$6,415,000 PENN-TRAFFORD SCHOOL DISTRICT (Westmoreland County, Pennsylvania) GENERAL OBLIGATION BONDS, SERIES OF 2017

Transcription

1 OFFICIAL STATEMENT New Issue BOOK-ENTRY ONLY Underlying Bond Rating (based on School District): Moody s Investors Service, A1 Insured Bond Rating (BAM): S&P Global Ratings AA (stable outlook) (See BOND RATINGS herein.) In the opinion of Bond Counsel, based upon an analysis of existing laws, regulations, rulings, and court decisions, interest on the Bonds (including, in the case of Bonds sold at an original issue discount, the difference between the initial offering price and par) is excluded from gross income for Federal income tax purposes. Bond Counsel is also of the opinion that interest on the Bonds is not a specific item of tax preference under 57 of the Internal Revenue Code of 1986, as amended (the Code ) for purposes of the Federal individual or corporate alternative minimum taxes. The Bonds, and interest income therefrom, are free from taxation for purposes of personal income, corporate net income, and personal property taxes within the Commonwealth of Pennsylvania. (See TAX MATTERS herein.) The School District has designated the Bonds as Qualified Tax-Exempt Obligations pursuant to 265(b)(3) of the Code (relating to the deductibility of interest expense by certain financial institutions). $6,415,000 PENN-TRAFFORD SCHOOL DISTRICT (Westmoreland County, Pennsylvania) GENERAL OBLIGATION BONDS, SERIES OF 2017 INITIALLY DATED: Date of Delivery PRINCIPAL DUE: May 1, as shown herein FORM: Book-Entry Only INTEREST PAYABLE: May 1 and November 1 FIRST INTEREST PAYMENT DATE: November 1, 2017 DENOMINATION: Integral multiples of $5,000 PAYMENT OF PRINCIPAL AND INTEREST: The General Obligation Bonds, Series of 2017, in the principal amount of $6,415,000 (the Bonds ) of the Penn- Trafford School District, Westmoreland County, Pennsylvania (the School District ), are issuable only in fully registered form, without coupons and when issued, will be registered in the name of CEDE & CO., as nominee for The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository for the Bonds. Beneficial ownership interests in the Bonds will be recorded in book-entry only form in denominations of $5,000, or any integral multiple thereof. Principal of and interest on the Bonds are payable directly to CEDE & CO. for redistribution to DTC Participants and in turn to Beneficial Owners as described herein. Interest will be payable on May 1 and November 1 of each year that the Bonds are outstanding, commencing on November 1, Purchasers will not receive physical delivery of certificates representing their ownership interests in the Bonds purchased. For so long as any purchaser is the Beneficial Owner of a Bond, such purchaser must maintain an account with a broker or dealer who is, or acts through, a DTC Participant to receive payment of the principal of and interest on such Bonds. See BOOK-ENTRY ONLY SYSTEM herein. USE OF FUNDS: The proceeds to be derived by the School District from the issuance and sale of the Bonds will be used to finance: (a) the costs of acquiring and constructing renovations, repairs, replacements and other capital improvements to and of School District educational facilities, particularly such building integrity and mechanical systems as roofs, windows, entrance doors and HVAC systems, together with the costs of equipment for and of the same; and (b) the costs of issuance of the Bonds. REDEMPTION: The Bonds are subject to optional and mandatory redemption prior to their stated maturity dates, as provided herein. SECURITY FOR THE BONDS: The Bonds are general obligations of the School District, payable from its taxes and other available revenues which presently include ad valorem taxes which may be levied on all taxable real property within the School District for the payment when due of the principal of and the interest on the Bonds. The Bonds are NOT eligible for exception from the provisions of Act 1, as defined herein, and ARE subject to the tax rate limitations of Act 1, as amended. (See INTRODUCTORY STATEMENT and The Taxpayer Relief Act (Act 1), As Amended and Status of the Bonds Under Act 1 herein.) The School District has covenanted that it will provide in its budget in each year, and will duly and punctually pay or cause to be paid from the sinking fund established under the Resolution (as defined below) of the School District pursuant to which the Bonds are issued, or from any other of its available revenues or funds, the principal of and the interest on every Bond on the dates and at the place and in the manner stated in the Bonds. For such budgeting, appropriation and payment, the School District irrevocably has pledged its full faith, credit and available taxing power. The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by Build America Mutual Assurance Company. AUTHORIZATION FOR ISSUANCE: The Bonds are being issued in accordance with the Local Government Unit Debt Act, as amended (the Act ) of the Commonwealth of Pennsylvania, as codified by the Act of December 19, 1996, P.L. 1158, No. 177, as amended, with the approval of the Pennsylvania Department of Community and Economic Development and pursuant to a Resolution of the Board of School Directors of the School District duly adopted on March 13, 2017 (the Resolution ). CONTINUING DISCLOSURE UNDERTAKING: The School District has agreed to provide, or cause to be provided, in a timely manner, certain information in accordance with the requirements of Rule 15c2-12, as promulgated under the Securities Exchange Act of 1934, as amended and interpreted (the Rule ). (See CONTINUING DISCLOSURE UNDERTAKING herein.) LEGAL APPROVALS: The Bonds are offered when, as and if issued by the School District and received by the Underwriter, subject to prior sale and subject to the receipt of the approving legal opinion to be issued by Dinsmore & Shohl LLP, Pittsburgh, Pennsylvania, Bond Counsel. Certain additional matters will be passed upon for the School District by its Counsel, Maiello Brungo & Maiello, LLP, Pittsburgh, Pennsylvania. The Bonds are expected to be available for delivery on May 10, 2017 in New York, New York. REGISTRATION OF BONDS: Information concerning the Bonds has been furnished to The Depository Trust Company, New York, New York ( DTC ). It is expected that the Bonds will initially be registered in the name of DTC s nominee, CEDE & Co., New York, New York. (See Book-Entry Only System herein.) The date of this Official Statement is April 12, 2017.

2 $6,415,000 PENN-TRAFFORD SCHOOL DISTRICT (Westmoreland County, Pennsylvania) GENERAL OBLIGATION BONDS, SERIES OF 2017 INITIALLY DATED: Date of Delivery INTEREST PAYABLE: May 1 and November 1 PRINCIPAL DUE: May 1, as shown below FIRST INTEREST PAYMENT DATE: November 1, 2017 BOND MATURITY SCHEDULE Year (May 1) Principal Amount Interest Rate Yield Price (1) CUSIPs (2) 2018 $95, % 1.000% % KZ , LA , LB , LC , LD , LE , LF , LG , LH , LJ (3) 275, LK (3) 5,080, LL7 (1) Based on expected settlement date of May 10, (2) The above CUSIP (Committee on Uniform Securities Identification Procedures) numbers have been assigned by an organization not affiliated with the School District or the Underwriter, and such parties are not responsible for the selection or use of the CUSIP numbers. The CUSIP numbers are included solely for the convenience of bondholders and no representation is made as to the correctness of such CUSIP numbers. CUSIP numbers assigned to securities may be changed during the term of such securities based on a number of factors including, but not limited to, the refundings or defeasance of such issue or the use of secondary market financial products. Neither the School District nor the Underwriter has agreed to, and there is no duty or obligation to, update this Official Statement to reflect any change or correction in the CUSIP numbers set forth above. (3) Term Bond.

3 SUMMARY STATEMENT This Summary Statement is subject in all respects to more complete information contained in this Official Statement. No person is authorized to detach this SUMMARY STATEMENT from this Official Statement or otherwise use it without the entire Official Statement. Issuer... Penn-Trafford School District, Westmoreland County, Pennsylvania. The Bonds... $6,415,000 principal amount, General Obligation Bonds, Series of 2017 (the Bonds ). The Bonds are initially dated as of the date of delivery, and will mature as shown in the BOND MATURITY SCHEDULE shown on the inside of the Cover Page of this Official Statement. Interest on the Bonds will begin to accrue on the date of delivery and is payable each May 1 and November 1 thereafter, commencing November 1, (See THE BONDS herein.) Redemption Provisions... The Bonds are subject to optional and mandatory redemption prior to their stated maturity dates, as provided herein. (See REDEMPTION OF BONDS herein.) Form of Bonds... Book-Entry-Only. Application of Proceeds... The proceeds to be derived by the School District from the issuance and sale of the Bonds will be used to finance: (a) the costs of acquiring and constructing renovations, repairs, replacements and other capital improvements to and of District educational facilities, particularly such building integrity and mechanical systems as roofs, windows, entrance doors and HVAC systems, together with the costs of equipment for and of the same; and (b) the costs of issuance of the Bonds. (See PURPOSE OF THE BOND ISSUE, SOURCES AND USES OF FUNDS, DEBT LIMITS AND REMAINING BORROWING CAPACITY OF THE SCHOOL DISTRICT - Future Financing, and SCHEDULE OF DIRECT AND OVERLAPPING DEBT AND DEBT RATIOS, herein.) Security for the Bonds... The Bonds are general obligations of the School District, for the payment of which the School District has irrevocably pledged its full faith, credit and available taxing power. (See INTRODUCTORY STATEMENT and The Taxpayer Relief Act (Act 1), as Amended herein.) Credit Enhancement... The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Bonds by Build America Mutual Assurance Company. (See BOND INSURANCE herein.) Bond Rating... The Bonds are expected to receive a credit rating of AA (stable outlook) from S&P Global Ratings ( S&P ) with the understanding that the above-described municipal bond insurance policy will be issued at the time of settlement of the Bonds. The Bonds have received an underlying rating of A1 (based on the School District s financial condition) from Moody s Investors Service. (See BOND RATINGS herein.) Continuing Disclosure Undertaking... The School District has agreed to provide, or cause to be provided, in a timely manner, certain information in accordance with the requirements of Rule 15c2-12, as promulgated under the Securities Exchange Act of 1934, as amended and interpreted (the "Rule"). (See CONTINUING DISCLOSURE UNDERTAKING herein.)

4 PENN-TRAFFORD SCHOOL DISTRICT (Westmoreland County Pennsylvania) Administration Building PO Box 530 Harrison City, Pennsylvania Telephone: (724) BOARD OF SCHOOL DIRECTORS Board Member Position Term Expiration Date Mr. Martin Stovar President December 2017 Mr. Philip Kochasic Vice President December 2019 Mrs. Toni Ising Member December 2017 Dr. Scott Koscho Member December 2019 Mr. Dallas Leonard Member December 2019 Mr. James Matarazzo Member December 2019 Mr. Bruce Newell Member December 2017 Mr. Richard Niemiec Member December 2017 Mr. Nick Petrucci Member December 2019 SCHOOL ADMINISTRATION Dr. Matthew Harris Mr. Scott Inglese Mr. Brett Lago Superintendent Assistant Superintendent Business Manager and Board Secretary SOLICITOR Maiello Brungo & Maiello, LLP Pittsburgh, Pennsylvania BOND COUNSEL Dinsmore & Shohl LLP Pittsburgh, Pennsylvania PAYING AGENT, TRANSFER AGENT, BOND REGISTRAR, AND SINKING FUND DEPOSITORY Manufacturers and Traders Trust Company Harrisburg, Pennsylvania MANAGING UNDERWRITER PNC Capital Markets LLC Pittsburgh, Pennsylvania

5 No dealer, broker or any other person has been authorized by the School District to give any information or make any representation, other than those contained in this Official Statement, and if given or made, such other information and representation must not be relied upon. This Official Statement does not constitute an offer to sell or the solicitation of any offer to buy, nor shall there be any sale of the Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. The information set forth herein has been obtained from the School District and from other sources which are believed to be reliable, but the School District does not guarantee the accuracy or completeness of information from sources other than the School District. PNC Capital Markets LLC, Pittsburgh, Pennsylvania as the Underwriter (the "Underwriter"), has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with and as part of its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guaranty the accuracy or completeness of such information, which has been obtained from either the School District or from sources other than the School District. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement, nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in any of the information set forth herein since the date hereof. The quotations from and summaries and explanation of provisions of laws and documents contained herein, including the cover page, inside cover page and Appendices attached hereto, do not purport to be complete. Reference is made to such laws and documents for full and complete statements of their provisions. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not expressly so stated, are intended merely as estimates or opinions and not as representations of fact. If and when included in this Official Statement, the words expects, forecasts, projects, intends, anticipates, estimates, assumes, and analogous expressions are intended to identify forward-looking statements, and any such statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those that have been projected. THE ORDER AND PLACEMENT OF MATERIALS IN THIS OFFICIAL STATEMENT, INCLUDING THE APPENDICES ATTACHED HERETO AND INFORMATION INCORPORATED HEREIN BY REFERENCE, ARE NOT TO BE DEEMED TO BE A DETERMINATION OF RELEVANCE, MATERIALITY OR IMPORTANCE, AND THIS OFFICIAL STATEMENT, INCLUDING THE APPENDICES HERETO AND INFORMATION INCORPORATED HEREIN BY REFERENCE, MUST BE CONSIDERED IN ITS ENTIRETY. THE OFFERING OF THE BONDS IS MADE ONLY BY MEANS OF THIS ENTIRE OFFICIAL STATEMENT. IN MAKING ANY INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE BONDS 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 IS A CRIMINAL OFFENSE. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS (INCLUDING DEALERS DEPOSITING THE BONDS INTO INVESTMENT TRUST(S)) AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PROCES STATED ON THE INSIDE FRONT COVER HEREOF. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE BONDS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAS THE RESOLUTION BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE BONDS OR THE RESOLUTION IN ACCORDANCE WITH APPLICABLE PROVISIONS OF THE SECURITIES LAWS OF CERTAIN STATES, IF ANY, IN WHICH THE BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN CERTAIN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. Build America Mutual Assurance Company ( BAM ) makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading Bond Insurance and Appendix E, Specimen Municipal Bond Insurance Policy. The School District deems this Official Statement to be final for the purpose of SEC Rule 15c2-12(b)(1).

6 TABLE OF CONTENTS Item Page Introductory Statement... 1 Purpose of the Bond Issue... 1 Sources and Uses of Funds... 1 The Bonds... 2 Redemption of Bonds... 4 Security for the Bonds... 5 Bond Insurance... 7 Bond Insurance Risk Factors... 8 Penn-Trafford School District... 9 Financial Summaries Summary of General Fund Revenues and Expenditures Debt Limits and Remaining Borrowing Capacity of the School District Taxes and Taxing Powers of the School District Legislation Affecting Local Taxing Powers and Authorized Debt Limits of School Districts The Paying Agent Continuing Disclosure Undertaking Legal Matters Litigation Tax Matters Related Parties Bond Ratings Bond Underwriting Miscellaneous Matters Appendix A Regional and Economic Data of Penn-Trafford School District... A-1 Appendix B Operating and Financial Data... B-1 Appendix C School District Audited Financial Statements for the Fiscal Year Ending June 30, D-1 Appendix D Form of Opinion of Bond Counsel... C-1 Appendix E Specimen Municipal Bond Insurance Policy... E-1 This Table of Contents does not list all of the subjects in this Official Statement. In all instances, reference should be made to the complete Official Statement to determine the subjects set forth herein.

7 OFFICIAL STATEMENT $6,415,000 PENN-TRAFFORD SCHOOL DISTRICT (Westmoreland County, Pennsylvania) GENERAL OBLIGATION BONDS, SERIES OF 2017 INTRODUCTORY STATEMENT This Official Statement, including the Cover Page hereof and the Appendices hereto, is furnished in connection with the offering by the School District of $6,415,000 principal amount, of its General Obligation Bonds, Series of 2017 (the Bonds ). The Bonds are authorized to be issued pursuant to the provisions of the Pennsylvania Local Government Unit Debt Act, as amended (the Act ), 53 Pa. C.S.A et seq., as amended, and are described in, and are being issued pursuant to the provisions of, a Resolution of the Board of School Directors of the School District duly adopted on March 13, 2017 (the Resolution ) and a Bond Purchase Agreement executed on April 12, The approval of the Department of Community and Economic Development of the Commonwealth of Pennsylvania (the Commonwealth ) for the School District to issue and deliver the Bonds will have been duly given pursuant to the Act; all acts, conditions and things required by the laws of the Commonwealth to exist, to have happened or to have been performed precedent to or in the issuance of the Bonds or in the creation of the debt of which any Bond is evidence, exist, will have happened, and will have been performed in regular and due form and manner as required by law; the Bonds, together with all other indebtedness of the School District, will be within every debt and other limit prescribed by the Constitution and the statutes of the Commonwealth; and the School District will have established with Manufacturers and Traders Trust Company, Harrisburg, Pennsylvania, or its designee, as the paying agent, transfer agent, bond registrar, and sinking fund depository for the Bonds, a Sinking Fund for the Bonds, as defined herein, and shall deposit therein amounts sufficient to pay the principal of and interest on the Bonds as the same shall become due and payable. (See THE BONDS - Paying Agent, Transfer Agent, Bond Registrar, and Sinking Fund Depository and THE PAYING AGENT herein.) The Bonds, as General Obligation Bonds of the School District, are secured, for the prompt payment when due of the principal of, redemption premium, if any, and the interest on the Bonds, by a pledge of the full faith, credit, and available taxing power of the School District. (See SECURITY FOR THE BONDS and RECENT LEGISLATION AFFECTING LOCAL TAXING POWERS AND AUTHORIZED DEBT LIMITS OF SCHOOL DISTRICTS herein.) The Pennsylvania Public School Code of 1949, as amended (the "School Code"), presently provides for withholding and direct application of subsidies from the Commonwealth to a school district in the event of a failure by the school district to pay when due the principal of and the interest on its bonded indebtedness. (See SECURITY FOR THE BONDS Commonwealth Aid to School Districts herein.) PURPOSE OF THE BOND ISSUE The proceeds to be derived by the School District from the issuance and sale of the Bonds will be used to finance: (a) the costs of acquiring and constructing renovations, repairs, replacements and other capital improvements to and of District educational facilities, particularly such building integrity and mechanical systems as roofs, windows, entrance doors and HVAC systems, together with the costs of equipment for and of the same; and (b) the costs of issuance of the Bonds. (See SOURCES AND USES OF FUNDS, DEBT LIMITS AND REMAINING BORROWING CAPACITY OF THE SCHOOL DISTRICT - Future Financing, and SCHEDULE OF DIRECT AND OVERLAPPING DEBT AND DEBT RATIOS, herein.) SOURCES AND USES OF FUNDS The proceeds from the sale of the Bonds shall be applied substantially in the following manner: Sources of Funds Par Amount of Bonds $6,415, Less/Plus: Net Original Issue (Discount)/Premium (1) (408.75) TOTAL SOURCES $6,414, Uses of Funds Capital Project Fund Deposit $6,305, Costs of Issuance and Miscellaneous * 109, TOTAL USES $6,414, *Consisting of legal, paying agent, printing, rating fee, bond insurance premium, disclosure dissemination agent fees, bond discount and miscellaneous expenses. (1) See Original Issue Discount and Original Issue Premium under TAX MATTERS herein. 1

8 THE BONDS The Bonds will be issued as fully registered bonds without coupons in denominations of $5,000 or any integral multiple thereof. The Bonds will be initially dated as of the date of delivery and will bear interest on the unpaid principal at the rates and mature in the amounts and on the dates set forth on the inside cover page of this Official Statement. While the Bonds are in the Book-Entry-Only System, references to the Owner or the Registered Bond Owner as described herein are to Cede & Co., as nominee of DTC. Each beneficial owner of a Bond may desire to make arrangements with a DTC Participant to receive notices or communications with respect to matters described herein. (See Book Entry-Only System herein.) Interest on the Bonds shall be computed on the basis of a 30-day month and 360-day year and shall be payable semiannually on May 1 and November 1 of each year, commencing on November 1, 2017 (the Interest Payment Dates ). If an Interest Payment Date occurs on a day which is not a Business Day (a Business Day is any day other than a Saturday, Sunday, legal holiday or a day on which financial institutions in the Commonwealth of Pennsylvania are authorized by law to be closed), the interest on and principal of the Bonds coming due on such Interest Payment Date shall be payable on the next succeeding Business Day without any additional accrual of interest. Each Bond will be dated as of its date of authentication and will bear interest from the immediately preceding Interest Payment Date to which interest has been paid, unless: (i) such bond is authenticated on an Interest Payment Date to which interest has been paid, in which case it shall bear interest from such Interest Payment Date; or (ii) such Bond is authenticated on or prior to the first Regular Record Date (hereinafter defined) after the issue date, in which event it shall bear interest from the dated date; or (iii) such Bond is authenticated after a Regular Record Date and before the next succeeding Interest Payment Date on which interest is in fact paid, in which case such Bond will bear interest from such next succeeding Interest Payment Date. So long as the Bonds or any portion thereof are registered in the name of DTC or its nominee, payments thereon shall be made to DTC or its nominee. (See Book-Entry-Only System herein.) At all other times, the principal of and interest on the Bonds shall be payable at the designated office of Manufacturers and Traders Trust Company, as Paying Agent (the Paying Agent ), in such coin or currency of the United States of America as at the time and place of payment is legal tender for public and private debts, provided that interest may be paid by check drawn upon the Paying Agent and mailed to the persons in whose names the Bonds are registered at the close of business on the fifteenth day of the month immediately preceding the relevant Interest Payment Date (the Regular Record Date ) at the addresses shown on the registration records for the Bonds (the Bond Register ) kept by the Paying Agent. Persons designated in the Bond Register as owning Bonds are hereinafter referred to as Registered Bond Owners. Notwithstanding the foregoing, if and to the extent there shall be a default in the payment of interest due on an Interest Payment Date, such defaulted interest shall be paid on a special payment date to the Registered Bond Owners in whose names the Bonds are registered at the close of business on a special record date (the Special Record Date and, together with the Regular Record Date, the Record Date ) established by notice mailed to the Registered Bond Owners not less than ten (10) days prior to such special payment date. Registration, Transfer and Exchange of Bonds The Paying Agent is responsible for maintaining the books of the School District pertaining to the registration of ownership of each Bond. The ownership of Bonds may be transferred upon the registration books upon delivery to the Paying Agent or its designee, written instrument or instruments of transfer in form and with guaranty of signature satisfactory to the Paying Agent or its designee, duly executed by the registered holder of the Bonds to be transferred or his duly authorized attorney-in-fact or legal representative, subject to such reasonable regulations as the School District or the Paying Agent or its designee may prescribe, and upon payment of any taxes or other governmental charges incident to such transfer. No transfer of any Bond will be effective until entered on the registration books. Neither the School District nor the Paying Agent or its designee shall be required (a) to register the transfer of or to exchange any Bonds then considered for redemption, during a period beginning at the close of business on the fifteenth day next preceding any date of selection of Bonds to be redeemed and ending at the close of business on the day on which the applicable notice of redemption is mailed, (b) to register the transfer of or to exchange any portion of any Bond selected for redemption in whole or in part until after the redemption date, or (c) to register the transfer of or to exchange any Bond during the period beginning at the close of business on the fifteenth day preceding the date of maturity on the Bond and ending at the close of business on the date of maturity. Book-Entry-Only System The information set forth below concerning The Depository Trust Company ("DTC") and the book-entry only system has been extracted from materials provided by DTC for such purpose. No representation is made by the School District or the Underwriter as to the accuracy of such information provided by DTC or as to the absence of material adverse changes in such information subsequent to the date hereof. The Depository Trust Company ( DTC ), New York, New York, 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 set forth on the inside front cover page of this Official Statement, each in the aggregate principal amount of such maturity and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 2

