiming to be quoted in full are only brief outlines of some of the provisions and do not claim to summarize or describe all provisions thereof. Copies of such documents may be obtained from the District or the Underwriter. THE BONDS WILL NOT BE REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. In connection with the offering and issuance of the Bonds, the Underwriter may over-allot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, projection, budget or other similar words. iii

5 TABLE OF CONTENTS SUMMARY STATEMENT...1 AUTHORITY...1 THE BONDS...2 Description of the Bonds...2 Redemption and Purchase...2 Book-Entry System...3 Authorization...5 Purpose and Use of Proceeds...5 Security...6 Statutory Debt Limitations...6 WASHINGTON SCHOOL DISTRICT BUDGETING AND FINANCING...8 General Information...8 State Funding...8 Maintenance and Operation, Capital Projects and Transportation Vehicle Levies...9 PROPERTY TAX LIMITATION AND PROCEDURES...9 Regular Property Tax Limitations...9 Property Tax Levy Procedures...10 DISTRICT FINANCIAL INFORMATION...11 Debt Summary...11 Future Financing...11 Debt Repayment Record...12 General Obligation Debt Ratios...12 Direct Debt and Estimated Overlapping General Obligation Debt...12 Calculation of Debt Capacity...13 Schedule of Unlimited Tax General Obligation Bond Debt Service...14 Trends in Assessed Valuations...15 Tax Levies...15 Property Tax Collections...16 Major Taxpayers...17 Accounting Policies...17 Fund Accounting...18 Financial Reporting...18 Auditing...18 Historical and Budgeted General Fund and Debt Service Fund Operating Results...20 Authorized Investments...21 Local Government Investment Pool...22 Authorized Investments for Bond Proceeds...22 THE DISTRICT...23 General Information...23 Form of Local Government and Governing Officials...23 Facilities...24 Enrollment Trends...24 Employment and Labor Relations...25 Risk Management...25 Pension System...26 APPROVAL OF BOND COUNSEL...27 TAX EXEMPTION...27 iv

6 CERTAIN OTHER FEDERAL TAX CONSEQUENCES...28 LITIGATION...29 UNDERWRITING...29 RATINGS...29 NO CONFLICTS OF INTEREST...29 COMMITMENT TO PROVIDE CONTINUING DISCLOSURE...30 ADDITIONAL INFORMATION AND MISCELLANEOUS...30 OFFICIAL STATEMENT CERTIFICATE...30 APPROVAL OF OFFICIAL STATEMENT...30 APPENDIX A ECONOMIC AND DEMOGRAPHIC INFORMATION...A-1 APPENDIX B CONTINUING DISCLOSURE...B-1 APPENDIX C WASHINGTON STATE SCHOOL DISTRICT CREDIT ENHANCEMENT PROGRAM...C-1 APPENDIX D AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED AUGUST 31, D-1 APPENDIX E FORM OF LEGAL OPINION... E-1 v

7 SUMNER SCHOOL DISTRICT NO. 320 PIERCE COUNTY, WASHINGTON $40,961,211 UNLIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2010A (TAX-EXEMPT) SUMMARY STATEMENT The following summary is qualified in its entirety by reference to the detailed information appearing elsewhere in this Official Statement. No person is authorized to detach this Summary Statement from this Official Statement or to otherwise use it without this entire Official Statement. ISSUER...Sumner School District No. 320, Pierce County, Washington (the District ) is located in western Washington. The District encompasses most of the cities of Sumner and Bonney Lake, as well as portions of the cities of Pacific, Puyallup and Edgewood, in Pierce County. The District is located approximately 35 miles south of the City of Seattle and 13 miles east of the City of Tacoma, which serves as the County seat. The District encompasses approximately 38 square miles. An estimated 41,911 residents reside within the District. The District provides instruction to 8,071 students in grades kindergarten through twelve as estimated by the District. (See The District herein.) INTEREST AND REDEMPTION... Interest on the Bonds is payable semiannually each December 1 and June 1, commencing June 1, The Bonds are subject to optional redemption prior to maturity. (See the The Bonds - Description of the Bonds and - Redemption and Purchase herein.) AUTHORITY FOR ISSUANCE... The Bonds will be issued in accordance with the provisions of the Constitution and laws of the State of Washington, particularly chapters 28A.530, and RCW, and pursuant to Resolution No. 7/09-10 of the District (the Bond Resolution ), adopted on December 16, 2009, authorizing the issuance of Bonds. (See The Bonds Authorization. ) SOURCE OF REPAYMENT... The Bonds constitute valid and legally binding general obligations of the District. For as long as any of the Bonds are outstanding, the District has irrevocably pledged to levy taxes annually without limitation as to rate or amount on all of the taxable property within the District in an amount sufficient, together with other money legally available and to be used therefor, to pay when due the principal of and interest on the Bonds, and the full faith, credit and resources of the District have been pledged irrevocably for the annual levy and collection of those taxes and the prompt payment of that principal and interest. Payment of principal of and interest on the Bonds when due is guaranteed by the full faith, credit and taxing power of the State of Washington under the provisions of the Washington State School District Credit Enhancement Program. (See The Bonds - Security and Appendix C - Washington State School District Credit Enhancement Program herein.) USE OF PROCEEDS... The proceeds of the Bonds will be used for the purpose of paying costs to: reconstruct and modernize Lakeridge Middle School; acquire land for future school sites; modernize Sumner High School and modernize Victor Falls, Bonney Lake and Maple Lawn Elementary Schools and Sumner Middle School (the Projects ); and issue, sell and deliver the Bonds. (See The Bonds Purpose and Use of Proceeds herein.) 1

8 THE BONDS Description of the Bonds The Unlimited Tax General Obligation Bonds, Series 2010A (Tax-Exempt) (the Bonds ) will be issued in the aggregate principal amount of $40,961,211, and will be issued in fully registered form, will be in the denomination of $5,000 each or any integral multiples thereof within a single maturity except that one Bond maturing in 2010 will be in the denomination of $5,000 or any integral multiple thereof plus $1,211, and will be dated the Date of Delivery. The Bonds mature on December 1, in the years and amounts set forth on the inside cover hereof. The Washington State Fiscal Agent, currently The Bank of New York Mellon in New York, New York will serve as registrar, paying agent and transfer agent (the Registrar ) for the Bonds. The Bonds will bear interest from their Date of Delivery or the most recent interest payment date to which interest has been paid or duly provided for, whichever is later, at the rates per annum set forth on the inside cover hereof. Interest will be calculated on the basis of a 360-day year consisting of twelve 30-day months, and will be payable semiannually on December 1 and June 1, commencing June 1, 2010, until the date of maturity or date of prior redemption of such Bond. For so long as the Bonds are held by DTC in book-entry form, principal and interest payments will be made as described herein under the heading The Bonds - Book-Entry System. Series 2009B Bonds. The District sold its Unlimited Tax General Obligation Bonds, Series 2009B (Taxable Qualified School Construction Bonds - Tax Credit) (the Series 2009B Bonds ) in the amount of $17,445,000 in a separate offering, expected to close on December 29, Together, the Bonds and the Series 2009B Bonds equal $58,406,211. (See the subheading - Authorization below). Redemption and Purchase Optional Redemption. The Bonds maturing on or before December 1, 2019 are not subject to redemption prior to their stated maturity dates. The Bonds maturing on or after December 1, 2020 are subject to redemption at the option of the District prior to their stated maturity dates at any time on or after December 1, 2019, as a whole or in part (within one or more maturities selected by the District and randomly within a maturity in such a manner as the Bond Registrar shall determine), at a price of par plus accrued interest, if any, to the date of redemption. For so long as the Bonds are in book-entry form, the selection of Bonds within a maturity to be redeemed and the manner of providing notice of redemption to beneficial owners shall be governed by the operational arrangements of DTC, as then in effect. The Bonds in denominations larger than $5,000 may be redeemed in part in any integral multiple of $5,000. Notice of Redemption. For so long as the Bonds are held by DTC in book-entry only form, the Registrar will provide notice of redemption to DTC (or its nominee) as provided in DTC s operational arrangements referred to in the Blanket Issuer Letter of Representations, and the Registrar will not provide such notices to beneficial owners of the Bonds. The Bond Resolution requires that such notice be sent no more than 60 days, nor less than 30 days, before the scheduled redemption date. Bonds will be redeemed pursuant to such notice unless the notice is otherwise modified or canceled. The District reserves the right to rescind any redemption notice as allowed in the Bond Resolution. See The Bonds - Book-Entry System below for a discussion of how redemption notices will be given by DTC to the beneficial owners of the Bonds. The District cannot and does not give any assurances that DTC, its direct participants or others will distribute any redemption notices to the beneficial owners or that they will do so on a timely basis. 2

9 Failure to Redeem Bonds. When so called for redemption, such Bonds shall cease to accrue interest on the specified redemption date provided funds for redemption are on deposit with the Registrar at that time. Such Bonds called for redemption shall not be deemed to be outstanding as of such redemption date provided funds for redemption are on deposit with the Registrar at such time. Purchase of Bonds. The District reserves the right and option to purchase any or all of the Bonds on the open market at any time at any price acceptable to the District, plus accrued interest to the date of purchase. All Bonds so purchased or redeemed will be canceled. Book-Entry System When the Bonds are issued, ownership interest will be available to purchasers only through a book-entry system (the Book-Entry System ) maintained by DTC or such other depository institution designated by the District pursuant to the Bond Resolution. If the Bonds are removed from the Book-Entry System and delivered to the persons named as the registered owners of the Bonds on the registration records maintained by the Registrar (the Registered Owners ) in physical form, as described below, the discussion herein of the Book-Entry System will not apply. The following information has been provided by DTC, and the District makes no representation as to the accuracy or completeness thereof. 1. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such issue, and will be deposited with DTC. 2. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is 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 Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and 3. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their 3

10 purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. 4. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. 6. Redemption notices shall be sent to DTC. If less than all of the Bonds 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. 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the District on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC or the District, 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 the District, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 9. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the District. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. 4

11 10. The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC. 11. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy thereof. Authorization The Bonds will be issued pursuant to the provisions of the Constitution and laws of the State of Washington (the State ), particularly chapters 28A.530, and RCW, Resolution No. 7/09-10 (the Bond Resolution ), adopted by the Board of Directors (the Board ) on December 16, 2009 and the results of an election held within the District. The qualified electors of the District authorized the issuance of $114,406,211 principal amount of unlimited tax general obligation bonds at a special election duly called, noticed and held on May 15, 2007 (the Bond Authorization ). The Bonds, along with the District s Series 2009B Bonds, expected to close December 29, 2009; together constitute the fourth and fifth, and final series of bonds to be issued under the Bond Authorization. The District issued $36,000,000 of the Bond Authorization in 2007, $10,000,000 in 2008 and $10,000,000 in The results of the District s Bond Authorization election were certified by the Pierce County Auditor as follows: No. of Votes % of Votes Yes 4, % No 3, Total 7, % Unlimited tax general obligation bonds, such as the Bonds, require an approving vote, and any election to validate general obligation bonds must have a voter turnout of at least 40% of those who voted in the last State general election. Of those voting, 60% must vote in the affirmative. The ballot title for the Bond Authorization states that the bonds will mature within 20 years. Purpose and Use of Proceeds Proceeds of the Bonds will be used for the purpose of paying costs to: reconstruct and modernize Lakeridge Middle School; acquire land for future school sites; modernize Sumner High School and modernize Victor Falls, Bonney Lake and Maple Lawn Elementary Schools and Sumner Middle School (the Projects ). Bond proceeds will also be used to pay the costs related to the issuance, sale and delivery of the Bonds. 5