9 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 participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of: AA+. The DTC rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about the DTC can be found at Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry only system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of 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. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Paying Agent and request that copies of the notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity of the Bonds are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. 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 Money Market Instruments ( MMI ) Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the School 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 such Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds and payments of principal of and interest 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 School District or Paying Agent on the payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent or the School District, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption proceeds and payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the School District or Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC and disbursement of such payments to the Beneficial Owners will be the responsibility of the Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the School District or the Paying Agent. Under such circumstances, in the event that a successor depository is not required under the Resolution or obtained, Bond certificates are required to be printed and delivered in accordance with the Resolution. The School District may decide to discontinue use of the system of book-entry-only transfers through DTC (or successor securities depository). In that event Bond certificates will be printed and delivered to DTC. The above information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the School District believes to be reliable but the School District takes no responsibility for the accuracy thereof. NEITHER THE SCHOOL DISTRICT NOR THE PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO PARTICIPANTS, BENEFICIAL OWNERS OR OTHER NOMINEES OF SUCH BENEFICIAL OWNERS FOR (1) SENDING 3

10 TRANSACTION STATEMENTS; (2) MAINTAINING, SUPERVISING OR REVIEWING, OR THE ACCURACY OF, ANY RECORDS MAINTAINED BY DTC OR ANY PARTICIPANT OR OTHER NOMINEES OF SUCH BENEFICIAL OWNERS; (3) PAYMENT OR THE TIMELINESS OF PAYMENT BY DTC TO ANY PARTICIPANT, OR BY ANY PARTICIPANT OR OTHER NOMINEES OF BENEFICIAL OWNERS TO ANY BENEFICIAL OWNER, OF ANY AMOUNT DUE IN RESPECT OF THE PRINCIPAL OF OR REDEMPTION PREMIUM, IF ANY, OR INTEREST ON BOOK-ENTRY BONDS; (4) DELIVERY OR TIMELY DELIVERY BY DTC TO ANY PARTICIPANT, OR BY ANY PARTICIPANT OR OTHER NOMINEES OF BENEFICIAL OWNERS TO ANY BENEFICIAL OWNERS, OF ANY NOTICE (INCLUDING NOTICE OF REDEMPTION) OR OTHER COMMUNICATION WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE RESOLUTION TO BE GIVEN HOLDERS OR OWNERS OF BOOK-ENTRY BONDS; (5) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF BOOK-ENTRY BONDS; OR (6) ANY ACTION TAKEN BY DTC OR ITS NOMINEE AS THE REGISTERED OWNER OF BOOK- ENTRY BONDS. Discontinuance of Book-Entry-Only System The book-entry system for registration of the ownership of the Bonds may be discontinued at any time if: (i) DTC determines to resign as securities depository for the Bonds, or (ii) the School District determines that continuation of the system of book-entry transfers through DTC (or through a successor securities depository) is not in the best interests of the Beneficial Owners. In either such event (unless the School District appoints a successor securities depository), Bonds will then be delivered in registered certificate form to such persons, and in such maturities and principal amounts, as may be designated by DTC, but without any liability on the part of the School District, or the Paying Agent for the accuracy of such designation. Whenever DTC requests the School District or the Paying Agent to do so, the School District or the Paying Agent shall cooperate with DTC in taking appropriate action after reasonable notice to arrange for another securities depository to maintain custody of certificates evidencing the Bonds. Paying Agent, Transfer Agent, Bond Registrar and Sinking Fund Depository The obligations and duties of the Paying Agent are described in the Resolution and the Act, and the Paying Agent has undertaken only those obligations and duties which are expressly set out in the Resolution or required by the Act. The Paying Agent has not independently passed upon the validity of the Bonds, the security therefor, the adequacy of the provisions for payment thereof, or the tax-exempt status of the interest on the Bonds. The Paying Agent is not required to take notice or be deemed to have notice of any default under the Resolution, except for failure by the School District to make or cause to be made any of the payments required to be made for the principal of the Bonds when due at maturity or earlier redemption, or the interest thereon (See THE PAYING AGENT herein.) The Paying Agent may designate an agent for purposes of exercising the duties and functions described herein and in the Resolution. Mutilated, Lost, Stolen, or Destroyed Bonds If any Bond is mutilated, lost, stolen, or destroyed, the School District may execute, and the Paying Agent or its designee may authenticate, subject to the provisions of the Act, a new Bond of the same date, maturity, denomination, and interest rate. In connection with replacing mutilated, lost, stolen, or destroyed Bonds, the School District and the Paying Agent or its designee may require satisfactory indemnification and may charge the owners of such Bonds reasonable fees and expenses. Notice of Redemption REDEMPTION OF BONDS As provided more fully in the Resolution and in the form of the Bonds, notice of redemption of Bonds shall be given by mailing a copy of the redemption notice by first class mail, postage prepaid, no less than 30 nor more than 60 days prior to the redemption date to the Registered Owners of Bonds to be redeemed at the addresses which appear in the Bond Register. Neither failure to mail such notice nor any defect in the notice so mailed or in the mailing thereof with respect to any one Bond will affect the validity of the proceedings for the redemption of any other Bond. If the School District shall have duly given notice of redemption and shall have deposited with the Paying Agent funds for the payment of the redemption price of the Bonds so called for redemption with accrued interest thereon to the date fixed for redemption, interest on such Bonds will cease to accrue after such redemption date. Manner of Redemption Portions of any Bond of a denomination larger than $5,000 may be redeemed, but only in the principal amount of $5,000 or any integral multiple thereof. For the purpose of redemption, each Bond shall be treated as representing the number of Bonds that is equal to the principal amount thereof divided by $5,000, each $5,000 portion of such Bond being subject to redemption. Upon surrender of any Bond for redemption of a portion only, the Paying Agent shall authenticate and deliver to the owner thereof a new Bond or Bonds of the same series, maturity date and interest rate, in authorized denominations in an aggregate principal amount equal to the unredeemed portion of the Bond surrendered. 4

11 Mandatory Redemption The Bonds stated to mature on May 1, 2031 and on May 1, 2035 are subject to mandatory redemption, in part, prior to maturity, by lot within a maturity, at a redemption price equal to 100% of the principal amount thereof, together with accrued interest thereon, to the dates fixed for redemption, on May 1 of the years and in the amounts set forth below: The Bonds Stated The Bonds Stated to Mature on May 1, 2031 to Mature on May 1, 2035 Year Principal Amount Year Principal Amount 2028 $95, $1,610, , ,480, , ,350, ,000 (1) ,000 (1) (1) At maturity. Optional Redemption The Bonds stated to mature on and after May 1, 2023 are subject to redemption prior to maturity at the option of the School District in any order of maturities either as a whole, or in part, at any time on or after May 1, 2022, and, if in part, by lot within a maturity, at a redemption price equal to 100% of the principal amount thereof, together with accrued interest to the date fixed for redemption. General SECURITY FOR THE BONDS The Bonds are general obligations of the School District, payable from its taxes and other available revenues which presently include ad valorem taxes which may be levied on all taxable real property within the School District for the payment when due of the principal of and the interest on the Bonds. (See INTRODUCTORY STATEMENT and The Taxpayer Relief Act (Act 1), as Amended herein). The School District has covenanted that it will provide in its budget for each year, and will appropriate from its revenues in each such year, the amount of the debt service on the Bonds for such year, and will duly and punctually pay or cause to be paid from its Sinking Fund, or any other of its available revenues or funds, the principal of, and the interest on, the Bonds, as and when due, at the dates and places and in the manner stated on the Bonds. For such budgeting, appropriation, and payment, the School District has irrevocably pledged its full faith, credit and available taxing power. Such pledge is specifically enforceable but is subject to the limitations of bankruptcy, insolvency, and other laws or equitable principles affecting creditor rights generally as well as the limitations provided in Act 1 (as hereinafter defined) (See The Taxpayer Relief Act (Act 1), as Amended herein.) Additionally, the School Code presently provides for withholding and direct application of Commonwealth subsidies in the event of the failure of a school district to pay debt service on its bonded indebtedness. (See Commonwealth Aid to School Districts herein.) No recourse shall be had for the payment of the principal of or the interest on any Bond, or for any claim based thereon or in the Resolution against any member of the Board of School Directors, or any officer or employee of the School District, past, present, or future or of any successor body, as such, either directly or through the School District or any such successor body, under any constitutional provision, statute or rule of law, or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, and all such liability of such members of the Board of School Directors, officers, or employees is released as a condition of and as consideration for the issuance of the Bonds. Sinking Fund The Resolution provides for the creation of a Sinking Fund (the Sinking Fund ) which will be held by the Paying Agent as a separate fund segregated from all other funds of the School District. The School District shall deposit into such Sinking Fund not later than the date when interest or principal is to become due on the Bonds relating thereto amounts sufficient to pay the principal and interest then due on such Bonds. Money held in the Sinking Fund shall be maintained by the Paying Agent or its designee and may be invested in securities or deposits as authorized by law, upon direction of the School District. Such deposits and securities shall be in the name of the School District and shall be subject to withdrawal or collection by the Paying Agent or its designee only to pay debt service on the Bonds, and such deposits and securities, together with the interest earned thereon, shall be part of such Sinking Fund. The Paying Agent, as Sinking Fund Depository, is authorized without further order from the School District to pay from the Sinking Fund the principal of and interest on the Bonds, as and when due and payable. Bondholder Rights and Remedies The remedies available to holders of the Bonds upon any failure to pay the principal of, and the interest on the Bonds, when due, include those prescribed by the Act. If such failure should continue for a period of time in excess of thirty days, any holder of the Bonds will, subject to certain priorities, have the right to bring suit for the amount due in the Court of Common Pleas of Westmoreland County, Pennsylvania. The Act provides that, if the School District defaults in the payment of the principal of, and the interest on the Bonds, and 5

12 such default continues for a period of time in excess of thirty days, or if the School District fails to comply with any provision of either the Bonds or the Resolution, then the holders of 25% in aggregate principal amount of the Bonds may appoint a trustee to represent the holders of the Bonds. Such trustee may, and upon written request of the holders of 25% in aggregate principal amount of the Bonds and being furnished with satisfactory indemnity, must take one or more of the following actions, which will preclude similar action by individual holders: (i) bring suit to enforce all rights of the holders, (ii) bring suit on the Bonds, (iii) petition the Court to levy the amount due plus estimated costs of collection as an assessment upon all taxable real estate and other property subject to ad valorem taxation in the School District (any such assessment will have the same priority and preference as to other liens or security interests as a lien for unpaid taxes), and (iv) by suit in equity, enjoin any acts or things which may be unlawful or in violation of the rights of the holders, all as set forth more fully in the Act. Enforcement of a claim for payment of the principal of, premium, if any or the interest on the Bonds may be subject to the provisions of the federal bankruptcy laws and to the provisions of other statutory laws enacted by the Congress or the General Assembly of the Commonwealth, or common law developed by competent courts having jurisdiction extending the time for payment or imposing other constraints upon enforcement insofar as such laws may be constitutionally applied. Commonwealth Aid To School Districts Pennsylvania school districts receive financial assistance from the Commonwealth in a number of forms, all subject to statutory provisions and annual appropriation by the Pennsylvania General Assembly. The largest subsidy, the basic instructional subsidy, is allocated to all school districts based on student-based factors, such as: (1) number of children in the school district who live in poverty; (2) number of children enrolled in charter schools; and (3) number of children who are English language learners, as well as school district based factors such as: (1) wealth of the school district; (2) the school district s current tax effort; and (3) the ability of the school district to raise revenue. Currently, the Commonwealth also provides a subsidy for certain capital projects of school districts. The rental and sinking fund reimbursement from the Commonwealth ( PlanCon Reimbursements ) for such school projects is determined by the Reimbursable Percentage assigned to the school building project and by the school district s Market Value Aid Ratio ( MVAR ) or Capital Account Reimbursable Fraction (the CARF ), whichever is higher. The School District s CARF for fiscal year 2017 is 48.90% and the MVAR is 60.26%. Most school building projects in the Commonwealth are eligible for state reimbursement. Certain school building projects, such as school administration buildings, swimming pools and tracks, and deferred maintenance, are ineligible for reimbursement. A reimbursement percentage, based upon the rated pupil capacity of the new or renovated structure and certain other costs, is assigned to the building project. This reimbursement percentage multiplied by the school district MVAR or CARF, whichever is higher, determines the state share of the annual lease rental or debt service for that school year. The difference between the State share and 100% yields the local share of debt service or lease rental payments. As the school district s MVAR may change each year, so will the State share of such reimbursement. However, on July 12, 2016, the Commonwealth enacted its budget without providing appropriations for PlanCon Reimbursements to any school district. Additionally, no PlanCon Reimbursement was provided to any school district in the fiscal year. Rather than appropriate the amounts committed to be paid from current state revenues, the General Assembly determined to issue bonds through the Commonwealth Financing Authority (the CFA ) to fund its and obligations. House Bill 1589 which included an authorization to issue up to $2.5 billion of bonds to fund the obligation, became law despite the Governor s refusal to sign the legislation. The first CFA bond issue closed on October 31, 2016, and the proceeds were used to fund the past due PlanCon reimbursements for the as well as the fiscal year reimbursements. On February 23, 2017, the School District received its PlanCon reimbursement payment in the amount of $1,086, for fiscal year Act 25 of 2016 provides that the Department of Education shall not accept or approve new building or reconstruction project applications, if received after May 15, Instead, such new projects would be subject to such new or revised system of Commonwealth support for construction or renovation as may be enacted into law in the future. It should be noted that other legislation has been introduced from time to time by the Pennsylvania General Assembly that contains language that revises or even eliminates the PlanCon Reimbursement program for Pennsylvania school districts. As of the date of this Official Statement, none of these proposals have been signed into law. To the extent that any future legislation contains material changes to the PlanCon Reimbursement program as currently structured, the amount of PlanCon Reimbursement to the School District may be positively or negatively affected. A decrease in the reimbursement could materially impact the amount of local funds needed to be raised by the School District to pay debt service on its debt obligations. The projects being financed from the proceeds of the Bonds are not expected to qualify for reimbursement and the School District will budget its debt service obligations based on that presumption. The amount of Commonwealth aid to the School District in the future may change in the event amendments are made to state aid formulas or if changes occur in local conditions which may affect the level of state aid under current formulas. Section 633 of the School Code, as amended, presently provides that in all cases where the board of school directors of any school district fails to pay or to provide for the payment of any indebtedness at date of maturity or date of mandatory redemption, or on any sinking fund deposit date, or any interest due on such indebtedness on any interest payment date, or on any sinking fund deposit date, in accordance 6

13 with the schedule under which the bonds are issued, the Secretary of Education shall notify such board of school directors of its obligation and shall withhold out of any Commonwealth appropriation due such school district an amount equal to the sum of the principal amount maturing or subject to mandatory redemption and interest owing by such school district, or sinking fund deposit due by such school district, and shall pay over the amount so withheld to the bank or other person acting as sinking fund depository for such bond issue ( Pennsylvania Act 150 School District Intercept Program ). These withholding provisions are not part of any contract with the holders of the Bonds, and may be amended or repealed by future legislation. There can be no assurance that any payments made pursuant to this withholding provision will be made by the date on which such payments are due to Bondholders, and the effectiveness of the withholding provisions of the Pennsylvania Act 150 School District Intercept Program may be limited by the application of other withholding provisions contained in the School Code. These provisions may apply to withholding and paying over appropriations for payment of unpaid teachers' salaries. Enforcement may also be limited by bankruptcy, insolvency, or other laws or equitable principles affecting the rights of creditors. For information regarding certain limitations placed on the taxing power of school districts in the Commonwealth of Pennsylvania, see LEGISLATION AFFECTING LOCAL TAXING POWERS AND AUTHORIZED DEBT LIMITS OF SCHOOL DISTRICTS herein. School District Intercept Payments Legislation Recently enacted Act 85 of 2016 provides for the intercept of school district subsidy payments by the Commonwealth Department of Education when annual Commonwealth appropriations have not been enacted by July 1 and continue to not be enacted when a school district debt service payment is due. Any Commonwealth payments made will be deducted from a school district s final allocations in accordance with the enacted Commonwealth budget. The total amount of all intercept payments may not exceed 50% of the total non-federal General Fund subsidy payments made to a school district in the prior fiscal year. Act 85 is recent legislation. It is not clear how the Commonwealth Department of Education would apply Act 85 in the event of a budget impasse. In particular, in the absence of a fiscal agent agreement or other obligation to make a sinking fund deposit more than 10 days in advance of a debt service payment date, timely payment of the impasse intercept by the Commonwealth Department of Education relies on the required advance notice by the Secretary of Education to legislative officials. As of the date of this Official Statement, no precedent or process for this advance notice has been established. Bond Insurance Policy BOND INSURANCE Concurrently with the issuance of the Bonds, Build America Mutual Assurance Company ( BAM ) will issue its Municipal Bond Insurance Policy for the Bonds (the Policy ). The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Build America Mutual Assurance Company BAM is a New York domiciled mutual insurance corporation. BAM provides credit enhancement products solely to issuers in the U.S. public finance markets. BAM will only insure obligations of states, political subdivisions, integral parts of states or political subdivisions or entities otherwise eligible for the exclusion of income under section 115 of the U.S. Internal Revenue Code of 1986, as amended. No member of BAM is liable for the obligations of BAM. The address of the principal executive offices of BAM is: 200 Liberty Street, 27 th Floor, New York, New York 10281, its telephone number is: , and its website is located at: BAM is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York and in particular Articles 41 and 69 of the New York Insurance Law. BAM s financial strength is rated AA/Stable by S&P Global Ratings, a business unit of Standard & Poor's Financial Services LLC ( S&P ). An explanation of the significance of the rating and current reports may be obtained from S&P at The rating of BAM should be evaluated independently. The rating reflects the S&P s current assessment of the creditworthiness of BAM and its ability to pay claims on its policies of insurance. The above rating is not a recommendation to buy, sell or hold the Bonds, and such rating is subject to revision or withdrawal at any time by S&P, including withdrawal initiated at the request of BAM in its sole discretion. Any downward revision or withdrawal of the above rating may have an adverse effect on the market price of the Bonds. BAM only guarantees scheduled principal and scheduled interest payments payable by the issuer of the Bonds on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the Policy), and BAM does not guarantee the market price or liquidity of the Bonds, nor does it guarantee that the rating on the Bonds will not be revised or withdrawn. 7

14 Capitalization of BAM BAM s total admitted assets, total liabilities, and total capital and surplus, as of December 31, 2016 and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $496.7 million, $65.2 million and $431.5 million, respectively. BAM is party to a first loss reinsurance treaty that provides first loss protection up to a maximum of 15% of the par amount outstanding for each policy issued by BAM, subject to certain limitations and restrictions. BAM s most recent Statutory Annual Statement, which has been filed with the New York State Insurance Department and posted on BAM s website at is incorporated herein by reference and may be obtained, without charge, upon request to BAM at its address provided above (Attention: Finance Department). Future financial statements will similarly be made available when published. BAM makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading BOND INSURANCE. Additional Information Available from BAM Credit Insights Videos. For certain BAM-insured issues, BAM produces and posts a brief Credit Insights video that provides a discussion of the obligor and some of the key factors BAM s analysts and credit committee considered when approving the credit for insurance. The Credit Insights videos are easily accessible on BAM's website at buildamerica.com/creditinsights/. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.) Credit Profiles. Prior to the pricing of bonds that BAM has been selected to insure, BAM may prepare a pre-sale Credit Profile for those bonds. These pre-sale Credit Profiles provide information about the sector designation (e.g. general obligation, sales tax); a preliminary summary of financial information and key ratios; and demographic and economic data relevant to the obligor, if available. Subsequent to closing, for any offering that includes bonds insured by BAM, any pre-sale Credit Profile will be updated and superseded by a final Credit Profile to include information about the gross par insured by CUSIP, maturity and coupon. BAM pre-sale and final Credit Profiles are easily accessible on BAM's website at buildamerica.com/obligor/. BAM will produce a Credit Profile for all bonds insured by BAM, whether or not a pre-sale Credit Profile has been prepared for such bonds. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.) Disclaimers. The Credit Profiles and the Credit Insights videos and the information contained therein are not recommendations to purchase, hold or sell securities or to make any investment decisions. Credit-related and other analyses and statements in the Credit Profiles and the Credit Insights videos are statements of opinion as of the date expressed, and BAM assumes no responsibility to update the content of such material. The Credit Profiles and Credit Insight videos are prepared by BAM; they have not been reviewed or approved by the issuer of or the underwriter for the Bonds, and the issuer and underwriter assume no responsibility for their content. BAM receives compensation (an insurance premium) for the insurance that it is providing with respect to the Bonds. Neither BAM nor any affiliate of BAM has purchased, or committed to purchase, any of the Bonds, whether at the initial offering or otherwise. BOND INSURANCE RISK FACTORS In the event of a default in the payment of principal or interest with respect to the Bonds when any such payment becomes due, any owner of the Bonds will have a claim under the Policy for such payment. However, in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or resulting from any default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, any payments to be made pursuant to the Policy will be made in such amounts and at such times as such payments would have been due had there not been any such acceleration. In addition, the Policy does not insure the payment of any redemption premium. To the extent that any payment of principal and interest by the School District in connection with a mandatory or optional prepayment of the Bonds is recovered by the School District from any owner of the Bonds as a voidable preference under applicable bankruptcy law, such payments are covered by the Policy. However, such payments will be made by BAM at such times and in such amounts as such payments would have been due had there been no such prepayment by the School District, unless BAM chooses to pay such amounts at an earlier date. Under most circumstances, any default in the payment of principal and interest does not accelerate the obligations of BAM without its consent. BAM may direct, and must consent to, any remedies that the Paying Agent exercises following such a default and BAM s consent may be required in connection with amendments to the Resolution in those circumstances. In the event that BAM is unable to make any payments of principal and interest as such payments become due under the Policy, the Bonds will be payable solely from the moneys received by the Paying Agent pursuant to the Resolution. In the event that BAM becomes obligated to make payments with respect to the Bonds, no assurance is given that such event will not adversely affect the market price of the Bonds or the marketability (liquidity) for the Bonds. 8

15 The long-term ratings on the Bonds are dependent in part on the financial strength of BAM and its claims paying ability. BAM s financial strength and claims paying ability are predicated upon a number of factors that could change over time. No assurance is given that the long-term ratings of BAM and, therefore, the ratings on the Bonds insured will not be subject to downgrade, and such event could adversely affect the market price of the Bonds or the marketability (liquidity) for the Bonds. See BOND RATINGS herein. The obligations of BAM under the Policy are general obligations of BAM and, upon an event of default by BAM, the remedies available to the Paying Agent may be limited by applicable bankruptcy law or other similar laws related to the insolvency of entities like BAM. Neither the School District nor the Underwriter has made an independent investigation into the claims paying ability of BAM and no assurance or representation regarding the financial strength or projected financial strength of BAM is given. Thus, when making an investment decision, potential investors should carefully consider the ability of the School District to pay principal and interest on the Bonds and the claims paying ability of BAM, particularly over the life of their investment. See BOND INSURANCE herein for further information provided by BAM with respect to itself and the Policy, which includes further instructions for obtaining current financial information concerning BAM. Description PENN-TRAFFORD SCHOOL DISTRICT (Westmoreland County, Pennsylvania) The School District is comprised of the Township of Penn and the Boroughs of Penn and Trafford, along with the major portion of the Borough of Manor and a minor portion of the City of Jeannette (the Component Municipalities ). A small portion of the Borough of Trafford is located in Allegheny County. The School District is located in the western section of Westmoreland County, approximately 20 miles east of the City of Pittsburgh, fifteen miles southeast of the Municipality of Monroeville and ten miles west of the City of Greensburg, which is the County seat of Westmoreland County. The School District encompasses a land area of approximately 36.5 square miles, serving a 2010 U.S. Census population of 36,486. Organization and Central Administration The School District is a third class school district (school districts within the Commonwealth are classified as first, second, third and fourth class according to population) and operates under and pursuant to the School Code, as amended and supplemented. The School District is governed by a nine-member Board of School Directors (the School Board ), comprised of residents of the School District who are elected on a staggered basis for four-year terms of office. The daily operations and management of the School District are overseen by the Superintendent of Schools, who serves as the chief educational officer of the School District. The School District Business Manager oversees the budgeting and financial management of the School District. SOURCE: School District Administrative Officials. School Building Facilities The following table depicts the component elements of the existing physical plant of the School District. Original Construction Most Recent Addition or Renovation Pupil Capacity Enrollment (1) Grades Elementary: Harrison Park K Level Green K McCullough K Sunrise Estates K Elementary/Secondary: Trafford Elementary/Middle K-8 1, Secondary: Penn Middle School Penn-Trafford High School ,817 1,297 SOURCE: School District Administrative Officials. (1) As of February 20,