12 The sources and application of Bond proceeds are shown in the table that follows. Sources of Funds: The Bonds Proceeds of the Bonds... $40,961,211 Premium... 3,245,509 Total Sources of Funds... $44,206,720 Application of Funds: Deposit to the Capital Projects Fund... $40,961,211 Deposit to Debt Service Fund... 2,910,878 Costs of Issuance of the Bonds ,631 Total Application of Funds $44,206,720 1 Includes Bond Counsel fees, Underwriter s discount, rating agency fees, cost of printing and distributing the Preliminary and final Official Statements, and other related fees and expenses. Security Pledge of Full Faith and Credit. The Bonds constitute valid and legally binding general obligations of the District. For as long as any of the Bonds are outstanding, the District has irrevocably pledged to levy taxes annually without limitation as to rate or amount on all of the taxable property within the District in an amount sufficient, together with other money legally available and to be used therefor, to pay when due the principal of and interest on the Bonds, and the full faith, credit and resources of the District have been pledged irrevocably for the annual levy and collection of those taxes and the prompt payment of that principal and interest. The Bonds do not constitute a debt or indebtedness of Pierce County, the State, or any political subdivision thereof other than the District. Washington State School District Credit Enhancement Program. The payment of principal of and interest on the Bonds when due is guaranteed by the full faith, credit and taxing power of the State under the provisions of the Washington State School District Credit Enhancement Program. (See Appendix C - Washington State School District Credit Enhancement Program for more information.) Statutory Debt Limitations The power of the District to contract debt of any kind is controlled and limited by State law. All debt must be set forth in accordance with detailed budget procedures and paid for out of identifiable receipts and revenues. The budget must be balanced for each fiscal year. It is unlawful for an officer or employee of the District to incur liabilities in excess of budgetary appropriations. Unlimited and Limited General Obligation Debt. The District may issue total indebtedness, including nonvoted and voter-approved debt, in an amount not to exceed 5% of the assessed value of all taxable property within the District. Unlimited tax general obligation bonds, such as the Bonds, require an approving vote, and any election to validate general obligation bonds must have a voter turnout of at least 40% of those who voted in the last State general election. Of those voting, 60% must vote in the affirmative. See The Bonds Authorization. Washington municipal corporations, including the District, are authorized under State law to borrow money and issue short-term obligations, the proceeds of which may be used for any lawful purpose. Short-term obligations may be issued in anticipation of the receipt of revenues, taxes, or grants or the sale of bonds. These short-term obligations will be repaid out of money derived from the source or sources in anticipation of which they were issued or from any money legally available for this purpose. 6

13 RCW 28A authorizes school districts, including the District, to incur long-term indebtedness without a vote of the people through the issuance of bonds, payable out of the District s ordinary revenues. Such bonds may be issued to acquire real or personal property or make structural changes and additions to school facilities, including energy conservation improvements. School districts also are authorized to incur debt by purchasing real or personal property pursuant to a conditional sales (installment purchase) contract and financing leases. In an emergency, school districts may authorize indebtedness outside the current budget. All expenditures for emergency purposes will be paid by warrants from any available money in the fund properly chargeable with such expenditures. If there is insufficient money on hand in the fund, the warrants become registered interest-bearing warrants. In adopting the budget for any fiscal year, the school district s board of directors will appropriate funds to retire any outstanding registered warrants issued since the adoption of the last preceding budget. The amount of all non-voted debt (including limited general obligation bonds, short-term obligations, conditional sales contracts, financing leases and warrants), may not exceed 3/8 of 1% of the assessed value of all taxable property within the District. Although the District currently has no non-voted debt, a portion of the District s Unlimited Tax General Obligation Refunding Bonds, 2005 dated March 1, 2005 (the 2005 UTGO Refunding Bonds ), exceeded the principal amount of bonds they refunded by $2,215,000, which amount must be counted against non-voted debt capacity. As of December 1, 2009, the District has $930,000 of this debt still outstanding. (See District Financial Information Calculation of Debt Capacity herein.) Initiative and Referendum Under the State Constitution, the voters of the State have the ability to initiate legislation and modify existing legislation through the powers of initiative and referendum, respectively. The initiative power in Washington may not be used to amend the State Constitution. Initiatives and referenda are submitted to the voters upon receipt of a petition signed by at least eight percent (initiative) and four percent (referenda) of the number of voters registered and voting for the office of Governor at the preceding regular gubernatorial election. Any law approved in this manner by a majority of the voters may not be amended or repealed by the Legislature within a period of two years following enactment, except by a vote of two-thirds of all members elected to each house of the Legislature. After two years, the law is subject to amendment or repeal by the Legislature in the same manner as other laws. In recent years, the State s voters have approved numerous initiatives and referenda that have limited the District s ability to impose taxes and collect fees. Some, but not all, of these initiatives and referenda have been determined to be unconstitutional. Other tax and fee initiative measures have been and may be filed, but it cannot be predicted whether any such initiatives might gain sufficient signatures to qualify for submission to the Legislature and/or the voters or, if submitted, whether they ultimately would be approved. 7

14 General Information WASHINGTON SCHOOL DISTRICT BUDGETING AND FINANCING School districts in Washington are municipal corporations empowered to provide elementary and secondary educational services. Their operations are supported primarily by state funds, property taxes and federal grants. The District is governed by a board of five directors elected by voters of the District for four-year terms. The chief administrative officer is a superintendent chosen by the Board. School districts in the State receive revenue from three primary sources including 1) State funding, 2) local tax receipts, and 3) federal grants. Of these sources, State funding comprises 65.15% of the District s total operating revenue, local sources comprise 25.97% and federal sources comprise 8.41%, as reported in the District s Budget. State Funding Funding for school districts is described, in part, in RCW 28A ( The Washington Basic Education Act of 1977 ). The State legislature is required to appropriate funds for basic education, student transportation and special education programs for students with disabilities. Legislation passed in 1979 (chapters 28A.165 and 28A.180 RCW) recognized the State s responsibility to fund bilingual and remediation programs. The legislature may also appropriate funds to school districts for population factors, such as urban costs, enrollment fluctuations and for special programs, including, but not limited to, vocational-technical institutes, compensatory programs, bilingual education, urban, rural, racial and disadvantaged programs, programs for gifted students and other special programs. State funding is based primarily upon average fulltime equivalent student enrollment. At each regular session in odd-numbered years, the legislature is required to appropriate monies to the Superintendent of Public Instruction (i) from the State General Fund for the current use of the common schools during the ensuing biennium and (ii) from the Student Achievement Fund and the Education Construction Fund for the support of the Student Achievement Act during the ensuing biennium. Basic Education Allocation. The primary objective of the basic education allocation formula is to equalize educational opportunities among the State s public school districts. The basic education allocation distribution formula is reviewed biennially by the Superintendent of Public Instructions and the Governor of the State (the Governor ). The Governor will and the Superintendent of Public Instruction may, pursuant to RCW 28A , recommend to the legislature a formula based on the ratio of students to staff. Once the legislature adopts a formula, it is used for the distribution of basic education allocation for each annual average full time equivalent student enrolled in a common school. In the event the legislature rejects the distribution formula recommended without adopting a new distribution formula, the distribution formula utilized for the previous school year will remain effective. In the event of an unforeseen emergency, in the nature of either unavoidable costs to a district or unexpected variation in anticipated revenue of the district, the Superintendent of Public Instruction, is authorized, to make an adjustment in the allocation of funds. In addition to the basic education allocation, eligible school districts receive local assistance funds from the State. Eligible school districts are those school districts with an assessed value (for excess levy purposes) per pupil lower than the State average. Commencing in 1999, the 25 percent of school districts with the lowest assessed value per pupil received a larger local assistance allocation than they had in previous years. All other school districts which qualify for local assistance will continue to be funded at the prior rate. The District is eligible for $592,281 in local assistance funds for fiscal year

15 Maintenance and Operation, Capital Projects and Transportation Vehicle Levies A school district s maintenance and operation ( M&O ) levy must be approved by a simple majority the voters of the District. The State Constitution allows school districts to submit M&O levies for up to four years. Once additional tax levies for maintenance and operation purposes have been authorized for a twoyear through four-year period, no further tax levies for maintenance and operation purposes may be authorized within such period of time. In 1997, State legislation was passed that increases a school district s maximum levy limit to 24 percent in 1999 and every year thereafter. The 24 percent limitation is based upon a school district s basic education allocation from the State, adjusted by various factors. RCW outlines the process for deriving a district s levy limit. In April 2006, the qualified electors of the District approved a four-year maintenance and operation levy in the amount of $16,000,000 for collection in 2007, $18,000,000 for collection in 2008, $20,250,000 for collection in 2009 and $22,800,000 for collection in One to two-year transportation vehicle fund levies and one to six-year capital projects fund levies may also be authorized by a school district s voters (RCW and the State constitution). Transportation vehicle levies and capital projects levies require a simple majority approval by voters. The District does not have any authorized transportation vehicle or capital projects levies. By law, taxes levied to pay principal of and interest on unlimited tax general obligation bonds, such as the Bonds, are not available for use in school district operations. Therefore, any possible future decrease in or elimination of the District s M&O (or other levy, if collected in the future) will not impair the security of the Bonds. Regular Property Tax Limitations PROPERTY TAX LIMITATION AND PROCEDURES Generally, Washington municipalities (or taxing districts) have the authority to impose both regular property tax levies and excess property tax levies. Regular property tax levies are imposed without a vote of the people and may be used for the payment of the principal of and interest on non-voted general obligations, for costs of maintenance and operation, or for any other lawful purpose. Washington school districts, however, do not have the authority to impose regular property tax levies. School districts may only impose excess property tax levies upon voter approval. These excess property tax levies may be used to pay principal of and interest on voter-approved debt and/or pay the costs of maintenance and operation, capital improvements and the acquisition of transportation vehicles. The Bonds are voter-approved bonds, and therefore, the principal of and interest on the Bonds are payable from excess property tax levies. Consequently, the following limitations are inapplicable to the property tax levies pledged to repay the Bonds. Regular property tax levies are subject to rate limitations and amount limitations, as described below, and to the uniformity requirement of Article VII, Section 1 of the State Constitution, which specifies that a taxing district must levy the same rate on similarly classified property throughout the district. Aggregate property taxes vary within the counties because of its different overlapping taxing districts. In the event that the maximum permissible levy varies within a district, the lowest permissible rate for any part of such district would be applied to the entire district. 9

16 Regular Property Tax Increase Limitation. Chapter RCW limits the total dollar amount of regular property taxes levied by an individual taxing district to the amount of such taxes levied in the highest of the three most recent years multiplied by a limit factor, plus an adjustment to account for taxes on new construction at the previous year s rate. The limit factor is defined as the lesser of inflation or 101 percent of the highest levy in the three previous years (excluding new construction, improvements, and Stateassessed property). Chapter RCW permits any taxing district to seek voter approval of a tax increase in excess of the levy limit factor. The One Percent Aggregate Regular Levy Limitation. Article VII, Section 2 of the State Constitution limits aggregate regular property tax levies by the State and all taxing districts, except port districts and public utility districts, to one percent (1.00%) of the true and fair value of property. RCW provides the same limitation by statute. $5.90/$1,000 Aggregate Non-Voted Levy Limitation. RCW (2) imposes an aggregate limitation on non-voted tax levies by all taxing districts, except the State, ports and public utility districts, of $5.90/$1,000 of assessed value. RCW provides, in general, that if aggregate levies certified by all taxing districts exceed the aggregate levy limitation, levies certified by junior taxing districts are reduced or eliminated in order to bring the aggregate levy into compliance with statutory maximums. This limit also excludes the regular levies for conservation futures, emergency medical services and affordable housing. Whenever any individual levy code reaches the $5.90/$1,000 limit and a junior taxing district is forced to reduce its levy, it must be reduced uniformly throughout that junior taxing district, because of the uniformity of taxation requirement. Property Tax Levy Procedures Valuations and Assessments of Property for Taxation Purposes. The Pierce County (the County ) Assessor (the Assessor ) determines the value of all real and personal property throughout the County that is subject to ad valorem taxation, except certain utility properties which are valued by the State Department of Revenue. The Assessor is an elected official whose duties and methods of determining value are prescribed and controlled by statute and by detailed regulations promulgated by the State Department of Revenue. For tax purposes, the goal for assessed value of property is 100 percent of its true and fair market value as of January 1 of each year. Three approaches may be used to determine real property value: market data, replacement cost and income generating capacity. In the County, all property is subject to an annual property valuation and an on-site revaluation every six years. The property characteristics and assessed values are listed by the Assessor on the property tax rolls, which are maintained in the Assessor s office. The Assessor s determination of value is subject to revision by the County Board of Equalization and/or by the State Board of Tax Appeals. After all administrative procedures are completed; the values are certified and passed on to the Pierce County Office of Budget and Finance (the County Treasurer ) and the County Board of Equalization. Property Tax Collection Procedures. Property taxes are levied in specific amounts, and the rate for all taxes levied for all taxing districts in each county is determined, calculated, and fixed by the Assessor based upon the assessed valuation of the property within the various taxing districts. The Assessor extends the taxes to be levied within each taxing district upon a property tax roll, which contains the total amount of taxes to be so levied and collected. The property tax roll is delivered to the County Treasurer by January 15, who bills and collects the taxes as certified. All such taxes are due and payable on the 30 th of April of each year; but if the amount due from a taxpayer exceeds fifty dollars, one-half may be paid then and the balance no later 10