16 Charter Schools The School District has approximately 95 students enrolled in either a brick and mortar or cyber charter school for the school year, which does not represent significant competition for student enrollment within the School District. Employment and Employee Relations The School District currently employs approximately 332 persons, as shown below: Administrators 26 Professional/Instructional 245 Custodial, Maintenance and Support 61 TOTAL 332 Professional/instructional employees of the School District are represented for purposes of collective bargaining by the Penn- Trafford Education Association, an affiliate of the Pennsylvania State Education Association ( PSEA ); the expiration date of this collective bargaining agreement is June 30, Non-professional employees of the School District are represented for purposes of collective bargaining by the Service Employees International Union, AFL/CIO, Local 585, which represents custodians and secretary/clerks. The expiration date of this collective bargaining agreement is June 30, Pension Program Currently, all Pennsylvania school districts and intermediate units participate in a pension program administrated by the Commonwealth. The program is formally known as the Public School Employees' Retirement System, and a percentage of each eligible employee's salary is contributed by the employee, the School District and the Commonwealth. All full-time employees, part-time employees salaried over eighty days per year and hourly employees with over five hundred hours per year participate in the program. Previously, the amount of salary contributions was fixed for the employee at 5.25% if hired prior to July 22, 1983 and 6.25%, if hired on or after July 22, With the passage of Act 9 of 2001, these contribution rates were raised to 6.5% and 7.5%, respectively, unless an employee chose not to change his/her benefit class. For the fiscal year ended June 30, 2016, the School District contributed 25.84% of the wages and salaries of all employees to the Public School Employees' Retirement System; the Commonwealth will, in turn, reimburse the School District at the rate of 50% of its total contributions with respect to all employees who were hired prior to July 1, With respect to employees hired after July 1, 1994, and who were not previously employed by another public school system in the Commonwealth, the School District will be reimbursed by the Commonwealth at the rate of the higher of 50% of contributions made by the School District or the current Market Value Aid Ratio. The School District will be reimbursed on a quarterly basis by the Commonwealth. The School District s contributions to PSERS, prior to Commonwealth reimbursement, for years ending June 30, 2016, 2015 and 2014 were $6,025,284, $4,870,949 and $3,759,677, respectively. The Pennsylvania Department of Education uses its actuarial valuations to project future increases in pension obligations as a percentage of payroll, for school districts including the School District. Below is the current percentage as well as the percentages for the past two fiscal years, and a projection for the following three fiscal years. Fiscal Year Percentage of Payroll % % % % % % As of June 30, 2015, the PSERS plan was 60.5% funded, with an unfunded actuarial accrued liability of approximately $37,335,764,000. For more information, visit the PSERS website at which is not incorporated by specific reference into this Official Statement. SOURCE: School District Administrative Officials and PSERS Comprehensive Annual Financial Report, Fiscal Year Ended June 30, Other Post-Employment Benefits ( OPEB ) In addition to providing pension benefits, the School District has various health insurance programs that cover its administrative, management and support staff employees. The School District is also subject to the provisions of Act 110, a Pennsylvania law that requires school districts to allow retirees to remain under the school district s coverage until age 65, provided certain conditions are met. 10

17 Funding Policy The School District does not advance fund the plan. Payments toward liabilities are made on a pay-as-you-go annual basis. Annual OPEB Cost and Net OPEB Obligation The School District s annual OPEB cost is calculated based on the annual required contribution ( ARC ) of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a period of 30 years. The following table shows the components of the School District s annual OPEB cost for the year, the actual amount contributed to the plan, and changes in the School District s OPEB obligation to the plan for the fiscal year ended June 30, Annual Required Contribution $1,102,715 Interest on net OPEB obligation 78,473 Adjustment to annual required contribution (129,567) Annual OPEB expense 1,051,621 Estimated Contributions made (660,230) Increase in net OPEB obligation 391,391 Net OPEB obligation beginning of year 2,615,759 Net OPEB obligation ending of year $3,007,150 The following table presents the School District s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the year and two preceding years. Year Ended June 30, Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation 2014 $1,032,268 83% $2,390, ,055,602 79% 2,615, ,051,621 63% 3,007,150 Funded Status and Funding Progress As of July 1, 2015, the most recent valuation date, the plan was not funded. The actuarial accrued liability for benefits was $9.3 million, and there were no assets, resulting in an unfunded actuarial accrued liability of $9.3 million. The actuarial value of assets as a percentage of the actuarial accrued liability was 0%. The covered payroll was $23.4 million, and the ratio of the UAAL to the covered payroll was 39.7%. SOURCE: School District Audited Financial Statements FINANCIAL SUMMARIES Annual Budget Development Process of Pennsylvania School Districts Under Act 1 In General School districts budget and expend funds according to procedures mandated by the Pennsylvania Department of Education ( PDE ). An annual operating budget is prepared by school district administrative officials on a uniform form furnished by such Department and submitted to the board of school directors for approval prior to the beginning of the fiscal year on July 1. Procedures for Adoption of the Annual Budget Under Act 1, as hereinafter defined, all school districts of the first class A, second class, third class and fourth class (except as described below) must adopt a preliminary budget proposal (which must include estimated revenues and expenditures and proposed tax rates) no later than 90 days prior to the date of the election immediately preceding the start of the fiscal year. The preliminary budget proposal must be printed and made available for public inspection at least 20 days prior to its adoption; the board of school directors may hold a public hearing on the budget; and the board must give at least 10 days public notice of its intent to adopt the final budget. If the adopted preliminary budget includes an increase in the rate of any tax levy, the preliminary budget must be submitted to the PDE no later than 85 days prior to the date of the election immediately preceding the start of the fiscal year. PDE is to compare the proposed percentage increase in the rate of any tax with the school district s Index (as defined herein) and within 10 days, but not later than 75 days prior to the upcoming election, inform the School District whether the proposed percentage increase is less than or equal to the Index. If PDE determines that a proposed tax increase will exceed the Index, the school district must reduce the proposed tax increase, seek voter 11

18 approval for the tax increase at the upcoming election, or seek approval to utilize one of the referendum exceptions authorized under the Taxpayer Relief Act (as defined herein). With respect to the utilization of any of the Taxpayer Relief Act referendum exceptions for which PDE approval is required (see The Taxpayer Relief Act (Act 1) as Amended herein), the school district must publish notice of its intent to seek PDE approval not less than one week before submitting its request for approval to PDE and, if PDE determines to schedule a public hearing on the request, a notice of the date, time and place of such hearing. PDE Is required by the Taxpayer Relief Act to rule on the school district s request and inform the school district of its decision no later than 55 days prior to the upcoming election so that, if PDE denies the school district s request, the school district may submit a referendum question to the local election officials at least 50 days before the upcoming election, if it so chooses. If a school district seeks voter approval to increase taxes at a rate higher than the applicable Index, whether or not it first seeks approval to utilize one of the referendum exceptions available under the Taxpayer Relief Act, and the referendum question is not approved by a majority of the voters voting on the question, the board of school directors may not approve an increase in the tax rate greater than the applicable Index. Simplified Procedures in Certain Cases The above budgetary procedures will not apply to a school district if the board of school directors adopts a resolution no later than 110 days prior to the election immediately preceding the upcoming fiscal year declaring that it will not increase any tax at a rate that exceeds the Index and that a tax increase at or below the rate of the Index will be sufficient to balance its budget. In that case, the Taxpayer Relief Act requires only that the proposed annual budget be prepared at least 30 days, and made available for public inspection at least 20 days, prior to its adoption, and that at least ten (10) days public notice be given of the school board s intent to adopt the annual budget. No referendum exceptions are available to a school district adopting such a resolution. Basis of Presentation - Fund Accounting The accounts of the School District are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The major fund types and the specific funds which are included within each of these major fund types are as follows: Governmental (General, Capital Projects and Special Revenue Fund); Proprietary (Food Service Fund); and Fiduciary (Agency Funds). In addition to the major fund types, two Account Groups are maintained for the purpose of measuring financial position and are not involved with the measurement of results of operations. These two Account Groups include General Fixed Assets and General Long-Term Debt. Basis of Accounting The modified accrual basis of accounting is used by all governmental fund types, expendable trust funds and agency funds of the School District. Under the modified accrual basis of accounting, revenues are recognized when they become both measurable and available. The Proprietary Fund is accounted for using the accrual basis of accounting. Its revenues are recognized when they are earned and expenses are recognized when they are incurred. Investment Policy The firm of Zelenkofske Axelrod LLC of Pittsburgh, Pennsylvania, serves as the School District s auditor. The School Code authorizes the School District to invest in, among other things, U.S. Treasury bills, short-term obligations of the U.S. Government or its agencies or instrumentalities, deposits in savings accounts, or time deposits or share accounts of institutions insured by the FIDC; obligations of the United States or any of its agencies or instrumentalities backed by the full faith and credit of the United States and the Commonwealth of Pennsylvania. Interest Rate Management Plans Related to Outstanding School District Debt On September 24, 2003, the Governor of the Commonwealth of Pennsylvania signed into law legislation that empowers local government units, including school districts, to enter into qualified interest rate management agreements such as swaps and swaptions as a tool to manage interest rate risk. The School District has not entered into any qualified interest rate management agreements. 12

19 PENN-TRAFFORD SCHOOL DISTRICT SUMMARY OF GENERAL FUND REVENUES AND EXPENDITURES For Fiscal Years Ending June 30, Revenue Local Sources $25,015,614 $25,937,975 $26,297,719 $27,044,532 $27,610,590 State Sources 21,621,114 22,122,022 23,224,971 22,944,035 23,405,170 Federal Sources 789, , , , ,230 TOTAL REVENUE $47,425,856 $48,995,469 $50,398,049 $50,955,921 $51,492,990 Expenditures Instruction $26,425,210 $27,790,923 $28,082,626 $29,881,007 $30,766,506 Support Services 15,501,388 16,535,575 15,973,524 16,064,839 16,744,691 Operation of noninstructional services 1,433,879 1,700,760 1,677,917 1,732,882 1,802,814 Capital Outlay Debt Service 3,970,455 3,980,604 3,970,865 2,855,257 2,683,922 Refund of Prior Years Receipts 76, TOTAL EXPENDITURES $47,407,650 $50,007,898 $49,704,947 $50,533,985 $51,997,933 Excess (Deficiency) of Revenues over Expenditures 18,206 (1,012,429) 693,102 (421,936) (504,943) Other Financing Sources (Uses) Lease Purchase Obligations 0 494, Debt Service - Refunded Bond Issues Fund Transfers 0 (700,000) 0 (5,000) (5,000) Sale/Compensation for Fixed Assets 13, ,000 0 Receipts from other LEAs Budgetary Reserve 0 0 (13,000) 0 0 TOTAL OTHER FINANCING SOURCES (USES) 13,200 (205,860) (12,500) (4,000) (5,000) Net Change in Fund Balance 31,406 (1,218,289) 680, ,936 (509,943) Fund Balance July 1 4,549,760 4,683,804 3,465,515 4,146,117 4,564,053 Prior Period Adjustment 102, Fund Balance June 30 $4,683,804 $3,465,515 $4,146,117 $4,564,053 $4,054,110 SOURCE: School District Annual Financial Reports, Pennsylvania Department of Education Form 2057 and School District Officials. Borrowing Capacity DEBT LIMITS AND REMAINING BORROWING CAPACITY OF THE SCHOOL DISTRICT The borrowing capacity of the School District is calculated in accordance with provisions of the Act, which describes the applicable debt limits for local government units, including school districts and municipalities. Under the Act, the School District may incur electoral debt, which is debt approved by a majority of the School District s voters at either a general or special election, in an unlimited amount. Combined net nonelectoral debt and net lease rental debt (debt represented by capital leases and other forms of agreement evidencing the acquisition of a capital asset) incurred on behalf of the School District may not exceed 225% of the School District s Borrowing Base. The Borrowing Base is calculated as the annual arithmetic average of Total Revenues (as defined in the Act), less any deductions or exceptions (as specified in the Act), for the three full fiscal years next preceding the date of incurring debt. The current Borrowing Base of the School District is shown herein, and the current schedule of existing electoral, nonelectoral and lease rental debt is shown herein under the heading Schedule of Existing Indebtedness. The section Remaining Borrowing Capacity reflects the resulting maximum levels of nonelectoral and lease rental debt which the School District will be permitted to incur after the issuance and sale of the Bonds. 13

20 Fiscal Year Ended June Gross Revenues $50,398,549 $50,956,921 $51,492,990 Less: Statutory Deductions a. Subsidy Rental and Sinking Fund Payments 1,259, ,229 0 b. Revenues Pledged for Self-Liquidating Debt c. Interest on Sinking Funds d. Grants and Gifts for Special Federally Funded Projects e. Disposition of Assets and Nonrecurring Items 500 1,000 0 Net Revenues $49,138,058 $50,565,692 $51,492,990 Total Revenues for Three Years $151,196,740 Borrowing Base-Average Total Revenues for Three Year Period $50,398,913 Remaining Borrowing Capacity (Under the Local Government Unit Debt Act) Debt Limit 225% of Borrowing Base $113,397,554 Less: Outstanding Net Lease Rental Debt and Net Non-Electoral Debt $36,360,000 Current Borrowing Capacity $77,037,554 Coverage of Future Debt Service Requirements by State Appropriations Anticipated Commonwealth Appropriations $24,268, Estimated Debt Service Requirements $2,688,903 Coverage Ratio 9.03X General TAXES AND TAXING POWERS OF THE SCHOOL DISTRICT The School District is empowered to impose the following taxes under the School Code: 1. An annual tax on all taxable real estate, not to exceed 25 mills on each dollar of assessed valuation, to be used for general school purposes. 2. An annual tax on all taxable real estate to provide for the payment of: (a) Salaries and increments of the teaching and supervisory staff. (b) Rentals due any municipal authority, non-profit corporation or the State Public School Building Authority. (c) Interest and Principal on any indebtedness incurred under the Act or any prior or subsequent act governing the incurrence of indebtedness of the School District, and (d) The amortization of a bond issue which financed the construction of school facilities if issued prior to the first Monday of July, An annual per capita tax on each resident over eighteen years of age of not more than $5.00. The School District may also levy under The Local Tax Enabling Act, Act No. 511, approved December 31, 1965, as amended (the "Tax Enabling Act"), an additional per capita tax, wage taxes, and other taxes as provided for therein; provided, however, that the aggregate amount of taxes imposed under the Tax Enabling Act may not exceed 1.25% of the market valuation of the real estate in the School District as determined by the State Tax Equalization Board, and subject to certain other limitations. These taxes are also subject to apportionment between overlapping municipalities and the School District where such municipalities exercise the right of such apportionment. The foregoing is subject to, and qualified in all regards by, the provisions of Act 1 Special Session of 2006 ( Taxpayer Relief Act ) as described herein. 14

21 Tax Levy Trends The following table shows the recent trend of tax rates levied by the School District. Year Real Estate Tax Earned Income Real Estate Transfer Per Capita Local Services Occupation mills 0.50% 0.50% $5.00 $5.00 $ mills 0.50% 0.50% $5.00 $5.00 $ mills 0.50% 0.50% $5.00 $5.00 $ mills 0.50% 0.50% $5.00 $5.00 $ mills 0.50% 0.50% $5.00 $5.00 $ mills 0.50% 0.50% $5.00 $5.00 $5.00 SOURCE: Pennsylvania Department of Community and Economic Development. Current Tax Structure ( ) Real Estate Millage Real Estate Transfer Occupation Residence Per Capita Earned Income Local Services Mech. Devices School District $ % 0.50% $ $ Jeannette City % 0.50% -- $5.00 $47.00 $ Manor Borough $ % 0.5% $ Penn Borough $ % 0.5% -- $ Penn Township $ % 0.5% $5.00 $47.00 $ Trafford Borough $ % 0.5% $ $ Westmoreland County SOURCE: Pennsylvania Department of Community and Economic Development Tax Revenues Of the School District s total general fund receipts for fiscal year 2016, approximately 53.28% were derived from taxes, consisting of real estate, income and other taxes. Real estate taxes accounted for approximately 42.23% of total general fund receipts for fiscal year Real Estate Tax Collection Procedures Real estate tax notices are generally mailed to owners or property located within the School District on or before August 1 of each year. Taxes are payable at a 2% discount during the months of August and September, and at face during October and November. Beginning December 1, a 10% penalty is added to the face amount outstanding. Generally, the books of the Municipal Tax Collectors are closed out at the end of February of each year. Effective March 1, all information relating to uncollected taxes is then provided to the Westmoreland County Tax Claim Bureau, which then pursues the collection of the property taxes which are then considered delinquent. While the Bureau will accept partial payments on delinquent taxes, a lien will be placed on the property of the delinquent taxpayer who has made no effort to make partial payments within one year of the beginning of the penalty period. Public tax sale proceedings are customarily instituted by the delinquent tax collector against property owners who reach a delinquency period of two years or longer and who have made no effort to reduce their balance outstanding; installment payments may be made through a written agreement between the delinquent tax collector and the delinquent taxpayer. SOURCE: School District Annual Financial Reports. 15

22 Ten Largest Real Property Taxpayers The ten largest real property taxpayers, together with their current assessed values, are shown below: Taxpayer Type of Property Assessed Value FS Elliott Industrial Products $2,417,970 Penn Crossing Limited Commercial Real Estate 1,630,190 William Penn Health Care Assoc. Health Care 1,500,110 Reserve Coal Properties Co. Coal Products 1,417,410 Numis Corp. (Hammill Manfacturing) Military Products 1,218,750 Westmoreland Country Club Golf Course, Club House 808,200 USA Valley Facility Inc. Landfill 665,210 Trafford Commerce Center Inc. Commercial Real Estate 648,810 Beam Family Limited Partnership Commercial Real Estate 521,000 Dormont Realty Partners Real Estate 486,650 Total $11,314,300 The assessed value of the top ten real estate taxpayers is equal to 3.7% of the total assessed value of taxable property within the School District. SOURCE: School District Administrative Officials. The Taxpayer Relief Act (Act 1), as Amended LEGISLATION AFFECTING LOCAL TAXING POWERS AND AUTHORIZED DEBT LIMITS OF SCHOOL DISTRICTS Pennsylvania Act No. 1 of the Special Session of 2006 ( Act 1 ) was intended to provide property tax relief to Pennsylvania homeowners by limiting the taxation of real property by Pennsylvania school districts. Act 1 restricts Pennsylvania school districts from increasing the rate of any tax for school purposes above an index (the Index ) determined by the Department of Education of the Commonwealth (the Department ) unless the school district first obtains voter approval or the school district tax falls within one of the exceptions set forth in Act 1. The Index is the average of the percentage increase in the statewide average weekly wage, as determined by the State Department of Labor and Industry for the preceding calendar year, and the employment cost index for elementary and secondary schools, as reported by the federal Bureau of Labor Statistics for the preceding 12-month period beginning July 1 and ending June 30. For school districts with a Market-Value/Income-Aid Ratio greater than 0.40 for the prior school year, however, the Index is adjusted upward by multiplying the unadjusted Index by the sum of 0.75 and such Aid Ratio. On June 30, 2011, Act 1 was amended so that beginning on January 1, 2012, seven (7) of the original eleven (11) exceptions were eliminated. Under the amended version of Act 1, the four (4) categories of expenses for which school districts can raise property taxes above the Index without triggering a referendum (subject, however, to approval by the Department) are as follows: (1) interest and principal on indebtedness incurred prior to September 4, 2004 for Act 72 schools and the refinancing of such debt, and prior to June 27, 2006 for non-act 72 schools and the refinancing of such debt; (2) interest and principal on electoral debt; (3) special education expenses; and (4) state pension payments. The increase in the rate of any tax pursuant to the above exceptions must be approved by the Pennsylvania Department of Education, and must not produce revenue in excess of the anticipated dollar amount of the expenditure for which the exception is allowed. If the Department of Education disapproves the school district s petition or request to increase taxes pursuant to one or more of the allowable exceptions, the school district may submit a referendum question to the voters at the election immediately preceding the start of the school district fiscal year in which the proposed tax increase would take effect. If the referendum is not approved, however, the board of school directors may not approve an increase in the tax rate of more than the Index. Status of the Bonds Under Act 1 Payments of debt service on the Bonds described in this Official Statement are NOT eligible for exception from the provisions of Act 1 pursuant to the exceptions described above. Therefore, the debt service on the Bonds IS subject to the tax rate limitations of Act 1, as amended. 16

23 Act 1, as amended, does not affect the School District s covenant under the Debt Act to budget, appropriate and pay debt service on the Bonds and all other outstanding debt of the School District. THE SUMMARY OF ACT 1, AS AMENDED, IS NOT INTENDED TO BE AN EXHAUSTIVE DISCUSSION OR A LEGAL REPRESENTATION THEREOF, AND A PROSPECTIVE PURCHASER OF THE BONDS SHOULD REVIEW THE FULL TEXT OF ACT 1, AS AMENDED, AS PART OF ANY DECISION TO PURCHASE THE BONDS. State Law Authorizing Replacement of the School District s Occupation Tax with an Increase in the Local Earned Income Tax Act 24 of 2001 of the Commonwealth of Pennsylvania, which became law on June 22, 2001, authorizes a Board of School Directors to schedule a public hearing and conduct a ballot referendum on replacing the school district s occupation tax with an increase in the local earned income tax. Currently, school districts in Pennsylvania share a 1.0% tax on the annual amount of residents wages and other earned income (which excludes unearned or investment income), with the resident municipality. Under Act 24, this tax could be increased by the percentage necessary to generate revenue equal to what was collected during the preceding year on the occupation tax. The occupation tax is a flat amount for all employed individuals, or assessed by various trade, occupation and professional titles, regardless of income. The restructured tax is designed to be revenue neutral to the school district. The School District has taken no action to implement Act 24. Legislation Limiting Unreserved Fund Balances Pennsylvania Act No (enacted December 23, 2003) prohibits a school district from increasing real property taxes for the school year or any subsequent school year, unless the school district has adopted a budget for such school year that includes an estimated ending unreserved undesignated fund balance which is not more than a specified percentage of the total budgeted expenditures, as set forth below: Estimated Ending Unreserved Undesignated Fund Balance Total Budgeted Expenditures as a Percentage of Total Budgeted Expenditures Less than or equal to $11,999, % Between $12,000,000 and $12,999, % Between $13,000,000 and $13,999, % Between $14,000,000 and $14,999, % Between $15,000,000 and $15,999, % Between $16,000,000 and $16,999, % Between $17,000,000 and $17,999, % Between $18,000,000 and $18,999, % Greater than or equal to $19,000, % Act 130 of 2008 Act 130 of 2008 of the Commonwealth amended the Local Tax Enabling Act so as to authorize school districts levying an occupation tax to replace that occupation tax with an increased earned income tax or, if the school district has implemented a personal income tax in accordance with the Taxpayer Relief Act, an increased personal income tax, in a revenue neutral manner. To so replace an occupation tax, the board of school directors must first hold at least one public hearing on the matter and then place a binding referendum question on the ballot at a general or municipal election for approval by the voters. SET FORTH ABOVE IS A SUMMARY OF PORTIONS OF ACT 130 OF THIS SUMMARY IS NOT INTENDED TO BE AN EXHAUSTIVE DISCUSSION OF THE PROVISIONS OF ACT 130 OF 2008 NOR A LEGAL INTERPRETATION OF ANY PROVISIONS OF ACT 130 OF A PROSPECTIVE PURCHASER OF THE BONDS SHOULD REVIEW THE FULL TEXT OF ACT 130 OF 2008 AS A PART OF ANY DECISION TO PURCHASE THE BONDS. THE PAYING AGENT Pursuant to the provisions of the Resolution, as paying agent and sinking fund depository, the Paying Agent has the limited duty of receiving payments from the School District, depositing such payments in a sinking fund and making payments to the owners of the Bonds of the principal of, interest on, and premium, if any, on the Bonds when due, but only to the extent such moneys have been received. As registrar and transfer agent, the Paying Agent has the limited duty of handling the registration and transfer of the Bonds. Accordingly, the Paying Agent performs ministerial duties not involving the exercise of discretion and assumes no fiduciary relationship with respect to the owners of the Bonds. 17