17 than October 31 of that year. Delinquent taxes are subject to interest at the rate of one percent per month until paid. In addition, a penalty of three percent will be assessed on June 1 st of the year in which the tax was due; and eight percent on December 1 st of the year the tax was due. The method of giving notice of payment of taxes due, the County Treasurer s accounting for the money collected, the distribution of the taxes among the various taxing districts, notices of delinquency, and collection procedures are all covered by detailed statutes. The lien for property taxes is prior to all other liens or encumbrances of any kind on real or personal property subject to taxation except for federal tax liens. By law, the County Treasurer may commence foreclosure of a tax lien on real property after three years have passed since the first delinquency. The State s courts have not decided whether the Homestead Law (Chapter 6.13 RCW) may give the occupying homeowner a right to retain the first $125,000 of proceeds of the forced sale of the family residence or other homestead property for delinquent general property taxes. (See Algona vs. Sharp, 30 Wn. App. 837, P.2d 627 (1982), holding the homestead right superior to the improvement district assessment). The United States Bankruptcy Count for the Western District of Washington has held that the Homestead Exemption applies to the lien for property taxes, while the State Attorney General has taken the position that it does not. Debt Summary DISTRICT FINANCIAL INFORMATION The following table presents a summary of certain District debt factors as of December 31, 2009, adjusted to include the Bonds and the District s Series 2009B Bonds. See the subheading - Future Financing below Population Estimate... 41, Bond Assessed Valuation... $6,061,487,450 Direct Debt Outstanding (including the Series 2009B Bonds)... $161,461,211 1 Estimated Overlapping Debt Outstanding... $ 35,912,632 2 Direct and Estimated Overlapping Debt Outstanding... $197,373,843 Remaining Non-Voted General Obligation Debt Capacity... $21,800,578 Remaining Total General Obligation Debt Capacity... $143,006,569 1 See District Financial Information - Direct Debt and Estimated Overlapping General Obligation Debt and Schedule of Unlimited Tax General Obligation Bond Debt Service herein. 2 As of September 30, Future Financing Simultaneously with the sale of the Bonds, the District sold its Unlimited Tax General Obligation Bonds, Series 2009B (Taxable Qualified School Construction Bonds - Tax Credit) in a separate offering in the amount of $17,445,000, expected to close on December 29, The Bonds and the Series 2009B Bonds constitute the remainder of the District s 2007 Bond Authorization. See The Bonds Authorization. The District anticipates that it may from time to time issue additional limited and unlimited tax general obligation bonds to finance capital improvements. However, following the issuance of the Bonds and the Series 2009B Bonds, the District will have no authorized but unissued bonds, and currently has no plans to seek authorization from the District s voters for additional capital projects within the next year. 11

18 Debt Repayment Record The District has never defaulted on a payment of principal or interest on any of its bonds or obligations. Furthermore, the District has never issued refunding bonds for the purpose of avoiding an impending default. General Obligation Debt Ratios Assessed Valuation Per Capita...$144,628 Direct Debt Per Capita... $3,852 1 Direct and Estimated Overlapping Debt Per Capita... $4,709 1 Direct Debt to Assessed Valuation % 1 Direct and Estimated Overlapping Debt to Assessed Valuation % 1 1 See District Financial Information - Direct Debt and Estimated Overlapping General Obligation Debt and - Schedule of Unlimited Tax General Obligation Bond Debt Service herein. Direct Debt and Estimated Overlapping General Obligation Debt The following information sets forth the general obligation indebtedness of the District as of December 31, 2009 (adjusted to reflect the issuance of the Bonds and the Series 2009B Bonds), and of taxing entities with boundaries that overlap with the District as of September 30, The District currently has no non-voted debt, however, the principal amount of the District s 2005 UTGO Refunding Bonds exceeded the principal amount of the bonds they refunded. As of December 31, 2009, $930,000 of that excess principal remains outstanding and must be counted against non-voted debt capacity. (See the subheading - Calculation of Debt Capacity herein.) Direct Debt of the District: Voted General Obligation Debt Outstanding Maturity Amount Outstanding 2000 UTGO Bonds 12/01/10 $ 1,255, UTGO Bonds 06/01/22 9,000, UTGO Refunding Bonds 12/01/15 12,990, UTGO Refunding Bonds 12/01/19 26,435, UTGO Bonds 12/01/27 33,600, UTGO Bonds 12/01/28 9,775, UTGO Bonds 12/01/28 10,000,000 The Series 2009B Bonds 1 12/01/24 17,445,000 The Bonds 12/01/25 40,961,211 Total Voted Debt $161,461,211 Non-Voted General Obligation Debt Outstanding Maturity Amount Outstanding None 2 -- $ 0 Total Non-Voted Debt $ 0 Total District Debt $161,461,211 1 The District sold its Unlimited Tax General Obligation Bonds, Series 2009B (Taxable Qualified School Construction Bonds-Tax Credit) in the amount of $17,445,000, expected to close December 29, See the subheadings - Direct Debt and Estimated Overlapping and General Obligation Debt and - Calculation of Debt Capacity for a discussion of certain debt to be counted against non-voted debt capacity. 12

19 Estimated Overlapping General Obligation Debt (as of 9/30/09): Taxing Entity GO Debt Outstanding Percent Overlapping Amount of Overlap City of Pacific 1 $ 277, % $ 68,091 City of Sumner 4,430, ,230,321 City of Bonney Lake 10,695, ,821,048 City of Puyallup 56,135, ,347 City of Edgewood 5,115, ,825 Valley Regional Fire Authority 19,800, ,596 Fire District No , ,705 King County Library District 57,850, ,733 Port of Tacoma 204,505, ,851,985 Pierce County 143,258, ,002,981 Total Estimated Overlapping Debt... $ 35,912,632 Total Direct and Estimated Overlapping General Obligation Debt... $197,373,843 1 Estimated. Source: Pierce County Assessor s and Treasurer s Offices and certain taxing districts. Calculation of Debt Capacity Washington municipalities, including the District, are limited by Constitution and statute as to the amount of indebtedness they may incur. (See The Bonds - Statutory Debt Limitations herein.) The following chart provides the remaining debt capacity for voted and non-voted general obligation debt as of December 2, The 2009 Bond Assessed Valuation for the District is $6,061,487,450. I. Non-Voted General Obligation Debt Capacity (3/8 of 1.0% of Assessed Valuation)... $22,730,578 Less: Remaining principal amount of 2005 UTGO Refunding Bonds in excess of the bonds they refunded... (930,000) 1 Remaining Non-Voted General Obligation Debt Capacity... $21,800,578 Percent of Non-Voted Debt Capacity Remaining % II. Total General Obligation Debt Capacity (5.0% of Assessed Valuation)... $303,074,373 Less: Voted G.O. Bonds Outstanding (including the Bonds and the Series 2009B Bonds)...(161,461,211) 2 Less: Non-Voted G.O. Debt Outstanding...0 Plus: Cash and Investments in Debt Service Fund... 1,393,407 3 Remaining General Obligation Debt Capacity...$143,006,569 Percent of Total Debt Capacity Remaining % 1 The remaining principal amount of the 2005 UTGO Refunding Bonds issued in excess of the principal amount of bonds refunded must be counted against non-voted debt capacity. (See Debt Limitations above.) 2 See District Financial Information - Direct Debt and Estimated Overlapping General Obligation Debt and Schedule of Unlimited Tax General Obligation Bond Debt Service herein. 3 The balance in the Debt Service Fund as of December 2, Source: Pierce County Assessor s and Treasurer s Offices. 13

20 Schedule of Unlimited Tax General Obligation Bond Debt Service In addition to the Bonds, the District has outstanding Unlimited Tax General Obligation Bonds as identified under District Financial Information Direct Debt and Estimated Overlapping General Obligation Debt, which, excluding the Bonds and the Series 2009B Bonds, shall be referenced as the Outstanding Bonds. Set forth in the following table is the aggregate debt service schedule for the Outstanding Bonds for each of the years as listed as of the date of issuance of the Bonds and a debt service schedule for the Bonds and the District s Series 2009B Bonds. (Figures below may be rounded and may not foot.) Outstanding Bonds Series 2009B Bonds 1 Series 2010A Bonds Sinking Fund Principal 1 Interest 1 Principal Interest Total UTGO Debt Service Year Principal Interest 2010 $ 4,175,000 $ 4,654, $ 279,934 $ 1,006,211 $ 1,589,644 $ 11,705, ,475,000 4,480, ,543 1,200,000 1,730,650 11,189, ,610,000 4,347, , ,000 1,706,650 10,347, ,735,000 4,213, , ,000 1,697,150 10,648, ,935,000 4,045, , ,679,450 10,963, ,055,000 3,830, , ,000 1,679,450 11,253, ,340,000 3,603, , ,000 1,669,825 11,591, ,560,000 3,342, ,543 1,075,000 1,651,263 11,932, ,730,000 3,123, ,543 1,505,000 1,608,262 12,269, ,915,000 2,892, ,543 1,975,000 1,548,063 12,634, ,000,000 2,602, ,543 7,600,000 1,469,062 12,974, ,000,000 2,556, ,543 8,275,000 1,145,937 13,281, ,000,000 2,510, ,543 9,135, ,250 13,743, ,487,650 $ 5,800, ,543 5,125, ,500 14,068, ,487,650 11,645, , ,250 14,532, ,000,000 2,487, ,925,000 96,250 16,508, ,280,000 1,925, ,205, ,320,000 1,300, ,620, ,925, , ,478,875 Total $103,055,000 $57,445,113 $17,445,000 $4,529,536 $40,961,211 $20,514,656 $243,950,516 1 The District s Unlimited Tax General Obligation Bonds, Series 2009B (Taxable Qualified School Construction Bonds -Tax Credit) were sold in a separate offering, expected to close December 29, Principal amounts shown in 2023 and 2024 for the Series 2009B Bonds are the estimated deposits to be made into a Sinking Fund. Source: The District. 14

21 Trends in Assessed Valuations Set forth in the following table are the historical and current assessed valuation of taxable property located within the District. Assessed valuation within the District ( Bond Assessed Valuation ) is based upon 100% of estimated actual valuation, less senior citizens exemptions, plus timber assessed value (TAV ), if any. The District s TAV for tax year 2009 was $5,503,972. Tax Year Bond Assessed Valuation Percent Change 2009 $6,061,487, % ,878,558, ,103,224, ,953,145, ,214,648, Source: Pierce County Assessor s Office. Tax Levies The following table shows the representative consolidated ad valorem tax levy rates in dollars per $1,000 of assessed value for property located in the District for the tax year The overlapping taxing districts within the District have the statutory power to levy regular property taxes at the following rates, subject to limitation and levy excess voter approved property taxes. The levy rates shown below are for tax code area No. 35 of the District in the City of Bonney Lake. The rates shown are not for all property within the District; therefore, there are additional taxing district levy taxes within the District, but not shown below. (See Property Tax Limitation and Procedures herein.) Consolidated levies vary throughout the District. Taxing District Levy Rate Maximum Statutory Regular Levy State Schools 1 $ $ Pierce County City of Bonney Lake The District Port of Tacoma EMS Fire District No Rural Library District Total $ $ The levy by the State may not exceed $3.60 per $1,000 assessed value adjusted to the State equalized value in accordance with the indicated ratio fixed by the State Department of Revenue to be used exclusively for the support of the common schools to equalize the assessment base as between counties with different appraisal schedules. 2 A county may increase its levy from $1.80/$1,000 to a rate not to exceed $2.475/$1,000 for general county purposes if (a) the total levies for both the county and any road district within the county do not exceed $4.05/$1,000 and (b) no other taxing district has its levy reduced as a result of the increase county levy. 3 The regular levy is limited to $3.375/1,000 plus an additional $0.225/$1,000 for any city with firefighter pension obligations, or for any city that is annexed into a library district or fire district. EMS levies must be approved by a supermajority of the voters every six or ten years or, if permanent, must be subject to referendum. 4 School districts are not authorized to impose non-voted regular property tax levies. School district levies are voted excess levies and, as such, are not subject to the rate and amount limitations applicable to regular property tax levies. 5 Port districts are authorized to impose independent $0.45/$1,000 levies under RCW , , , and , after complying with various voter approval, notice, public hearing or other requirements that differ depending on the statute. Port district levies are outside of the aggregate rate limitations. Source: Pierce County Assessor s Office. 15

22 Property Tax Collections Set forth in the following tables are the total ad valorem excess property tax levy rates, amounts and collections for the District for tax collection years 2005 through The following is provided to show recent trends in the change and collection of property taxes within the District. Property taxes are due and payable on April 30 of each year succeeding the levy. The entire tax or first half must be paid on or before April 30, and if not paid on a timely basis, the total amount becomes delinquent on May 1. The second half of the tax, if the total taxes due for the taxpayer is more than $50.00, is payable on or before October 31, becoming delinquent on November 1. Ad Valorem Levy Amounts of the District Tax Collection Levy Rate Per $1,000 Year M&O Bond Total 2009 $2.38 $1.71 $ Tax Collection Levy Amount Year M&O Bond Total 2009 $14,403,982 $10,333,825 $24,737, ,319,753 8,899,212 22,218, ,246,448 8,721,623 20,968, ,392,917 8,971,824 20,364, ,071,744 8,994,391 19,066,135 Source: Pierce County Treasurer s Office. Ad Valorem Tax Collection Record of the District Taxes Collected Year of Levy Taxes Collected as of September 30, 2009 Tax Collection Year Amount Percent Amount Percent $12,821, % $12,821, % ,348, ,828, ,321, ,812, ,776, ,343, ,496, ,059, Full year of tax collections not yet available. Source: Pierce County Treasurer s Office. 16

23 Major Taxpayers The following table lists the ten largest taxpayers within the District on the basis of their 2009 Bond Assessed Valuation. Assessed Taxpayer Nature of Business Valuation Costco Wholesale Corp. Wholesale Membership Club $ 52,835,234 Recreational Equipment Inc. Outdoor Equipment 41,176,275 SBP Snoqualmie LLC Sumner Corporate Park Building 29,356,400 Wal-Mart Stores Inc. #2403 Retail 29,129,233 Rainier Land Holdings LLC Residential Subdivision 28,689,500 Fred Meyer Stores Inc. #615 Retail 28,216,700 Reef LLC General Contractor 27,726,400 Morecop-270 & Manekin-270 Associates LLC Technology 25,412,800 Lit Industrial L.P. Commercial Property 24,159,700 SBP Rainier LLC Sumner Corporate Park Building 22,596,800 Total $309,299, This amount represents 5.10% of the total 2009 Bond Assessed Valuation of the District of $6,061,487,450. Source: Pierce County Assessor's Office. Accounting Policies The District s accounting policies conform to the Accounting Manual for Public School Districts in the State of Washington, issued jointly by the State Auditor and the Superintendent of Public Instruction, by the authority of RCW , RCW 28A , RCW 28A (1) and RCW 28A School districts either utilize Generally Accepted Accounting Principles ( GAAP ) or an Other Comprehensive Basis of Accounting ( OCBOA ) that differs from GAAP. Financial statements for school districts in the State fall into one of three categories: (i) Unqualified GAAP-districts that issue GAAP financial statements that include the General Fixed Asset Account group; (ii) OCBOA- districts that issue GAAP financial statements except that the General Fixed Asset Group, district-wide financial statements and the original budget are not presented; debt is reported in the notes to financial statements; and management discussion and analysis are not reported; and (iii) OCBOA-districts with less than 1,000 FTE students for the preceding fiscal year may issue cash basis financial statements. The District prepares its financial report utilizing OCBOA, which differs from GAAP, as the District elects to not present district wide financial statements, not present management s discussion and analysis, and long-term debt is reported on a required supplementary schedule. All governmental and expendable trust funds are accounted for on a spending or financial flow measurement focus. This means that only current assets and current liabilities are included on their balance sheets. The modified accrual basis of accounting is used for all governmental and expendable trust funds. Revenues are recognized when they become measurable and available. Property taxes receivable are measurable but not available and are, therefore, not accrued. However, categorical program claims and inter-district billings are measurable and available and are, therefore, accrued. Expenditures are recognized under the modified accrual basis of accounting when the related fund liability is incurred. The fund liability is incurred when the goods or services have been received. The one exception is the recognition of principal of and interest on long-term debt which is recognized when due. 17

24 Fund Accounting The accounts of the District are organized on the basis of funds and account groups, each of which is a separate accounting entity. The operations of each fund are accounted for with a separate set of selfbalancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. The various funds are grouped into governmental funds as follows: (i) (ii) General Fund. This fund is used to account for all expendable financial resources, except those required to be accounted for in another fund. Debt Service Fund. This fund is used to account for revenue sources that are legally restricted for the payment of general long-term debt principal, interest and related expenditures. (iii) Capital Projects Fund. This fund is used to account for resources set aside for the acquisition and construction of capital assets. It includes net rental income and net proceeds from the sale of real property and State grants for construction of school facilities. Nonrefunding bond proceeds to finance the acquisition and construction of capital assets are deposited into this fund and disbursed during construction periods. (iv) Transportation Vehicle Fund. This fund is used to account for expenditures related to student transportation equipment. (v) Special Revenue Funds. These funds account for the proceeds of specific revenue sources that are legally restricted for specific purposes. The Associated Student Body program Fund (ASB Fund) is the only fund of this type. This fund is accounted for as a special revenue fund since the financial resources legally belong to the district. Financial Reporting The financial statement of the District is prepared in accordance with OCBOA, which differs from GAAP, as the District elects to not present district wide financial statements, not present management s discussion and analysis, and long-term debt is reported on a required supplementary schedule. (See District Financial Information - Accounting Policies above). The accounts of the District are organized on the basis of funds, each of which is considered a separate accounting entity. The regulatory agencies require all fund be presented as major funds. The operations of each fund are accounted for with a separate set of selfbalancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures, as appropriate. Auditing The State Auditor is required to examine the financial affairs of school districts. School districts are audited annually or biennially depending on their size and whether or not they receive certain federal funding. Additionally, annual audits may be conducted at the request of a school district or the State. The District is audited annually. The examination must include, among other things, the financial conditions and resources of the school district, compliance with the State constitution and laws, and the methods and accuracy of the accounts and reports of the school district. Reports of the auditor s examinations are required to be filed in the office of the State Auditor and in the auditing department of the school district. The audited financial statements of the District for the year ended August 31, 2008 are incorporated by reference and are attached as Appendix D hereto. 18

25 The Budgetary Process General Budgetary Policies. Chapter 28A.505 RCW and Chapter Washington Administrative Code mandate school district budget policies and procedures. The budget is adopted by the board of directors after a public hearing. An appropriation is a prerequisite to expenditure. Appropriations lapse at the end of the fiscal period. Budgetary Basis of Accounting. For budget and accounting purposes, revenues and expenditures are accounted for on the modified accrual basis as prescribed by law for all governmental funds. Fund balance is budgeted as available resources and, pursuant to law, the budgeted ending fund balance cannot be negative. Encumbrances. Encumbrance accounting is employed in governmental funds. Purchase orders, contracts and other commitments for the expenditure of moneys are recorded in order to reserve a portion of the applicable appropriation. Encumbrances are closed at the end of the fiscal year and reopened the following year. (Remainder of this page intentionally left blank.) 19

26 Historical and Budgeted General Fund and Debt Service Fund Operating Results The following financial information was extracted from the District s annual audited financial statements for the fiscal years ending August 31, 2005 through 2008, preliminary 2009 figures and the 2010 Budget. Additional information which may interpret, clarify or modify the data presented below may be contained in the complete financial audits, including the accompanying footnotes in those documents, which may be obtained by contacting the District. Statement of Revenues, Expenditures and Changes in General Fund Balance. Revenues: Local Funds State Funds Federal Funds Other Total Revenues Fiscal Year Ending August Audited Audited Audited Audited Preliminary 2004/ / / / /09 Budget 2009/10 $13,421,343 $14,954,194 $16,115,129 $17,050,178 $18,108,617 $19,669,188 41,256,482 43,809,604 46,532,974 49,417,348 49,111,543 49, ,119,195 3,426,805 3,245,163 3,741,661 7,308,043 6,371, , , , ,378 $57,797,021 $62,190,602 $66,193,145 $70,571,651 $75,097,257 $75,738,805 Expenditures: Regular Instruction $32,176,887 $34,944,489 $37,585,239 $38,166,537 $37,912,856 $43,770,843 Federal Stimulus ,556,708 1,987,254 Special Education 5,046,605 5,701,283 6,119,669 7,666,806 8,052,915 7,472,914 Vocational Education 2,002,955 2,128,052 2,217,791 2,126,712 2,440,399 2,390,770 Compensatory Education 3,464,282 3,894,184 4,362,717 5,009,912 4,618,253 1,676,946 Other Instructional Programs 286, , , , , ,366 Community Services 1,346,422 1,514,033 1,673,596 1,739,313 1,802,272 1,754,794 Support Services 13,664,103 15,184,651 14,972,535 14,933,147 16,306,464 16,250,918 Capital Outlay 113, ,734 32, Total Expenditures $58,101,042 $63,868,920 $67,411,700 $70,098,565 $75,191,701 $75,738,805 Revenues Over/(Under) Expenditures (4,097,198) 800,429 1,228,478 (2,039,878) (94,444) 0 Other Sources (Uses) (42,890) (53,525) (52,940) 604, Beginning Fund Balance $ 9,370,150 $ 9,057,113 $ 7,378,795 $ 6,160,240 $ 6,633,326 $ 6,403,326 Ending Fund Balance Balance Sheet Information: $ 9,057,113 $ 7,378,795 $ 6,160,240 $ 6,633,326 $ 6,538,882 $ 6,403,326 Reserved $ 529,705 $ 801,778 $ 587,335 $ 1,204,537 $ 684,001 $ 590,000 Unreserved Designated 2,084,938 2,315,220 2,635,377 2,050,912 2,135,820 2,040,000 Unreserved Undesignated 6,442,469 4,261,798 2,937,528 3,377,877 3,719,061 3,773,326 Ending Fund Balance $ 9,057,113 $ 7,378,795 $ 6,160,240 $ 6,633,326 $ 6,538,882 $ 6,403,326 Source: The District s Audited Financial Statements for years through , preliminary figures and Budget. 20

27 Statement of Revenues, Expenditures and Changes in Debt Service Fund Balance. Audited 2004/05 Audited 2005/06 Fiscal Year Ending August 31 Audited Audited 2006/ /08 Preliminary 2008/09 Budget 2009/10 Revenues: Local Funds $8,823,332 $9,034,646 $8,997,343 $8,906,052 $9,542,907 $10,343,832 State Funds Total Revenues $8,823,332 $9,034,646 $8,997,343 $8,906,052 $9,542,907 $10,343,832 Expenditures: Principal $4,775,000 $5,780,000 $6,065,000 $6,530,000 $4,560,000 $ 5,305,000 Interest and Other 3,219,832 3,225,359 2,922,576 3,321,460 4,412,867 5,267,841 Total Expenditures $7,994,832 $9,005,359 $8,987,576 $9,851,459 $8,972,868 $10,572,841 Revenues Over/(Under) Expenditures $ 828,500 $ 29,287 $ 9,766 $ (945,408) $ 630,497 $ (229,009) Other Sources/(Uses) 64, , Beginning Fund Balance $3,173,627 $4,066,628 $4,095,915 $4,105,681 $3,371,473 $4,047,948 Ending Fund Balance $4,066,628 $4,095,915 $4,105,681 $3,371,473 $4,001,970 $3,818,939 Source: The District s Audited Financial Statements for years through , preliminary figures and Budget. Authorized Investments The County Treasurer is the ex-officio treasurer for the District (the Treasurer ). In this capacity, the Treasurer receives deposits and makes investments on the District s behalf. All temporary investments are stated at cost plus accrued interest, which approximates market. Investments are shown on the combined balance sheet at cost, net of amortized premium or discount. Reductions in market value are not reflected on the financial statements. Gains or losses on investments sold or exchanged are recognized at the time of sale or exchange. Chapter RCW limits the investment of public funds to the following authorized investments: bonds of the State and any local government in the State, which bonds are rated at the time of investment in one of the three highest credit ratings by a nationally recognized rating agency; general obligation bonds of other states and subdivisions thereof so long as those bonds are rated in one of the three highest categories; registered warrants of a local government within the same county as the entity making the investment; and any investment authorized by law for the treasurer of the State or any local government exclusive of certificates of deposit of banks or bank branches not located in the State. Under chapter RCW, the State Treasurer may invest in non-negotiable certificates of deposit in designated qualified public depositories; in obligations of the U.S. government, its agencies and wholly owned corporations; in bankers acceptances; in commercial paper; in repurchase agreements; in the obligations of the federal home loan bank, federal national mortgage association and other government corporations subject to statutory provisions. Utility revenue bonds and warrants of any city and bonds or warrants of a local improvement district are also eligible investments (RCW ). 21