24 The Paying Agent may now or in the future have banking relationships with the School District which involve making loans to the School District; these loans may have a security feature which is different from that of the security feature associated with the Bonds. The Paying Agent may also serve as trustee or paying agent and sinking fund depository on other obligations issued by or on behalf of the School District. CONTINUING DISCLOSURE UNDERTAKING In accordance with the requirements of Rule 15c2-12 (the "Rule"), promulgated under the Securities Exchange Act of 1934, as amended, by the Securities and Exchange Commission (the "Commission"), the School District will, in a Disclosure Dissemination Agreement (as hereinafter defined) to be executed by the School District on the date of settlement of the Bonds, agree to provide, or cause to be provided: (i) to the Municipal Securities Rulemaking Board s ( MSRB ) Electronic Municipal Market Access System ( EMMA ) in accordance with the Rule, operating data (the Operating Data ), consisting of the information listed under the following headings or subheadings in APPENDIX B OPERATING AND FINANCIAL DATA : (a) Enrollment Data, including Actual Enrollments and Projected Enrollments; (b) Schedule of Direct and Overlapping Debt and Debt Ratios; (c) Future Financing; (d) Real Estate Tax Collection Data; and (e) Tax Anticipation Borrowing. (ii) the School District's annual audited financial statements, which shall be prepared in conformity with generally accepted accounting principles consistently applied as applicable to school districts of the Commonwealth of Pennsylvania; June 30; The annual information will be provided to EMMA not later than March 31 of each year for the fiscal year ending the previous (iii) in a timely manner, not in excess of ten business days after the occurrence of the event, to the MSRB via EMMA, notice of the occurrence of any of the following events with respect to the Bonds: (a) principal and interest payment delinquencies; (b) non-payment related defaults, if material; (c) unscheduled draws on debt service reserves reflecting financial difficulties; (d) unscheduled draws on credit enhancements reflecting financial difficulties; (e) substitution of credit or liquidity providers, or their failure to perform; (f) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds; (g) modifications to the rights of Bondholders, if material; (h) Bond calls, if material, and tender offers; (i) defeasances; (j) release, substitution, or sale of property securing repayment of the Bonds, if material; (k) rating changes; (l) bankruptcy, insolvency, receivership or similar event of the School District; (m) the consummation of a merger, consolidation, or acquisition involving the School District, or the sale of all or substantially all of the assets of the School District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (n) appointment of a successor or additional trustee or the change in the name of the trustee, if material. (iv) in a timely manner, to the MSRB, notice of its failure to provide the Annual Information and audited financial statements with respect to itself on or before the date specified in the Disclosure Agreement. The events listed in (iii) above are those specified in the Rule, not all of which may be relevant to the Bonds. The School District may from time to time choose to file notice of the occurrence of other events, in addition to the events listed in (iii) above, but the School District does not commit to provide notice of the occurrence of any events except those specifically listed in (iii) above. The obligations of the School District described above will remain in effect only for such period as (i) the Bonds are outstanding in accordance with their terms, and (ii) the School District remains an obligated person with respect to the Bonds within the meaning of the Rule. The School District reserves the right to terminate its obligation to provide the Annual Information, audited financial statements, and notices of material events, as set forth above, if and when the School District is no longer an obligated person with respect to the Bonds within 18

25 the meaning of the Rule. The School District acknowledges that its undertaking pursuant to the Rule described under this caption is intended to be for the benefit of the holders of the Bonds (including holders of beneficial interests in the Bonds). Each Bondholder (including beneficial owners) may enforce the School District's continuing disclosure undertaking; provided that, the right to enforce the provisions of the undertaking will be limited to a right to obtain specific enforcement of the School District's obligations under its continuing disclosure undertaking. Any failure by the School District to comply with the provisions of the undertaking will not constitute a default or an event of default with respect to the Bonds. The obligations of the School District described above may be amended without the consent of the Bondholders, to the extent permitted by the Rule, as from time to time amended. On or before the date of settlement of the Bonds, the School District will enter into a Disclosure Dissemination Agent Agreement ( Disclosure Dissemination Agreement ) with Digital Assurance Certification, L.L.C. ( DAC ) as its Disclosure Dissemination Agent for the purpose of ensuring ongoing compliance with its continuing disclosure filing requirements. DAC provides its clients with automated filing of rating events, templates consolidating all outstanding filing requirements that accompany reminder notices of annual or interim mandatory filings, review of all template filings by professional accountants, as well as a time and date stamp record of each filing along with the unique ID from EMMA accompanying the copy of the actual document filed. DAC also offers its clients a series of training webinars each year qualified for NASBA certified CPE credits, as well as model secondary market compliance policies and procedures. DAC has only the duties specifically set forth in the Disclosure Dissemination Agreement. DAC s obligation to deliver the information at the times and with the contents described in the Disclosure Dissemination Agreement is limited to the extent the School District has provided such information to DAC as required by DAC. DAC has no duty with respect to the content of any disclosures or notice made pursuant to the terms of the Disclosure Dissemination Agreement. DAC has no duty or obligation to review or verify any information in the operating data, audited financial statements, notice of Reportable Events, or any other information, disclosures or notices provided to it by the School District and shall not be deemed to be acting in any fiduciary capacity for the Issuer, the Holders of the Bonds or any other party. DAC has no responsibility for the School District s failure to report to DAC a Reportable Event or a duty to determine the materiality thereof. DAC shall have no duty to determine, or liability for failing to determine, whether the School District has complied with the Disclosure Dissemination Agreement. DAC may conclusively rely upon certifications of the School District at all times. The MSRB has been designated by the SEC to be the central and sole repository for continuing disclosure information filed by issuers of municipal securities since July 1, Information and notices filed by municipal issuers (and other obligated persons with respect to municipal securities issues) are made available through the EMMA System, which may be accessed on the internet at Summary of Continuing Disclosure Undertaking Compliance The School District has entered into continuing disclosure undertakings for previously issued bonds that have been outstanding within the past five years (collectively, the Prior Undertakings. ). Under the Prior Undertakings, the School District agreed to provide audited financial statements, certain operating data related to the School District, and notices of material events. In the previous five years, the School District has, on several occasions, failed to comply with certain provisions of the Prior Undertakings, including (a) failing to timely file audited financial statements; (b) failing to timely file operating data; (c) filing incomplete operating data; and (d) failing to file or timely file certain notices, including notices of the aforementioned late filings and notices of rating changes. Negotiability of the Bonds LEGAL MATTERS Under the Act, the Bonds have all the qualities of negotiable instruments under the Uniform Commercial Code of the Commonwealth of Pennsylvania relating to negotiable instruments. Regarding the Obligation for the Bonds Neither the credit nor the taxing power of the Commonwealth of Pennsylvania or of any political subdivision thereof, other than the School District, is pledged for the interest thereon or the principal payable upon the maturity of any of the Bonds. Legality All legal matters incident to the authorization, issuance and sale of the Bonds will be approved by Dinsmore & Shohl LLP, Pittsburgh, Pennsylvania, Bond Counsel. Certain additional matters will be passed upon for the School District by its Counsel, Maiello Brungo & Maiello, LLP, Pittsburgh, Pennsylvania, Solicitor to the School District. 19

26 LITIGATION One matter of litigation currently exists regarding claims of individuals who were furloughed from employment by the Central Westmoreland Career and Technology Center, and who are asserting pursuant to the transfer of entities law that Penn-Trafford School District had an obligation to offer employment to them in the event of a vacancy within the School District for which the individual was properly certificated. This litigation would not have a material adverse effect on the financial condition of the School District. Other than the aforementioned, there is no litigation of any nature pending or threatened against the School District at the date of this Official Statement which, if decided adversely to the School District, would have a material adverse effect on the financial condition of the School District, or to restrain or enjoin 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 School District taken with respect to the issuance or sale thereof, or the pledge or application of any moneys or the security provided for the payment of the Bonds, or the existence or powers of the School District. Upon delivery of the Bonds, the School District shall furnish a certificate, in form and substance satisfactory to Bond Counsel and the Underwriter, to the effect that, among other things, there is no litigation pending, or to the best knowledge of the School District, threatened, in any court to restrain or enjoin the issuance or delivery of the Bonds, or the proceedings of the School District taken in connection therewith, or the application of monies provided for their payment, or contesting the powers of the School District with respect to the foregoing or the consummation of the transactions contemplated in this Official Statement. State Tax Matters TAX MATTERS In the opinion of Bond Counsel, the Bonds, and the interest income therefrom, are free from taxation for purposes of personal income, corporate net income and personal property taxes within the Commonwealth of Pennsylvania. The residence of a holder of a Bond in a state other than Pennsylvania, or being subject to tax in a state other than Pennsylvania, may result in income or other tax liabilities being imposed by such other state or its political subdivisions based on the interest or other income from the Bonds. Federal Income Tax Matters In the opinion of Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, interest on the Bonds (including, in the case of Bonds sold at an original issue discount, the difference between the initial offering price and par) is excluded from gross income for Federal income tax purposes. Bond Counsel is also of the opinion that interest on the Bonds is not a specific item of tax preference under Section 57 of the Internal Revenue Code of 1986, as amended (the Code ) for purposes of Federal individual or corporate alternative minimum taxes. Original Issue Discount The Bonds that mature on May 1, 2023, May 1, 2024, May 1, 2026 and May 1, 2031 (collectively, the "Tax-Exempt Discount Bonds") are being offered and sold to the public at an original issue discount ("OID") from the amounts payable at their maturity. OID is the excess of the stated redemption price of a bond at maturity (par) over the price to the public at which a substantial amount of bonds of the same maturity are sold pursuant to the initial offering. Under the Code, OID on each Tax-Exempt Discount Bond will accrue over its term and the amount of accretion will be based on the yield to maturity, compounded semi-annually. The amount of OID that accrues during each semi-annual period will do so ratably within that period on a daily basis. With respect to an initial purchaser of a Tax-Exempt Discount Bond at its initial offering price, the portion of OID that accrues during the period that such purchaser owns such Bond is added to the purchaser's tax basis for purposes of determining gain or loss at the maturity, redemption, sale, or other disposition of that Tax-Exempt Discount Bond and thus, in practical effect, is treated as stated interest, which is excludable from gross income for federal income tax purposes. Holders of Tax-Exempt Discount Bonds should consult their own tax advisors as to the effect of OID with respect to their federal tax liability. Original Issue Premium The Bonds that mature on May 1, 2020 through and including May 1, 2022 (the Premium Bonds ) are being offered and sold to the public at an original issue premium ("OIP ) over the amounts payable at their maturity. Under the Code, OIP is an adjustment to basis and must be amortized. The method of amortization may be the method regularly employed by the taxpayer if such method is reasonable, or, in all other cases, must be the method prescribed by applicable Treasury Regulations, which provide that the amortizable bond premium is an amount which bears the same ratio to the OIP as the number of months in the taxable year during which the bond was held by the taxpayer bears to the number of months from the beginning of the taxable year (or, if the Premium Bond was acquired in the taxable year, from the date of acquisition) to the date of maturity. The basis of the Premium Bond is reduced by the amount of the amortizable bond premium. The amortized bond premium is treated as a reduction in the tax-exempt interest received on the Premium Bond. No deduction is allowed on account of OIP. Holders of Premium Bonds should consult their own tax advisors as to the effect of such OIP with respect to their federal tax liability. 20

27 Interest Expense Deductions for Financial Institutions Under Section 265 of the Code, financial institutions are denied any deduction for interest expenses that are allocable, by a formula, to tax-exempt obligations acquired after August 7, An exception, which permits a deduction for 80% of such interest expenses, is provided in respect of certain tax-exempt obligations issued by a qualified issuer that specifically designates such obligations as qualified tax-exempt obligations under Section 265 of the Code. The School District is a qualified issuer and the School District has designated the Bonds as qualified tax-exempt obligations for the purposes and effect contemplated by Section 265 of the Code. Financial institutions intending to purchase Bonds should consult their own tax advisors to determine the effect of the interest expense deduction on their federal tax liability. Continuing Compliance The Code imposes various terms, restrictions, conditions and requirements relating to the exclusion from gross income for Federal income tax purposes of interest on obligations such as the Bonds. The School District has covenanted to comply with all such requirements, including non-arbitrage requirements under Section 148 of the Code, that are necessary to ensure that interest on the Bonds will not be includable in gross income for Federal income tax purposes. Failure to comply with these covenants could result in interest on the Bonds being includable in gross income for Federal income tax purposes and such inclusion could be required retroactively to the date of issuance of the Bonds. The opinion of Bond Counsel assumes compliance with the aforesaid covenants. Moreover, Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Bonds may adversely affect the tax-exempt status of the interest on the Bonds. Certain requirements and procedures contained or referred to in the Resolution and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Such changes or actions could constitute an exchange or other tax event with respect to the Bonds, which could result in gain or loss to the holder of a Bond, and a consequent tax liability. Pursuant to its continuing disclosure obligations made pursuant to SEC Rule 15c2-12 (see Continuing Disclosure Undertaking herein), the School District may be required to provide notice of such changes or actions, as Material Events under said Rule. However, holders of the Bonds should consult their own tax advisors as to the effect of such changes or actions with respect to their federal tax liability. Collateral Tax Liabilities Although Bond Counsel has rendered an opinion that interest on the Bonds is excludable from gross income for Federal and Pennsylvania income tax purposes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may result in other collateral effects on a Bondholder s Federal, state or local tax liabilities. The nature and extent of these other tax consequences may depend upon the particular tax status of the Bondholder or the Bondholder s other items of income or deduction. Bond Counsel expresses no opinions regarding any tax consequences other than what is set forth in its opinion; each Bondholder or potential Bondholder is urged to consult with its own tax advisors with respect to the effects of purchasing, holding or disposing of the Bonds on its tax liabilities. For example, corporations are required to include all tax-exempt interest in determining adjusted current earnings under Section 56(c) of the Code, which may increase the amount of any alternative minimum tax owed. Other tax consequences for certain taxpayers include, without limitation, increasing the federal tax liability of certain foreign corporations subject to the branch profits tax imposed by Section 884 of the Code, increasing the federal tax liability of certain insurance companies under Section 832 of the Code, increasing the federal tax liability of certain S corporations subject to Sections 1362 and 1375 of the Code, increasing the federal tax liability of certain individual recipients of social security or railroad retirement benefits under Section 86 of the Code, limiting the use of the Earned Income Credit under Section 32 of the Code, limiting the use of the refundable credit for coverage under a qualified health plan under Section 36B of the Code and denying an interest expense deduction to certain financial institutions under Section 265 of the Code (unless, and in the circumstance when, the Bonds have been designated by the issuer as qualified tax-exempt obligations ). Change in Law; Adverse Determinations From time to time, certain legislative proposals may be introduced, or are pending, in the Congress of the United States, including some that carry retroactive effective dates, that, if, enacted, could alter or amend the federal tax matters described above or affect the market value of the Bonds. No prediction can be made whether or in what form any such proposal or proposals might be enacted into law or whether, if enacted, the same would apply to bonds issued prior to enactment. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation. The Internal Revenue Service (the Service ) regularly audits tax-exempt obligations to determine whether, in the view of the Service, interest on such tax-exempt obligations is includible in the gross income of the owners thereof for federal income tax purposes. No prediction can be made whether or not the Service will commence an audit of the Bonds. If an audit is commenced, under current procedures, the Service may treat the School District as a taxpayer and the Bondholders may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Bonds until such time as the audit is concluded, regardless of the ultimate outcome. 21

28 Payments of interest on, and proceeds of the sale, redemption or maturity of, tax-exempt obligations, such as the Bonds, are in certain cases required to be reported to the Service. Additionally, backup withholding may apply to any such payments to any Bondholder who fails to provide an accurate Form W-9 Request for Taxpayer Identification Number and Certification, or to any Bondholder who is notified by the Service of a failure to report any interest or dividends required to be shown on federal income tax returns. THE FOREGOING IS NOT INTENDED AS AN EXHAUSTIVE LIST OF THE PROVISIONS OF FEDERAL TAX LAW WHICH MAY HAVE AN EFFECT ON INDIVIDUALS AND CORPORATIONS HOLDING THE BONDS OR RECEIVING INTEREST THEREON. PROSPECTIVE PURCHASERS SHOULD CONSULT WITH THEIR TAX ADVISORS REGARDING THE EFFECT OF HOLDING THE BONDS OR RECEIVING INTEREST THEREON ON THEIR AFFAIRS, INCLUDING, BUT NOT LIMITED TO, THE EFFECT OF STATE AND LOCAL TAX LAWS. RELATED PARTIES PNC Capital Markets LLC and PNC Bank, National Association are both wholly-owned subsidiaries of the PNC Financial Service Group, Inc. PNC Capital Markets LLC is not a bank, and is a distinct legal entity from PNC Bank, National Association. PNC Bank, National Association has other banking and financial relationships with the School District. BOND RATINGS S&P Global Ratings is expected to assign its credit rating of AA (stable outlook) to the Bonds with the understanding that, upon delivery of the Bonds, a Municipal Bond Insurance Policy guaranteeing when due the scheduled payment of the principal of and the interest on the Bonds will be issued concurrently with the delivery of the Bonds by BAM. Moody s Investors Service, New York, New York ( Moody s ) has assigned an underlying rating of A1 to the Bonds, based on the financial condition of the School District. Such ratings reflect only the view of such organization furnishing such ratings. Any desired explanation of the significance of such ratings should be obtained from the rating agencies furnishing the same, at the following addresses: Moody s Investors Service, 7 World Trade Center at 250 Greenwich Street, New York, New York or S&P Global Ratings, 55 Water Street, New York, New York There is no assurance that these credit ratings will be maintained for any given period of time, or that they may not be lowered or withdrawn entirely by the rating agency if, in its judgment, circumstances so warrant. Any such downward change in or withdrawal of such credit ratings may have an adverse effect on the market price of the Bonds. BOND UNDERWRITING The Bonds have been purchased by PNC Capital Markets LLC as the Underwriter. The Underwriter has agreed to purchase the Bonds at a purchase price of $6,391, (which is the par amount of bonds less the bond discount of $23, less a net original issue discount of $408.75). The Bond Purchase Agreement for the Bonds provides that the Underwriter will purchase all the Bonds, if any are purchased, in accordance with the terms of the Bond Purchase Agreement, and requires that the School District certify to the Underwriter that this Official Statement does not, to the knowledge of the School District, contain any untrue statement of a material fact or omit any statement of any material fact necessary to make the statements herein, in light of the circumstances under which they were made, not misleading. The initial public offering prices of the Bonds, set forth in the BOND MATURITY SCHEDULE shown on the inside of the Cover Page of this Official Statement, may be changed by the Underwriter from time to time without any requirement of prior notice. The Underwriter reserves the right to join with other dealers in offering the Bonds to the public; and said Bonds offered to other dealers may be at prices lower than those offered to the public. MISCELLANEOUS MATTERS All summaries of the provisions of the Act, the Bonds, the Resolution, the Disclosure Dissemination Agreement and other documents hereinabove and hereinafter set forth are made subject to all detailed provisions thereof, to which reference is hereby made for further information, and do not purport to be complete statements of any or all such provisions. All estimates and assumptions herein have been made on the best information available and are believed to be reliable, but no representations whatsoever are made that such estimates or assumptions are correct or will be realized. So far as any statements herein involve matters of opinion, whether or not expressly so stated, they are intended merely as such and not as representations of fact. Appendices A, B, C, D and E attached hereto, are expressly incorporated herein as a part hereof. 22

29 This Official Statement, issued by the School District, has been duly approved and executed by the School District and has been authorized for distribution in connection with the underwriting and offering of the Bonds. PENN-TRAFFORD SCHOOL DISTRICT (Westmoreland County, Pennsylvania) By: /s/ Mr. Martin Stovar President Board of School Directors 23

30 [ THIS PAGE INTENTIONALLY LEFT BLANK ]

31 APPENDIX A REGIONAL AND ECONOMIC DATA OF PENN-TRAFFORD SCHOOL DISTRICT (Westmoreland County, Pennsylvania)

32 [ THIS PAGE INTENTIONALLY LEFT BLANK ]

33 REGIONAL AND ECONOMIC DATA OF PENN-TRAFFORD SCHOOL DISTRICT (Westmoreland County, Pennsylvania) The School District is comprised of the Township of Penn and the Boroughs of Penn and Trafford, along with the major portion of the Borough of Manor and a minor portion of the City of Jeannette (the Component Municipalities ). A small portion of the Borough of Trafford is located in Allegheny County. The School District is located in the western section of Westmoreland County, approximately 20 miles east of the City of Pittsburgh, fifteen miles southeast of the Municipality of Monroeville and ten miles west of the City of Greensburg, which is the County seat of Westmoreland County. The School District encompasses a land area of approximately 36.5 square miles, serving a 2010 U.S. Census population of 36,486. Major Employers Major employers located within or near the School District are listed below: Business Name Type of Business Approximate Number of Employees Penn-Trafford School District Public School District 332 Giant Eagle Retail Grocery 150 Parker Hannifin Manufacturing 150 William Penn Health Care Health Care 145 Numis Corp. (Hammill Mfg.) Military Products 120 FS Elliott Industrial Products 100 Beam Family Ltd. (Golden Hts.) Health Care 70 Pittsburgh Brass Brass Products 65 Carcla Technical Plastics Plastics 60 Ranbar Paint Products 60 Versatech, Inc. Manufacturing 50 Source: School District Officials Population 2000, 2010 and 2015 Estimates % Change 2015 Estimate Jeannette City 10,654 9,654 (9.4%) 9,464 Manor Borough 2,796 3, % 3,281 Penn Borough % 545 Penn Township 19,591 20, % 19,833 Trafford Borough 3,236 3,113 (2.9%) 3,335 School District 36,737 36,486 (0.68%) 36,458 Westmoreland County 369, ,169 (1.30%) 361,251 Pennsylvania 12,281,054 12,702, % 12,779,559 SOURCE: United States Census Bureau and American Community Survey, 5 Year Estimates, A-1

34 Per Capita Income 2000, 2010 and 2015 Estimates % Change 2015 Estimate Jeannette City $15,961 $19, % $23,663 Manor Borough 18,118 26, % 33,103 Penn Borough 14,312 20, % 18,827 Penn Township 21,681 30, % 34,806 Trafford Borough 3,335 26, % 31,190 Westmoreland County $19,674 $24, % $29,472 Pennsylvania $20,880 $26, % $29,291 SOURCE: United States Census Bureau and American Community Survey, 5-Year Estimates, and Family and Household Income 2010 and 2015 Estimates Household Income Median Family Income Median Jeannette City $33,083 $40,180 $47,090 $48,383 Manor Borough 64,792 73,519 66,875 87,750 Penn Borough 53,036 47,083 58,750 47,250 Penn Township 67,720 76,639 80,070 88,492 Trafford Borough 45,366 46,528 69,875 62,019 Westmoreland County $37,106 $52,247 $45,996 $66,945 Pennsylvania $40,106 $53,599 $49,184 $68,158 SOURCE: United States Census Bureau and American Community Survey, 5 Year Estimates, and Population, Poverty and Education 2015 Estimates Population Poverty Level Education 25 years and Over Total Total Persons Family Households Persons Below Families Below High School Graduate College Graduate Jeannette City 9,464 2, % 9.0% 90.8% 16.2% Manor Borough 3, % 6.9% 93.1% 29.7% Penn Borough % 12.9% 93.4% 10.9% Penn Township 19,833 5, % 3.3% 95.5% 36.1% Trafford Borough 3, % 10.6% 94.0% 27.7% Westmoreland County 361, , % 6.9% 92.7% 26.4% Pennsylvania 12,779,559 3,202, % 9.3% 89.2% 28.6% SOURCE: American Community Survey, 5 Year Estimates, A-2