28 Any municipal corporation, including the District, may authorize the investment of funds not required for immediate expenditure by the Treasurer. Such funds of the District, including debt service funds, have been invested by the Treasurer. The Treasurer may, upon the request of one or more units of local government that invest their money with the County, combine that money for the purposes of investment (RCW ). The office of the Treasurer charges $50 per month per fund as its investment service fee. The Treasurer may reimburse its office for any expenses incurred in the establishment and maintenance of such a County investment pool (RCW ). In consultation with the District, the Treasurer makes investments on its behalf. The Treasurer currently invests the District s funds in the State s LGIP described below. As of September 30, 2009, the District s investments held in the State LGIP had a market value of $59,062,910. Local Government Investment Pool The Washington State Local Government Investment Pool (the LGIP ) was created by the Legislature in 1986 to provide a mechanism for political subdivisions to invest available funds and take advantage of the economies of scale and expertise of the LGIP to earn a competitive rate of return, security and liquidity of funds. The LGIP is a conservatively managed, highly liquid money market fund that is considered low-risk. The LGIP is restricted to investments with maturities of one year or less, and the average life typically is less than 90 days. Permissible investments include U.S. government and agency securities, bankers acceptances, high quality commercial paper, repurchase and reverse repurchase agreements, and certificates of deposit issued by qualified Washington State depositories. The State Treasurer s Office administers the LGIP, reports that as of October 31, 2009, the LGIP had 644 participants and a balance of approximately $8.7 billion. In its management of LGIP, the State Treasurer is required to adhere, at all times, to the principles appropriate for the prudent investment of public funds. These are, in priority order, (i) the safety of principal; (ii) the assurance of sufficient liquidity to meet cash flow demands; and (iii) to attain the highest possible yield within the constraints of the first two goals. Historically, the LGIP has had sufficient liquidity to meet all cash flow demands. Authorized Investments for Bond Proceeds In addition to the eligible investments discussed above, bond proceeds only may also be invested in mutual funds with portfolios consisting of U.S. government and guaranteed agency securities with average maturities of less than four years; municipal securities rated in one of the four highest categories; and money market funds consisting of the same, so long as municipal securities held in the fund(s) are in one of the two highest rating categories. Bond proceeds may also be invested in shares of money market funds with portfolios of securities otherwise authorized by law for investment by local governments (RCW ). 22

29 THE DISTRICT General Information The District encompasses the majority of the cities of Sumner and Bonney Lake, and portions of the cities of Pacific, Puyallup and Edgewood in the County. The District is located approximately 35 miles south of the City of Seattle and 13 miles east of the City of Tacoma which serves as the County seat, and it encompasses approximately 38 square miles. An estimated 41,911 residents reside within the District, according to the Washington State Office of Financial Management as of September, The District provides instruction to an estimated 8,071 students in grades kindergarten through 12. For a description of the economic and demographic information of the District, see Appendix A Economic and Demographic Information herein. Form of Local Government and Governing Officials The District s executive, legislative, and policy-making body is the Board which is composed of five members who are elected at large by the voters of the District to serve overlapping four-year terms. Shown below are the names of the individuals who comprise the present Board as well as the dates when their respective terms of office expire. Name Position Occupation Number of Years Served Expiration of Current Term Greg Hanon President Attorney 10 years 2011 Mike Pavlik Vice President Business Owner 17 years Jeff DeMarre Member IT Management 10 years 2011 Rick Hendricks Member Probation Officer 2 years 2011 Sherm Voiles Member Emergency Manager 12 years Re-elected for four-year terms ending in 2013 at the November 3, 2009 election. The day-to-day affairs of the District are managed by a professional administrative staff, which includes the following principal officials: Superintendent. The Superintendent of the District is the chief executive and is appointed by and serves at the discretion of the Board. Dr. Gilbert A. Mendoza is the Superintendent of the District, and has held the position since July 1, Prior to employment with the District, Dr. Mendoza was employed for 24 years as an educator. Dr. Mendoza earned a Bachelor s degree in 1976, a Master s degree in 1987 and a Doctorate in Assistant Superintendent of Administrative Services. The Assistant Superintendent of Administrative Services of the District is Mr. Craig Spencer, who has held the position since September, Mr. Spencer earned a Bachelor s degree in 1985 and a Master s degree in Executive Director of Business Services. The Executive Director of Business Services of the District is Ms. Debbie Campbell, who has held the position since July 1, Ms. Campbell earned a Bachelor s degree in Business Administration from Pacific Lutheran University and holds both a Professional in Human Resources certification from the Society for Human Resource Management and a Certified School Business Officer certification through Washington School Business Officials. 23

30 Facilities The District operates eight elementary schools, three middle schools and two high schools. Elementary Schools Bonney Lake Elementary Crestwood Elementary Daffodil Valley Elementary Emerald Hills Elementary Liberty Ridge Elementary Maple Lawn Elementary McAlder Elementary Victor Falls Elementary Middle Schools Mountain View Middle School Lakeridge Middle School Sumner Middle School Source: The District. High Schools Bonney Lake High School Sumner High School Enrollment Trends The District provides education for students in grades kindergarten through twelve. The enrollment figures shown are based on headcount enrollment figures in October of each year, including part-time students in the Running Start program. The District annually updates projected enrollment. Year Historical Headcount Enrollment Year Projected Headcount Enrollment ,071 8, ,125 8, , , , , , ,075 Source: The District. 24

31 Employment and Labor Relations The District has approximately 988 full-time and part-time employees, which includes 513 certificated and 475 classified employees. Expiration dates of negotiated agreements with the unions and the respective employees they represent are as follows: Bargaining Unit Membership Agreement Expires Sumner Education Association (Certificated) 484 8/31/2011 Administrative Support Group 99 8/31/2013 International Union of Operation Engineers 173 8/31/2012 Sumner Paraeducators Association 147 8/31/2010 Sumner Support Services Directors Association 6 8/31/2010 Sumner Principal Directors Association 29 6/30/2010 Total 938 Risk Management The District is exposed to various risks of loss related to its property and liability exposures. The District is one of 70 school districts and five educational service district members of the Washington Schools Risk Management Pool (the Pool ), which was formed on August 30, 1986 pursuant to Chapter RCW. The purposes of the Pool is to join together in a cooperative manner to provide its members the capability and authority to jointly purchase property and liability insurance, establish and maintain a reserve to pay for self-insurance coverage, provide a plan of self-insurance, and provide related services, including a cooperative program of risk management. There are no significant reductions in insurance coverage from The District s premium for participation in the Washington Schools Risk Management Pool in was $ 513, The Pool provided liability limits of $21 million per occurrence and property limits of $500 million per occurrence (for covered claims). The Pool purchases excess insurance to provide for property claims in excess of $1 million per occurrence and reinsurance for liability claims in excess of $1 million per occurrence. Pool underwriting and rate-setting policies have been established by the Pool Executive Board after consultation with actuaries. Pool members are subject to supplemental assessment in the event of deficiencies. There is no limit on the amount of annual premium contribution increases. If the assets of the Pool were to be exhausted, members would be responsible for the Pool s liabilities. The Executive Board would determine the allocation of the liabilities. If the Pool were dissolved, the members would receive the net assets. The allocation would be in proportion to each member s contribution less obligations (including incurred but not reported claims). The District has had no instances over the last three years where settlements have exceeded insurance coverage. The Washington School Risk Management Pool has produced its own unaudited financial report for the fiscal year ended August 31, For more information regarding the District s Risk Management please reference the District s audited financials, which are included herein under Appendix D Audited Financial Statements for Fiscal Year Ended August 31,

32 Pension System Pensions for District employees are provided by the State Teacher s Retirement System ( TRS ) for certificated employees, the Public Employee s Retirement System ( PERS ) for non-certificated employees, or the School Employee s Retirement System ( SERS ) for classified employees (as described by the Washington State Department of Retirement Systems web site, TRS Plan 1 and PERS Plan 1 are for employees who established membership before October 1, TRS Plan 3 is for employees who established membership on or after October 1, TRS Plan 3 is for employees who established membership on or after July 1, 1996, or who chose to transfer from TRS Plan 2. SERS Plan 2 is for former PERS Plans 2 members who now work in a SERS-eligible position. SERS Plan 3 is for members who first became employed in a SERS-eligible position on or after September 1, 2000, or chose to transfer from SERS Plan 2. Each January TRS Plan 2 and SERS Plan 2 members have the option of transferring to Plan 3. TRS Plans 1 & 2, PERS Plan 1, and SERS Plan 2 are all defined benefit plans, financed by both member and employer contributions plus investment earnings. TRS Plan 3 and SERS Plan 3 are plans with a dual structure. The defined benefit component is financed solely by employer contributions. Rather than depending on a benefit formula, the defined contribution benefit depends entirely on the amount contributed and the performance of the investments. Each biennium of State legislature establishes Plan 1 employer contribution rates and Plan 2 employer and employee contribution rates. Employee contribution rates for Plan 1 have been established by statute at 6%. The employer and employee contribution rates for Plan 2 are developed by the Office of the State Actuary to fully fund Plan 2. The employee contribution rates for the defined benefit portion of Plan 3 are developed by the Office of the State Actuary to fully fund that portion. The employee contribution rates to the defined contribution portion are set by statute and range from 5 to 15%. The legislature may authorize contributions to that portion of Plan 3 members accounts for a biennium through budget appropriation. The methods used to determine the contribution requirements are established under chapter RCW. All employers are required to contribute at the level established by the State legislature. The State is responsible for funding basic education; based upon that funding, school districts make payments directly to the pension funds incurred for their employees. Legislation directs that employer contributions will provide for current pension liabilities and for the amortization of each system s unfunded liability by June 30, The District made the following contributions as of the fiscal year ended August 31, 2009 on behalf of District employees who participated in the pension plans listed in the table below. Retirement Plan Number of Participants District Contribution Fiscal Year PERS Plan I (hired before 10/1/77) 14 $81, SERS Plan II , SERS Plan III , TRS Plan I , TRS Plan II , TRS Plan III 468 4,310, Total District Contributions 1,019 $6,205,

33 GASB 45. The Governmental Accounting Standards Board s ( GASB ) standard concerning Accounting and Financial Reporting by Employers for Post Employment Benefits Other than Pensions ( OPEB ) is known as GASB 45. OPEB includes post employment healthcare, as well as other forms of post employment benefits when provided separately from a pension plan. GASB 45 provides for the measurement, recognition and display of OPEB expenses/expenditures, related liabilities (assets), note disclosures, and if applicable, required supplementary information in the financial reports. The District does not provide any current or retired employees OPEB that are required to be disclosed under GASB 45. The District prepares its financial reports utilizing OCBOA (see - Accounting Policies above) and therefore does not anticipate it will incorporate the reporting standards into its basis of accounting. APPROVAL OF BOND COUNSEL Legal matters incident to the authorization, issuance and sale of the Bonds by the District are subject to the approving legal opinion of Foster Pepper PLLC, Bond Counsel. A form of the opinion of Bond Counsel is attached hereto as Appendix E. The opinion of Bond Counsel is given based on factual representations made to Bond Counsel, and under existing law, as of the date of initial delivery of the Bonds, and Bond Counsel assumes no obligation to revise or supplement its opinion to reflect any facts or circumstances that may thereafter come to its attention, or any changes in law that may thereafter occur. The opinion of Bond Counsel is an expression of its professional judgment on the matters expressly addressed in its opinion and does not constitute a guarantee of result. Bond Counsel will be compensated only upon the issuance and sale of the Bonds. TAX EXEMPTION Exclusion from Gross Income. In the opinion of Bond Counsel, under existing federal law and assuming compliance by the District with applicable requirements of the Internal Revenue Code of 1986, as amended (the Code ), that must be satisfied subsequent to the issue date of the Bonds, interest on the Bonds is excluded from gross income for federal income tax purposes. Continuing Requirements. The District is required to comply with certain requirements of the Code after the date of issuance of the Bonds in order to maintain the exclusion of the interest on the Bonds from gross income for federal income tax purposes, including, without limitation, requirements concerning the qualified use of Bond proceeds and the facilities financed or refinanced with Bond proceeds, limitations on investing gross proceeds of the Bonds in higher yielding investments in certain circumstances, and the requirement to comply with the arbitrage rebate requirements to the extent applicable to the Bonds. The District has covenanted in the Bond Resolution to comply with those requirements, but if the District fails to comply with those requirements, interest on the Bonds could become taxable retroactive to the date of issuance of the Bonds. Bond Counsel has not undertaken and does not undertake to monitor the District s compliance with such requirements. Alternative Minimum Tax. Under existing federal law, interest on the Bonds received by individuals and corporations is not treated as an item of tax preference for purposes of the federal alternative minimum tax, and interest on the Bonds received by corporations is not taken into account in determining adjusted current earnings of corporations for purposes of the federal alternative minimum tax. 27

34 Tax on Certain Passive Investment Income of S Corporations. Under Section 1375 of the Code, certain excess net passive investment income, including interest on the Bonds, received by an S corporation (a corporation treated as a partnership for most federal tax purposes) that has Subchapter C earnings and profits at the close of the taxable year may be subject to federal income taxation at the highest rate applicable to corporations if more than 25% of the gross receipts of such S corporation is passive investment income. Foreign Branch Profits Tax. Interest on the Bonds may be subject to the foreign branch profits tax imposed by Section 884 of the Code when the Bonds are owned by, and effectively connected with a trade or business of, a United States branch of a foreign corporation. Original Issue Premium. The Bonds have been sold at prices reflecting original issue premium ( Premium Bonds ). An amount equal to the excess of the purchase price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. A purchaser of a Premium Bond must amortize any premium over such Premium Bond s term using constant yield principles, based on the purchaser s yield to maturity. As premium is amortized, the purchaser s basis in such Premium Bond is reduced by a corresponding amount, resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser s basis is reduced, no federal income tax deduction is allowed. Purchasers of Premium Bonds, whether at the time of initial issuance or subsequent thereto, should consult with their own tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to state and local tax consequences of owning such Premium Bonds. Possible Consequences of Tax Compliance Audit. The Internal Revenue Service (the IRS ) has established a general audit program to determine whether issuers of tax-exempt obligations, such as the Bonds, are in compliance with requirements of the Code that must be satisfied in order for interest on those obligations to be, and continue to be, excluded from gross income for federal income tax purposes. Bond Counsel cannot predict whether the IRS would commence an audit of the Bonds. Depending on all the facts and circumstances and the type of audit involved, it is possible that commencement of an audit of the Bonds could adversely affect the market value and liquidity of the Bonds until the audit is concluded, regardless of its ultimate outcome. CERTAIN OTHER FEDERAL TAX CONSEQUENCES Bonds Not Qualified Tax-Exempt Obligations for Financial Institutions. Section 265 of the Code generally provides that 100 percent of any interest expense incurred by banks and other financial institutions that is allocable to tax-exempt obligations acquired after August 7, 1986, will be disallowed as a tax deduction. However, if the tax-exempt obligations are obligations other than certain private activity bonds, are issued by a governmental unit that, together with all entities subordinate to it, does not reasonably anticipate issuing more than $30,000,000 of tax-exempt obligations (other than certain private activity bonds and other obligations not required to be included in such calculation) in the current calendar year, and are designated by the governmental unit as qualified tax-exempt obligations, only 20 percent of any interest expense deduction allocable to those obligations will be disallowed. The District is a governmental unit that, together with all subordinate entities, reasonably anticipates issuing more than $30,000,000 of tax-exempt obligations (other than certain private activity bonds and other obligations not required to be included in such calculation) during the calendar year in which the Bonds are issued, and has not designated the Bonds as qualified tax-exempt obligations for purposes Section 265(b)(3) of the Code. Therefore, no interest expense deduction of a financial institution allocable to the Bonds is deductible for federal income tax purposes. 28

35 Reduction of Loss Reserve Deductions for Property and Casualty Insurance Companies. Under Section 832 of the Code, interest on the Bonds received by property and casualty insurance companies will reduce tax deductions for loss reserves otherwise available to such companies by an amount equal to 15% of tax-exempt interest received during the taxable year. Effect on Certain Social Security and Retirement Benefits. Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take receipts or accruals of interest on the Bonds into account in determining gross income. Other Possible Federal Tax Consequences. Receipt of interest on the Bonds may have other federal tax consequences as to which prospective purchasers of the Bonds may wish to consult their own tax advisors. LITIGATION There is no controversy or litigation of any nature now pending or, to the knowledge of the District, threatened, restraining or enjoining the issuance, sale, execution or delivery of the Bonds, or in any way contesting or affecting the validity of the Bonds or any proceedings of the District taken with respect to the issuance or sale thereof, or the validity of the levy of taxes for the payment thereof. UNDERWRITING D. A. Davidson & Co. (the Underwriter ) has agreed, subject to the terms of a Bond Purchase Agreement, to purchase the Bonds from the District at a price of % of the par value of the Bonds and to reoffer the Bonds at an average price of % of the par value of the Bonds, plus accrued interest, if any. The Bonds are being offered for sale to the public at the prices shown on the inside cover of this Official Statement. Concessions from the initial offering price may be allowed to selected dealers and special purchasers. The initial offering prices are subject to change after the date hereof. RATINGS The District has received an underlying rating on the Bonds from Moody s Investors Service Inc. ( Moody s ) of A1 (the Underlying Rating ). Moody s has also assigned its credit enhanced rating of Aa1 to the Bonds, based upon the District s participation in the Washington State School District Credit Enhancement Program. See Appendix C for a further description of this program. The ratings reflect only the view of Moody s and an interpretation of such ratings may be obtained only from the rating agency furnishing the same. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by the rating agency, if, in the judgment of such agency, circumstances so warrant. Any such revision or withdrawal of such ratings may have an adverse effect on the market price of the Bonds. NO CONFLICTS OF INTEREST The District is not aware of the existence of any actual or potential conflict of interests, breach of duty or less than arm s-length transaction regarding the selection of the Underwriter, Bond Counsel and other participants in the offering of the Bonds. Further, the District is not aware of any undisclosed payments to obtain underwriting assignments and undisclosed agreements or arrangements, including fee splitting, between the Underwriter and other participants in the offering of the Bonds. 29

36 COMMITMENT TO PROVIDE CONTINUING DISCLOSURE In order to permit the Underwriter to comply with paragraph (b)(5) of Rule 15c2-12 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the Rule ), because the aggregate principal amount of the Bonds, the District will covenant and agree, for the benefit of the registered holders or beneficial owners from time to time of the outstanding Bonds, in the Bond Resolution, to provide annual reports of specified information and notice of the occurrence of certain events, if material, as hereinafter described (the Disclosure Covenants ). The information to be provided on an annual basis, the events as to which notice is to be given, if material, and a summary of other provisions of the Disclosure Covenants, including termination, amendment and remedies, are set forth in Appendix B to this Official Statement. Breach of the Disclosure Covenants will not constitute a default or default under the Bonds or the Bond Resolution. The District currently has seven undertakings under the Rule with respect to its obligations issued and outstanding after July 3, 1995, and has not failed to comply with any prior undertaking under the Rule in the past five years. ADDITIONAL INFORMATION AND MISCELLANEOUS The descriptions herein of the Bond Resolution and other documents are brief summaries of certain provisions thereof. Such summaries do not purport to be complete, and reference is made to such documents and contracts, copies of which are available, upon request and upon payment to the District of a charge for copying, mailing and handling, from the District, 1202 Wood Avenue Sumner, Washington 98390, (253) OFFICIAL STATEMENT CERTIFICATE At the time of delivery of the Bonds, one or more of the officials of the District will furnish a certificate stating that to the best of his, her or their knowledge this Official Statement, as of its date and as of the date of delivery of the Bonds, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained herein, in light of the circumstances under which they were made, not misleading. APPROVAL OF OFFICIAL STATEMENT The execution and delivery of this Official Statement have been duly authorized by the District. SUMNER SCHOOL DISTRICT NO. 320, PIERCE COUNTY, WASHINGTON By: /s/ Gilbert A. Mendoza Secretary to the Board of Directors 30

37 APPENDIX A Economic and Demographic Information

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39 ECONOMIC AND DEMOGRAPHIC INFORMATION The following discussion includes descriptive information obtained from a variety of sources. The information is presented to provide the reader with an overview of the District and the Pierce County economy, but is not intended to be exhaustive or comprehensive. The District is located in western Washington, in Pierce County (the County ). The District encompasses the majority of the cities of Sumner and Bonney Lake, and portions of the cities of Pacific, Puyallup and Edgewood. The City is located approximately 35 miles south of the City of Seattle and 13 miles east of the City of Tacoma, which serves as the County seat. The District s area encompasses approximately 38 square miles with an estimated 41,911 residents, as estimated by the Washington State Office of Financial Management as of September, The County encompasses 1,794 square miles that is comprised of 1,676 square miles of land and 118 square miles of water. The County s economy is impacted primarily from regional trade and service industries, manufacturing and government at all levels. 1 Because of the small percentage of the District, based on 2009 Bond Assessed Valuation and population, that is located in Pacific, Puyallup and Edgewood, the following information does not include information pertaining to those cities. Historical Taxable Retail Sales The following table lists the taxable retail sales for all industries within the cities of Sumner and Bonney Lake, and Pierce County from 2004 to Recent recessionary trends are not reflected in this table. Year City of City of Pierce Sumner Bonney Lake County 2008 $367,540,538 $351,199,350 $11,711,653, ,573, ,333,976 12,449,283, ,955, ,975,933 12,068,965, ,721, ,950,659 11,177,879, ,813, ,361,843 10,055,822,192 Source: Washington State Department of Revenue. Population Trends The area s population has grown significantly in recent years and based on recent population trends, is expected to continue to grow. Historical population trends are presented below for the cities of Sumner and Bonney Lake, Pierce County and the State. Year City of Sumner City of Bonney Lake Pierce County State of Washington ,085 16, ,600 6,668, ,060 16, ,400 6,587, ,035 15, ,500 6,488, ,025 15, ,500 6,395, ,940 14, ,900 6,256, ,835 13, ,000 6,167,800 Source: Washington State Office of Financial Management s inter-census estimates. A-1

40 Major Employers The major employers in the Tacoma-Pierce County area for 2009 as reported by the Tacoma-Pierce County Economic Development Board are as follows: Employer Type of Business Activity Number of Employees 1. U.S. Army Fort Lewis Military 42, Local Public School Districts Education 13, U.S. Air Force McChord Military 10, Washington State State Government 7, Multicare Health System Healthcare 6, Franciscan Health System Healthcare 4, U.S. Army Madigan Hospital Military Healthcare 4, Pierce County County Government 3, Washington State Higher Education Higher Education 2, Washington State National Guard Military 2, City of Tacoma Local Government 2, Fred Meyer Retail 2, Emerald Queen Casino Gaming 1, Wal-Mart Retail 1, Boeing Company, Frederickson Site Aerospace 1,537 1 Includes 30,800 military and 11,431 civilian employees. 2 Includes 6,818 military and 3,483 civilian employees. 3 Includes 2,752 military and 1,271 civilian employees. 4 Does not include employees of Tacoma Public Utilities. Source: Tacoma-Pierce County Economic Development Board Residential Construction Activity Shown in the following table are residential building permit data for the cities of Sumner and Bonney Lake from 2004 through Recent recessionary trends are not included in the data presented. Multi- Family Units Multi- Family Value (000s) City of Sumner Single- Family Units Single- Family Value (000s) Multi- Family Units City of Bonney Lake Multi- Family Single- Value Family (000s) Units Single- Family Value (000s) Year $ 0 22 $ 4,224,000 8 $ 992, $23,564, ,251, ,604, ,255, ,136, ,400, ,729, ,187, ,058, ,041, ,054, ,001, ,931, , ,479,555 Source: U.S. Department of Commerce, Census Bureau. A-2

41 Employment by Major Industry The table below sets forth the total number of full-time and part-time employees in Pierce County for the years and industries as shown. Employment Sector Total Non-Farm Employment Construction Manufacturing Trade, Transportation & Utilities Information Financial Activities Professional & Business Services Education and Health Services Leisure and Hospitality All Other Services Government & Government Enterprises Average through September Source: Washington State Department of Employment Security. Figures may not total due to rounding. Labor Force and Unemployment The following table shows labor force and employment data for Pierce County since 2004 as well as unemployment rates for the State and the United States for the same period. Pierce County Unemployment Rates Year Labor Force Employed Pierce County State of Washington United States , , % 8.9% 9.8% , , , , , , , , , , Average through September Source: Washington Employment Department and U.S. Department of Labor-Bureau of Labor Statistics. A-3

42 Personal Income Trends The following table shows total and per capita personal income growth in Pierce County and the State from 2003 through Data presented does not reflect any recent changes in personal income due to recent recessionary trends. Pierce County Washington State Year Total Personal Income (000 s) Per Capita Income Total Personal Income (000 s) Per Capita Income 2007 $28,949,941 $37,446 $265,738,395 $41, ,149,797 35, ,597,024 38, ,027,972 33, ,736,003 35, ,426,242 31, ,431,726 35, ,234,218 30, ,942,123 33,166 Source: U.S. Department of Commerce, Bureau of Economic Analysis. Data for 2007 is most recent available. Median Household Income The following table shows the median household income in Pierce County and the State from 2004 through Recent recessionary trends are not reflected in this table. Year Pierce County Washington State 2008 $58,903 $60, ,733 59, ,487 56, ,669 54, ,101 53,890 Source: Washington Department of Financial Management; figures are presented in current dollars; 2008 figures are projections. A-4