35 Housing Units Number Owner Occupied Median Value Renter Occupied Median Rent Jeannette City 5,177 4,969 $81,200 $82,500 $523 $602 Manor Borough 1,233 1, , , Penn Borough ,200 80, Penn Township 7,709 7, , , Trafford Borough 1,591 1, , , Westmoreland County 168, ,250 $135,900 $138,500 $600 $654 Pennsylvania 4,936,030 5,585,611 $165,500 $166,000 $763 $840 SOURCE: American Community Survey, 5 Year Estimates, Unemployment Rates (%) (1) Westmoreland County Civilian Labor Force (000) Employment (000) Unemployment (000) Unemployment Rate 7.5% 7.4% 6.9% 5.8% 5.2% 5.4% Pennsylvania Civilian Labor Force (000) 6, , , , , ,420.0 Employment (000) 5, , , , , ,108.0 Unemployment (000) Unemployment Rate 7.9% 7.9% 7.4% 5.9% 5.1% 4.9% United States Civilian Labor Force (000) 153, , , , , ,968.0 Employment (000) 139, , , , , ,798.0 Unemployment (000) 13, , , , , ,170.0 Unemployment Rate 8.9% 8.1% 7.4% 6.2% 5.3% 4.5% SOURCE: U.S. Department of Labor (1) As of December, 2016 A-3

36 [ THIS PAGE INTENTIONALLY LEFT BLANK ]

37 APPENDIX B OPERATING AND FINANCIAL DATA

38 [ THIS PAGE INTENTIONALLY LEFT BLANK ]

39 Enrollment Data Actual Enrollments School Year Ending June 30, Elementary Secondary Total ,732 2,447 4, ,750 2,370 4, ,017 2,020 4, ,996 1,998 3, ,953 1,935 3, (1) 1,961 1,918 3,879 Projected Enrollments School Year Ending June 30, Elementary Secondary Total ,811 1,886 3, ,782 1,834 3, ,753 1,782 3, ,788 1,818 3, ,824 1,854 3,678 SOURCE: School District Officials. (1) As of February, SCHEDULE OF DIRECT AND OVERLAPPING DEBT AND DEBT RATIOS Shown below is a summary of the School District s outstanding debt, including the Bonds: Gross MVAR Reimbursement Percentage Local Share General Obligation Debt General Obligation Bonds, Series of 2017 $6,415, $6,415,000 General Obligation Bonds, Series of ,295, ,295,000 General Obligation Bonds, Series of ,040, ,040,000 General Obligation Bonds, Series of ,715, ,715,000 General Obligation Bonds, Series of ,895, ,895,000 TOTAL DIRECT DEBT $36,360,000 $36,360,000 Jeannette City (1) $66,880 $66,880 Manor Borough (2) 2,288,856 2,288,856 Penn Borough (3) 0 0 Penn Township (3) 849, ,300 Trafford Borough (3) 6,292,358 6,292,358 Westmoreland County (4) 6,533,248 6,533,248 TOTAL OVERLAPPING DEBT $16,030,642 $16,030,642 TOTAL DIRECT AND OVERLAPPING DEBT $52,390,642 $52,390,642 (1) Source: Pennsylvania Department of Community and Economic Development. 1.60% overlapping. As of March 1, 2017, Jeannette City had outstanding debt of $4,180,000. The City s share is calculated by dividing the total assessed value of the City by the portion which lies within the School District, and multiplying that ratio by the outstanding debt of the City. (2) Source: Pennsylvania Department of Community and Economic Development % overlapping. As of March 1, 2017, Manor Borough had outstanding debt of $2,677,024. The Borough s share is calculated by dividing the total assessed value of the Borough by the portion which lies within the School District, and multiplying that ratio by the outstanding debt of the Borough. (3) Source: Pennsylvania Department of Community and Economic Development. 100% overlapping. As of March 1, (4) Source: Pennsylvania Department of Community and Economic Development. 7.87% overlapping. As of March 1, 2017, Westmoreland County had outstanding debt of $83,014,586. The School District s share is calculated by dividing the assessed value of the municipalities that compose the School District by the assessed value of the County, and multiplying that ratio by the outstanding debt of the County. B-1

40 Debt Ratio Calculations: Gross Outstanding Local Share Net Direct Debt Per Capita 2.33% 2.33% Net Direct Debt to Market Value $ $ Net Direct and Overlapping Debt Per Capita 3.36% 3.36% Net Direct and Overlapping Debt to Market Value $1, $1, Population (2010 census) 36,486 Current Market Value $1,561,524,090 Future Financing The School District does not anticipate the issuance of further long-term debt for capital projects within the next five years. Real Estate Tax Collection Data Year Market Valuation ($) Assessed Valuation ($) Millage Gross Levy ($) Current Collections ($) Current Collections as a % of Levy Total Collections ($) Total Collections as a % of Levy ,473,885, ,454, ,652,441 19,835, % 20,656, % ,514,892, ,739, ,285,421 20,367, % 21,037, % ,522,437, ,138, ,326,305 20,581, % 21,271, % ,514,892, ,938, ,069,659 21,370, % 21,952, % ,522,437, ,481, ,630,161 21,775, ,425, % SOURCE: School District Officials and State Tax Equalization Board Tax Anticipation Borrowing The following is the School District s recent Tax and Revenue Anticipation Note borrowing history. SOURCE: School District Officials. Fiscal Year Amount 2012 $ B-2

41 APPENDIX C SCHOOL DISTRICT AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2016

42 [ THIS PAGE INTENTIONALLY LEFT BLANK ]

43 PENN-TRAFFORD SCHOOL DISTRICT HARRISON CITY, PENNSYLVANIA FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016

44 PENN-TRAFFORD SCHOOL DISTRICT YEAR ENDED JUNE 30, 2016 CONTENTS Independent Auditor s Report 1-3 Page Management s Discussion and Analysis 4-16 Basic Financial Statements Government-wide Financial Statements Statement of Net Position 17 Statement of Activities 18 Fund Financial Statements Balance Sheet - Governmental Funds 19 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position 20 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds 21 Reconciliation of Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 22 Statement of Net Position - Proprietary Fund 23 Statement of Revenues, Expenses, and Changes in Net Position - Proprietary Fund 24 Statement of Cash Flows - Proprietary Fund 25 Statement of Fiduciary Net Position - Fiduciary Funds 26 Notes to the Financial Statements Required Supplemental Information Budgetary Comparison Schedule General Fund 53 Schedule of Funding Progress for Postemployment Benefits Other Than Pensions 54 Schedule of District s Proportionate Share of the Net Pension Liability - Last 10 Years 55 Schedule of District s Contributions Last 10 years 56 Other Supplemental Information Combining Balance Sheet Nonmajor Governmental Funds 57 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds 58

45 Independent Auditor s Report Members of the Board Penn-Trafford School District Harrison City, Pennsylvania Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business type activities, each major fund, and the aggregate remaining fund information of the PENN-TRAFFORD SCHOOL DISTRICT as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the PENN-TRAFFORD SCHOOL DISTRICT s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business type activities, each major fund, and the aggregate remaining fund information of the PENN-TRAFFORD SCHOOL DISTRICT as of June 30, 2016, and the respective changes in the financial position and cash flows, where applicable, thereof for the year then ended in accordance with the accounting principles generally accepted in the United States of America. Harrisburg Philadelphia Pittsburgh Greensburg 830 Sir Thomas Court, Suite 100 Harrisburg, PA Fax York Road, Suite A-5 Jamison, Pa Fax McKnight E. Drive, Suite 3805 Pittsburgh, PA Fax Tollgate Hill Road Greensburg, PA Fax

46 Members of the Board Penn-Trafford School District Page 2 Adoption of GASB Statements As described in Note 1 to the financial statements, in 2016 the PENN-TRAFFORD SCHOOL DISTRICT adopted new guidance, Governmental Accounting Standards Board Statement No. 72, Fair Value Measurement and Application, GASB Statement No. 76 The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments and Statement No. 77, Tax Abatement Disclosures. Our opinion is not modified with respect to these matters. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, schedule of funding progress for postemployment benefits other than pensions, budgetary comparison, schedule of district s proportionate share of the net pension liability last 10 years, and schedule of district s contributions last 10 years information on pages 4 through 16 and 53 through 56 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the PENN-TRAFFORD SCHOOL DISTRICT s basic financial statements. The combining nonmajor fund financial statements on pages 57 through 58 are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining nonmajor fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining nonmajor fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole.

47 Members of the Board Penn-Trafford School District Page 3 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 2, 2017 on our consideration of the PENN-TRAFFORD SCHOOL 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. February 2, 2017 Pittsburgh, Pennsylvania ZELENKOFSKE AXELROD LLC

48 PENN-TRAFFORD SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2016 Page 4 PENN-TRAFFORD SCHOOL DISTRICT, hereafter referred to as the SCHOOL DISTRICT, is pleased to present its financial statements developed in conformance with Statement of Governmental Accounting Standard Statement No. 34, entitled Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments (hereafter GASB 34 ), and related standards. GASB 34 enhances information provided to the users of its financial statements. This section of the financial reporting package presents our discussion and analysis of the SCHOOL DISTRICT s financial performance during the year that ended on June 30, Please read this Management Discussion and Analysis in conjunction with the SCHOOL DISTRICT s financial statements that follow this section. OVERVIEW OF THE FINANCIAL STATEMENTS This report consists of the following four parts: Management s discussion and analysis (this section) Basic financial statements (including notes) Required supplementary information Other supplementary information Management s discussion and analysis is a guide to reading the financial statements and provides related information to help the reader to better understand the SCHOOL DISTRICT s government. The basic financial statements include notes that provide additional information essential to a full understanding of the financial data provided in the government-wide and fund financial statements. Required supplementary information is provided on the SCHOOL DISTRICT s budget to actual figures for the general fund, the SCHOOL DISTRICT s retirement plan, and the SCHOOL DISTRICT s postemployment benefits other than pensions. The basic financial statements present two different views of the SCHOOL DISTRICT. Government-wide financial statements, the first two statements, provide information about the SCHOOL DISTRICT s overall financial status. Fund financial statements, the remaining statements, focus on individual parts of the SCHOOL DISTRICT s government. They provide more detail on operations than the government-wide statements. There are three types of fund financial statements: o o o Governmental funds statements show how services such as instruction, support services, and non-instructional services are financed in the short term, as well as what remains for future spending. Proprietary fund statements offer short-term and long-term financial information about the activities the SCHOOL DISTRICT operates like a business, like the Food Service Fund. Fiduciary funds statements reflect activities involving resources that are held by the SCHOOL DISTRICT as a trustee or agent for the benefit of others. Fiduciary funds are not reflected in the government-wide and government fund statements because the resources cannot be used to support the SCHOOL DISTRICT s programs.

49 PENN-TRAFFORD SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2016 Page 5 Table A-1: Organization of the School District s annual financial report Required Components of the Annual Financial Statements Management s Discussion and Analysis Basic Financial Statements Required Supplementary Information Government-wide Financial Statements Fund Financial Statements Notes to Financial Statements Summary Detail

50 PENN-TRAFFORD SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2016 Page 6 Table A-2 summarizes the major features of the SCHOOL DISTRICT s financial statements, including the area of the SCHOOL DISTRICT s activities they cover and the types of information they contain. Table A-2: Major features of the government-wide and fund financial statements Fund Financial Statements Government-wide Statements Governmental Proprietary Fiduciary Scope Entire entity (except fiduciary funds) The day-to-day operating activities of the SCHOOL DISTRICT, such as instruction and support services. The activities of the SCHOOL DISTRICT, such as the Food Service Fund Instances in which the SCHOOL DISTRICT administers resources on behalf of others Required Financial Statements -Statement of Net Position -Statement of Activities -Balance Sheet -Statement of Revenues, Expenditures and Changes in Fund Balances -Statement of Net Position -Statement of Revenues, Expenses and Changes in Net Position -Statement of Cash Flows -Statement of Fiduciary Net Position -Statement of Changes in Fiduciary Net Position Accounting basis and measurement focus Type of asset and liability information Accrual Modified Accrual Accrual accounting and economic resources focus All assets and liabilities, short-term and long-term Current assets and liabilities that come due during the year or soon thereafter; no capital assets or long-term liabilities included All assets and liabilities, short-term and long-term Accrual accounting and economic resources focus All assets and liabilities, short-term and long-term Type of inflow and outflow information All revenues and expenses during year, regardless of when cash is received or paid Revenue for which cash is received during the year or soon thereafter; expenditures when goods or services have been received and the related liability is due and payable All revenues and expenses during year, regardless of when cash is received or paid All additions and deductions during the year, regardless of when cash is received or paid

51 PENN-TRAFFORD SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2016 Page 7 The remainder of the overview explains the structure and contents of the government-wide and fund financial statements. Government-wide financial statements Government-wide financial statements report information about the SCHOOL DISTRICT as a whole using accounting methods similar to those used by private-sector companies. The Statement of Net Position includes all the SCHOOL DISTRICT s assets and liabilities, except fiduciary funds, with the difference between the two reported as Net Position. This statement serves a purpose similar to that of the balance sheet of a private-sector business. The Statement of Activities focuses on how the SCHOOL DISTRICT s Net Position changed during the year. Because it separates program revenue (revenue generated by specific programs through charges for services, grants and contributions) from general revenue (revenue provided by taxes and other sources not tied to a particular program), it shows to what extent each program has to rely on local taxes for funding. All changes to Net Position are reported using the economic resources measurement focus and the accrual basis of accounting, which requires that revenues be reported when they are earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flow. Net Position is one way to measure the SCHOOL DISTRICT s financial position. Over time, increases or decreases in the SCHOOL DISTRICT s Net Position are one indicator of whether the SCHOOL DISTRICT s financial position is improving or deteriorating. However, other non-financial factors such as changes in the SCHOOL DISTRICT s property tax base and general economic conditions must be considered to assess the overall position of the SCHOOL DISTRICT. There are two categories of activities for the primary government: Governmental activities include the SCHOOL DISTRICT s basic services such as instruction, support services, and non-instructional services. Business-type activities such as the Cafeteria Fund charge a fee to customers to help cover the costs of services. Net Position of the governmental activities differ from the governmental fund balances because governmental fund level statements only report transactions using or providing current financial resources. Also, capital assets in the fund level statements are reported as expenditures when financial resources (money) are expended to purchase or build assets. Likewise, the financial resources that may have been borrowed are considered revenue when they are received. The principal and interest payments are both considered revenue when they are received. The principal and interest payments are both considered expenditures when paid. Depreciation is not calculated as it does not provide or reduce current financial resources. Finally, capital assets and long-term debt do not affect fund balances.

52 PENN-TRAFFORD SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2016 Page 8 Government-wide statements are reported on the accrual basis of accounting that involves the following steps to format the Statement of Net Position: Capitalize current outlays for capital assets Report long-term debt as a liability Depreciate capital assets and allocate the depreciation to the proper program/activities Allocate net position balances as follows: o o o Net Investment in Capital Assets Restricted Net Position are those with constraints placed on the use by external sources (creditors, grantors, contributors, or laws or regulations of governments) or imposed by law through constitutional provisions or enabling legislation Unrestricted Net Position is Net Position that does not meet any of the above restrictions Fund Financial Statements Fund financial statements provide more detailed information on the SCHOOL DISTRICT s most significant funds, not the SCHOOL DISTRICT as a whole. Funds are accounting devices, i.e., a group of related accounts, the SCHOOL DISTRICT uses to keep track of specific sources of funding and spending for particular purposes. Some funds are required by state law. Other funds are established to control and manage resources designated for specific purposes. Fund financial statements are reported using the modified accrual basis of accounting. The SCHOOL DISTRICT has three kinds of funds: Governmental funds include most of the SCHOOL DISTRICT s basic services and focus on: (1) the flow in and out of cash and other financial assets that can readily be converted into cash, and: (2) the balances left at year-end that are available for spending. These funds are reported using the modified accrual basis of accounting. The relationship between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds is described in reconciliations that follow the governmental fund financial statements. The SCHOOL DISTRICT adopts an annual budget for the general fund, as required by state law. A budgetary comparison of the SCHOOL DISTRICT s general fund is presented as required supplementary information. Proprietary Funds report business-type programs and activities that charge fees designed to recover the cost of providing services. The proprietary funds report using the accrual basis of accounting. Fiduciary Funds are funds for which the SCHOOL DISTRICT is the trustee or fiduciary. These include certain agency funds, or clearing accounts for assets held by the SCHOOL DISTRICT in its role as custodian until the funds are allocated to the private parties, organizations or government agencies to which they belong. The SCHOOL DISTRICT is responsible to ensure the assets reported in these funds are used for their intended purposes. This fiduciary activity is reported in a separate statement of fiduciary Net Position. These funds are excluded from the SCHOOL DISTRICT s government-wide financial statements because the SCHOOL DISTRICT cannot use these assets to finance its operations. The fiduciary funds are reported using the accrual basis of accounting.

53 PENN-TRAFFORD SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2016 Page 9 GOVERNMENT-WIDE FINANCIAL STATEMENTS Net Position The SCHOOL DISTRICT s total assets were $75,958,665 at June 30, Of this amount, $59,650,806 was capital assets. GASB No. 34 requires that all capital assets, including infrastructure, be valued and reported within the governmental activities column of the government-wide financial statements, but allow infrastructure to be added over several years. The SCHOOL DISTRICT adopted the provisions of GASB 34 related to infrastructure on the retroactive basis Governmental Activities Condensed Statement of Net Position 2015 Governmental Activities 2016 Businesstype Activities 2015 Businesstype Activities Capital Assets $ 59,633,607 $ 47,355,868 $ 17,199 $ 25,155 $ 59,650,806 $ 47,381, Total 2015 Total Other Assets 16,218,624 30,180,889 89, ,784 16,307,859 30,426,673 Total Assets $ 75,852,231 $ 77,536,757 $ 106,434 $ 270,939 $ 75,958,665 $ 77,807,696 Deferred Outflows of Resources $ 9,545,589 $ 5,151,683 $ - $ - $ 9,545,589 $ 5,151,683 Current Portion of Liabilities $ 9,666,359 $ 9,471,748 $ 292,352 $ 386,979 $ 9,958,711 $ 9,858,727 Noncurrent Portion of 111,206, ,366, ,206, ,366,438 Liabilities Total Liabilities $ 120,872,388 $ 114,838,186 $ 292,352 $ 386,979 $121,164,740 $ 115,225,165 Deferred Inflows of Resources $ 2,822,002 $ 5,122,700 $ - $ - $ 2,822,002 $ 5,122,700 Net Position: Net Investment in Capital Assets $ 29,158,066 $ 14,747,737 $ 17,199 $ 25,155 $ 29,175,265 $ 14,772,892 Restricted Net Position 4,161,667 17,761, ,161,667 17,761,852 Unrestricted Net Position (71,616,303) (69,782,035) (203,117) (141,195) (71,819,420) (69,923,230) Total Net Position $ (38,296,570) $ (37,272,446) $ (185,918) $ (116,040) $ (38,482,488) $ (37,388,486)

54 PENN-TRAFFORD SCHOOL DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2016 Page 10 Change in Net Position The following statement of activities represents the change in Net Position for the years ended June 30, 2016 and It shows revenues by source and expenses by function for governmental activities, business-type activities and the government as a whole. Condensed Statement of Activities Governmental Governmental Business-type Business-type Activities Activities Activities Activities Total Total Program Revenues: Charges for Services $ - $ - $ 762,901 $ 782,659 $ 762,901 $ 782,659 Grants and Contributions 9,523,651 9,623, , ,618 9,975,792 10,051,169 General Revenues: Property Taxes 22,494,141 22,081, ,494,141 22,081,999 Other Taxes 4,499,196 4,470, ,499,196 4,470,461 Unrestricted grants 14,960,266 14,820, ,960,266 14,820,409 Investment Earnings 31,096 27, ,164 27,695 Sale of Fixed Assets - 1, ,000 Miscellaneous Revenue 24,721 28, ,721 28,182 Total Revenues 51,533,071 51,053,259 1,215,110 1,210,315 52,748,181 52,263,574 Expenses: Instruction 31,631,719 30,593, ,631,719 30,593,980 Support Services 17,363,377 16,488,205 1,284,988 1,222,840 18,648,365 17,711,045 Noninstructional Services 1,903,962 1,812, ,903,962 1,812,121 Pension 861,856 1,706, ,856 1,706,715 Interest on Long-Term Debt 796, , , ,477 Total Expenses 52,557,195 51,276,498 1,284,988 1,222,840 53,842,183 52,499,338 Change in Net Position (1,024,124) (223,239) (69,878) (12,525) (1,094,002) (235,764) Net Position - Beginning (37,272,446) (37,049,207) (116,040) (103,515) (37,388,486) (37,152,722) Net Position- Ending $ (38,296,570) $ (37,272,446) $ (185,918) $ (116,040) $ (38,482,488) $ (37,388,486)

55 PENN-TRAFFORD SCHOOL DISTRICT MANAGEMENT DISCUSSION AND ANALYSIS JUNE 30, 2016 Page 11 Net Program Expenses Net program expenses indicate the amount of support required from taxes and other general revenues for a program of the government. In 2016, taxes brought in $26,993,337. Net Cost of Governmental and Business-type Activities Total Cost Total Cost Net Cost Net Cost of Services of Services of Services of Services Program: Instructional $ 31,631,719 $ 30,593,980 $ 24,768,738 $ 23,741,390 Support Services 17,363,377 16,488,205 14,842,726 14,238,911 Non-instructional services 1,903,962 1,812,121 1,763,943 1,680,683 Pension 861,856 1,706, ,856 1,706,715 Interest on Long-Term Debt 796, , , ,248 Food Service 1,284,988 1,222,840 69,946 12,563 Total $53,842,183 $52,499,338 $ 43,103,490 $ 41,665,510 The SCHOOL DISTRICT relied on property taxes and other general revenues to fund 80% of its governmental and business-type activities in See page 14 for a discussion on the increases/decreases in revenues and expenditures.

56 Capital Assets PENN-TRAFFORD SCHOOL DISTRICT MANAGEMENT DISCUSSION AND ANALYSIS JUNE 30, 2016 Page 12 The SCHOOL DISTRICT s investment in capital assets in its Governmental Activities at June 30, 2016, net of accumulated depreciation, was $59,633,607. Capital assets consist primarily of land, buildings, and equipment. The following is a summary of capital assets at June 30, 2016: Beginning Ending GOVERNMENTAL ACTIVITIES Balance Increases Decreases Balance Capital Assets, Not Being Depreciated: Land $ 54,814 $ - $ - $ 54,814 Construction in Progress 14,735,145 13,640,230-28,375,375 Total Capital Assets, Not Being Depreciated 14,789,959 13,640,230-28,430,189 Capital Assets, Being Depreciated: Land Improvements 3,027, ,027,025 Building and Building Improvements 59,961,948 5,880-59,967,828 Furniture, Vehicles, and Equipment 8,199, ,073-8,569,816 Total Capital Assets, Being Depreciated 71,188, ,953-71,564,669 Less Accumulated Depreciation For: Land Improvements (2,205,763) (48,082) - (2,253,845) Building and Building Equipment (30,126,651) (1,217,770) - (31,344,421) Furniture, Vehicles, and Equipment (6,290,393) (472,592) - (6,762,985) Total Accumulated Depreciation (38,622,807) (1,738,444) - (40,361,251) Total Capital Assets, Being Depreciated, Net 32,565,909 (1,362,491) - 31,203,418 Governmental Activities Capital Assets, Net $ 47,355,868 $ 12,277,739 $ - $ 59,633,607 Beginning Ending BUSINESS TYPE ACTIVITIES Balance Increases Decreases Balance Capital Assets, Being Depreciated: Furniture, Vehicles, and Equipment $ 365,531 $ - $ - $ 365,531 Total Capital Assets, Being Depreciated 365, ,531 Less Accumulated Depreciation (340,376) (7,956) - (348,332) Total Capital Assets, Being Depreciated, Net 25,155 (7,956) - 17,199 Business Type Activities Capital Assets, Net $ 25,155 $ (7,956) $ - $ 17,199 Detailed information about the SCHOOL DISTRICT s capital assets can be found in Note 4, Notes to the Financial Statements.