43 Earnings by Industry The following table shows Pierce County total personal income as well as wage and salary, labor and proprietors earnings by major industry type for the years 2003 through Figures shown are in thousands (000 s). Recent recessionary trends are not reflected in this table Total Personal Income $22,234,218 $23,426,242 $25,027,972 $27,149,797 $28,949,941 Earnings by Industry Farm 43,031 40,945 35,570 29,258 37,323 Non-Farm 13,955,764 15,396,291 16,435,069 17,675,603 19,051,041 Private 9,651,841 10,703,296 11,141,936 11,964,620 12,881,166 Ag. Serv., Forest., Fishing 52,087 44,850 43,439 41,282 40,332 Mining 16,076 19,393 21,376 23,611 26,662 Utilities 56,780 65,946 63,276 69,085 75,476 Construction 1,133,699 1,304,145 1,462,207 1,665,527 1,855,700 Manufacturing 1,121,106 1,170,537 1,266,795 1,355,612 1,454,633 Wholesale Trade 527, , , , ,150 Retail Trade 1,037,690 1,073,434 1,146,869 1,189,687 1,290,863 Transportation and Warehousing 490, , , , ,741 Information 155, , , , ,784 Finance and Insurance 753,024 1,056, , , ,877 Real Estate, Rental and Leasing 335, , , , ,405 Professional/Technical Services 561, , , , ,295 Management of Companies/Enterprises 101, ,903 94,322 91,820 99,486 Administrative and Waste Services 442, , , , ,613 Educational Services 149, , , , ,247 Healthcare and Social Assistance 1,763,779 1,874,539 1,963,777 2,104,514 2,256,588 Arts, Entertainment and Recreation 103, , , , ,762 Accommodation and Food Services 359, , , , ,440 Other Services 490, , , , ,112 Gov t & Gov t Enterprises 4,303,923 4,692,995 5,293,133 5,710,983 6,169,875 Federal/Civilian 608, , , , ,342 Military 1,665,829 1,848,975 2,291,302 2,550,555 2,818,275 State and Local 2,029,543 2,171,750 2,271,279 2,359,328 2,512,258 Source: U.S. Department of Commerce, Regional Economic Information Center, Bureau of Economic Analysis. Data for 2007 is most recent available. A-5

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45 APPENDIX B Continuing Disclosure

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47 UNDERTAKING TO PROVIDE CONTINUING DISCLOSURE Basic Undertaking to Provide Annual Financial Information and Notice of Material Events. To meet the requirements of United States Securities and Exchange Commission ( SEC ) Rule 15c2-12(b)(5) (the Rule ), as applicable to a participating underwriter for the Bonds, the District will undertake (the Undertaking ) for the benefit of holders of the Bonds to provide or cause to be provided, either directly or through a designated agent, to the Municipal Securities Rulemaking Board (the MSRB ), in an electronic format as prescribed by the MSRB, accompanied by identifying information as prescribed by the MSRB, annual financial information and operating data of the type included in this Official Statement as generally described below ( annual financial information ); and timely notice of the occurrence of any of the following events with respect to the Bonds, if material: (i) principal and interest payment delinquencies; (ii) non-payment related defaults; (iii) unscheduled draws on debt service reserves reflecting financial difficulties; (iv) unscheduled draws on credit enhancements reflecting financial difficulties; (v) substitution of credit or liquidity providers, or their failure to perform; (vi) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (vii) modifications to rights of holders of the Bonds; (viii) Bond calls (other than scheduled mandatory redemptions of Term Bonds); (ix) defeasances; (x) release, substitution, or sale of property securing repayment of the Bonds; and (xi) rating changes. The District also will provide timely notice of a failure by the District to provide required or permitted annual financial information on or before the date specified below. Type of Annual Financial Information Undertaken to be Provided. The annual financial information that the District undertakes to provide will consist of (i) annual financial statements prepared (except as noted in the financial statements) in accordance with generally accepted accounting principles applicable to governmental units, as such principles may be changed from time to time and as permitted by State law; which may not be audited, except that if and when audited financial statements are otherwise prepared and available to the District they will be provided; (ii) a statement of authorized, issued and outstanding general obligation debt of the District; (iii) the assessed value of the property within the District subject to ad valorem taxation; and (iv) ad valorem tax levy rates and amounts and percentage of taxes collected; and will be provided to the MSRB, not later than the last day of the ninth month after the end of each fiscal year of the District (currently, the fiscal year ending August 31), as such fiscal year may be changed as required or permitted by State law, commencing with the District s fiscal year ending August 31, The annual financial information may be provided in a single or multiple documents, and may be incorporated by specific reference to documents available to the public on the Internet Website of the MSRB or filed with the SEC. Amendment of Undertaking. The Undertaking is subject to amendment after the primary offering of the Bonds without the consent of any holder of any Bond, or of any broker, dealer, municipal securities dealer, participating underwriter, rating agency, or the MSRB, under the circumstances and in the manner permitted by the Rule. The District will give notice to the MSRB of the substance (or provide a copy) of any amendment to the Undertaking and a brief statement of the reasons for the amendment. If the amendment changes the type of annual financial information to be provided, the annual information containing the amended financial information will include a narrative explanation of the effect of that change on the type of information to be provided. B-1

48 Termination of Undertaking. The District s obligations under the Undertaking shall terminate upon the legal defeasance of all of the Bonds. In addition, the District s obligations under the Undertaking will terminate if those provisions of the Rule which require the District to comply with the Undertaking become legally inapplicable in respect of the Bonds for any reason, as confirmed by an opinion of nationally recognized bond counsel or other counsel familiar with federal securities laws delivered to the District, and the District provides timely notice of such termination to the MSRB. Remedy for Failure to Comply with Undertaking. If the District or any other obligated person fails to comply with the Undertaking, the District will proceed with due diligence to cause such noncompliance to be corrected as soon as practicable after the District learns of that failure. No failure by the District or other obligated person to comply with the Undertaking will constitute a default in respect of the Bonds. The sole remedy of any holder of a Bond will be to take such actions as that holder deems necessary, including seeking an order of specific performance from an appropriate court, to compel the District or other obligated person to comply with the Undertaking. Continuing Disclosure Obligation of the State of Washington. The following sentence was furnished by the State for use in this Official Statement. In accordance with the Rule, the State of Washington is also an obligated party with respect to the Bonds and will provide the information described in Appendix C under the heading "State of Washington Continuing Disclosure." Prior Continuing Disclosure Undertakings of the District. The District currently has seven undertakings under the Rule with respect to its obligations issued and outstanding after July 3, 1995, and has not failed to comply with any prior undertaking under the Rule in the past five years. B-2

49 APPENDIX C Washington State School District Credit Enhancement Program

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51 WASHINGTON STATE SCHOOL DISTRICT CREDIT ENHANCEMENT PROGRAM The following information has been furnished by the State of Washington for use in this Official Statement. The issuer of the bonds offered pursuant to this Official Statement (the Offered Bonds ) makes no representation as to the accuracy or the completeness of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. Definitions Act means the Washington State School District Credit Enhancement Program Act, chapter Revised Code of Washington. Program means the Washington State School District Credit Enhancement Program established by the Act. Program Bond means any voted general obligation bond issued by a school district, holding a certificate issued pursuant to the Act for such a bond. State means the State of Washington. Program Provisions Article VIII, section 1(e) of the Constitution of the State and the Act allow the State to guarantee any voted general obligation bonds issued by a school district. Payment of the principal of and interest on Program Bonds when due is guaranteed by the full faith, credit and taxing power of the State under the provisions of the Act. The Act provides as follows: The full faith, credit, and taxing power of the State is pledged to guarantee full and timely payment of the principal of and interest on Program Bonds as such payments become due. However, in the event of any acceleration of the due date of the principal by reason of mandatory redemption or acceleration resulting from default, the payments guaranteed shall be made in the amounts and at the times as payments of principal would have been due had there not been any acceleration. The State guarantee does not extend to the payment of any redemption premium. The Act further provides that the State pledges to and agrees with the owners of any Program Bonds that the State will not alter, impair, or limit the rights vested by the Program with respect to the Program Bonds until the Program Bonds, together with applicable interest, are fully paid and discharged. However, an alteration, impairment, or limitation of such rights is not precluded if full provision is made by law for the payment of the Program Bonds. Program Procedures In accordance with applicable law, the County Assessor for each school district with outstanding, unpaid Program Bonds is required to levy property taxes approved by the voters for repayment of the Program Bonds. In accordance with applicable law, the County Treasurer for each school district with outstanding, unpaid Program Bonds is required to collect property taxes approved by the voters for repayment of the Program Bonds. The County Treasurer is required to transfer money sufficient for each scheduled debt service payment to the paying agent on or before any principal or interest payment date for the Program Bonds. C-1

52 A County Treasurer who is unable to transfer to the paying agent funds required to make any scheduled debt service payments on the Program Bonds on or prior to the payment date, due to the lack of adequate funds, is required to immediately provide notice to the State Treasurer and to the paying agent. If sufficient funds are not transferred to the paying agent at the time required to make a scheduled debt service payment on the Program Bonds, the paying agent is required to immediately notify the State Treasurer. Pursuant to the Act, the State legislature is required to appropriate, in each and every biennial appropriations act, such amount as may be required to make timely payment on the Program Bonds. If sufficient money to make any scheduled debt service payment on the Program Bonds has not been transferred to the paying agent in a timely manner, the paying agent is required to make such scheduled debt service payment and the State Treasurer is required to transfer sufficient money to the paying agent for such payment. Each school district is responsible for paying in full the principal of and interest on its Program Bonds. The State Treasurer is required to recover from the school district any funds paid by the State on behalf of that school district under the Program. The State Treasurer will charge interest in connection with the recovery of funds under the Act. In addition to charging interest, the State Treasurer may impose a penalty on a school district for which the State made a payment under the Program, which penalty may not be more than five percent of the amount paid by the State pursuant to its guarantee for each instance in which a payment by the State is made. A payment by the State Treasurer discharges the obligation of the school district to its Program Bond owners for the payment, but does not retire any Program Bond that has matured. The terms of that Program Bond remain in effect until the State is repaid. Any such payment by the State transfers the rights represented by the general obligation of the school district from the Program Bond owners to the State. If the State has made all or part of a debt service payment on behalf of a school district that has issued Program Bonds, the State Treasurer may (a) direct the school district and the County Treasurer to restructure and revise, to the extent permitted by law, the collection of excess levy taxes for the payment of Program Bonds on which the State Treasurer has made payments under the Act to the extent necessary to obtain repayment to the State Treasurer; and (b) require, to the extent permitted by law, that the proceeds of such taxes be applied to the school district s obligations to the State if all outstanding obligations of the school district payable from such taxes are fully paid or their payment is fully provided for. Outstanding Certificates of Eligibility and Outstanding Program Bonds As of October 19, 2009, the State has guaranteed the following under the Act (not including the Offered Bonds): Number of school districts with Certificates of Eligibility 198 Number of Program Bond issues guaranteed 478 Aggregate total principal amount outstanding of Program Bonds guaranteed $8,023,679, C-2

53 Program Contact Person Requests for information regarding the Program may be directed to: Office of the State Treasurer Attn: Deputy Treasurer Debt Management Division Legislative Office Building 2nd Floor P.O. Box Olympia, WA Phone: (360) Fax: (360) State of Washington - Financial and Operating Information The State s most recent audited financial statements and the financial and operating information relating to the State included in the most recent official statement for the State s general obligation debt are on file with the Municipal Securities Rulemaking Board (the MSRB ), in an electronic format as prescribed by the MSRB, and are incorporated by this reference in this official statement. State of Washington - Continuing Disclosure The State has undertaken (the Undertaking ) to provide (1) not later than seven months after the end of each fiscal year in each fiscal year that the Offered Bonds are outstanding, either directly or through a designated agent, to the MSRB, in an electronic format as prescribed by the MSRB, accompanied by identifying information as prescribed by the MSRB, (a) audited financial statements of the State for such fiscal year prepared (except as noted therein) in accordance with generally accepted accounting principles as promulgated by the Government Accounting Standards Board, as such principles may be changed from time to time, except that if the audited financial statements are not available by such date, unaudited financial statements in a format similar to the audited financial statements most recently prepared for the State shall be provided, and the State s audited financial statements shall be provided when and if they become available; and (b) the financial and operating information relating to the State included in most recent official statement for the State s general obligation debt; and (2) to the MSRB, in a timely manner, notice of its failure to provide the foregoing in such manner. The Undertaking is subject to amendment or termination under the circumstances and in the manner permitted by SEC Rule 15c2-12. The right to enforce the provisions of the Undertaking shall be limited to a right to obtain specific performance of the State s obligations thereunder, and any failure by the State to comply with the provisions of the Undertaking shall not be a default with respect to the Offered Bonds. The Undertaking inures to the benefit of the State and the issuer, any underwriter and any holder of the Offered Bonds, and does not inure to the benefit of or create any rights in any other person. C-3