57 PENN-TRAFFORD SCHOOL DISTRICT MANAGEMENT DISCUSSION AND ANALYSIS JUNE 30, 2016 Page 13 Debt Administration At June 30, 2016, the SCHOOL DISTRICT had $113,721,700 of long-term liabilities outstanding. Longterm liabilities increased 5.48% from the previous year. The following is a summary of long-term liabilities for the 2016 year: Amounts Beginning Ending Due Within Governmental Activities: Balance Additions Reductions Balance One Year Bonds and Notes payable: General obligation bonds $ 31,815,000 $ - $ (1,870,000) $ 29,945,000 $ 1,875,000 Total bonds and notes payable 31,815,000 - (1,870,000) 29,945,000 1,875,000 Other Liabilities: Other postemployment benefits 2,615, ,391-3,007,150 - Compensated absences 1,338,083 71,114-1,409, ,035 Lease Payable 684,809 41,349 (286,298) 439, ,445 Pension 71,364,033 7,556,460 78,920,493 - Total Other Liabilities 76,002,684 8,060,314 (286,298) 83,776, ,480 Governmental Activities Long-Term Liabilities $ 107,817,684 $ 8,060,314 $ (2,156,298) $ 113,721,700 $ 2,627,480 Detailed information on the SCHOOL DISTRICT s debt can be found in Note 6, Notes to the financial statements. GOVERNMENTAL FUNDS The SCHOOL DISTRICT uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. The focus of governmental funds is to provide information on inflows, outflows, and balances of spendable resources. Such information is useful in assessing the SCHOOL DISTRICT s financing requirements. In particular, unreserved/undesignated fund balance may serve as a useful measure of the SCHOOL DISTRICT s net resources available for spending at the end of the year. The SCHOOL DISTRICT s governmental funds include the general fund and capital projects fund. The general fund is the chief operating fund for the SCHOOL DISTRICT. Capital reserve fund funds are restricted to specific legislated use.

58 PENN-TRAFFORD SCHOOL DISTRICT MANAGEMENT DISCUSSION AND ANALYSIS JUNE 30, 2016 GOVERNMENTAL FUND REVENUES Page 14 Governmental fund revenues by source at June 30, 2016 and 2015 were as follows: Revenues: Local Sources $ 27,629,184 $ 27,044,532 State Sources 23,405,170 22,944,035 Federal Sources 477, ,354 Total revenues $51,511,584 $50,955,921 There are several factors relating to increases/decreases in revenues from 2015 to Local revenues increased due to the increased Real Estate Tax millage rate. State revenues increased due to an increase in retirement subsidy revenue. Federal revenue decreased due to a decrease in Medical Assistance revenue. GOVERNMENTAL FUND EXPENDITURES Governmental fund expenditures by function at June 30, 2016 and 2015 were as follows: Expenditures: Instruction $ 30,766,506 $ 29,881,007 Support Services 16,744,691 16,247,347 Non-instructional Services 1,802,814 1,732,882 Capital Outlay 13,640,229 12,884,174 Debt Service 2,683,922 3,177,464 Total expenditures $65,638,162 $63,922,874 Instruction expenditures increased as a result of increased salary expenditures. Capital Outlay expenditures increased as a result of the ongoing Penn Trafford High School renovation project.

59 PENN-TRAFFORD SCHOOL DISTRICT MANAGEMENT DISCUSSION AND ANALYSIS JUNE 30, 2016 Page 15 GOVERNMENTAL FUND BALANCES AND PROPRIETARY FUND NET POSITION Ending fund balances for major governmental funds and Net Position for proprietary funds at June 30, 2016 and 2015 were as follows: Governmental Governmental Proprietary Proprietary Fund Funds Funds Funds Funds General Fund $ 4,054,110 $ 4,564,053 $ - $ - Capital Projects Fund 4,157,983 17,783, Nonmajor Funds 3, Food Service Fund - - (185,918) (116,040) Total $ 8,215,777 $ 22,347,355 $ (185,918) $ (116,040) The reasons for the changes in governmental fund balances are explained above in the governmental funds revenues and expenditures sections.

60 PENN-TRAFFORD SCHOOL DISTRICT MANAGEMENT DISCUSSION AND ANALYSIS JUNE 30, 2016 BUDGETARY HIGHLIGHTS Page 16 The SCHOOL DISTRICT adopts an annual appropriated budget for its general fund. Detailed information about the SCHOOL DISTRICT s 2016 general fund budget can be found in Required Supplemental Information. Overall the SCHOOL DISTRICT had a negative variance of $245,420 for actual results in comparison to budget. Numerous factors went in to these results. Revenue had a positive variance of $235,598 which resulted from more real estate and Act 511 taxes being collected than budgeted. Expenditures had a negative variance of $476,018 for actual results in comparison to budget, largely resulting from salary expenditures that were higher than the budget. ECONOMIC CONDITIONS AND NEXT YEAR S BUDGET Current difficult economic conditions have affected the SCHOOL DISTRICT s financial position due largely in part by increased pension and healthcare costs. SCHOOL DISTRICT management has worked on lowering expenses and increasing revenues other than taxes. CONTACTING THE SCHOOL DISTRICT S FINANCIAL MANAGEMENT This financial report is designed to provide citizens, taxpayers, customers, investors and creditors with a general overview of the SCHOOL DISTRICT s finances and to demonstrate the SCHOOL DISTRICT s accountability. Questions concerning this financial information or requests for additional information should be directed to: Penn-Trafford School District 1006 Harrison City/ Export Road PO Box 530 Harrison City, PA Phone:

61 Page 17 PENN-TRAFFORD SCHOOL DISTRICT STATEMENT OF NET POSITION JUNE 30, 2016 Primary Government Governmental Business-type Activities Activities Total Assets Cash and Cash Equivalents $ 13,404,135 $ 30,410 $ 13,434,545 Accounts Receivable - 40,223 40,223 Taxes Receivable (Net) 958, ,907 Intergovernmental Receivable 1,700,093-1,700,093 Unamortized Bond Insurance Costs 11,588-11,588 Bond Discount, Net 143, ,901 Inventory - 18,602 18,602 Capital Assets: Non-depreciable 28,430,189 17,199 28,447,388 Depreciable (Net) 31,203,418-31,203,418 Total Assets 75,852, ,434 75,958,665 Deferred Outflows of Resources Deferred Contributions Subsequent to the Measurement Date 6,025,284-6,025,284 Deferred Outflows- Pensions 2,780,357-2,780,357 Deferred Changes in Proportion 739, ,948 Total Deferred Outflows of Resources 9,545,589-9,545,589 Liabilities Current Liabilities: Accounts Payable 1,512,862-1,512,862 Accrued Expenses 5,391, ,244 5,650,900 Accrued Interest Payable on Debt 134, ,361 Unearned Revenues - 33,108 33,108 Current Portions of Long-Term Liabilities: Bonds and Notes Payable 1,875,000-1,875,000 Capital Lease Payable 287, ,445 Compensated Absences 465, ,035 Non-Current Portions of Long-Term Liabilities: Bonds and Notes Payable 28,070,000-28,070,000 Bond Premium 111, ,809 Capital Lease Payable 152, ,415 Other Postemployment Benefits 3,007,150-3,007,150 Compensated Absences 944, ,162 Net Pension Liability 78,920,493-78,920,493 Total Liabilities 120,872, , ,164,740 Deferred Inflows of Resources Deferred Difference Between Actual and Experience 244, ,262 Deferred Difference Between Projected and Actual Investment Earnings 2,577,740-2,577,740 Total Deferred Inflows of Resources 2,822,002-2,822,002 Net Position (Deficit) Net Investment in Capital Assets 29,158,066 17,199 29,175,265 Restricted for Capital Improvement 4,161,667-4,161,667 Unrestricted (71,616,303) (203,117) (71,819,420) Total Net Position (Deficit) $ (38,296,570) $ (185,918) $ (38,482,488) The accompanying notes are an integral part of the financial statements.

62 Page 18 PENN-TRAFFORD SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016 Program Revenues Net (Expense) Revenue and Changes in Net Position Primary Government Charges Operating Grants Capital Grants Governmental Business-Type Functions/Programs Expenses for Services and Contributions and Contributions Activities Activities Total Primary Government: Governmental Activities: Instruction $ 31,631,719 $ - $ 6,862,981 $ - $ (24,768,738) $ - $ (24,768,738) Support Services 17,363,377-2,520,651 - (14,842,726) - (14,842,726) Noninstructional Services 1,903, ,019 - (1,763,943) - (1,763,943) Pension 861, (861,856) - (861,856) Interest on Long-Term Debt 796, (796,281) - (796,281) Total Governmental Activities 52,557,195-9,523,651 - (43,033,544) - (43,033,544) Business-Type Activities: Food Service 1,284, , , (69,946) (69,946) Total Business-Type Activities 1,284, , , (69,946) (69,946) Total Primary Government $ 53,842,183 $ 762,901 $ 9,975,792 $ - (43,033,544) (69,946) (43,103,490) General Revenues: Taxes: Property 22,494,141-22,494,141 Other taxes levied 4,499,196-4,499,196 Grants, subsidies, and contributions not restricted 14,960,266-14,960,266 Interest Earnings 31, ,164 Miscellaneous 24,721-24,721 Total General Revenues and Transfers 42,009, ,009,488 Change in Net Position (1,024,124) (69,878) (1,094,002) Net Position - Beginning (37,272,446) (116,040) (37,388,486) Net Position - Ending $ (38,296,570) $ (185,918) $ (38,482,488) The accompanying notes are an integral part of the financial statements.

63 Page 19 PENN-TRAFFORD SCHOOL DISTRICT BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2016 Assets Total Governmental General Fund Capital Projects Fund Other Nonmajor Funds Funds Cash and cash equivalents $ 8,220,194 $ 5,180,257 $ 3,684 $ 13,404,135 Receivables: Taxes 958, ,907 Intergovernmental 144, ,936 State Revenue 1,427, ,427,323 Federal Revenue 127, ,834 Total assets $ 10,879,194 $ 5,180,257 $ 3,684 $ 16,063,135 Liabilities Accounts payable $ 490,588 $ 1,022,274 $ - $ 1,512,862 Accrued liabilities 5,391, ,391,656 Total liabilities 5,882,244 1,022,274-6,904,518 Deferred Inflows of Resources Unavailable revenue - property taxes 942, ,840 Total deferred inflows of resources 942, ,840 Fund Balances Committed 2,167, ,167,000 Restricted - 4,157,983 3,684 4,161,667 Unassigned 1,887, ,887,110 Total fund balances 4,054,110 4,157,983 3,684 8,215,777 Total liabilities and fund balances $ 10,879,194 $ 5,180,257 $ 3,684 $ 16,063,135 The accompanying notes are in integral part of the financial statements.

64 Page 20 PENN-TRAFFORD SCHOOL DISTRICT RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION JUNE 30, 2016 Amounts reported for governmental activities in the Statement of Net Position are different because: Total fund balances of governmental funds $ 8,215,777 Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. The cost of the assets is $99,994,858 and the accumulated depreciation is $40,361,251. Property taxes receivable will be collected, but are not available soon enough to pay for current year's expenditures, and therefore are deferred in the Governmental Funds. 59,633, ,840 Long-term liabilities such as Debt, Accrued Interest, and Compensated Absences are not due and payable in the current period and accordingly are not reported as fund liabilities. Both current and long-term liabilities are reported in the Statement of Net Position. Long-term Bonds and Notes Payable $ (29,945,000) Bond Discount 143,901 Bond Premium (111,809) Bond Insurance Costs 11,588 Accrued Interest (134,361) Capital Lease Payable (439,860) Other Postemployment Benefits (3,007,150) Net Pension Liability (78,920,493) Deferred Outflows 9,545,589 Deferred Inflows (2,822,002) Compensated absences (1,409,197) (107,088,794) Total net position of governmental activities $ (38,296,570) The accompanying notes are an integral part of the financial statements.

65 Page 21 PENN-TRAFFORD SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2016 Total Governmental General Fund Capital Projects Other Nonmajor Funds Funds Revenues Local revenue sources $ 27,610,590 $ 14,992 $ 3,602 $ 27,629,184 State revenue sources 23,405, ,405,170 Federal revenue sources 477, ,230 Total revenues 51,492,990 14,992 3,602 51,511,584 Expenditures Current operating: Instruction 30,766, ,766,506 Support Services 16,744, ,744,691 Noninstructional services 1,802, ,802,814 Capital outlay - 13,640,229-13,640,229 Debt service Principal 1,870, ,870,000 Interest 813, ,922 Total Expenditures 51,997,933 13,640,229-65,638,162 Excess (deficiency) of revenues over expenditures (504,943) (13,625,237) 3,602 (14,126,578) Other financing sources (uses) Trust and Agency Fund transfers (5,000) - - (5,000) Total other financing sources (uses) (5,000) - - (5,000) Net change in fund balance (509,943) (13,625,237) 3,602 (14,131,578) Fund balance, beginning of year 4,564,053 17,783, ,347,355 Fund balance, end of year $ 4,054,110 $ 4,157,983 $ 3,684 $ 8,215,777

66 Page 22 PENN-TRAFFORD SCHOOL DISTRICT RECONCILIATION OF STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016 Amounts reported for governmental activities in the Statement of Activities are different because: Net Change in fund balances - total governmental funds $ (14,131,578) Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over the estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation expense in the current period: Capital outlays 14,016,183 Depreciation expense (1,738,444) 12,277,739 Payments of long-term debt and certain expenditures of debt issuance are expensed when paid in the Governmental Funds, but are amortized or recorded as a reduction of long term liabilities in the Statement of Net Position: Debt principal repayments 1,870,000 Capital lease additions (41,349) Amortization of bond issue costs (83) Change in accrued interest 1,289 Amortization of bond discount (7,156) Amortization of bond premium 23,591 Capital lease payments 286,298 2,132,590 Real estate taxes reported in the funds include receipt of prior year delinquent taxes and do not include revenue attributable to the current year's delinquent tax receivable. This amount is the net effect of these differences. 21,486 Some expenses reported in the statement of activities do not require the use of current financial resources, and, therefore, are not reported as expenditures in governmental funds Change in net pension liability and deferred amounts (861,856) Increase in compensated absences (71,114) Increase in other postemployment benefits (391,391) (1,324,361) Changes in net position of governmental activities $ (1,024,124) The accompanying notes are an integral part of the financial statements.

67 Page 23 PENN-TRAFFORD SCHOOL DISTRICT STATEMENT OF NET POSITION PROPRIETARY FUND JUNE 30, 2016 Business-Type Activities - Enterprise Fund Cafeteria Fund Assets Current assets: Cash and cash equivalents $ 30,410 Other receivables 40,223 Inventories 18,602 Total current assets 89,235 Noncurrent assets: Capital assets (net of accumulated depreciation of $348,332) 17,199 Total noncurrent assets 17,199 Total assets $ 106,434 Liabilities Current liabilities: Accounts payable $ 259,244 Unearned revenues 33,108 Total current liabilities 292,352 Total liabilities 292,352 Net Position Net investment in capital assets 17,199 Unrestricted (203,117) Total net position (185,918) Total liabilities and net position $ 106,434 The accompanying notes are an integral part of the financial statements.

68 Page 24 PENN-TRAFFORD SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30, 2016 Business-Type Activities - Enterprise Fund Cafeteria Fund Operating Revenues Receipts from providing services $ 762,901 Total operating revenues 762,901 Operating Expenses Food Service 1,284,988 Total operating expenses 1,284,988 Operating Loss (522,087) Nonoperating Revenues Interest income 68 Grants 452,141 Total Nonoperating Revenues 452,209 Change in Net Position (69,878) Net Position (Deficit) - Beginning of Year (116,040) Net Position (Deficit) - End of Year $ (185,918) The accompanying notes are an integral part of the financial statements.

69 Page 25 PENN-TRAFFORD SCHOOL DISTRICT STATEMENT OF CASH FLOWS PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30, 2016 Cash flows from operating activities Cash received from customers $ 775,058 Cash paid to suppliers (1,310,163) Net cash used in operating activities (535,105) Cash flows from investing activities Interest income 68 Net cash provided by investing activities 68 Cash flows from non-capital financing activities Grant payments received 426,545 Net cash provided by non-capital financing activities 426,545 Net decrease in cash and cash equivalents (108,492) Beginning cash and cash equivalents 138,902 Ending cash and cash equivalents $ 30,410 RECONCILIATION OF OPERATING LOSS TO NET CASH USED IN OPERATING ACTIVITIES Operating loss $ (522,087) Adjustments to reconcile operating loss to net cash used in operating activities Depreciation 7,956 Donated commodities 68,717 (Increase) in assets Inventories 4,938 Increase (decrease) in liabilities Accounts payable (106,786) Deferred revenue 12,157 Net cash used in operating activities $ (535,105) The accompanying notes are an integral part of the financial statements.

70 Page 26 PENN-TRAFFORD SCHOOL DISTRICT STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2016 Agency Funds Assets Cash and Cash Equivalents $ 207,015 Total Assets 207,015 Liabilities Liabilities Funds Held in Fiduciary Capacity 207,015 Total Liabilities 207,015 Net Position Total Net Position $ - The accompanying notes are an integral part of the financial statements.

71 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2016 Page 27 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Penn-Trafford School District (the District ) is located in Westmoreland County, Pennsylvania. The District s tax base consists of Penn Borough, Trafford Borough, and Penn Township. The District is governed by a board of nine school directors who are residents of the District and who are elected every two years, on a staggered basis, for a four-year term. The Board of Directors (the Board ) has the power and duty to establish, equip, furnish and maintain a sufficient number of elementary, secondary and other schools necessary to educate every person residing in such district between the ages of six and twenty-one years, who may attend. The Board is vested with all the necessary authority and power annually to levy and collect the necessary taxes required and granted by the legislature, in addition to the annual State appropriation, and are vested with all necessary power and authority to comply with and carry out any or all of the provisions of the Public School Code of The financial statements of the District have been prepared in accordance with U.S. generally accepted accounting principles as applied to governmental units. The Governmental Accounting Standards Board ( GASB ) is the authoritative standard-setting body for the establishment of governmental accounting and financial reporting principles. A.) Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. B.) Reporting Entity: The District is the basic level of government, which has financial accountability and control over all activities related to the public school education in the District. The District receives funding from local, state and federal government sources and must comply with the requirements of these funding source entities. However, the District, is not included in any other governmental reporting entity as defined by the GASB pronouncements, since Board members are elected from the public and have decision making authority, the authority to levy taxes, the power to designate management, the ability to significantly influence operations and primary accountability for fiscal matters. In addition, there are no component units as defined in GASB Statement No. 61, which are included in the District s reporting entity.

72 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 28 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C.) Joint Venture: The District is one of nine member school districts of the Central Westmoreland Career & Technology Center (CWCTC). CWCTC provides vocational-technical training and education to participating students of the member districts. CWCTC is controlled and governed by the Joint Board, which is composed of all the school board members of all of the member districts. Direct oversight of CWCTC operations is the responsibility of the Joint Committee, which consists of one representative from each participating school district. No member of the joint venture exercises specific control over the fiscal policies or operations of CWCTC. The District s share of annual operating and capital costs fluctuates based on the percentage of enrollment of each member district in the school. The District s financial obligation to CWCTC for the year ended June 30, 2016 has been reported in the District s General Fund. The District paid $429,925 as its share of costs to CWCTC. The District has no equity interest in CWCTC as of June 30, Complete financial statements for CWCTC can be obtained from the administrative offices at 240 Arona Road, New Stanton, Pennsylvania D.) Jointly Governed Organizations: The District is a participating member of the Westmoreland County Intermediate Unit (IU #7). Operations of the IU #7 are directed by a joint committee consisting of members from each participating district. No participating district appoints a majority of the joint committee. The board of directors of each participating district must approve IU #7 s annual operating budget. The IU #7 is a self-sustaining organization that provides services for fees to participating districts. As such, the District has no ongoing financial interest or responsibility in the IU # 7. The IU #7 contracts with participating districts to supply special education services and to act as a conduit for certain federal programs. E.) Fund Accounting: The accounts of the District are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts, which are comprised of each fund s assets, liabilities, fund balance, revenues and expenditures or expenses as appropriate. Resources are allocated to and accounted for in the individual funds based on the purpose for which they are to be spent. The District uses the following funds: GOVERNMENTAL FUNDS These funds are used to account for most of the District s finances. The measurement focus is on determination of the financial position and changes in financial position (current financial resources) rather than on income determination.

73 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 29 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E.) Fund Accounting (Continued) 1. General Fund This is the general operating fund of the District. All activities of the District are accounted for through this major fund except for those required to be accounted for in another fund. 2. Capital Reserve Fund This major fund is used to account for financial resources that are used for the acquisition or construction of major assets at the Board s discretion. 3. Capital Projects Fund This fund is used to account for the acquisition or construction of major capital facilities (other than those financed by proprietary funds). PROPRIETARY FUND This fund accounts for District activities that are similar to business operations in the private sector or where the reporting focus is on determining net income, financial position and changes in financial position (economic resources measurement focus). 1. Cafeteria Fund This major fund is used to account for the District s food service operations that are financed and operated in a manner similar to private business enterprises. The Fund accounts for all revenues, food purchases, costs and expenses for the Food Service Program. FIDUCIARY FUNDS These funds are used to account for assets held by the District as trustee or agent. 1. Agency Funds This fund accounts for the receipts and disbursements of monies from student activity organizations. These organizations exist with the explicit approval and are subject to revocation by the District s governing body. This accounting reflects the District s agency relationship with the student activity organizations. F.) Basis of Presentation: Government-wide financial statements (i.e., the Statement of Net Position and the Statement of Activities) report information on all of the non-fiduciary activities of the District. As a general rule, the effect of interfund activity has been eliminated from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities which rely, to a significant extent, on fees and charges for support.

74 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 30 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) F.) Basis of Presentation (Continued): The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable within a specific function or segment. Program revenues include charges to customers who purchase, use or directly benefit from goods, services, or privileges provided by a given function or segment. In addition, program revenues include grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Fund financial statements are also provided in the report for all of the governmental funds, proprietary funds and the fiduciary funds of the District. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Non-major funds are aggregated and presented in a single column. Fiduciary funds are separately reported by fund type. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the Proprietary Fund s principal ongoing operations. The principal operating revenues of the District s Enterprise Fund are food service charges. Operating expenses for the District s Enterprise Fund include food production costs, supplies, administrative costs and depreciation on capital assets. All revenues or expenses not meeting this definition are reported as nonoperating revenues and expenses. G.) Measurement Focus and Basis of Accounting: The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting as are the Proprietary Fund and the Fiduciary Fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Net Position (total assets and deferred outflows of resources less total liabilities and deferred inflows of resources) is used as a practical measure of economic resources and the operating statement includes all transactions and events that increased or decreased Net Position. Depreciation is charged as expense against current operations and accumulated depreciation is reported on the Statement of Net Position. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers tax revenue to be available if collected within sixty days of the end of the fiscal period. Revenue from federal, state, and other grants designated for payment of specific school district expenditures is recognized when the related expenditures are incurred; accordingly, when such funds are received, they are recorded as deferred revenues until earned. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due.

75 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 31 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) H.) Budgetary Data: In accordance with Act 1, the District elected not to increase the real estate tax rate above the index established by the Pennsylvania Department of Education and, therefore, follows the procedures outlined below in establishing the budgetary data reflected in the basic financial statements: 1. Prior to May 31, the Board submits a proposed operating budget for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures and the means of financing them for the General Fund. 2. A public hearing is conducted to obtain taxpayer comments. 3. Prior to June 30, the budget is legally enacted through passage of a resolution. 4. The budget of the District is the approved spending plan of the District for the year and the Board is prohibited from obligating funds in excess of these amounts. The Board may, during any fiscal year, amend the budget by making additional appropriations or increase existing appropriations to meet emergencies. The funds shall be provided from unexpended balances in existing appropriations, from unappropriated revenues or from temporary loans. Legal budgetary control is maintained by the Board at the department level. Transfers between departments, whether between funds or within a fund or revisions that alter the total revenues and expenditures of any fund, must be approved by the Board. Budget information in the Budgetary Comparison Schedule is presented at or below the legal level of budgetary control. Several functions had expenditures that exceeded the budgeted amount; however, these overages were absorbed by surpluses in other functions and fund balance. Total expenditures exceeded the appropriations for the year which is a violation of school code. 5. Budgetary data is included in the District s management information system and is employed as a management control device during the year. 6. The budget for the General Fund is adopted on the modified accrual basis of accounting, which is consistent with accounting principles generally accepted in the United States of America. 7. There were no supplemental budgetary appropriations or amendments proposed or approved during the year. Legal budgetary control is maintained by the District Board at the functional object level. Transfer between functional objects, whether between funds or within a fund or revisions that alters the total revenues and expenditures of any fund, must be approved by the District Board. Budget information in the Budgetary Comparison Schedule for the General Fund is presented at or below the legal level of budgetary control. Instruction expenditures exceeded the budgeted amount; however, these overages were absorbed by surpluses in other functions, revenues and fund balance. Included in the General Fund budget are program budgets as prescribed by the state and federal agencies funding the program. These budgets are approved on a program basis by the state or federal funding agency.

76 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 32 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) I.) Cash and Cash Equivalents: Cash and cash equivalents in the basic financial statements include all highly liquid investments with an original maturity of three months or less. J.) Investments: Investments are carried at market value based on quoted market prices. K.) Receivables/Payables: Activity between funds that is representative of lending/borrowing arrangements outstanding at the end of the fiscal year is referred to as interfund receivables/payables. Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as internal balances. L.) Accounts Receivable: Accounts receivable are recorded at the invoiced amount. The District determines the allowance for doubtful accounts based on historical write-off experience. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. M.) Inventories and Prepaid Items: Inventories of the Cafeteria Fund consisting of food and paper supplies are carried at cost, using the first-in, first-out method. Federal donated commodities are valued at their fair market value as determined by the U.S. Department of Agriculture at the date of donation. The inventories on hand at June 30, 2016, consist of the following: Food $ 7,327 Paper Supplies 1,870 Donated Commodities 9,405 Total Inventory $ 18,602 Certain payments to vendors reflect costs applicable to future periods and are recorded as prepaid items in both government-wide and fund financial statements.

77 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 33 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) N. Capital Assets: Capital assets, which include property, plant and equipment, are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the District as assets with an initial, individual cost of more than $4,000 and an estimated useful life in excess of one year. Management has elected to include certain homogeneous asset categories with individual assets less than $4,000 as composite groups for financial reporting purposes. In addition, capital assets purchased with long-term debt may be capitalized regardless of the thresholds established. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of businesstype activities is included as part of the capitalized value of the assets constructed. All reported capital assets are depreciated using the straight-line method over the following estimated useful lives: Assets Years O. Long-Term Obligations: Buildings and Improvements 25 Equipment and vehicles 8 15 Library and textbooks 15 Food service equipment 5 15 In the government-wide financial statements and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities or proprietary fund type statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are expensed as incurred. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources, while discounts on debt issuances are reported as other financial uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. P.) Fund Balance: Fund Balance Classification: The governmental fund financial statements present fund balances based on classifications that comprise a hierarchy that is based primarily on the extent to which the School District is bound to honor constraints on the specific purposes for which amounts in the respective governmental funds can be spent. The classifications used in the governmental fund financial statements are as follows:

78 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 34 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) P.) Fund Balance: (Continued) Nonspendable: This classification includes amounts that cannot be spent because they are either (a) not in spendable form or (b) are legally or contractually required to be maintained intact. The School District did not have any nonspendable fund balance as of June 30, Restricted: This classification includes amounts for which constraints have been placed on the use of the resources either (a) externally imposed by creditors (such as through a debt covenant), grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation. The School District had $82 of restricted fund balance in the Capital Reserve fund, $4,157,983 of restricted fund balance in the Capital Projects Fund, and $3,602 of restricted fund balance in the Building Improvement Fund as of June 30, The funds were restricted for capital improvements. Committed: This classification includes amounts that can be used only for specific purposes pursuant to constraints imposed by formal action of the Board of Directors. These amounts cannot be used for any other purpose unless the Board of Directors removes or changes the specified use by taking the same type of action (ordinance or resolution) that was employed when the funds were initially committed. This classification also includes contractual obligations to the extent that existing resources have been specifically committed for use in satisfying those contractual requirements. The School District had $2,167,000 of committed fund balance in the General Fund as of June 30, The funds were committed for pension costs. Assigned: This classification includes amounts that are constrained by the School District s intent to be used for a specific purpose but are neither restricted nor committed. This intent can be expressed by the Board of Directors or through the Board of Directors delegating this responsibility to the School District s management. This classification also includes the remaining positive fund balance for all governmental funds except for the General Fund. The School District did not have any assigned resources as of June 30, Unassigned: This classification includes the residual fund balance for the General Fund. The Unassigned classification also includes negative residual fund balance of any other governmental fund that cannot be eliminated by offsetting of Assigned fund balance amounts. The School District had $1,887,110 of unassigned fund balance in the General Fund as of June 30, The School District uses Restricted fund balances first, followed by Committed resources, and then Assigned resources, as appropriate opportunities arise, but reserves the right to selectively spend Unassigned resources first to defer the use of these other classified funds.

79 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 35 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Q.) Deferred Outflows/Inflows of Resources The Statement of Net Position reports separate sections for deferred outflows and deferred inflows of resources. These separate financial statement elements represent a consumption or acquisition of net position that applies to a future period(s) and so will not be recognized as an outflow or inflow of resources (expense/revenue) until then. The District has two items that qualify for reporting in these categories: deferred outflows and inflows related to pensions, and unavailable tax revenue. Deferred outflows and inflows of resources related to pensions are described further in Note 9. Annual changes to the net pension liability resulting from differences between expected and actual experience with regard to economic and demographic factors and from changes of assumptions about future economic or demographic factors or other inputs are deferred and amortized over a closed period equal to the average of the expected service lives of all employees that are provided with pension benefits determined for the period during which the changes occurred. Differences between projected and actual earnings on pension plan investments are amortized over a closed five-year period. In the governmental funds balance sheet, the District only has one type of item, which arises under a modified accrual basis of accounting that qualifies for reporting in this category. Accordingly, the item, unavailable tax revenue, is reported only in the governmental funds balance sheet. The governmental funds report unavailable revenue from property taxes. This amount is deferred and recognized as an inflow of resources in the period that the amount becomes available. R.) Adoption of Governmental Accounting Standards Board Statements The School District adopted the provisions of GASB Statement No. 72, Fair Value Measurement and Application. The adoption of this Statement had no effect on previously reported amounts. The School District adopted the provisions of GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The adoption of this Statement had no effect on previously reported amounts. The School District adopted the provisions of GASB Statement No. 77, Tax Abatement Disclosures. The adoption of this Statement had no effect on previously reported amounts. S.) Pending Changes in Accounting Principles In June 2015, the GASB issued Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. The School District is required to adopt Statement No. 73 for its fiscal year 2017 financial statements. In June 2015, the GASB issued Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. The School District is required to adopt Statement No. 74 for its fiscal year 2017 financial statements. In June 2015, the GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. The School District is required to adopt Statement No. 75 for its fiscal year 2018 financial statements.

80 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 36 NOTE 1: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) S.) Pending Changes in Accounting Principles (Continued) In December 2015, the GASB issued Statement No. 78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans. The School District is required to adopt Statement No. 78 for its fiscal year 2017 financial statements. In December 2015, the GASB issued Statement No. 79, Certain External Investment Pools and Pool Participants. The School District is required to adopt Statement No. 79 for its fiscal year 2017 financial statements. In January 2016, the GASB issued Statement No. 80, Blending Requirements for Certain Component Units An Amendment of GASB Statement No.14. The School District is required to adopt Statement No. 80 for its fiscal year 2018 financial statements. In March 2016, the GASB issued Statement No. 81, Irrevocable Split-Interest Agreements. The School District is required to adopt Statement No. 81 for its fiscal year 2018 financial statements. In March 2016, the GASB issued Statement No. 82, Pension Issues An amendment of GASB Statements No. 67, No.68, and No.73. The School District is required to adopt Statement No. 82 for its fiscal year 2018 financial statements. In November 2016, the GASB issued Statement No. 83, Certain Asset Retirement Obligations. The School District is required to adopt Statement No. 83 for its fiscal year 2019 financial statements. In January 2017, the GASB issued Statement No. 84, Fiduciary Activities. The School District is required to adopt Statement No. 84 for its fiscal year 2020 financial statements. The School District has not completed the various analysis required to estimate the financial statement impact of these new pronouncements. NOTE 2: CASH AND CASH EQUIVALENTS Under Section of the Public School Code of 1949, as amended, the District is permitted to invest funds in the following types of investments: Obligations of (a) the United States of America or any of its agencies or instrumentalities backed by the full faith and credit of the United States of America, (b) the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the Commonwealth, or (c) any political subdivision of the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the political subdivision and (d) shares of an investment company registered under the Investment Company Act of 1940, provided that the instruments are those types of investments listed above, and the investment company is managed so as to maintain its shares at a constant net asset value and the investment company is rated in the highest category by a nationally recognized rating agency. Pursuant to Act 72 of the Pennsylvania State Legislature, a depository must pledge assets to secure state and municipal deposits. The pledged assets must at least be equal to the total amount of such assets required to secure all of the public deposits at the depository and may be on a pooled basis. Additionally, all such pledged assets must be delivered to a legal custodian.

81 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 37 NOTE 2: CASH AND CASH EQUIVALENTS (CONTINUED) Act 10 of 2016 broadened the scope of investment options for the District with safeguard measures to protect those investments. The Act added high quality money market instruments including repurchase agreements, commercial paper, negotiable certificates of deposit and bankers acceptances to the authorized list of investments. The deposit and investment policy of the District adheres to State statutes and prudent business practice. There were no deposits or investment transactions during the year that were in violation of either the State statutes or the policy of the District. A portion of the District s cash and cash and equivalents are in the Pennsylvania School District Liquid Asset Fund ( PSDLAF ), and the Pennsylvania Local Government Investment Trust ( PLGIT ), which are funds very similar to mutual funds. PSDLAF and PLGIT operate in accordance with appropriate State laws and regulations and under State oversight. The reported value of the pool is the same as the fair value of the pool shares. A portion of the District s cash and investments are in the Pennsylvania School District Liquid Asset Fund ( PSDLAF ), which is a fund very similar to mutual funds. PSDLAF operates in accordance with appropriate State laws and regulations and under State oversight. The reported value of the pool is the same as the fair value of the pool shares. In accordance with the Government Accounting Standards Board, cash equivalents in PSDLAF are valued at amortized cost, which approximates market value. The amortized cost method involves valuing a security at its cost on the date of purchase and recording a constant amortization or accretion to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the investment. The net asset value per share for the purpose of calculating the price at which shares are issued and redeemed is determined by the Administrator each banking day. Such determination is made by subtracting the liabilities from the value of the assets and dividing the remainder by the number of shares outstanding. Although such requirement has been waived since 2005, all investments in PSDLAF s MAX Series by Settlors must be deposited for a minimum of 14 calendar days. No investment made in the MAX Series may be withdrawn by the Settlor making it during the first 14 calendar days after it is made without the incurrence of a penalty for such premature withdrawal. However, the 14 day minimum investment period does not apply to direct deposits of state aid payments into the MAX Series. In the event that a Settlor withdraws a deposit within such initial 14 calendar day period, it will be subject to a penalty equal to the loss of 14 days interest on the amount so withdrawn. Such 14 day interest penalty shall be calculated on the basis of the dividend rates in effect for the MAX Series for the 14 day period immediately preceding the withdrawal date. Accordingly, the penalty will be equal to the dividend that would have been paid during the 14 days preceding the withdrawal date on the amount prematurely withdrawn. Such penalty will be payable even though the amount withdrawn has not been invested in the MAX Series for the full 14 day period preceding the withdrawal. However, as noted above, the 14 day minimum investment period has been waived since 2005 and would not be reinstituted without notice to the Fund s Settlors. As of June 30, 2016, there were no redemption fees or maximum transaction amounts, or any other requirements that serve to limit a participant s daily access to 100 percent of their account value. The PSDLAF collateralized CD Pool is collateralized in accordance with Act 72 and invests in Certificates of Deposit in the name of PSDLAF.

82 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 38 NOTE 2: CASH AND CASH EQUIVALENTS (CONTINUED) A portion of the District s cash is in the Pennsylvania Local Government Investment Trust Fund ( PLGIT ), which is a fund very similar to mutual funds. PLGIT operates in accordance with appropriate State laws and regulations and under State oversight. The reported value of the pool is the same as the fair value of the pool shares In accordance with the Government Accounting Standards Board, investments in PLGIT are valued at amortized cost, which approximates market value. The amortized cost method involves valuing a security at its cost on the date of purchase and recording a constant amortization or accretion to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the investment. The net asset value per share for the purpose of calculating the price at which shares are issued and redeemed is determined by the Administrator each banking day. Such determination is made by subtracting the liabilities from the value of the assets and dividing the remainder by the number of shares outstanding. As of June 30, 2016, there were no redemption fees or maximum transaction amounts, or any other requirements that serve to limit a participant s daily access to 100 percent of their account value. Investments with Pennsylvania State Treasury INVEST Program are secured by (1) Treasuries, Federal Agencies, or Repurchase Agreements; or (2) Certificates of Deposit collateralized at 102 percent or 120 percent. Interest Rate Risk The School District s investment policy that limits investment maturities as a means of managing its exposure to fair value losses, arising from increasing interest rates, is the maturity of any investments in US Government or its agencies or instrumentalities may not exceed one year. The money market funds maintain an average maturity that is less than 60 days. Credit Risk The School District has no formal investment policy for its operating and Fiduciary funds that addresses credit risk. As of June 30, 2016, the School District s operating investments were all maintained in Money Market funds with the Pennsylvania School District Liquid Asset Fund (PSDLAF). Custodial Credit Risk Custodial credit risk is the risk that in the event of the failure of the counterparty, the School District will be able to recover the value of its investment or collateral securities that are in the possession of the outside party. As of June 30, 2016, the carrying amount of the School District s cash deposits was $13,641,560 and the bank balance was $14,033,696, of which $1,371,399 is covered by FDIC insurance. All of the $12,662,297 balance not covered by FDIC insurance was collateralized with securities held by the pledging financial institutions, or by their trust departments or agents, but not in the School District s name. Concentration of Credit Risk The School District has no formal investment policy for operating investments pertaining to the concentration of credit risk.

83 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 39 NOTE 3: REAL ESTATE TAXES RECEIVABLE AND DEFERRED REVENUE The District has two independently elected tax collectors who are responsible for the collection of taxes. Assessed values are established by the Westmoreland County Board of Assessment. The District tax rate for the year ended June 30, 2016 was 78 mills ($78 per $1,000 of assessed valuation) as levied by the Board of School Directors. Assessed value at June 30, 2016 was $303.5 million. The schedule for real estate taxes levied for each fiscal year is as follows: July 1 July 1 August 31 September 1 October 31 November 1 January 14 January 15 Levy Date 2% Discount period Face payment period 10% Penalty period Turnover to delinquent collector The District, in accordance with U.S. generally accepted accounting principles, recognizes the delinquent and unpaid taxes receivable, reduced by an allowance for uncollectible taxes, as determined by management. A portion of the net amount estimated to be collectible, which was measurable and available within sixty days, was recognized as revenue and the balance deferred in the fund financial statements. The SCHOOL DISTRICT's 2016 real estate taxes are based on assessed values established by the Westmoreland County Board of Assessment. Assessed values of real property are generally 100% of the market value as determined by the Westmoreland County Tax Assessment Office. The total 2016 real estate taxes levied was $23,630,161 based on a total SCHOOL DISTRICT assessed valuation of $303,534,500.

84 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 40 NOTE 4: CAPITAL ASSETS Capital asset activity for the year ended June 30, 2016 was as follows: Beginning Ending GOVERNMENTAL ACTIVITIES Balance Increases Decreases Balance Capital Assets, Not Being Depreciated: Land $ 54,814 $ - $ - $ 54,814 Construction in Progress 14,735,145 13,640,230-28,375,375 Total Capital Assets, Not Being Depreciated 14,789,959 13,640,230-28,430,189 Capital Assets, Being Depreciated: Land Improvements 3,027, ,027,025 Building and Building Improvements 59,961,948 5,880-59,967,828 Furniture, Vehicles, and Equipment 8,199, ,073-8,569,816 Total Capital Assets, Being Depreciated 71,188, ,953-71,564,669 Less Accumulated Depreciation For: Land Improvements (2,205,763) (48,082) - (2,253,845) Building and Building Improvements (30,126,651) (1,217,770) - (31,344,421) Furniture, Vehicles, and Equipment (6,290,393) (472,592) - (6,762,985) Total Accumulated Depreciation (38,622,807) (1,738,444) - (40,361,251) Total Capital Assets, Being Depreciated, Net 32,565,909 (1,362,491) - 31,203,418 Governmental Activities Capital Assets, Net $ 47,355,868 $ 12,277,739 $ - $ 59,633,607

85 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 41 NOTE 4: CAPITAL ASSETS (CONTINUED) Beginning Ending BUSINESS TYPE ACTIVITIES Balance Increases Decreases Balance Capital Assets, Being Depreciated: Furniture, Vehicles, and Equipment $ 365,531 $ - $ - $ 365,531 Total Capital Assets, Being Depreciated 365, ,531 Less Accumulated Depreciation (340,376) (7,956) - (348,332) Total Capital Assets, Being Depreciated, Net 25,155 (7,956) - 17,199 Business Type Activities Capital Assets, Net $ 25,155 $ (7,956) $ - $ 17,199 Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: Instructional Services $ 1,084,597 Support Services 590,293 Administrative 63,554 Total Depreciation Expense - Governmental Activities $ 1,738,444 Business Type Activities: Food Service $ 7,956 Total Depreciation Expense - Business Type Activities $ 7,956

86 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 42 NOTE 5: CAPITAL LEASES On June 19, 2012, the District entered into a lease purchase agreement for Apple laptops for teachers. The lease requires annual payments of $123,535 from July 15, 2013 through July 15, On May 28, 2014, the District entered into a lease purchase agreement for Apple ipad Minis. The lease requires annual payments of $25,584 from July 1, 2014 through July 1, On June 5, 2014, the District entered into a lease purchase agreement for Apple Macbook Airs for teachers. The lease requires annual payments of $134,277 from July 1, 2014 through July 1, On November 13, 2015, the District entered into a lease purchase agreement for Apple imac computers. The first payment of $11,220 was made on December 1, The remaining annual payments are to be paid from July 1, 2016 through July 1, The assets acquired through capital leases are as follows: Asset Detail Governmental Activities Machinery and Equipment $ 1,133,089 Less: Accumulated Depreciation (539,659) $ 593,430 The future minimum lease obligation and the net present value of these minimum lease payments as of June 30, 2016 are as follows: Beginning Ending Current Balance Additions Reductions Balance Portion $ 684,809 $ 41,349 $ (286,298) $ 439,860 $ 287,445 Governmental Activities Governmental Activities Year Ended June 30: 2017 $ 294, , ,220 Total Minimum Lease Payments 451,331 Less: Interest (11,471) Total $ 439,860

87 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 43 NOTE 6: LONG-TERM LIABILITIES OBLIGATIONS Bonds Payable: Amount of Balance Outstanding Issuance Original Issue Purpose June 30, 2016 Series of 2012 Series of 2013 $ 9,380,000 To pay the costs of a renovation project at the high school and to pay the costs in connection with the issuance and sale of the bonds. The Refunding Series of 2012 is due in annual installments of $1,030,000 to $540,000 on May 1, 2015, through 2023, with final payment of $345,000 due May 1, Interest is payable at variable interest rates of 2.00 percent to 3.00 percent due semiannually on May 1 and November 1. $ 9,790,000 To pay the costs of a renovation project at the high school and to pay the costs in connection with the issuance and sale of the bonds. The Refunding Series of 2013 is due in annual installments of $5,000 to $865,000 due May 1, 2015, through 2031, with final payment of $865,000 due May 31, Interest is payable at variable rates of percent to percent due semiannually on May 1 and November 1. $ 6,895,000 Series of 2014 Series of 2015 $ 9,400,000 To pay the costs of a renovation project at the high school and to pay the costs in connection with the issuance and sale of the bonds. The Refunding Series of 2014 is due in annual installments of $165,000 to $1,205,000 on May 1, 2015, through 2031, with final payment of $1,315,000 due May 1, Interest is payable at variable rates of 2.00 percent to 3.00 percent due semiannually on May 1 and November 1. $ 4,445,000 To pay the costs of a renovation project at the high school and to pay the costs in connection with the issuance and sale of the bonds. The Refunding Series of 2015 is due in annual installments of $135,000 to $1,545,000 on May 1, 2015, through 2031, with final payment of $1,545,000 on May 1, Interest is payable at variable rates of percent to percent due semiannually on May 1 and November 1. 9,715,000 9,040,000 4,295,000 Total Bonds Outstanding $ 29,945,000

88 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 44 NOTE 6: LONG-TERM OBLIGATIONS (CONTINUED) An analysis of debt service requirements to maturity for the governmental activities on these obligations follows (with the exception of the compensated absences liability): Governmental Activities Year Ended June 30: Principal Requirements Interest Requirements Total Debt Service Requirements 2017 $ 1,875,000 $ 806,169 $ 2,681, ,905, ,306 2,684, ,955, ,794 2,681, ,000, ,544 2,684, ,040, ,031 2,683, ,780,000 2,482,238 13,262, ,390, ,263 10,354,263 Total $ 29,945,000 $ 7,086,345 $ 37,031,345 Compensated Absences: Compensated absences are comprised of accumulated unused sick days and vacation days. The aggregate liability is $1,409,197 as of June 30, Under the current plan, the following is a summary of the items covered: Administrators Rate paid equals $102 per day. Teachers Rate paid equals $73 per day. Non-Professionals Rate paid equals $65 per day.

89 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 45 NOTE 6: LONG-TERM OBLIGATIONS (CONTINUED) Governmental Activities: In addition to the above sick day policy, administrators and non-professionals can accumulate and receive compensation for unused vacation pay. The policy describes that upon retirement, any unused vacation days will be paid at a daily rate commensurate to the administrator s or non-professionals current salary. A summary of changes in long-term debt obligations for 2015 is as follows: Amounts Beginning Ending Due Within Balance Additions Reductions Balance One Year Bonds and Notes payable: General obligation bonds $ 31,815,000 $ - $ (1,870,000) $ 29,945,000 $ 1,875,000 Total bonds and notes payable 31,815,000 - (1,870,000) 29,945,000 1,875,000 Other Liabilities: Other postemployment benefits 2,615, ,391-3,007,150 - Compensated absences 1,338,083 71,114-1,409, ,035 Lease Payable 684,809 41,349 (286,298) 439, ,445 Pension 71,364,033 7,556,460-78,920,493 - Total Other Liabilities 76,002,684 8,060,314 (286,298) 83,776, ,480 Governmental Activities Long-Term Liabilities $ 107,817,684 $ 8,060,314 $ (2,156,298) $ 113,721,700 $ 2,627,480 Payments on bonds are made by the General Fund. The compensated absence liabilities will be liquidated by the General Fund. Total interest paid during the year ended June 30, 2016 was $813,922. NOTE 7: RISK MANAGEMENT In an effort to reduce the cost of providing health insurance benefits for its employees, the School joined in the Westmoreland Intermediate Unit Rate Stabilization Consortium for Health Insurance. Effective July 1, 1991, the Consortium entered into a cost plus with an aggregate stop loss premium payment plan with Blue Cross of Western Pennsylvania and Pennsylvania Blue Shield for the purchase of health and medical coverage. The Pool is effectively utilized to help the members of the Consortium to have leverage in purchasing the insurance premiums. During the year ended June 30, 2016, the school paid premiums of $5,580,104 to the Consortium.