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55 APPENDIX D Audited Financial Statement for Fiscal Year Ended August 31, 2008

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57 Washington State Auditor s Office Financial Statements and Federal Single Audit Report Washington State Auditor Brian Sonntag Sumner School District No. 320 Pierce County Audit Period September 1, 2007 through August 31, 2008 Report No March 30, 2009 Board of Directors Sumner School District No. 320 Sumner, Washington Report on Financial Statements and Federal Single Audit Please find attached our report on Sumner School District No. 320 s financial statements and compliance with federal laws and regulations. We are issuing this report in order to provide information on the District s financial condition. In addition to this work, we look at other areas of our audit client s operations for compliance with state laws and regulations. The results of that audit will be included in a separately issued accountability report. Sincerely, BRIAN SONNTAG, CGFM STATE AUDITOR Issue Date March 30, 2009 Insurance Building, P.O. Box Olympia, Washington (360) TDD Relay (800) FAX (360)

58 Table of Contents Sumner School District No. 320 Pierce County September 1, 2007 through August 31, 2008 Federal Summary Sumner School District No. 320 Pierce County September 1, 2007 through August 31, 2008 Federal Summary... 1 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards... 2 Independent Auditor s Report on Compliance with Requirements Applicable to each Major Program and Internal Control over Compliance in Accordance with OMB Circular A Independent Auditor s Report on Financial Statements... 6 Financial Section... 8 The results of our audit of Sumner School District No. 320 are summarized below in accordance with U.S. Office of Management and Budget Circular A-133. FINANCIAL STATEMENTS An unqualified opinion was issued on the financial statements of the governmental activities, each major fund and the aggregate remaining fund information. Internal Control Over Financial Reporting: Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over financial reporting that we consider to be significant deficiencies. Material Weaknesses: We identified no significant deficiencies that we consider to be material weaknesses. We noted no instances of noncompliance that were material to the financial statements of the District. FEDERAL AWARDS Internal Control Over Major Programs: Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over major federal programs that we consider to be significant deficiencies. Material Weaknesses: We identified no significant deficiencies that we consider to be material weaknesses. We issued an unqualified opinion on the District s compliance with requirements applicable to its major federal programs. We reported no findings that are required to be disclosed under OMB Circular A-133. Identification of Major Programs: The following were major programs during the period under audit: CFDA No. Program Title /555/559 Child Nutrition Cluster Improving Teacher Quality The dollar threshold used to distinguish between Type A and Type B programs, as prescribed by OMB Circular A-133, was $300,000. The District qualified as a low-risk auditee under OMB Circular A

59 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards Board of Directors Sumner School District No. 320 Sumner, Washington Sumner School District No. 320 Pierce County September 1, 2007 through August 31, 2008 COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the District s financial statements are free of material misstatement, we performed tests of the District s 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. This report is intended for the information and use of management, the Board of Directors, federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. We have audited the financial statements of the governmental activities, each major fund and the aggregate remaining fund information of Sumner School District No. 320, Pierce County, Washington, as of and for the year ended August 31, 2008, which collectively comprise the District s basic financial statements, and have issued our report thereon dated March 13, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. BRIAN SONNTAG, CGFM STATE AUDITOR March 13, 2009 INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit, we considered the 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 the District s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the District s internal control over financial reporting. A control deficiency 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 misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the District's ability to initiate, authorize, record, process or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the District's financial statements that is more than inconsequential will not be prevented or detected by the District's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity s internal control. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be 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. 2 3

60 Independent Auditor s Report on Compliance with Requirements Applicable to each Major Program and Internal Control over Compliance in Accordance with OMB Circular A-133 Board of Directors Sumner School District No. 320 Sumner, Washington COMPLIANCE Sumner School District No. 320 Pierce County September 1, 2007 through August 31, 2008 We have audited the compliance of Sumner School District No. 320, Pierce County, Washington, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to its major federal programs for the year ended August 31, The District s major federal programs are identified in the Federal Summary. Compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal programs is the responsibility of the District s management. Our responsibility is to express an opinion on the 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 the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB 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 the 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 on the District s compliance with those requirements. opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the District's internal control over compliance. A control deficiency in an entity s internal control over compliance 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 noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity s ability to administer a federal program such that there is a more than remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity s internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in a more than remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity s internal control. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be 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 for the information of management, the Board of Directors, federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. BRIAN SONNTAG, CGFM STATE AUDITOR March 13, 2009 In our opinion, the District complied, in all material respects, with the requirements referred to above that are applicable to its major federal programs for the year ended August 31, INTERNAL CONTROL OVER COMPLIANCE The management of the District is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the 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 our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance, but not for the purpose of expressing an 4 5

61 Independent Auditor s Report on Financial Statements Sumner School District No. 320 Pierce County September 1, 2007 through August 31, 2008 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. This schedule is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Board of Directors Sumner School District No. 320 Sumner, Washington We have audited the accompanying financial statements of the governmental activities, each major fund and the aggregate remaining fund information of Sumner School District No. 320, Pierce County, Washington, as of and for the year ended August 31, 2008, which collectively comprise the District s basic financial statements as listed on page 8. These financial statements are the responsibility of the District s management. Our responsibility is to express opinions on these financial statements based on our audit. BRIAN SONNTAG, CGFM STATE AUDITOR March 13, 2009 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, each major fund and the aggregate remaining fund information of Sumner School District No. 320, as of August 31, 2008, and the respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report on our consideration of the District s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The management s discussion and analysis on pages 9 through 17 and budgetary comparison information on pages 46 through 47 are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was performed for the purpose of forming an opinion on the financial statements that collectively comprise the District s basic financial statements. The accompanying Schedule of 6 7

62 Financial Section Sumner School District No. 320 Pierce County September 1, 2007 through August 31, 2008 REQUIRED SUPPLEMENTAL INFORMATION Management s Discussion and Analysis 2008 BASIC FINANCIAL STATEMENTS Statement of Net Assets 2008 Statement of Activities 2008 Fund Balance Sheets Governmental Funds 2008 Reconciliation Balance Sheet/Statement of Net Assets 2008 Statement of Revenues, Expenditures and Changes in Fund Balances All Governmental Fund Types 2008 Reconciliation Statement of Revenues, Expenditures and Changes in Fund Balance/Statement of Activities 2008 Statement of Fiduciary Net Assets Private Purpose Trust Fund 2008 Statement of Changes in Fiduciary Net Assets Private Purpose Trust Fund 2008 Notes to the Basic Financial Statements 2008 REQUIRED SUPPLEMENTAL INFORMATION Budgetary Comparison Schedule General Fund 2008 Budgetary Comparison Schedule Special Revenue Fund SUPPLEMENTAL INFORMATION Schedule of Expenditures of Federal Awards 2008 Notes to the Schedule of Expenditures of Federal Awards

63 10 11

64 12 13

65 14 15

66 16 17

67 18 19

68 20 21

69 22 23

70 24 25

71 26 27

72 28 29

73 30 31

74 32 33

75 34 35

76 36 37

77 38 39

78 40 41

79 42 43

80 44 45

81 46 47

82 48 SUMNER SCHOOL DISTRICT #320 Schedule of Federal Financial Assistance For the Year Ending August 31, 2008 EXPENDITURES PASS FROM FEDERAL THROUGH FEDERAL CFDA OTHER IDENTIFICATION DIRECT FOOT- AGENCY NAME AGENCY PROGRAM TITLE NUMBER NUMBER AWARDS PASS THROUGH TOTAL NOTE REF. U.S. Dept. of Agriculture WA OSPI Food Donation N/A 152, ,367 3 WA OSPI School Breakfast Program N/A 60,394 60,394 WA OSPI School Breakfast Program (SN) N/A 102, ,311 Sub Total CFDA # $162,705 $162,705 WA OSPI Nat'l School Lunch Program N/A 678, ,181 WA OSPI Federal Snack Program N/A 2,842 2,842 Sub Total CFDA # $681,023 $681,023 Off St. Treas. Schools & Roads-Grants to Sts N/A 21,503 21,503 WA OSPI Summer FS Prog for Children N/A 26,782 26,782 Total Dept. of Agriculture $1,044,380 $1,044,380 U.S Dept of Defense WA OSPI Pmt to Sts in Lieu of Real Est Tax N/A 43,138 43,138 Total Dept. of Defense $43,138 $43,138 U.S. Dept of Education WA OSPI Title I grants to Local Ed Agencies , ,241 WA OSPI Ed for Homeless Children & Youth ,766 36,766 WA OSPI Special Ed * Grants to States , ,382 WA OSPI Special Ed * Grants to States ,017 8,017 WA OSPI Special Ed * Grants to States ,396,067 1,396,067 Sub Total CFDA # $1,620,466 $1,620,466 WA OSPI Vocation Ed*Basic Grants to Sts ,354 39,354 WA OSPI Vocation Ed*Basic Grants to Sts ,528 3,528 Sub Total CFDA # $42,882 $42,882 WA OSPI Special Ed*Preschool Grants ,254 25, SUMNER SCHOOL DISTRICT #320 Schedule of Federal Financial Assistance For the Year Ending August 31, 2008 EXPENDITURES PASS FROM FEDERAL THROUGH FEDERAL CFDA OTHER IDENTIFICATION DIRECT FOOT- AGENCY NAME AGENCY PROGRAM TITLE NUMBER NUMBER AWARDS PASS THROUGH TOTAL NOTE REF. U.S. Dept of Education WA OSPI Safe&Drug Free Scls&Com/State ,016 93,016 PSESD 21st Century Comm. Learning Centers ,250 27,250 WA OSPI St Grants for Innovative Programs ,207 9,207 WA OSPI Education Technology*St Grants ,961 3,961 WA OSPI English Language Acquisition Grants ,537 7,537 WA OSPI English Language Acquisition Grants ,200 10,200 Sub Total CFDA # $17,737 $17,737 WA OSPI Improving Teacher Quality St Grants , ,769 Total Dept of Education $2,586,549 $2,586,549 PC Comm Serv Head Start N/A Total US Dept Health & $567 $567 Human Services SAMHSA PC Human Servs Blk Grs for Prev/Tretmnt of Sub Abuse ,468 30,468 TPC Health Dept Blk Grs for Prev/Tretmnt of Sub Abuse ,402 3,402 Total SAMHSA $33,870 $33,870 TOTAL FEDERAL AWARDS EXPENDED $3,708,504 $3,708,504

83 SUMNER SCHOOL DISTRICT #320 Schedule of Federal Financial Assistance For the Year Ending August 31, 2008 Notes to the Schedule NOTE 1 - BASIS OF ACCOUNTING NOTE 3 - NON CASH AWARDS - FOOD COMMODITIES ABOUT THE STATE AUDITOR'S OFFICE The State Auditor's Office is established in the state's Constitution and is part of the executive branch of state government. The State Auditor is elected by the citizens of Washington and serves four-year terms. Our mission is to work in cooperation with our audit clients and citizens as an advocate for government accountability. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws. The State Auditor's Office employees are located around the state to deliver our services effectively and efficiently. Our audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. In addition, we conduct performance audits of state agencies and local governments and fraud, whistleblower and citizen hotline investigations. The results of our work are widely distributed through a variety of reports, which are available on our Web site and through our free, electronic subscription service. We continue to refine our reporting efforts to ensure the results of our audits are useful and understandable. We take our role as partners in accountability seriously. We provide training and technical assistance to governments and have an extensive quality assurance program. State Auditor Brian Sonntag, CGFM Chief of Staff Ted Rutt Deputy Chief of Staff Doug Cochran Chief Policy Advisor Jerry Pugnetti Director of Audit Chuck Pfeil, CPA Director of Special Investigations Jim Brittain, CPA Director for Legal Affairs Jan Jutte, CPA, CGFM Director of Quality Assurance Ivan Dansereau Local Government Liaison Mike Murphy Communications Director Mindy Chambers Public Records Officer Mary Leider Main number (360) Toll-free Citizen Hotline (866) Web Site Subscription Service 50 (SAO FACTS.DOC - Rev. 02/09)