90 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 46 NOTE 8: OTHER POSTEMPLOYMENT BENEFITS (OPEB) Plan Description: The District administers a single-employer defined benefit healthcare plan (the Retiree Health Plan ). The plan provides healthcare, prescription drug, dental and/or vision insurance, at various costs to the member and the District, for the life of the member or until the member is eligible for Medicare, depending on the terms of the contract when they retire, for eligible retirees and their spouses through the District s health insurance plan. The Retiree Health Plan covers both active and retired members. Benefit provisions are established through negotiation with the District and the unions representing the District s employees. The Retiree Health Plan does not issue a publicly available financial report. Funding Policy: The benefits are expensed when incurred and are financed on a pay-as-you-go basis. Retirees currently pay a portion of the monthly premium. The School District covers the balance of the premium not paid by the retiree. Retiree and dependent coverage, group plans, and costs to the retiree are subject to change. A spouse may be covered as a dependent until the death of the retiree; thereafter, they are eligible to continue coverage by paying 100% of the monthly insurance premium. The School District s annual OPEB cost is calculated based on the annual required contribution of the employees (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No 45. The ARC is the normal cost plus the portion of the unfunded actuarial accrued liability to be amortized in the current period. The ARC is an amount that is actuarially determined in accordance with the requirements so that if paid on an ongoing basis, it would be expected to provide sufficient resources to fund both normal cost for each year and the amortized unfunded liability.

91 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 47 NOTE 8: OTHER POSTEMPLOYMENT BENEFITS (CONTINUED) Annual OPEB Cost and Net OPEB Obligation The District s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with GASB Statement No.45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The following table shows the components of the District s annual OPEB cost for the year, the amount actually contributed to the plan and changes in the District s net OPEB obligation. Governmental Activities Annual Required Contribution $ 1,102,715 Interest on Net OPEB Obligation 78,473 ARC Adjustment (129,567) Annual OPEB Cost 1,051,621 Estimated Contributions made (660,230) Net Increase in Net OPEB Obligation 391,391 Net OPEB Obligation, beginning of year 2,615,759 Net OPEB Obligation, end of year $ 3,007,150 The District s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation as of June 30 was as follows: Percentage Of Annual Net Fiscal Year Annual OPEB Cost OPEB Ended OPEB Cost Contributed Obligation 6/30/2014 $ 1,032,268 83% $ 2,390,402 6/30/2015 $ 1,055,602 79% $ 2,615,759 6/30/2016 $ 1,051,621 63% $ 3,007,150 As of July 1, 2015, the most recent valuation date, the plan was not funded. The actuarial accrued liability for benefits was $9.3 million, and there were no assets, resulting in an unfunded actuarial accrued liability (UAAL) of $9.3 million. The actuarial value of assets as a percentage of the actuarial accrued liability was 0%. The covered payroll was $23.4 million, and the ratio of the UAAL to the covered payroll was 39.7%

92 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 48 NOTE 9: PENSION BENEFITS Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Public School Employees Retirement System (PSERS) and additions to/deductions from PSERS s fiduciary net position have been determined on the same basis as they are reported by PSERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Plan Description PSERS is a governmental cost-sharing multiple-employer defined benefit pension plan that provides retirement benefits to public school employees of the Commonwealth of Pennsylvania. The members eligible to participate in the System include all full-time public school employees, part-time hourly public school employees who render at least 500 hours of service in the school year, and part-time per diem public school employees who render at least 80 days of service in the school year in any of the reporting entities in Pennsylvania. PSERs issues a publicly available financial report that can be obtained at Benefits Provided PSERS provides retirement, disability, and death benefits. Under the provisions of the 1975 revision of the Code by the Pennsylvania General Assembly, members are eligible for monthly retirement benefits upon reaching (a) age 62 with at least 1 year of credited service; (b) age 60 with 30 or more years of credited service; or (c) 35 or more years of service regardless of age. Act 120 of 2010 (Act 120) preserved the benefits of existing members and introduced benefit reductions for individuals who become new members on or after July 1, Act 120 created two new membership classes, Membership Class T-E (Class T-E) and Membership Class T-F (Class T-F). To qualify for normal retirement, Class T-E and Class T-F members must work until age 65 with a minimum of 3 years of service or attain a total combination of age and service that is equal to or greater than 92 with a minimum of 35 years of service. Benefits are generally equal to 2% or 2.5%, depending upon membership class, of the member s final average salary (as defined in the Code) multiplied by the number of years of credited service. For members whose membership started prior to July 1, 2011, after completion of five years of service, a member s right to the defined benefits is vested and early retirement benefits may be elected. For Class T-E and T-F members, the right to benefits is vested after ten years of service.

93 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 49 NOTE 9: PENSION BENEFITS (CONTINUED) Benefits Provided (Continued) Participants are eligible for disability retirement benefits after completion of five years of credited service. Such benefits are generally equal to 2% or 2.5%, depending upon membership class, of the member's final average salary (as defined in the Code) multiplied by the number of years of credited service, but not less than one-third of such salary nor greater than the benefit the member would have had at normal retirement age. Members over normal retirement age may apply for disability benefits. Death benefits are payable upon the death of an active member who has reached age 62 with at least one year of credited service (age 65 with at least three years of credited service for Class T-E and Class T-F members) or who has at least five years of credited service (ten years for Class T-E and Class T-F members). Such benefits are actuarially equivalent to the benefit that would have been effective if the member had retired on the day before death. All members are fully vested in their individual balance in the Members Saving Account. All non-vested members may receive a refund of their individual balance of member contributions and interest from the Members Savings Account upon termination of public school employment. Vested members who enrolled prior to July 1, 2011 may elect to receive a return of their accumulated contributions and interest upon their retirement which results in a reduced monthly annuity. Vested Class T-E and T-F members cannot withdraw their accumulated contributions and interest from the Members Savings Account upon their retirement. Contributions Employer Contributions: The contribution policy is set by the Code. The school districts' contractually required contribution rate for fiscal year ended June 30, 2016 was 25% of covered payroll, actuarially determined as an amount that, when combined with employee contributions, is expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Contributions to the pension plan from the District were $6,025,284 for the year ended June 30, Member Contributions: Member contribution rates are set by law (redefined with the provisions of Act 9 of 2001 and Act 120) and are dependent upon membership class. Member contribution rates are as follows: Active members who joined the System prior to July 22, 1983, contribute at 5.25% (Membership Class T C) or at 6.50% (Membership Class T-D) of the member's qualifying compensation. Members who joined the System on or after July 22, 1983, and who were active or inactive as of July 1, 2001, contribute at 6.25% (Membership Class T-C) or at 7.50% (Membership Class T-D) of the member's qualifying compensation. Members who joined the System after June 30, 2001 and before July 1, 2011, contribute at 7.50% (automatic Membership Class T-D). For all new hires and for members who elected Class T-D membership, the higher contribution rates began with service rendered on or after January 1, 2002.

94 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 50 NOTE 9: PENSION BENEFITS (CONTINUED) Contributions (Continued) Members who joined the System after June 30, 2011, automatically contribute at the Membership Class T-E rate of 7.5% (base rate) of the member's qualifying compensation. All new hires after June 30, 2011, who elect Class T-F membership, contribute at 10.3% (base rate) of the member's qualifying compensation. Membership Class T-E and Class T-F are affected by a "shared risk" provision in Act 120 of 2010 that in future fiscal years could cause the Membership Class T-E contribution rate to fluctuate between 7.5% and 9.5% and Membership Class T-F contribution rate to fluctuate between 10.3% and 12.3%. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions: At June 30, 2015, the District reported a liability of $78,920,493 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2015, and the total pension liability used to calculate the net pension liability was determined by rolling forward the System s total pension liability as of June 30, 2014 to June 30, The District s proportion of the net pension liability was calculated utilizing the employer s one-year reported covered payroll as it relates to the total one-year reported covered payroll. At June 30, 2015, the District s proportion was percent, which was an increase of from its proportion measured as of June 30, For the year ended June 30, 2016, the District recognized pension expense of $861,856. At June 30, 2016, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual experience $ - $ 244,262 Net difference between projected and actual investment earnings - 2,577,740 Changes in proportion 3,520,305 - Direct contributions subsequent to the measurement date 6,025,284 - Total $ 9,545,589 $ 2,822,002 $6,025,284 reported as deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in the pension expense as follows: Year ending June 30: 2017 $ (163,073) 2018 (163,073) 2019 $ 1,024, ,303

95 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 51 NOTE 9: PENSION BENEFITS (CONTINUED) Actuarial Assumptions. The total pension liability in the June 30, 2014 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Actuarial cost method Inflation Salary increases Investment rate of return Entry Age Normal level % of pay 3.00 percent 5.50 percent, average, including inflation of 3.00 percent, real wage growth of 1 percent, and merit or seniority increases of 1.50% 7.50 percent, net of pension plan investment expense, including inflation Mortality rates were based on the RP-2000 Combined Mortality Tables for Males or Females, as appropriate, with adjustments for mortality improvements based on Scale AA. The actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the period June 30, 2010 June 30, The recommended assumption changes based on this experience study were adopted by the Board at its March 11, 2011 board meeting, and were effective beginning with the June 30, 2011 actuarial valuation. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the longterm expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Long-Term Expected Asset Class Target Allocation Real Rate of Return Public markets global equity 22.5% 4.8% Private markets (equity) 15.0% 6.6% Private real estate 12.0% 4.5% Global fixed income 7.5% 2.4% U.S. long term treasuries 3.0% 1.4% TIPS 12.0% 1.1% High yield bonds 6.0% 3.3% Cash 3.0% 0.7% Absolute return 10.0% 4.9% Risk parity 10.0% 3.7% MLPs/Infrastructure 5.0% 5.2% Commodities 8.0% 3.1% Financing (LIBOR) -14.0% 1.1% Total 100% Discount rate. The discount rate used to measure the total pension liability was 7.50 percent. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made at the current contribution rate and that contributions from school districts will be made at contractually required rates, actuarially determined. Based on those assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

96 PENN-TRAFFORD SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2016 Page 52 NOTE 9: PENSION BENEFITS (CONTINUED) Sensitivity of the District s proportionate share of the net pension liability to changes in the discount rate. The following presents the District s proportionate share of the net pension liability calculated using the discount rate of 7.50 percent, as well as what the District s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (6.50 percent) or 1-percentage point higher (8.50 percent) than the current rate: Amounts X $1,000 1% Decrease Current Rate 1% Increase 6.50% 7.50% 8.50% District's proportionate share of the net pension liability $ 97,277 $ 78,920 $ 63,492 Pension plan fiduciary net position. Detailed information about PSERS fiduciary net position is available in PSERS Comprehensive Annual Financial Report which can be found on the System s website at NOTE 10: COMMITMENTS AND CONTINGENCIES The School District is a defendant in various lawsuits. Management does not believe the settlement of these matters will have a material effect upon the District s financial condition. The District receives a number of state and federal grants. The grants may be subject to audit by the granting agency to determine if activities undertaken by the District comply with the conditions of the grant. Management believes no material liability would arise from any such audit NOTE 11: EXPENDITURES IN EXCESS OF APPROPRIATIONS The General Fund expenditures exceeded appropriations by $476,018. The excess was due to salary costs being higher than budgeted. The excess was offset by use of fund balance reserves.

97 Page 53 PENN-TRAFFORD SCHOOL DISTRICT BUDGETARY COMPARISON SCHEDULE GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2016 Variance with Budgeted Amounts Actual Final Budget Original Final Amounts Positive (Negative) Revenues Local Revenue Sources $ 27,092,066 $ 27,092,066 $ 27,610,590 $ 518,524 State Revenue Sources 23,283,730 23,283,730 23,405, ,440 Federal Revenue Sources 881, , ,230 (404,366) Total Revenues 51,257,392 51,257,392 51,492, ,598 Expenditures Current operating: Instruction 31,161,031 31,161,031 30,766, ,525 Support Services 15,984,762 15,984,762 16,744,691 (759,929) Noninstructional Services 1,699,949 1,699,949 1,802,814 (102,865) Debt Service 2,676,173 2,676,173 2,683,922 (7,749) Total Expenditures 51,521,915 51,521,915 51,997,933 (476,018) Excess (deficiency) of revenues over expenditures (264,523) (264,523) (504,943) (240,420) Other financing sources (uses) Trust and Agency Fund Transfers - - (5,000) (5,000) Total other financing sources (uses) - - (5,000) (5,000) Excess of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses $ (264,523) $ (264,523) $ (509,943) $ (245,420)

98 Page 54 PENN-TRAFFORD SCHOOL DISTRICT SCHEDULE OF FUNDING PROGRESS JUNE 30, 2016 Schedule of Funding Progress for Post Employment Benefits Other Than Pensions Actuarial Accrued UAAL as a Actuarial Actuarial Liability (AAL) - Unfunded AAL Funded Covered Percentage of Valuation Value of Assets Projected Unit Credit (UAAL) Ratio Payroll Covered Payroll Date ( a ) ( b ) ( b - a ) ( a / b ) ( c ) (( b - a ) / c) 7/1/2011 $ - $ 9,057,606 $ 9,057, % $ 22,318, % 7/1/2013 $ - $ 9,213,804 $ 9,213, % $ 22,775, % 7/1/2015 $ - $ 9,317,717 $ 9,317, % $ 23,446, %

99 Page 55 PENN-TRAFFORD SCHOOL DISTRICT SCHEDULES OF REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY Teachers Pension Plan Last 10 Fiscal Years* (Dollar amounts in thousands) Districts proportion of the net pension liability % % District's proportionate share of the net pension liaiblity $ 71,364 $ 78,920 District's covered-employee payroll $ 23,003 $ 23,446 District's proportionate share of the net pension liability as a percentage of its covered-employee payroll % % Plan fiduciary net position as a percentage of the total pension liability 57.24% 54.36% * The amounts presented for each fiscal year were determined as of 06/30 The District adopted GASB 68 on a prospective basis in 2015; therefore only two years are present in the above schedule.

100 Page 56 PENN-TRAFFORD SCHOOL DISTRICT SCHEDULES OF REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF DISTRICT'S CONTRIBUTIONS Teachers Pension Plan Last 10 Fiscal Years* Contractually required contribution $ 4,656,871 $ 6,025,284 Contributions in relation to the contractually required contribution 4,656,871 6,025,284 Contribution deficiency (excess) $ - $ - District's covered-employee payroll $ 23,446,871 $ 23,824,830 Contributions as a percentage of covered-employee payroll 19.86% 25.29% The District adopted GASB 68 on a prospective basis in 2015; therefore only two years are present in the above schedule.

101 Page 57 PENN-TRAFFORD SCHOOL DISTRICT COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2016 Assets Capital Reserve Fund Building Improvement Fund Total Nonmajor Governmental Funds Cash and Cash Equivalents $ 82 $ 3,602 $ 3,684 Total assets $ 82 $ 3,602 $ 3,684 Liabilities Total liabilities $ - $ - $ - Fund Balances Restricted 82 3,602 3,684 Total fund balances 82 3,602 3,684 Total liabilities and fund balances $ 82 $ 3,602 $ 3,684

102 Page 58 PENN-TRAFFORD SCHOOL DISTRICT COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2016 Capital Reserve Fund Building Improvement Fund Total Nonmajor Governmental Funds Revenues Local Revenue Sources $ - $ 3,602 $ 3,602 Total Revenues - 3,602 3,602 Expenditures Total Expenditures Excess (deficiency) of revenues over expenditures - 3,602 3,602 Net change in fund balance - 3,602 3,602 Fund balance, beginning of year Fund balance, end of year $ 82 $ 3,602 $ 3,684

103 APPENDIX D FORM OF OPINION OF BOND COUNSEL

104 [ THIS PAGE INTENTIONALLY LEFT BLANK ]

105 FORM OF OPINION OF BOND COUNSEL The form of the approving legal opinion of Dinsmore & Shohl LLP, Bond Counsel, is set forth below. The actual opinion will be delivered on the date of delivery of the Bonds and may vary from the form set forth to reflect circumstances both factual and legal at the time of such delivery. Bond Counsel has no duty, and has assumed no obligation, to revise, update or supplement its opinion to address or reflect a change or changes in such circumstances subsequent to the date of delivery of the Bonds, whether or not it has notice or obtains knowledge of the same, and whether or not this Official Statement shall be recirculated. The approving legal opinion of Bond Counsel represents its considered professional judgment, following a comparison of relevant factual certifications to applicable law. Such opinion is not a guarantee of a particular result, nor is such opinion binding on any administrative or judicial tribunal. We have served as Bond Counsel to Penn-Trafford School District (Westmoreland County, Pennsylvania) (the "Local Government Unit") and do hereby undertake to advise you in connection with the issuance, sale and delivery of its $6,415,000, aggregate principal amount, General Obligation Bonds, Series of 2017 (the "Bonds"), issued in fully registered form, dated and bearing interest from May 10, 2017, maturing on various annual dates ending May 1, 2035 and subject to redemption prior to maturity at the option of the Local Government Unit beginning May 1, In that capacity, we have examined the Constitution of the Commonwealth of Pennsylvania; the Public School Code of 1949, Act of March 10, 1949, P.L. 30, No. 14, as amended (the "School Code"); the Local Government Unit Debt Act, 53 Pa.C.S.A et seq., as amended (the "Debt Act"); the formal action of the Governing Body of the Local Government Unit authorizing the incurrence of nonelectoral debt evidenced by the Bonds (the "Debt Ordinance"); the corresponding Certificate of Approval of the Department of Community and Economic Development; the Internal Revenue Code of 1986, as amended (the "Tax Code"); the Federal Income Tax Certificate of an authorized officer; and such other certificates, proceedings and law as we deemed necessary in order to render this opinion. Unless separately noted, we have not independently verified factual certifications made to us by the Local Government Unit, its officers and agents during the course of our engagement. Both principal of and interest on the Bonds are payable at the designated corporate trust office of Manufacturers and Traders Trust Company, Harrisburg, Pennsylvania, as Paying Agent for the Local Government Unit; the bank has additionally been appointed Registrar and Sinking Fund Depository for the Bonds. These proceedings demonstrate that, in the absence of any meritoriously-based action in a governmental or judicial forum affecting the validity of the Bonds, the same have been delivered upon full payment. We have not been engaged nor undertaken to review the adequacy of disclosure in the Official Statement nor in any other securities offering material produced in respect of the Bonds and, except as to matters set forth in this opinion and described as such in said Official Statement, we express no opinion or belief with respect thereto. Based on the foregoing, we are of the opinion on this date as follows: 1. The Bonds are valid and binding general obligations of the Local Government Unit. (a) The Bonds are issued for a valid purpose under the School Code. PennTraffordSD - (printer version) BC Opinion DOC

106 (b) The Bonds, and all other outstanding debt of the Local Government Unit, are within constitutional and statutory limitations. (c) The Debt Ordinance authorizing the Bonds was duly and properly enacted and is in full force and effect. (d) The Bonds conform, in all substantial respects, to the form provided in the Debt Ordinance. 2. The Bonds are secured by a pledge of the full faith, credit and taxing power of the Local Government Unit. The Local Government Unit has effectively covenanted in the Debt Ordinance to include the amount of debt service on this issue, in each fiscal year for which such sums are due, in its budget for that year; to appropriate such amounts to the payment of such debt service; and to pay or cause to be paid, from time to time as and when due, the principal of the Bonds and the interest thereon on the dates, at the place and in the manner stated in the Bonds. 3. Presently included among the general revenues of the Local Government Unit available for the payment of the Bonds are ad valorem real estate taxes, whose levy upon all taxable real property situate within the corporate limits of the Local Government Unit is subject to the limitations of Pennsylvania Act No. 1 of Special Session 2006 ("Act 1"), which became effective June 27, The Bonds are payable and enforceable according to their own terms, those of the Debt Ordinance and all provisions of the Debt Act; however, any such payment and enforcement could be restrained by a court of proper jurisdiction operating under the authority of bankruptcy, receivership and other similar laws of accommodation and adjustment of creditors' rights, as then applicable. 5. The Bonds, having all the qualities and incidents of securities under Article 8 of the Uniform Commercial Code, are negotiable instruments. 6. The Bonds are an authorized investment, under the Probate, Estates and Fiduciaries Code, as amended, for fiduciaries and personal representatives (as such terms are therein defined) within the Commonwealth of Pennsylvania. 7. Under the laws, regulations, rulings and judicial decisions in effect as of the date hereof, interest on the Bonds is excludable from gross income for Federal income tax purposes, pursuant to the Tax Code. Furthermore, interest on the Bonds will not be treated as a specific item of tax preference, under Section 57(a)(5) of the Tax Code, in computing the alternative minimum tax for individuals and corporations. Due to the designation of the Bonds as "qualified tax-exempt obligations" pursuant to Section 265(b)(3) of the Tax Code, certain financial institutions may be able to deduct 80% of the interest expense incurred in purchasing or carrying the Bonds. In rendering the opinions in this paragraph, we have assumed continuing compliance with certain covenants designed to meet the requirements of Section 103 of the Tax Code. We express no opinion as to any other Federal income tax consequence arising from ownership of the Bonds. PennTraffordSD - (printer version) BC Opinion DOC

107 8. The Bonds, and interest income therefrom, are free from taxation for purposes of personal income, corporate net income and personal property taxes within the Commonwealth of Pennsylvania. This opinion is rendered as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter be brought to our attention, or any changes in law that may hereafter arise. PennTraffordSD - (printer version) BC Opinion DOC

108 [ THIS PAGE INTENTIONALLY LEFT BLANK ]

109 APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY

110 [ THIS PAGE INTENTIONALLY LEFT BLANK ]

111 MUNICIPAL BOND INSURANCE POLICY ISSUER: [NAME OF ISSUER] Policy No: MEMBER: [NAME OF MEMBER] BONDS: $ in aggregate principal amount of [NAME OF TRANSACTION] [and maturing on] Effective Date: Risk Premium: $ Member Surplus Contribution: $ Total Insurance Payment: $ BUILD AMERICA MUTUAL ASSURANCE COMPANY ( BAM ), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the Trustee ) or paying agent (the Paying Agent ) for the Bonds named above (as set forth in the documentation providing for the issuance and securing of the Bonds), for the benefit of the Owners or, at the election of BAM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the first Business Day following the Business Day on which BAM shall have received Notice of Nonpayment, BAM will disburse (but without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of the Bonds, the face amount of principal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner s right to receive payment of such principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner s rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any of whom may submit an amended Notice of Nonpayment. Upon disbursement under this Policy in respect of a Bond and to the extent of such payment, BAM shall become the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or interest on such Bond and shall be fully subrogated to the rights of the Owner, including the Owner s right to receive payments under such Bond. Payment by BAM either to the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpayment shall discharge the obligation of BAM under this Policy with respect to said Nonpayment. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. Business Day means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer s Fiscal Agent (as defined herein) are authorized or required by law or executive order to remain closed. Due for Payment means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. Nonpayment means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. Nonpayment shall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction. Notice means delivery to BAM of a notice of claim and certificate, by certified mail, or telecopy as set forth on the attached Schedule or other acceptable electronic delivery, in a form satisfactory to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, (d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. Owner means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that Owner shall not include the Issuer, the Member or any other person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds.