TALLADEGA COUNTY BOARD OF EDUCATION (ALABAMA)

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1 OFFICIAL STATEMENT S&P RATINGS: Series 2017-A: (Underlying): A+ (stable outlook) Series 2017-B: (AGM Insured): AA Series 2017-B: (Underlying): A+ (stable outlook) See "RATINGS" herein. NEW ISSUE BOOK-ENTRY ONLY In the opinion of Bond Counsel, assuming compliance by the Board with certain covenants set forth in the Authorizing Resolutions herein referred to with respect to certain conditions imposed by Section 103 of the Internal Revenue Code of 1986, as amended, the interest on the Warrants of both series will be excludable from gross income of the recipients thereof for federal income tax purposes. See "Tax Matters" herein for certain other federal tax consequences to the recipients of the interest on the Warrants. In the opinion of Bond Counsel, the interest on the Warrants will be exempt from Alabama income taxation. TALLADEGA COUNTY BOARD OF EDUCATION (ALABAMA) $6,800,000 Special Tax School Warrants (5 Mill Lincoln Tax) Series 2017-A $12,965,000 Special Tax School Warrants (3 Mill District Tax) Series 2017-B Dated: Date of Delivery Due: As shown on the inside cover hereof SEE INSIDE COVER FOR MATURITIES, INTEREST RATES AND YIELDS The Warrants of both series will bear interest payable on March 1, 2018, and semiannually thereafter on each March 1 and September 1, by check or draft mailed to the registered owners of the Warrants. The Warrants will mature in the years and principal amounts set forth on the inside cover hereof. Certain of the Warrants are subject to redemption prior to maturity as set forth herein. The Warrants will be initially issued as fully registered warrants, in book-entry form, registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York ("DTC"), which will act as securities depository for the Warrants. Individual purchases of beneficial interests in the Warrants will be made through DTC's Book-Entry System. Purchasers of beneficial interests in the Warrants will not receive certificates representing their interests in the Warrants. So long as Cede & Co. is the registered owner of the Warrants, payments of principal of and interest on the Warrants will be made through the facilities of DTC. Disbursement of such payments to DTC Participants is the responsibility of DTC and disbursement of such payments to the purchasers of beneficial interests in the Warrants is the responsibility of DTC Participants. See "THE WARRANTS Book-Entry Only System" herein. The Series 2017-A Warrants will be payable, as to both principal and interest, solely out of the proceeds of the Special Lincoln Tax to which reference is hereinafter made. The Series 2017-B Warrants will be payable, as to both principal and interest, solely out of the proceeds of the Special 3 Mill District Tax to which reference is hereinafter made. See "SOURCES OF PAYMENT" herein. The scheduled payment of principal of and interest on the Series 2017-B Warrants when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Series 2017-B Warrants by ASSURED GUARANTY MUNICIPAL CORP. This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Warrants are subject to the approval of the validity thereof by Bradley Arant Boult Cummings LLP, Birmingham, Alabama, Bond Counsel, and certain other conditions. It is expected that the Warrants will be available for delivery on or about September 28, Dated September 14, 2017.

2 AMOUNTS, MATURITIES, INTEREST RATES, YIELDS AND CUSIPS $6,800,000 Special Tax School Warrants (5 Mill Lincoln Tax) Series 2017-A Year (March 1) Principal Amount Interest Rate Yield CUSIP (1) [Serial] 2018 $ 40, % 0.90% ED , EE , EF , EG , EH , EJ , EK , EL , EM , EN , * EP , * EQ , * ER , * ES , ET , EU , EV , EW , EX4 [Term] , EY2 * Yield calculated to earliest optional redemption date. (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data contained herein is provided by Standard & Poor's, CUSIP Service Bureau, a division of the McGraw Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services.

3 $12,965,000 Special Tax School Warrants (3 Mill District Tax) Series 2017-B Year (March 1) Principal Amount Interest Rate Yield CUSIP (1) 2018 $ 725, % 0.85% EZ , FA , FB , FC , FD , FE , FF , FG , FH ,020, FJ ,070, * FK ,125, * FL ,185, * FM ,235, * FN5 * Yield calculated to earliest optional redemption date. (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data contained herein is provided by Standard & Poor's, CUSIP Service Bureau, a division of the McGraw Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services.

4 TALLADEGA COUNTY BOARD OF EDUCATION President of the Board Kathy P. Landers Members of the Board Joan B. Doyle John R. Ponder Sandra Tuck Mike J. Turner County Superintendent of Education Dr. Suzanne Lacey Chief School Financial Officer and Custodian of Public School Funds Avery L. Embry Counsel for the Board Charles P. Gaines Gaines, Gaines, Rasco & Little, P.C. Talladega, Alabama Bond Counsel Bradley Arant Boult Cummings LLP Birmingham, Alabama Underwriter Raymond James & Associates, Inc. Birmingham, Alabama

5 No dealer, broker, salesman or any other person has been authorized by the Board or the Underwriter to give any information or to make any representations other than as contained in this Official Statement in connection with the offering of the Warrants described herein, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Warrants by any person, in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information contained in this Official Statement has been furnished by the City and other sources that are believed to be reliable, but it is not guaranteed as to accuracy or completeness by, and not to be construed as a representation by, the Underwriter. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement, nor any sale made hereunder, shall under any circumstances create an implication that there has been no change in the affairs of the City since the date hereof. Assured Guaranty Municipal Corp. ("AGM") makes no representation regarding the Warrants (of either series) or the advisability of investing in the Warrants (of either series). In addition, AGM 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 contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading "BOND INSURANCE" and "Appendix D Specimen Municipal Bond Insurance Policy." TABLE OF CONTENTS Page No. INTRODUCTION... 3 THE WARRANTS... 4 BOND INSURANCE WITH RESPECT TO THE SERIES 2017-B WARRANTS ENFORCEABILITY OF REMEDIES SOURCES OF PAYMENT SOURCES AND USES OF FUNDS ESTIMATED DEBT SERVICE AND COVERAGE ASSESSMENTS AND AD VALOREM TAX COLLECTIONS AD VALOREM TAX RATES IN THE COUNTY OTHER INDEBTEDNESS OF THE BOARD RECENT STATE PUBLIC SCHOOL LEGISLATION GENERAL INFORMATION CONCERNING THE BOARD MAJOR SOURCES OF BOARD REVENUE GENERAL ECONOMIC AND DEMOGRAPHIC INFORMATION LEGAL INVESTMENT RATINGS i

6 TAX MATTERS UNITED STATES BANKRUPTCY CODE AUDIT UNDERWRITING INVESTMENT ADVISOR APPROVAL OF LEGAL MATTERS CONTINUING DISCLOSURE REQUIREMENTS LITIGATION FINANCIAL ADVISOR MISCELLANEOUS APPENDIX A-1 - Proposed Form of Legal Opinion with respect to the Series 2017-A Warrants APPENDIX A-2 - Proposed Form of Legal Opinion with respect to the Series 2017-B Warrants APPENDIX B - Financial Report on Fiscal Year Ending September 30, 2016 APPENDIX C - Summary of Continuing Disclosure Agreement APPENDIX D - Specimen Municipal Bond Insurance Policy with respect to the Series 2017-B Warrants ii

7 OFFICIAL STATEMENT TALLADEGA COUNTY BOARD OF EDUCATION (ALABAMA) $6,800,000 Special Tax School Warrants (5 Mill Lincoln Tax) Series 2017-A $12,965,000 Special Tax School Warrants (3 Mill District Tax) Series 2017-B INTRODUCTION This Official Statement is to furnish information in connection with the sale by the Talladega County Board of Education ("the Board"), of the two series of warrants referred to above (herein together, "the Warrants"). Whenever in this Official Statement a contract, indenture, ordinance, resolution or other document or official act is referred to or summarized, such reference or summary is qualified by the exact terms of the document or official act so referred to or summarized, each such document or official act being an item of public record. The principal office of the Board is located at 106 South Street West, Talladega, Alabama 35161, telephone , and the mailing address of the Board is Post Office Box 887, Talladega, Alabama Inquiries with respect to information contained in this Official Statement should be directed to the Board, or to Raymond James & Associates, Inc., 2900 Highway 280, Suite 100, Birmingham, Alabama 35223, telephone , attention: R. Larry Ward or Matt Adams. The Board is the body charged with the management and control of the affairs and finances of the public schools located in Talladega County, Alabama ("the County"), lying outside the corporate limits of the Cities of Oxford, Sylacauga and Talladega. (Most of the area within the corporate limits of the City of Oxford lies within Calhoun County which is contiguous to the northeast border of Talladega County; a small portion of the City of Oxford extends into the northeast area of Talladega County.) This geographic area of Talladega County lying outside the corporate limits of the Cities of Oxford, Sylacauga and Talladega is herein sometimes referred to as "the County District." Within the boundaries of the County District is a district referred to herein as "the Lincoln School Tax District," the boundaries of which encompass an area that includes all areas lying within the corporate limits of the City of Lincoln, Alabama, and certain contiguous areas outside the said corporate limits. The public schools located in the Cities of Oxford, Sylacauga and Talladega are under the jurisdiction and control, respectively, of the Oxford City Board of Education, the Sylacauga City Board of Education and the Talladega City Board of Education. 3

8 THE WARRANTS General Provisions and Maturities Series 2017-A The Series 2017-A Warrants will be issued as fully registered warrants in the denomination of $5,000 (or any integral multiple thereof), will bear interest at the following rates, and will mature and become payable in the following principal amounts on March 1 in the following years: Year (March 1) Series 2017-A Warrants Principal Amount Interest Rate 2018 $ 40, % , , , , , , , , , , , , , , , , , , , Place and Manner of Payment Interest on the Series 2017-A (computed on the basis of a 360-day year of twelve consecutive 30-day months) will be payable semiannually on each March 1 and September 1, beginning March 1, Except as hereinafter described under "Book-Entry Only System," the principal of the Series 2017-A Warrants will be payable at the principal corporate trust office of Regions Bank, Birmingham, Alabama ("the Paying Agent"), upon presentation and surrender of the Series 2017-A Warrants as the same become due and payable. Interest on the Series 2017-A Warrants will be payable by check or draft mailed by the Paying Agent to the registered holders 4

9 of the Series 2017-A Warrants at the addresses shown on the registry books of the Paying Agent pertaining to the Series 2017-A Warrants as such holders' names shall appear on the registry books of the Paying Agent on the February 15 or August 15, as the case may be, next preceding any interest payment date. Payment of such interest will be deemed to have been timely made if such check or draft is mailed on or before the due date thereof. The resolution of the Board pursuant to which the Series 2017-A Warrants will be issued ("the 2017-A Authorizing Resolution") makes special provision for the payment of overdue interest which may be paid to a holder other than the registered holder of a Warrant at the time such overdue interest becomes due and payable. Purpose The Series 2017-A Warrants are being issued to provide the funds needed to pay issuance expenses and to refund, on an advance basis, those of the Board's Special Capital Outlay Warrants, Series 2009, dated May 1, 2009, that have stated maturities in 2020 and thereafter ("the Refunded Series 2009 Warrants"), which were issued to provide for various capital improvements to public schools of the Board situated in the Lincoln School Tax District, which district includes all the area lying within the corporate limits of the City of Lincoln and certain adjacent territory outside the said corporate limits. Those of the said Series 2009 Warrants having stated maturities in 2018 and 2019 are herein called "the Unrefunded Series 2009 Warrants." The Refunded Series 2009 Warrants will be redeemed and paid on March 1, Redemption Provisions Optional Redemption. Those of the Series 2017-A Warrants having stated maturities in 2028 and thereafter will be subject to redemption at the option of the Board, as a whole or in part (and if in part, those of the maturities to be redeemed to be selected by the Board and in amounts of $5,000 or any integral multiple thereof), on any date on or after March 1, 2027, after written notice given by United States First Class Mail to the holders (at the addresses of such registered holders as such addresses appear on the registry books of the Paying Agent) of each of the Series 2017-A Warrants the principal of which is, in whole or in part, to be redeemed and prepaid, not less than thirty (30) nor more than sixty (60) days prior to the date fixed for redemption, at and for a redemption price with respect to each such Warrant (or portion thereof) redeemed equal to the principal amount thereof redeemed, plus accrued interest to the date fixed for redemption. Mandatory Redemption. Those of the Series 2017-A Warrants having a stated maturity in 2038 shall be subject to mandatory redemption in the following principal amounts on March 1 in the following years (with those to be redeemed to be selected by the Paying Agent by lot) at a redemption price equal to the principal amount redeemed plus accrued interest to the redemption date: 5

10 Year Principal Amount 2037 $465, ,000 (maturity) In the event that the Board shall have partially redeemed Term Warrants or shall have provided for a partial redemption of such Warrants in such a manner that, under the provisions of the appropriate Authorizing Resolution, the Warrants for the redemption of which provision is made are considered as fully paid, the Board may elect to apply all or any part (but only in integral multiples of $5,000) of the principal amount of such Term Warrants so redeemed or to be redeemed to the reduction of the principal amount of Term Warrants required to be redeemed pursuant to the schedule set forth above on any March 1 coterminous with or subsequent to the date such optional redemption actually occurs. Such election shall be deemed effective only if it is made prior to the Paying Agent having given notice of redemption contrary to such election pursuant to the said provisions of the Authorizing Resolution. Manner of Redemption. In the event that less than all the Series 2017-A Warrants having the same maturity is redeemed and prepaid, the Paying Agent shall, by lot, select that portion of the principal of the Warrants of that issue having the same maturity to be redeemed and prepaid. In the event that less than all the outstanding principal of any Warrant is to be redeemed, the holder thereof shall surrender the Warrant that is to be prepaid in part to the Paying Agent in exchange, without expense to the holder, for a new Warrant of the same issue and of like tenor except in a principal amount equal to the unredeemed portion of such Warrant. All future interest on the Warrants (or principal portions thereof) so called for redemption shall cease to accrue after the redemption date. 6

11 General Provisions and Maturities Series 2017-B The Series 2017-B Warrants will be issued as fully registered warrants in the denomination of $5,000 (or any integral multiple thereof), will bear interest at the following rates, and will mature and become payable in the following principal amounts on March 1 in the following years: Year (March 1) Series 2017-B Warrants Principal Amount Interest Rate 2018 $ 725, % , , , , , , , , ,020, ,070, ,125, ,185, ,235, Place and Manner of Payment Interest on the Series 2017-B (computed on the basis of a 360-day year of twelve consecutive 30-day months) will be payable semiannually on each March 1 and September 1, beginning March 1, Except as hereinafter described under "Book-Entry Only System," the principal of the Series 2017-B Warrants will be payable at the principal corporate trust office the Paying Agent, upon presentation and surrender of the Series 2017-B Warrants as the same become due and payable. Interest on the Series 2017-B Warrants will be payable by check or draft mailed by the Paying Agent to the registered holders of the Series 2017-B Warrants at the addresses shown on the registry books of the Paying Agent pertaining to the Series 2017-B Warrants as such holders' names shall appear on the registry books of the Paying Agent on the February 15 or August 15, as the case may be, next preceding any interest payment date. Payment of such interest will be deemed to have been timely made if such check or draft is mailed on or before the due date thereof. The resolution of the Board pursuant to which the Series 2017-B Warrants will be issued ("the 2017-B Authorizing Resolution") makes special provision for the payment of overdue interest which may be paid to a holder other than the registered holder of a Warrant at the time such overdue interest becomes due and payable. 7

12 Purpose The Series 2017-B Warrants are being issued to provide the funds needed to pay issuance expenses, to provide approximately $1,525,000 for school buses and to refund, on an advance basis, Talladega County's $12,550,000 aggregate principal amount of Special Obligation School Warrants, Series 2009, which were issued to refund warrants originally issued to provide for various capital improvements to public schools of the Board situated in the County. The County's Series 2009 Warrants will be redeemed and paid on March 1, Redemption Provisions Optional Redemption. Those of the Series 2017-B Warrants having stated maturities in 2028 and thereafter will be subject to redemption at the option of the Board, as a whole or in part (and if in part, those of the maturities to be redeemed to be selected by the Board and in amounts of $5,000 or any integral multiple thereof), on any date on or after March 1, 2027, after written notice given by United States First Class Mail to the holders (at the addresses of such registered holders as such addresses appear on the registry books of the Paying Agent) of each of the Series 2017-B Warrants the principal of which is, in whole or in part, to be redeemed and prepaid, not less than thirty (30) nor more than sixty (60) days prior to the date fixed for redemption, at and for a redemption price with respect to each such Warrant (or portion thereof) redeemed equal to the principal amount thereof redeemed, plus accrued interest to the date fixed for redemption. Manner of Redemption. In the event that less than all the Series 2017-B Warrants having the same maturity is redeemed and prepaid, the Paying Agent shall, by lot, select that portion of the principal of the Warrants of that issue having the same maturity to be redeemed and prepaid. In the event that less than all the outstanding principal of any Warrant is to be redeemed, the holder thereof shall surrender the Warrant that is to be prepaid in part to the Paying Agent in exchange, without expense to the holder, for a new Warrant of the same issue and of like tenor except in a principal amount equal to the unredeemed portion of such Warrant. All future interest on the Warrants (or principal portions thereof) so called for redemption shall cease to accrue after the redemption date. Book-Entry Only System Portions of the following information concerning The Depository Trust Company ("DTC") and DTC's book-entry system have been obtained from DTC. The Board, the Paying Agent and the Underwriter make no representation as to the accuracy of such information. Initially, DTC will act as Securities Depository for the Warrants. The Warrants initially will be issued solely in book-entry form to be held under DTC's book-entry system, registered in the name of Cede & Co. (DTC's partnership nominee). Initially, one fully-registered certificate for each maturity will be issued for the Warrants, in the aggregate principal amount of Warrants of such maturity, and will be deposited with DTC. 8

13 DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York Banking law, "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds securities that its participants ("Participants") deposit with DTC. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others, such as securities brokers and dealers, banks and trust companies 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 rules applicable to DTC and Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of the Warrants under the DTC system must be made by or through Direct Participants, which will receive a credit for the Warrants on DTC's records. The ownership interest of each actual purchaser of each Warrant ("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, but Beneficial Owners are 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 Warrants are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Warrants, except in the event that use of the book-entry system for the Warrants is discontinued. To facilitate subsequent transfers, all Warrants deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Warrants with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Warrants; DTC's records reflect only the identity of the Direct Participants to whose accounts such Warrants are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. 9

14 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. As long as the book-entry system is used for the Warrants, redemption notices will be sent to Cede & Co. If less than all the Warrants of an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. As long as the book-entry system is used for the Warrants, principal, premium, if any, and interest payments on the Warrants will be made to DTC. DTC's practice is to credit Direct Participants' accounts, upon receipt of funds and corresponding detail information from the 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, the Paying Agent or the Board, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, if any, and interest to Cede & Co. is the responsibility of the Board or the Paying Agent, and disbursement of such payments to the Participants or the Beneficial Owners will be the responsibility of Direct and Indirect Participants. Neither DTC nor Cede & Co. will consent or vote with respect to the Warrants. Under its usual procedures, DTC mails an Omnibus Proxy to the Paying Agent as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Warrants are credited on the record date (identified in a listing attached to the Omnibus Proxy). DTC may discontinue providing its services as securities depository with respect to the Warrants at any time by giving reasonable notice to the Board and the Paying Agent. In addition, the Board may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). Under either of such circumstances, in the event that a successor securities depository is not obtained, warrant certificates are required to be printed and delivered. The Board and the Paying Agent will have no responsibility or obligation to any securities depository, any Participants in the book-entry system, or the Beneficial Owners with respect to (i) the accuracy of any records maintained by the securities depository or any Participant; (ii) the payment by the securities depository or by any Participant of any amount due to any Participant or Beneficial Owner, respectively, in respect of the principal amount or redemption or purchase price of, or interest on, any Warrants; (iii) the delivery of any notice by the securities depository or any Participant; (iv) the selection of the Beneficial Owners to receive 10

15 payment in the event of any partial redemption of the Warrants; or (v) any other action taken by the securities depository or any Participant. In the event of the discontinuance of the book-entry system for the Warrants, warrant certificates will be printed and delivered and the following provisions of the Authorizing Resolution will apply: (i) principal of the Warrants will be payable upon surrender of the Warrants at the designated office of the Paying Agent; (ii) Warrants may be transferred or exchanged for other Warrants of authorized denominations as set forth in the next succeeding two paragraphs; and (iii) Warrants will be issued in denominations as described above under the heading "THE WARRANTS." The Warrants shall be registered as to both principal and interest and may be transferred only on the registry books of the Paying Agent pertaining to the Warrants. No transfer of a Warrant shall be permitted except upon presentation and surrender of such Warrant at the office of the Paying Agent with written power to transfer signed by the registered owner thereof in person or by a duly authorized attorney in form and with guaranty of signatures satisfactory to the Paying Agent. The holder of one or more of the Warrants may, upon request, and upon the surrender to the Paying Agent of such Warrant, exchange such Warrant for warrants of other authorized denominations ($5,000 principal amount or any integral multiple thereof) of the same series, maturity, issue and interest rate and together aggregating the same principal amount as the Warrant so surrendered. Any registration, transfer or exchange of Warrants shall be without expense to the holder thereof except that the holder shall pay all taxes and other governmental charges, if any, required to be paid in connection with such transfer, registration or exchange. The holder of any Warrant will be required to pay any expenses incurred in connection with the replacement of a mutilated, lost, stolen or destroyed Warrant. The Paying Agent shall not be required to register or transfer any Warrant during the period of fifteen (15) days next preceding any interest payment date; and if any Warrant is duly called for redemption (in whole or in part), the Paying Agent shall not be required to register or transfer such Warrant during the period of forty-five (45) days next preceding the redemption date. BOND INSURANCE WITH RESPECT TO THE SERIES 2017-B WARRANTS Concurrently with the issuance of the Series 2017-B Warrants, Assured Guaranty Municipal Corp. ("AGM") will issue its Municipal Bond Insurance Policy for the Series 2017-B Warrants (the "Policy"). The Policy guarantees the scheduled payment of principal of and interest on the Series 2017-B Warrants when due as set forth in the form of the Policy included as Appendix E to this Official Statement. 11

16 The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Assured Guaranty Municipal Corp. AGM is a New York domiciled financial guaranty insurance company and an indirect subsidiary of Assured Guaranty Ltd. ("AGL"), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol "AGO." AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, infrastructure and structured finance markets. Neither AGL nor any of its shareholders or affiliates, other than AGM, is obligated to pay any debts of AGM or any claims under any insurance policy issued by AGM. AGM's financial strength is rated "AA" (stable outlook) by S&P Global Ratings, a business unit of Standard & Poor's Financial Services LLC ("S&P"), "AA+" (stable outlook) by Kroll Bond Rating Agency, Inc. ("KBRA"), and "A2" (stable outlook) by Moody's Investors Service, Inc. ("Moody's"). Each rating of AGM should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies, including withdrawal initiated at the request of AGM in its sole discretion. In addition, the rating agencies may at any time change AGM's long-term rating outlooks or place such ratings on a watch list for possible downgrade in the near term. Any downward revision or withdrawal of any of the above ratings, the assignment of a negative outlook to such ratings or the placement of such ratings on a negative watch list may have an adverse effect on the market price of any security guaranteed by AGM. AGM only guarantees scheduled principal and scheduled interest payments payable by the issuer of bonds insured by AGM on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the relevant insurance policy), and does not guarantee the market price or liquidity of the securities it insures, nor does it guarantee that the ratings on such securities will not be revised or withdrawn. Current Financial Strength Ratings On June 26, 2017, S&P issued a credit rating report in which it affirmed AGM's financial strength rating of "AA" (stable outlook). AGM can give no assurance as to any further ratings action that S&P may take. On December 14, 2016, KBRA issued a financial guaranty surveillance report in which it affirmed AGM's insurance financial strength rating of "AA+" (stable outlook). AGM can give no assurance as to any further ratings action that KBRA may take. 12

17 On August 8, 2016, Moody's published a credit opinion affirming its existing insurance financial strength rating of "A2" (stable outlook) on AGM. AGM can give no assurance as to any further ratings action that Moody's may take. For more information regarding AGM's financial strength ratings and the risks relating thereto, see AGL's Annual Report on Form 10-K for the fiscal year ended December 31, Capitalization of AGM At June 30, 2017: The policyholders' surplus of AGM was approximately $2,222 million. The contingency reserves of AGM and its indirect subsidiary Municipal Assurance Corp. ("MAC") (as described below) were approximately $1,289 million. Such amount includes 100% of AGM's contingency reserve and 60.7% of MAC's contingency reserve. The net unearned premium reserves of AGM and its subsidiaries (as described below) were approximately $1,699 million. Such amount includes (i) 100% of the net unearned premium reserves of AGM and AGM's wholly owned subsidiaries Assured Guaranty (Europe) plc, Assured Guaranty (UK) plc, CIFG Europe S.A. and Assured Guaranty (London) plc (together, the "AGM European Subsidiaries") and (ii) 60.7% of the net unearned premium reserve of MAC. The policyholders' surplus of AGM and the contingency reserves and net unearned premium reserves of AGM and MAC were determined in accordance with statutory accounting principles. The net unearned premium reserves of the AGM European Subsidiaries. were determined in accordance with accounting principles generally accepted in the United States of America. Incorporation of Certain Documents by Reference Portions of the following documents filed by AGL with the Securities and Exchange Commission (the "SEC") that relate to AGM are incorporated by reference into this Official Statement and shall be deemed to be a part hereof: (i) the Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (filed by AGL with the SEC on February 24, 2017); 13

18 (ii) the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017 (filed by AGL with the SEC on May 5, 2017); and (iii) the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017 (filed by AGL with the SEC on August 3, 2017). All consolidated financial statements of AGM and all other information relating to AGM included in, or as exhibits to, documents filed by AGL with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, excluding Current Reports or portions thereof "furnished" under Item 2.02 or Item 7.01 of Form 8-K, after the filing of the last document referred to above and before the termination of the offering of the Series 2016 Bonds shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Copies of materials incorporated by reference are available over the internet at the SEC's website at at AGL's website at or will be provided upon request to Assured Guaranty Municipal Corp.: 1633 Broadway, New York, New York 10019, Attention: Communications Department (telephone (212) ). Except for the information referred to above, no information available on or through AGL's website shall be deemed to be part of or incorporated in this Official Statement. Any information regarding AGM included herein under the caption "BOND INSURANCE Assured Guaranty Municipal Corp." or included in a document incorporated by reference herein (collectively, the "AGM Information") shall be modified or superseded to the extent that any subsequently included AGM Information (either directly or through incorporation by reference) modifies or supersedes such previously included AGM Information. Any AGM Information so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded. Miscellaneous Matters AGM makes no representation regarding the Series 2017-B Warrants or the advisability of investing in the Series 2017-B Warrants. In addition, AGM 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 AGM supplied by AGM and presented under the heading "BOND INSURANCE." ENFORCEABILITY OF REMEDIES The Warrants constitute orders on the Chief School Financial Officer of the Board to pay the principal of and interest on the Warrants, when and as due, but solely out of the proceeds as herein described. The Warrants (as distinguished from the Authorizing Resolutions) do not, 14

19 however, contain a contractual promise by the Board to pay such principal or interest out of such proceeds to the holders of the Warrants, and the Board itself is therefore not subject to suit on the Warrants in the event that it defaults in payment of such principal or interest. The Authorizing Resolutions specify that the provisions thereof constitute a contract between the Board and the holders of the Warrants (to the extent that such holders are directly affected by such provisions). However, the Alabama Supreme Court has held that county boards of education, such as the Board, have the same sovereign immunity conferred on the State by the Constitution of Alabama of 1901, as amended; the Board is therefore not subject to suit on the contract evidenced by the Authorizing Resolutions. The legislation under which the Warrants are authorized to be issued effectively provides that, if there is furnished to a court having jurisdiction of the matter, by or on behalf of a holder of any of the Warrants, "proper proof" of either (i) nonpayment of debt service on the Warrants, or (ii) noncompliance with any provisions of law with respect to the Warrants, that court shall issue mandamus for the payment of the principal of and interest on the Warrants, when and as they become due and payable. The Authorizing Resolutions authorize and direct the Superintendent of Education and the Chief School Financial Officer to deposit, commencing on October 1 of each fiscal year, from so much of the net proceeds of the respective special tax as may be necessary for such purpose, an amount equal to the sum of (i) the interest that will be due on the Warrants on the then next March 1 or September 1, as the case may be, and (ii) the principal, if any, that will mature (or become subject to mandatory redemption) on the then next ensuing March 1 into the appropriate warrant fund established in the Authorizing Resolution ("the Warrant Fund") for such fiscal year. The Superintendent of Education and the Chief School Financial Officer may be subject, under existing law, to mandamus in the event that such officers do not, as required by the Authorizing Resolutions, set aside such proceeds and make the timely deposits thereof into the appropriate Warrant Fund, when and as required by the respective Authorizing Resolution in each fiscal year, and apply such proceeds (and investment earnings thereon) to the payment of the principal of and interest on the Warrants when and as the same become due and payable in each fiscal year in amounts sufficient for such purposes. The extent of the remedies afforded to the holders of the Warrants by any such mandamus proceeding, and any other remedies available to such holders, are subject to those limitations inherent in the fact that the Warrants are special obligation warrants and may be subject to, among other things, (a) the provisions of the United States Bankruptcy Code and (b) the provisions of other statutes that may hereafter be enacted by the Congress of the United States or the Legislature of Alabama extending the time for payment of indebtedness of public bodies such as the Board or imposing other constraints upon the enforcement of rights of holders of securities issued by such public bodies. See "UNITED STATES BANKRUPTCY CODE" herein. 15

20 SOURCES OF PAYMENT General The Alabama statute authorizing the issuance of the Warrants provides that warrants issued thereunder shall be preferred claims against the proceeds of the special tax (or taxes) out of which they are made payable, shall be secured by a pledge of the entire net proceeds thereof (after payment of the costs of assessment and collection) superior to all subsequent pledges made, and shall have preference over claims for salaries or other operating expenses or any other purpose. Under Alabama law, the Warrants will be a charge only on the special tax (or taxes) out of which the same are payable and will not constitute a charge on the general revenues of the Board. Alabama law expressly provides that there is no prohibition against the payment of the Warrants from funds of the Board other than the proceeds of the special tax pledged therefor which may be available for such payment, but the Warrants may not be payable from such other funds if the effect thereof would be to subject the Warrants to any constitutional debt limit or to any constitutional requirement that they be authorized by vote of the qualified electors. No holder of a Warrant may compel the use of any funds for the payment of the principal thereof or the interest thereon except funds constituting the proceeds of the special tax pledged for the payment thereof. Neither the County nor any municipality therein will in any manner be liable for payment of the Warrants. Series 2017-A Warrants The Series 2017-A Warrants will be payable, as to both principal and interest, solely out of the proceeds of a special ad valorem tax ("the Special Lincoln Tax") for public school purposes that is authorized pursuant to Amendment No. 310 to the Constitution of Alabama of 1901 (the "Constitution"), and elections held in the Lincoln School Tax District on February 16, 1999, and on May 6, 2008, to be levied annually at the rate of five mills on each dollar ($.50 on each $100) of the assessed valuation of all taxable property in the Lincoln School District, as assessed for taxation after deducting lawful exemptions. The Special Lincoln Tax was voted for a period ending with the collection that comes due and payable on October 1, The proceeds of the Special Lincoln Tax received by the Board, after payment of the costs of assessment and collection, will be pledged for payment of the principal of and the interest on the Warrants. Upon the issuance of the Series 2017-A Warrants, there will be no other outstanding obligations secured by a pledge of the Special Lincoln Tax except for the pledge for the benefit of the Outstanding Lincoln District Tax Parity Warrants described below. The said pledge of the Special Lincoln Tax for the benefit of the Series 2017-A Warrants shall be superior to all subsequent pledges of the Special Lincoln Tax, except pledges for the benefit of 16

21 Outstanding Lincoln District Tax Parity Warrants as described below and any Parity Warrants hereafter issued. Issuance of Parity Warrants. In the 2017-A Authorizing Resolution, the Board will reserve the right to issue additional warrants ("Parity Warrants") secured by pledge of the Special Lincoln Tax on a parity of lien with the Series 2017-A Warrants and any Lincoln District Tax Parity Warrants, then outstanding. Prior to the issuance of any such Parity Warrants, the Board must file (in the office of its Secretary, the Superintendent of Education) a certificate of the Custodian of School Funds setting forth the maximum amount payable annually in the then current and all succeeding fiscal years of the Board as the principal of and interest on the Series 2017-A Warrants, the Outstanding Lincoln District Tax Parity Warrants, if any then outstanding, and the Parity Warrants proposed to be issued, and demonstrating that the receipts of the Special Lincoln Tax during the fiscal year immediately preceding the issuance of the said Parity Warrants is not less than 125% of the maximum amount payable annually in any such fiscal year as principal of and interest on the Warrants, the Outstanding Lincoln District Tax Parity Warrants, if any then outstanding, and the Parity Warrants proposed to be issued. Except as provided with respect to the issuance of Lincoln District Tax Parity Warrants, the Board has covenanted and agreed that the Special Lincoln Tax shall not be pledged to the payment of any other Warrants of the Board unless such pledge is made subject to and subordinate in all respects to the pledge for the benefit of the Series 2017-A Warrants. Upon the issuance of the Series 2017-A Warrants, there will be outstanding the following (all payable solely out of the Special Lincoln Tax and together called "the Outstanding Lincoln District Tax Parity Warrants"): (a) the Board's Special Tax School Warrants (5 Mill Lincoln Tax), Series 2016-A, and now outstanding in the aggregate principal amount of $2,770,000; (b) the Series 2017-A Warrants; and (c) the Unrefunded Series 2009 Warrants now outstanding in the aggregate principal amount of $430,000. Special Lincoln Tax Pursuant to Amendment No. 310 to the Constitution of Alabama and elections held in the Lincoln School Tax District on February 16, 1999, and on May 6, 2008, the Special Lincoln Tax is authorized to be levied for each tax year until and including the tax year beginning October 1, 2037 (for which tax year the tax will become due and payable on October 17

22 1, 2038). The Special Lincoln Tax is collected in arrears. Therefore, the Special Lincoln Tax assessed with respect to real property for the tax year that ended September 30, 2016, became due and payable on October 1, 2016, and delinquent on January 1, The boundaries of the Lincoln School Tax District were most recently fixed by the Board pursuant to Alabama law prior to the election held on May 6, The net receipts of the Special Lincoln Tax for each of the last five (5) fiscal years are as follows: Fiscal Year Ending September 30 Special Lincoln Tax 2012 $ 2,086, ,904, ,379, ,109, ,159,543 Series 2017-B Warrants The Series 2017-B Warrants will be payable, as to both principal and interest, solely out of the proceeds of a special ad valorem tax ("the Special County District Tax") for public school purposes that is authorized pursuant to Amendment No. 252 to the Constitution and an election held in the County School Tax District on February 26, 2002, to be levied annually at the rate of three mills on each dollar ($.30 on each $100) of the assessed valuation of all taxable property in the County School Tax District, as assessed for taxation after deducting lawful exemptions. The Special County District Tax was voted for a period ending with the collection that comes due and payable on October 1, The proceeds of the Special District Tax received by the Board, after payment of the costs of assessment and collection, will be pledged for payment of the principal of and the interest on the Warrants. Upon the issuance of the Series 2017-B Warrants, there will be no other outstanding obligations secured by a pledge of the Special County District Tax. The said pledge of the Special County District Tax for the benefit of the Series 2017-B Warrants shall be superior to all subsequent pledges of the Special County District Tax, except pledges for the benefit of County District Tax Parity Warrants. Issuance of Parity Warrants. In the 2017-B Authorizing Resolution, the Board will reserve the right to issue additional warrants ("Parity Warrants") secured by pledge of the Special County District Tax on a parity of lien with the Series 2017-B Warrants and any District Tax Parity Warrants, then outstanding. Prior to the issuance of any such Parity Warrants, the Board must file (in the office of its Secretary, the Superintendent of Education) a certificate of the Custodian of School Funds setting forth the maximum amount payable annually in the then 18

23 current and all succeeding fiscal years of the Board as the principal of and interest on the Series 2017-B Warrants, the Outstanding County District Tax Parity Warrants, if any then outstanding, and the Parity Warrants proposed to be issued, and demonstrating that the receipts of the Special County District Tax during the fiscal year immediately preceding the issuance of the said Parity Warrants is not less than 125% of the maximum amount payable annually in any such fiscal year as principal of and interest on the Warrants, the Outstanding County District Tax Parity Warrants, if any then outstanding, and the Parity Warrants proposed to be issued. Except as provided with respect to the issuance of County District Tax Parity Warrants, the Board has covenanted and agreed that the Special County District Tax shall not be pledged to the payment of any other Warrants of the Board unless such pledge is made subject to and subordinate in all respects to the pledge for the benefit of the Series 2017-B Warrants. Special County District Tax Pursuant to Amendment No. 252 to the Constitution of Alabama and an election held in the County School Tax District on February 26, 2002, the Special County District Tax is authorized to be levied for each tax year until and including the tax year beginning October 1, 2031 (for which tax year the tax will become due and payable on October 1, 2032). The Special County District Tax is collected in arrears. Therefore, the Special County District Tax assessed with respect to real property for the tax year that ended September 30, 2016, will become due and payable on October 1, 2016, and delinquent on January 1, The net receipts of the Special County District Tax for each of the last five (5) fiscal years are as follows: Fiscal Year Ending September 30 Special County Tax 2012 $ 2,149, ,985, ,633, ,319, ,286,878 19

24 SOURCES AND USES OF FUNDS Following are the anticipated sources and uses of funds to accomplish the purposes for which the Series 2017-A Warrants are being issued: Sources Principal amount of the Series 2017-A Warrants $ 6,800, Net original issue premium 262, Total $ 7,062, Uses Refunding Series 2009 Warrants 6,940, Costs of issuance (including underwriting discount) 122,502.02, Total $ 7,062,

25 Following are the anticipated sources and uses of funds to accomplish the purposes for which the Series 2017-B Warrants are being issued: Sources Principal amount of the Series 2017-B Warrants $ 12,965, Net original issue premium 1,947, Total $ 14,912, Uses Refunding Talladega County's Series 2009 Warrants $ 13,122, Acquisition of buses 1,525, Costs of issuance (including underwriting discount and insurance premium) 265,270.64, Total $ 14,912,

26 DEBT SERVICE AND COVERAGE Series 2017-A Warrants The projected total debt service requirements on the Series 2017-A Warrants together with the debt service requirements on the Outstanding Lincoln District Tax Parity Warrants, are as follows: Fiscal Year Ending Sept. 30 Existing Debt Service Payable from Special Lincoln Tax (1) Debt Service on Series 2017-A Warrants Principal Interest Total Debt Service 2018 $ 407, $ 40, $ 213, $ 661, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , (1) Series 2016-A Warrants and the Unrefunded Series 2009 Warrants. Coverage. Based upon the actual receipts from the Special Lincoln Tax for the fiscal year that ended September 30, 2016, $2,159,543, the projected maximum annual debt service on the Unrefunded Series 2009 Warrants, the Series 2016-A Warrants and the Series 2017-A Warrants, $666, (being that for the fiscal year ending September 30, 2020), will be covered approximately times. 22

27 Series 2017-B Warrants as follows: The projected total debt service requirements on the Series 2017-B Warrants are Fiscal Year Ending Sept. 30 Debt Service on Series 2017-B Warrants Principal Interest Total Debt Service 2018 $ 725, $ 536, $1,261, , , ,260, , , ,261, , , ,261, , , ,265, , , ,263, , , ,260, , , ,260, , , ,263, ,020, , ,263, ,070, , ,261, ,125, , ,261, ,185, , ,264, ,235, , ,259, Coverage. Based upon the receipts from the Special County District Tax for the fiscal year will end September 30, 2017, $2,286,878, the projected maximum annual debt service on the Series 2017-B Warrants, $1,265,400 (being that for the fiscal year ending September 30, 2022), will be covered approximately times. ASSESSMENTS AND AD VALOREM TAX COLLECTIONS General The Constitution of Alabama limits the ratios at which property may be assessed, specifies the maximum millage rates at which taxes may be levied on property, and limits the total ad valorem taxes on any property in any tax year. 23

28 Assessments The total assessed valuation of the taxable properties in the Lincoln School Tax District, in County District and in the County as assessed for taxation for each of the indicated years was as follows: Fiscal Year Ending Sept. 30 Assessed Valuation for Lincoln School Tax District in Talladega County All Property Other Than Motor Vehicles Motor Vehicles* Total 2012 $396,758,640 $14,267,910 $411,026, ,542,340 15,869, ,412, ,084,960 17,304, ,389, ,311,480 19,051, ,363, ,526,400 19,611, ,137,602 * Approximate. Ad valorem taxes for motor vehicles are assessed and collected on a staggered basis throughout each fiscal year. Source: Talladega County Office of Revenue Commissioner Assessed Valuation for County School Tax District in Talladega County (all taxable property outside Cities of Oxford, Sylacauga and Talladega) Fiscal Year Ending Sept. 30 All Property Other Than Motor Vehicles Motor Vehicles * Total 2012 $761,250,680 $68,484,453 $829,735, ,074,560 72,610, ,684, ,409,360 73,101, ,510, ,677,120 75,497, ,174, ,861,640 78,756, ,618,366 * Approximate. Ad valorem taxes for motor vehicles are assessed and collected on a staggered basis throughout each fiscal year. Source: Talladega County Office of Revenue Commissioner 24

29 Fiscal Year Ending Sept. 30 Assessed Valuation for Talladega County (includes all taxable property situated in the County) All Property Other Than Motor Vehicles Motor Vehicles * Total 2012 $ 979,510,640 $ 97,390,186 $1,076,900, ,058,902, ,237,690 1,161,140, ,044,492, ,606,890 1,148,099, ,060,717, ,894,440 1,167,611, ,092,573, ,846,050 1,203,419,490 * Approximate. Ad valorem taxes for motor vehicles are assessed and collected on a staggered basis throughout each fiscal year. Source: Talladega County Office of Revenue Commissioner Countywide and district school taxes on real property are due October 1 of the year following the year of their assessment and are delinquent on the succeeding January 1. Taxes on motor vehicles are assessed and collected on a staggered basis throughout each tax year. Ad valorem taxes on taxable properties, except public utilities, are assessed and collected by the Talladega County Revenue Commissioner. Ad valorem taxes on public utility properties are assessed by the State Department of Revenue and collected by the state and the Talladega County Revenue Commissioner. Adoption of 1978 Amendments At its 1978 Regular Session, the Legislature of Alabama proposed a constitutional amendment and adopted numerous laws contingent upon ratification of the proposed amendment, all of which, taken together, effect substantial changes in ratios of assessment, exemptions and levels of ad valorem taxation in the State. The amendment and, indirectly, the related statutes (together, "the 1978 Amendments") were ratified by the electorate of the State at the general election on November 7, Certain salient features of the 1978 Amendments are set out below. Change of General Classifications and Assessment Ratios The following classifications of taxable property and corresponding ratios of assessed value to fair and reasonable market value were established for all ad valorem taxation (state and local), subject to certain exceptions stated below: 25

30 Class I - property of utilities used in their business, 30%; Class II - property not otherwise classified (generally, business or commercial property), 20%; Class III - agricultural, forest and single-family owner occupied residential property and historical buildings and sites, 10%; and Class IV - private passenger automobiles and small trucks ("pickups") for personal use, 15%. A comparison of the assessment ratios under prior law with those set forth above will indicate that all property other than the property of utilities is assessed at a lower ratio under the 1978 Amendments. Local Adjustment of Assessment Ratios Any local taxing authority may increase or decrease any assessment ratio subject to approval by the Legislature and by the majority of the electorate of such authority at a special election. In no case may an assessment ratio be less than 5% or more than 35%, nor may any increase or decrease exceed 5%. Legislative (as opposed to constitutional) provisions of the 1978 Amendments further restrict any increase of an assessment ratio (1) to a class of property constituting less than 20% of all taxable property in the taxing authority or (2) in the case of a taxing authority having more than 75% of its property in a single class, to the other classes of property. The 1978 Amendments require that any adjustment of assessment ratios other than those applicable to municipal ad valorem taxation be made by the governing body of a county. Local Adjustment of Millage Rates Any local taxing authority may (subject to the limitations on the total rate of taxation hereinafter stated) increase the rate at which any ad valorem tax is levied above the limit otherwise provided in the Constitution subject to the approval by the Legislature and by the majority of the electorate of such authority at a special election. The 1978 Amendments require that any adjustment of millage other than an adjustment applicable to a municipality be made by the governing body of the County. Any adjustments with respect to the ad valorem taxes levied for the Board (see "MAJOR SOURCES OF BOARD REVENUE" below) would be made by the Talladega County Commission. General Limitations on Ad Valorem Tax Rates The 1978 Amendments provide that all ad valorem taxes payable to the State and to all counties, municipalities and other taxing authorities with respect to any item of taxable 26

31 property shall not exceed the following percentage of the fair and reasonable market value of such property in any single tax year: 2% in the case of Class I property; 1-1/2% in the case of Class II property; 1% in the case of Class III property; and 1-1/4% in the case of Class IV property. The limitation is not exceeded as to any property in the County. Current Use Valuation Under the 1978 Amendments, Class III property (primarily agricultural, forest and single-family residential property) is permitted to be assessed, on application of the owner, on the basis of its current use value, with no consideration to be taken of prospective value if the property were put to some other possible use. Legislation enacted in 1982 established a procedure for determining the "current use" value of agricultural and timber property for ad valorem tax purposes. Additional Exemptions A constitutional amendment forming a part of the 1978 Amendments exempts from ad valorem taxation household and kitchen furniture, all farm tractors, all farming implements and all stocks of goods, wares and merchandise. The 1978 Amendments also increased certain exemptions of residences of persons over 65. Act No adopted at the 1982 Second Special Session of the Legislature of Alabama authorizes the several counties in the state to increase the present $2,000 homestead exemption from county taxation to an amount not greater than $4,000 and permits the extension of such exemption to district school taxes. The said Act further provides that no action affecting countywide or district ad valorem taxes levied solely for the support of public schools may be taken except by resolution of the school board that is the recipient of the proceeds of the tax or taxes so affected. The Board understands that the Talladega County Commission does not intend to increase the homestead exemption pursuant to the provisions of said Act No The Board does not propose to take any action under said Act No that would have the effect of reducing the proceeds of any ad valorem taxes levied in the County solely for the support of the public schools. Collections Ad valorem taxes levied with respect to motor vehicles are assessed and collected on a monthly basis at the time of the issuance of motor vehicle license plates and, therefore, the percentage of taxes collected is essentially 100%. Assessed Value by Property Classification The following chart reflects, for the tax year that ended September 30, 2016 (that is, the year for which taxes became due and payable on October 1, 2016, and delinquent on 27

32 January 1, 2017), the appropriate division of net assessed valuation of property in the County District and in the County by classification: Assessed Assessed Assessed Valuation Valuation Valuation Lincoln School County School Talladega Property Classification Tax District Tax District County Class I Utilities $ 11,622,140 $ 62,234,840 $ 74,325,980 Class II Class III Class IV All Property Not Otherwise Classified 417,764, ,761, ,793,000 All Agricultural, Forest and Single Family Owner Occupied Residential Property and Historic Buildings and Sites 47,629, ,731, ,589,160 Private Passenger Automobiles and Trucks for Personal Use 19,611,202 35,678,640 51,426,400 Penalties 161, , ,600 Less exemptions 13,651,640 60,871, ,434,760 Total Net Assessed Valuation $483,137,602 $924,183,803 $1,162,650,380 Source: Talladega County Office of Revenue Commissioner Largest Ad Valorem Taxpayers in the County State, County and Municipal Ad Valorem Taxpayer Assessed Value * Taxes Paid Honda Manufacturing of Alabama, LLC. $321,492,080 $9,643,884 Alabama Power Company 36,742,520 1,246,252 Nemak USA, Inc. 18,905, ,059 Talladega SS, LLC 12,405, ,787 IKO Southeast, Inc. 21,903, ,307 Resolute Forest Products 10,374, ,738 OMYA Alabama 11,320, ,312 Imerys Carbonates, LLC 12,037, ,311 Eastern Alabama Railway, Inc. 8,554, ,158 Norfolk Southern Railroad Co. 8,644, ,439 * In certain instances, ad valorem taxes are not levied on the full assessed value because of various exemptions or inducements/incentive abatements. Source: Talladega County Office of Revenue Commissioner 28

33 AD VALOREM TAX RATES IN THE COUNTY State and County Ad Valorem Taxes in the County Total ad valorem taxes levied in the unincorporated portions of the County for the tax year that ended September 30, 2016, amount to 29 mills (equivalent to $2.90 per $100 of assessed valuation), which are distributed as follows: State of Alabama Talladega County General Fund Road & Bridge Special Road Countywide Schools District Schools Total 6.5 mills 5.0 mills 2.5 mills 2.0 mills 7.0 mills 6.0 mills 29.0 mills Various municipalities in the County levy ad valorem taxes on property within their corporate limits in addition to those shown above. A five mill district school tax is levied in the Childersburg, Lincoln, Munford, Fayetteville and Winterboro School Tax Districts. OTHER INDEBTEDNESS OF THE BOARD Outstanding Indebtedness The Board's outstanding indebtedness, not including the indebtedness that will be retired simultaneously with the issuance of the Warrants, is as follows: (a) the Board's Special Tax School Warrants, Series 2013-C, dated June 5, 2013, and now outstanding in the aggregate principal amount of $4,275,000; the Board's Special Tax School Warrants, Series 2016-C, dated April 6, 2016, and now outstanding in the aggregate principal amount of $2,810,000; and the Board's Special Tax School Warrants (Sales Tax), dated May 3, 2017, and now outstanding in the aggregate principal amount of $19,965,000 (being payable from, and secured by a pledge of, the Board's share of a countywide sales tax); (b) the Outstanding Lincoln Tax District Parity Warrants; 29

34 (c) the Board's Special Tax School Warrants, Series 2013-A and Series 2013-B (3 Mill Countywide Tax), dated June 5, 2013, now outstanding in the aggregate principal amount of $6,680,000; (d) the Board's Special Tax School Warrants (5 Mill Childersburg Tax), Series 2016-B, dated April 4, 2016, now outstanding in the aggregate principal amount of $6,575,000 (being payable from, and secured by a pledge of, a special five (5) mill tax levied in the Childersburg School Tax District; herein sometimes called "the Special Childersburg Tax"); (e) Series 2017-B Warrants; and (f) the Board's obligation amounting to approximately $291,000 each fiscal year with respect to a leveraged pooled bond issuance by the Alabama Public School and College Authority; these annual payments are made by the State Department of Education out of public school capital funds appropriated by the Legislature. The Board has outstanding capital lease obligations in the approximate principal amount of $1,650,000. The following chart sets forth, on a fiscal year basis, the debt service requirements on the Board's presently outstanding long-term indebtedness and the proposed indebtedness: 30

35 Fiscal Year Sept. 30 Outstanding Lincoln District Parity Warrants (1) Series 2017-A Warrants Series 2017-B Warrants Outstanding Childersburg District Warrants, Series 2016-B (2) Outstanding Parity Sales Tax Warrants (3) Series 2013-A and Series 2013-B Warrants (4) Total 2018 $ 407, $ 253, $1,261, $ 367, $ 1,330, $ 1,163, $4,784, , , ,260, , ,610, ,159, ,061, , , ,261, , ,621, ,163, ,077, , , ,261, , ,834, , ,763, , , ,265, , ,833, , ,770, , , ,263, , ,832, , ,765, , , ,260, , ,834, , ,767, , , ,260, , ,832, , ,765, , , ,263, , ,471, , ,407, , , ,263, , ,468, ,765, , , ,261, , ,475, ,768, , , ,261, , ,466, ,761, , , ,264, , ,467, ,760, , , ,259, , ,468, ,756, , , , ,473, ,501, , , , ,471, ,500, , , , ,472, ,502, , , , ,467, ,490, , , , ,465, ,495, , , , ,469, ,490, , , , ,474, ,499, , ,471, ,836, , ,471, ,836, , ,464, ,833, , ,466, ,833, , ,471, ,835, , ,469, ,835, , ,470, ,837, , ,468, ,836, (1) Payable solely from the net proceeds of the Special Lincoln Tax; the Unrefunded Series 2009 Warrants, the Series A Warrants and the Series 2017-A Warrants. (2) Payable solely from the net proceeds of the Special Childersburg Tax. (3) The Series 2013-C Warrants, the Series 2016-C Warrants and the Series 2017 Warrants. (4) Payable solely from the Board's share of the net proceeds of a countywide ad valorem tax levied under Amendment No

36 General Under the general laws of Alabama regulating the borrowing of funds by boards of education, the Board is authorized to sell tax anticipation warrants for the purpose of paying the costs of erecting, acquiring, providing, constructing, purchasing, altering, enlarging, improving, repairing and equipping school buildings, related facilities, school playgrounds and buildings for housing and repairing school buses, and for the purpose of purchasing school buses, but such warrants may not be general obligations of the Board and must be payable, as to both principal and interest, out of one, or more, of the following: (a) the proceeds of any ad valorem tax authorized to be levied for the purpose of paying such warrants, or for school purposes generally, and paid, apportioned, allocated or distributed to or for the benefit of the Board, (b) the proceeds of any privilege, license or excise tax or taxes that may be paid, apportioned, allocated or distributed to or for the benefit of the Board, or (c) any revenues of whatever kind or nature that may be paid, apportioned, allocated or distributed to or for the benefit of the Board by any governmental or taxing authority or public person pursuant to law or contract. The Board is not subject to any limitation on the amount of indebtedness it may incur for the purposes specified above. Short-Term Loans The Board is also authorized under Alabama statutes to borrow money for current fiscal year operating needs in anticipation of current revenues for that fiscal year and to pledge for payment of such loans current revenues for such fiscal year. Such loans outstanding in any fiscal year may not exceed estimated revenues for such fiscal year (as approved by the State Superintendent of Education) less current revenues already collected and debt service on warrants due during such fiscal year. All such loans must be due and payable during the fiscal year in which incurred unless the Legislature fails to make a final apportionment of school funds during such fiscal year, in which case such loans may be extended to the close of the fiscal year during which such final apportionment is made. If current fiscal year funds are insufficient to retire such loans, the unpaid loans become a first lien on the current revenues of the succeeding fiscal year subject only to the prior lien of principal and interest due on the Board's warrants. RECENT STATE PUBLIC SCHOOL LEGISLATION Charter Schools The recently enacted "Alabama School Choice and Student Opportunity Act" (codified as Chapter 6F of Title 16 of the Code of Alabama 1975, as amended, and referred to herein as "the Charter Schools Law") provides in broad terms for the creation, operation and financing of "charter schools," which are to form part of the State's existing system of public elementary and secondary education. Such charter schools include both (i) "start-up public charter schools," which consist of newly constructed school buildings and other facilities, and (ii) "conversion public charter schools," which consist of existing school buildings and facilities that are effectively removed from the governance of a given county or city board of education and placed under the control of a private, non-profit organization. 32

37 Under the provisions of the Charter Schools Law, a new state agency, the Alabama Public Charter School Commission ("the Charter School Commission"), is empowered to establish charter schools both "start-up" and "conversion" schools anywhere in the State. The Charter School Commission is also effectively empowered to create a new "conversion" charter school in any locality, despite the express opposition of the county or city board of education that operates the public school in question. The effects of the Charter School Law cannot be predicted with any certainty and may be significantly changed by both judicial interpretation and executive or administrative action or enforcement. It is therefore impossible at this time to predict how the Charter Schools Law (or any administrative regulations that may hereafter be adopted by either the State Board, the State Department, or the Charter School Commission) may affect the operation of the public schools now or hereafter administered by the Board or, more generally, what impact the Charter Schools Law will eventually have on the administration of the State's system of public education. There are presently no charter schools located within the District, nor has the Board received any petitions for the establishment of any such schools. Alabama Accountability Act The Alabama Accountability Act of 2013 (codified at Chapter 6D of Title 16 of the Code of Alabama 1975, as amended, and referred to herein as "the Accountability Act") allows students zoned to attend "failing" public schools to transfer either to a "non-failing" public school or to a qualifying nonpublic school and provides income tax credits to parents of students who transfer out of such "failing" public schools in an amount up to 80% of the average annual state cost of attendance for a public K-12 student. The Accountability Act also provides an income tax credit to certain Alabama taxpayers who owe state income tax and make a cash donation to qualifying Scholarship Granting Organizations (each, an "SGO"). The current annual statewide cap on the income tax credit for donations to SGOs is $30,000,000. For each school year, eligible low-income students may apply to receive a scholarship awarded by an SGO to attend either (i) a qualifying nonpublic school or (ii) a "non-failing" public school. Priority for the scholarships is given to eligible students zoned for a "failing" public school. The income tax credits provided for by the Accountability Act effectively reduce the funds available for appropriation from the Education Trust Fund. No school under the jurisdiction of the Board has been deemed a "failing" school under the Accountability Act. 33

38 GENERAL INFORMATION CONCERNING THE BOARD General Powers and Organization The Board is a quasi-corporation under the laws of Alabama having jurisdiction over all public schools in the District. The Board is composed of five members who are elected from single-member districts for six-year staggered terms. The members, their business or professional affiliations, and the years in which their current terms of office expire are as follows: Date of Ending of Present Business or Name Current Term Professional Affiliation Sandra Tuck 2018 retired teacher Kathy P. Landers 2022 retired teacher John R. Ponder 2018 retired forester, Georgia-Pacific Joan B. Doyle 2020 retired public school principal Mike J. Turner 2022 owner, Calhoun Camper Sales The Board appoints the County Superintendent of Education who serves as the Secretary of the Board and who is the chief administrator of the Board with general supervisory authority over all the public schools in the area of the County is outside the Cities of Sylacauga, Talladega and Oxford. The current Superintendent is Dr. Suzanne Lacey who became superintendent on June 30, The Board appoints the Chief School Financial Officer who also serves as the Custodian of Public School Funds of the County. The Custodian of Public School Funds is responsible for receiving all moneys to which the Board may be entitled by law; the custodian pays out such money only on written order of the Superintendent, approved by the President of the Board. The custodian has no discretionary power over the disbursement of school funds. The present custodian is Avery L. Embry, who has been employed by the Board since The School System The Board formulates school policies and, upon the written recommendation of the County Superintendent, appoints principals, teachers, clerical and professional assistants of 34

39 the Board, prescribes the course of study and approves contracts. The Board delegates to the County Superintendent of Education, as its executive officer, and her staff, the responsibility for administering the policies of the Board in the operation of the schools. The Board operates 18 schools or campuses within the County School System. Those schools consist of seven (7) elementary schools, three (3) middle schools, six (6) senior high schools, an alternative school and a "unit school" (having grades K-12). Enrollment in the County School System During Last Five Years, Current Year and Projected for Two Years Year County System Enrollment , , , , , , ,750 * ,760 * * Projected. 35

40 The following schools are located within the District: Approximate School Grades Enrollment AH Watwood Elementary School K BB Comer Memorial High School BB Comer Memorial Elementary School K Charles R. Drew Middle School Childersburg Elementary School K Childersburg High School Childersburg Middle School Talladega County Central High School Fayetteville High School K Munford Elementary School K Munford High School Munford Middle School Sycamore School K Lincoln Elementary School K Lincoln High School Stemley Road Elementary School K Winterboro High School Employees and Employee Relations The Board currently employs approximately 960 full-time persons, of whom approximately 663 work in the instructional program of the schools under the administration of the Board. The Board's current pupil-to-teacher ratio is approximately 19:1 for grades K-3, 27:1 for grades 4-6, and 25:1 for grades No employees of the Board are represented by labor unions or similar employee organizations. The Board does not bargain collectively with any labor union or employee organization. The Board has never experienced a strike, boycott, or other work stoppage and no such work stoppage is threatened. Certain of the Board's employees are members of the Alabama Education Association ("AEA"). AEA represents individual teachers in tenure and contract disputes with the Board, but does not bargain with the Board on behalf of teachers with respect to salaries or compensation; however, AEA does actively represent teachers at the State level, where minimum salaries are determined. 36

41 Litigation There is no litigation, pending or threatened, affecting the Board, the adverse outcome of which is reasonably likely to have an adverse financial impact on the Board or to impair the Board's ability to meet its financial obligations. Establishment of Additional School Systems Within Talladega County; Annexation The laws of Alabama provide that any city with a population of at least 5,000 (according to the most recent federal or special census) may establish a separate school system, the general administration and supervision of which shall be vested in a city board of education. As stated above, there are presently two municipalities in the County that have independent and separate school systems, the Cities of Sylacauga and Talladega. The corporate limits of the City of Oxford, principally located in Calhoun County, extend into Talladega County; most students living in that portion of Talladega County attend Oxford City Schools. The next largest municipalities in the County, according to the 2010 Census, are the City of Lincoln with a 2010 population of 6,266 and the City of Childersburg with a 2010 population of 5,175. At this time, the Board does not expect that either the City of Lincoln or the City of Childersburg will establish a separate and independent school system. A portion of the territory within the County District and in the Childersburg, Lincoln and Fayetteville Districts lies in the unincorporated area of Talladega County and is subject to annexation by any one of the municipalities (Childersburg, Oxford, Sylacauga and Talladega) that is contiguous to such territory. Under existing law, municipalities in Alabama may annex previously unincorporated territory (i) by legislative act, (ii) by a vote of the majority of those voting in an election held in the unincorporated territory to be annexed or (iii) with the consent of the owners of all the property in the territory proposed to be annexed. The Board does not consider it likely that the ad valorem tax base of the Districts would be materially diminished by annexation. Education Accountability Plan The general laws of Alabama contain provisions designed to impose financial accountability on boards of education. The State Board of Education, through the State Department of Education, is directed by the legislation to require, approve and audit budgets, financial statements and other reports necessary to assess the financial stability of each board of education. If a board of education is determined to have submitted a fiscally unsound budget, the State Board must provide assistance to complete a revised budget. If, during the preparation of the revised budget, the State Superintendent of Education determines that the local board is in an unsound fiscal position, a person or persons must be appointed by the State Superintendent to advise on the day-to-day financial operations of the Board. If, after a reasonable period of time, 37

42 the State Superintendent determines that the local board is still in an unsound fiscal condition, a request must be filed with the State Board to take direct control of the fiscal operation of the local board. Upon approval by the State Board, the State Superintendent must appoint an individual to be the chief financial officer of the local board to manage its fiscal operation. The State Superintendent has the authority to review the decisions of the chief financial officer and the local board of education, pursuant to the general laws of Alabama. Foundation Program Fund In 1995, the Alabama Legislature enacted legislation providing for the establishment of the Foundation Program Fund which replaced the minimum program fund as the principal state funding mechanism for local boards of education. In order to participate in the foundation program, a local board must receive the equivalent of 10 mills of local tax receipts. The foundation program is intended to provide funding for a minimum number of teaching units (which are calculated according to a formula based primarily on average daily attendance), fringe benefits, instructional support and other current expenses. The amount received by a local board out of the Foundation Program Fund is determined by calculating the total cost of the Foundation Program for such local board, and subtracting the minimum local effort required (that is, the 10 mills of local tax receipts referred to above). In addition, the Foundation Program provides for the distribution of certain state funds for capital improvements according to a comprehensive, long-range capital plan developed by each local board. General Financial Information The following tables reflect the Board's revenues and expenditures for the general fund and for all governmental funds for fiscal years ending 2012 through 2016: 38

43 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GENERAL FUND Revenues State $38,783, $38,228, $38,896, $41,012, $41,191, Federal 99, , , , , Local 16,663, ,328, ,636, ,299, ,954, Other 105, , , , , Total Revenues 55,652, ,713, ,699, ,460, ,421, Expenditures Current Instructional 27,930, ,522, ,569, ,650, ,416, Instructional Support 10,567, ,091, ,701, ,656, ,560, Operation and Maintenance 5,484, ,557, ,945, ,240, ,135, Auxiliary Services 4,033, ,234, ,445, ,476, ,362, Gen. Admin & Central Support 1,830, ,834, ,025, ,943, ,940, Other 86, , , , Capital Outlay 146, , , , , Debt Service: Principal Retirement 59, , , , Interest Charges 7, , , Debt Issuance Costs/Other Debt Service 23, , , , , Total Expenditures 50,102, ,639, ,124, ,805, ,071, Excess (Deficiency) of Revenues Over Expenditures 5,549, ,074, ,575, ,654, ,349, Other Financing Sources Indirect Cost 117, , , , Long-Term Debt Issued 147, , , ,193, Transfers In 238, , , ,041, ,019, Other Financing Sources 131, , , , , Sale of Capital Assets 49, , , , Transfers Out (5,147,924.78) (4,687,780.22) (4,456,541.08) (5,762,040.29) (5,536,166.16) Total Other Financing Sources (4,728,542.30) (4,166,183.57) (2,936,084.27) (3,850,826.99) (2,672,158.95) Net Change in Fund Balances 821, (1,091,434.44) (360,327.79) (196,311.16) 677, Fund Balances Beginning of year 1,263, ,084, , , , Fund Balances End of year $ 2,084, $ 992, $ 632, $ 436, $ 1,114,

44 COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES ALL GOVERNMENTAL FUND TYPES Revenues State $41,250, $40,530, $41,398, $43,715, $43,674, Federal 8,550, ,973, ,758, ,432, ,605, Local 21,401, ,249, ,907, ,328, ,058, Other 366, , , , , Total Revenues 71,568, ,128, ,385, ,721, ,760, Expenditures Current Instructional 31,831, ,617, ,682, ,465, ,771, Instructional Support 12,950, ,714, ,410, ,227, ,119, Operation and Maintenance 6,654, ,020, ,760, ,240, ,470, Auxiliary Services: Food Service 5,816, ,356, ,585, ,609, ,122, Transportation 4,139, ,597, ,242, ,175, ,475, Gen. Admin & Central Support 2,134, ,134, ,336, ,209, ,542, Other 1,020, ,004, ,147, , Capital Outlay 977, ,567, ,358, ,903, ,805, Debt Service: Principal Retirement 2,596, ,768, ,103, ,729, ,961, Interest Charges 2,109, ,894, ,678, ,596, ,530, Debt Issuance Cost/Other Debt Service 23, , , ,146, , Total Expenditures 70,254, ,939, ,342, ,304, ,750, Excess (Deficiency) of Revenues Over Expenditures 1,314, (4,811,063.40) (2,956,957.61) (3,583,320.72) (3,989,544.44) Other Financing Sources Indirect Cost 238, , , , Funding Agreement Issued 5,401, Long-Term Debt Issued 14,632, ,169, , ,658, Premiums on Long-Term Debt Issued 78, , , Payments to Refunding Escrow Agent (11,069,139.94) (2,973,632.76) (4,310,659.33) Transfers In 8,322, ,943, ,869, ,565, Other Financing Sources 49, , , ,605, , Discount on Funding Agt. Issued 101, Sale of Capital Assets , , , Transfers Out (5,401,777.75) (8,322,693.11) (4,943,318.74) (9,605,437.54) (14,565,396.02) Total Other Financing Sources 288, ,804, ,149, ,546, ,115, Excess (deficiency) of Revenues Over Expenditures and Other Sources 1,602, (1,006,382.66) (1,807,433.09) 963, ,125, Fund Balances Beginning of year 7,176, ,779, ,773, ,965, ,928, Fund Balances End of year $8,779, $ 7,773, $ 5,965, $ 6,928, $ 13,054,

45 Pension Plan Substantially all employees of the Board are members of the Teachers' Retirement System of Alabama (the "Retirement System"), a cost-sharing multiple-employer public employee retirement system for various state-supported educational agencies and institutions. The Retirement System is administered by the Retirement Systems of Alabama. Effective October 1, 2011, the Board is required by statute to deduct from each employee's compensation an amount equal to 7.25% of the employee's salary and contribute this amount to the Retirement System. Additionally, the Retirement System recommends to the Legislature of Alabama the contribution rate (as a percentage of each employee's salary) to be paid by the Board for the following fiscal year, with the Legislature setting this rate in the annual appropriation bill. The percentages and the amounts of annual contributions made by the Board and the Board's employees for the fiscal years ended September 30, 2012, through September 30, 2016, are as follows: Contributions (%) Percentage Contributed by Board 10.00% Tier % Tier % Tier % Tier Tier Tier Percentage Contributed by Employees 7.25 Tier Tier Tier Tier Tier Tier Total Contributions 17.25% Contributions ($) Contributed by the Board $3,607,817 $3,700,794 $4,336,465 $4,412,545 Contributed by Employees 2,615,667 2,751,921 2,876,721 2,724,661 Total Contributions $6,223,485 $6,451,021 $7,088,387 $7,137,206 Other Postemployment Benefits (OPEB) The Board contributes to the Alabama Retired Education Employees' Health Care Trust (the "Trust"), a cost-sharing multiple-employer defined benefit postemployment healthcare plan. The Trust provides health care benefits to state and local school system retirees (including eligible retirees of the Board) and was established by the Legislature in 2007 as an irrevocable trust fund. Responsibility for general administration and operations of the Trust is vested with the Public Education Employees' Health Insurance Board (PEEHIB) members. The Board is required to contribute an amount for each active employee at a rate specified by the State. The Board's share of health insurance premiums for retired Board employees is included as part of the premium for active employees. The following table shows the required contributions referable to the Trust: 41

46 Fiscal Year Ending September 30 Active Health Insurance Premiums Paid by Board Amount of Premium Attributable to Retirees Percentage of Active Employee Premiums Attributable to Retirees Total Amount Paid Attributable to Retirees Percentage of Required Amount Contributed 2013 $ $ % $2,449, % ,487, ,038, ,443, Each year the PEEHIB certifies to the Governor and to the Legislature the contribution rates based on the amount needed to fund coverage for benefits for the following fiscal year and the Legislature sets the premium rate in the annual appropriation bill. This results in a pay-as-you-go funding method. See Note #7 to the financial statements of the Board attached as Appendix C for more information about the Trust. Accounting The financial statements of the Board conform generally with generally accepted accounting principles (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The Board uses funds and account groups to report on its financial position and the result of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain government functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts. An account group, on the other hand, is a financial reporting device designed to provide accountability for certain assets and liabilities that are not recorded in the funds because they do not directly affect net expendable available financial resources. Funds are classified into two categories: governmental and fiduciary. Each category, in turn, is divided into separate "fund types." 42

47 General Fund. The Board's General Fund primarily receives revenues from the Education Trust Fund (ETF) and local taxes. Amounts appropriated from the ETF are allocated to the Board on a formula basis. Special Revenue Funds. Special Revenue Funds account for the proceeds of specific revenue sources (other than those derived from expendable trusts, or dedicated for major capital projects) requiring separate accounting because of legal or regulatory provisions or administrative action. Special revenue funds consist of the following: State Vocational, Special Education Additional Allocation, Other State Revenues, Federal Vocational, Chapter I, Chapter II, Title VI, Federal Drug-Free Schools, Title II, Federal Preschool, and Child Nutrition. Debt Service Funds. Debt Service Funds are used to account for the accumulation of resources for and the payment of the Board's general long-term debt principal and interest. Capital Projects Funds. Capital Project Funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary and trust fund). Fiduciary funds are used to account for assets held on behalf of outside parties including other governments, or on behalf of other funds within the government. When these assets are held under the terms of a formal trust agreement, either a nonexpendable trust fund or an expendable trust fund is used. The terms "nonexpendable" and "expendable" refer to whether or not the government is under an obligation to maintain trust principal. Agency funds generally are used to account for assets that the government holds on behalf of other as their agent. Fiduciary funds consist of a Deferred Compensation Fund. Account groups are used to establish accounting control and accountability for the Board's general fixed assets and the unmatured principal of its general long-term debt. These account groups are not funds. They do not reflect available financial resources and related liabilities but are accounting records of the general fixed assets and general long-term debt and certain associated information. Basis of Accounting. The basis of accounting refers to when revenues and expenditures or expenses are recognized in the account and reported in the financial statements. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental funds and expendable trust funds are accounted for using a current financial resources measurement focus. With this measurement focus, only current asset and current liabilities generally are included in the balance sheet. Operating statements of these funds present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net current assets. 43

48 The modified accrual basis of accounting is used by all governmental fund types and agency funds. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e., when they become both measurable and available). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Expenditures are recorded when the related fund liability is incurred. Principal and interest on general long-term debt are recorded as fund liabilities when due or when amounts have been accumulated in the debt service fund for payments to be made early in the following year. Those revenues susceptible to accrual are state vocational education funds, federal child nutrition funds, federal grants, and others, dependent upon the circumstances. The Board of Education reports deferred revenues on its combined balance sheet, if any. Deferred revenues arise when a potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period. Deferred revenues also arise when resources are received by the Board before it has a legal claim to them, as when grant monies are received prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the Board has a legal claim to the resources, the liability for deferred revenue is removed from the combined sheet and revenue is recognized. Budget On or before September 15 of each fiscal year, the Board is required to prepare and submit the State Superintendent of Education an annual budget to be adopted by the Board. The Superintendent of the Board cannot approve any budget for operations of the system for any fiscal year which shows expenditures in excess of income estimated to be available plus any cash balances on hand. The Superintendent, with the approval of the Board, has the authority to make changes within the approved budget provided that a deficit is not incurred as a result of such changes. A summary of the budget filed by the Board with the State Superintendent of Education for is as follows: 44

49 BUDGET Beginning Fund Balances - October 1 General Fund All Governmental Fund Types Revenues State Sources $ 42,629, $ 45,043, Federal Sources 32, ,600, Local Source 17,844, ,094, Other Sources ,600,00 Total Revenues $ 60,506, $ 75,894, Expenditures Instructional Services $ 31,494, $ 34,882, Instructional Support Services 11,328, ,755, Operation and Maintenance 5,314, ,016, Auxiliary Services 4,696, ,956, General Administration 2,223, ,504, Capital Outlay 700, Debt Services 24, ,035, Other Services 13, , Total Expenditures $ 55,094, $ 76,389, Other Fund Sources (Uses) Other Fund Sources $ 756, $ 7,506, Other Fund Uses 6,168, ,011, Total Other Fund Sources (Uses) ($ 5,411,886.21) $ 494, Fund Balances - September 30 Excess Revenues and Other Sources Over - (Under) Expenditures and Other Fund Uses: Beginning Fund Balance October 1 $ 4,000, $ 4,000, Ending Fund Balances September 30 $ 4,000, $ 4,000,

50 MAJOR SOURCES OF BOARD REVENUE revenue. The following major sources of revenue account for substantially all the Board's Ad Valorem Taxes Three Mill Countywide Ad Valorem Tax Pursuant to Amendment No. 3. Pursuant to Amendment No. 3 to the Constitution of Alabama, the Talladega County Commission is authorized to levy a countywide ad valorem tax for public school purposes. The rate, duration and purpose of the tax must be approved by the electorate. The proceeds of this tax are allocated among the Board, the Sylacauga City Board of Education and the Talladega City Board of Education on a census-based formula set out in state law. The three mill countywide tax for public school purposes has been approved for a term expiring fiscal year An extension of this tax beyond its current term will require an election. One Mill Countywide Ad Valorem Tax Pursuant to Section 269. Pursuant to Section 269 of the Constitution of Alabama, the Talladega County Commission is authorized to levy an ad valorem tax of one mill in the County for public school purposes. The rate, duration and purpose of the tax must be approved by the electors in the County. The proceeds of this tax are allocated among the Board, the Sylacauga City Board of Education and the Talladega City Board of Education on a census-based formula set out in state law. A one mill tax for public school purposes has been approved for a term expiring fiscal year An extension of this tax beyond its current term will require approval at an election. Three Mill Countywide Ad Valorem Tax Pursuant to Amendment No. 98. Pursuant to Amendment No. 98 to the Constitution of Alabama, the Talladega County Commission is authorized to levy (without an election) a countywide ad valorem tax of up to three mills for public school purposes (herein referred to as "the Special School Tax"). The proceeds of this tax are allocated among the Board, the Sylacauga City Board of Education and the Talladega City Board of Education on a census-based formula set out in state law. The proceeds of this tax are pledged for the benefit of the Series 2013-A Warrants. Three Mill District Ad Valorem Tax Pursuant to Amendment No. 3. Pursuant to Amendment No. 3 to the Constitution of Alabama, the Talladega County Commission is authorized to levy an ad valorem tax of up to three mills in each of the school districts in the County for public school purposes. The rate, duration and purpose of the tax must be approved by the electors in each school district. For purposes of this tax, the County is divided into three school districts. The electors in School Tax District No. 1 (including all of Talladega County except for the territory within the Cities of Oxford, Sylacauga and Talladega) have approved a three mill tax for public school purposes for a term extending through the fiscal year ending September 30, 2041, the proceeds of which are pledged for the benefit of the Board's Series 46

51 1997-B Warrants. An extension of the district tax, beyond the current duration, will require an election in each district. Three Mill District Ad Valorem Tax Pursuant to Amendment No Pursuant to Amendment No. 252 to the Constitution of Alabama, the Talladega County Commission is authorized to levy an ad valorem tax of up to three mills in each of the school districts in the County for public school purposes. The rate, duration and purpose of the tax must be approved by the electors in each school district. The electors in School Tax District No. 1 (including all of Talladega County except for the territory lying within the Cities of Sylacauga and Talladega) have approved a three mill tax for public school purposes for a term expiring fiscal year Special Five Mill District Taxes Pursuant to Amendment No Pursuant to Amendment No. 310 to the Constitution of Alabama and elections held on February 16, 1999, and on May 6, 2008, the County is authorized to levy special five mill district taxes in the Lincoln and Munford School Tax Districts (the tax levied in the Lincoln School Tax District is pledged for the benefit of the Board's Series 2009 Warrants. These district taxes were approved to be levied annually, including the collection that comes due and payable on October 1, On April 6, 2004, pursuant to an election held under Amendment No. 310, the voters in the Fayetteville School Tax District (situated in the southwest area of the County) approved the annual levy of a special five mill district tax, the collection of which commenced on October 1, A special five mill district tax was approved on January 16, 2007, in a small area called "Fayetteville II" situated contiguous to the Fayetteville School Tax District. On January 26, 2016, pursuant to an election held under Amendment No. 310, the voters in the Childersburg School Tax District approved the annual levy of a special five mill district tax, including the collection that comes due and payable on October 1, 2045 (this tax was pledged for the benefit of the Series 2016-B Warrants). On March 14, 2017, pursuant to an election held under Amendment No. 310, the voters in the Winterboro School Tax District (situated in the southeast area of the County) approved the annual levy of a special five mill district tax, the collection of which will commence on October 1, Special Sales and Use Taxes Sales and Use Tax. Pursuant to Section of the Code of Alabama 1975, the County levies a special sales and use tax (herein referred to as "the Special Sales Tax") which generally parallels the statewide sales and use tax. The general rate of such tax is 1% of the gross receipts or sales price. The Board's allocated share of the proceeds of such tax is pledged for the benefit of the Outstanding Sales Tax Parity Warrants. County Beer Tax. Pursuant to Act No of the 1982 Regular Session of the Alabama Legislature, as amended by Act No of the 1983 Regular Session of the Alabama Legislature, a sales tax is levied on the sale of beer in the County. The County collects the tax and the proceeds remaining after deduction of all expenses of collecting and administering the tax are distributed to the following entities based on the proportion that each 47

52 entity's revenue bore to net revenue (county plus all municipalities) received during the base year (1982); the County, the cities of Talladega, Fayetteville, Sylacauga and Lincoln, the communities of Eastaboga and Munford, the Talladega County Board of Education, and the North and South Talladega County Associations for Retarded Citizens, Inc. A portion of the beer tax received by the Talladega County Board of Education is then redistributed to the Talladega City Board of Education and Sylacauga City Board of Education. 48

53 Summary of Local Revenues The following table reflects the Board's major sources of local revenues for the fiscal years shown below: Source of Revenue mill countywide Amend. No. 3; 1 mill countywide Section 269 $2,330,125 $2,291,807 $2,573,103 $2,728,622 $2,780,278 3 mill countywide Amend. No. 98 1,871,980 1,771,253 1,913,835 2,017,201 2,042,260 3 mill district Amend. No. 3 2,341,460 2,176,845 2,524,505 2,435,471 2,468,714 3 mill district Amend. No. 252 (1) 2,149,333 1,985,526 2,633,052 2,319,066 2,286,878 3 mill district (Childersburg) Amend. No. 382 (2) 278, , , , ,208 5 mill district (Lincoln) Amend. No. 310 (3) 2,086,641 1,904,805 2,379,703 2,109,160 2,159,543 5 mill district (Munford) Amend. No , , , , ,619 5 mill district (Fayetteville and Fayetteville II) Amend. No , , , , ,520 Special Sales Tax (4) 4,239,966 4,608,069 4,981,588 5,320,151 5,748,704 County Beer Tax 329, , , , ,571 (1) (2) (3) (4) Pledged as security for the Series 2017-B Warrants. This tax was replaced by the Special Childersburg Tax, the net proceeds of which the Board began to receive in fiscal year Pledged as security for the Outstanding Lincoln District Tax Warrants. Pledged as security for Outstanding Sales Tax Parity Warrants. 49

54 State of Alabama, Education Trust Fund -- Proration of State Funds The Education Trust Fund is a special fund used as a depository for revenues traditionally used for educational purposes. The Trust Fund was established in 1927 by an act of the Legislature of Alabama. The Act requires that the proceeds of the following major taxes, and numerous others (after payment of the costs of collecting and administering the taxes), be deposited into the Trust Fund: the Utilities Gross Receipts Tax, the Utilities Use Tax, the Lease Tax, the Sales Tax, the Use Tax, the Income Tax, the Cigarette Tax and the Beer Tax. The Legislature of Alabama adopts an annual budget for the Trust Fund and monies are distributed to the Board based on average daily membership. Section of the Code of Alabama 1975 provides, in part, that "the governor shall restrict allotments to prevent an overdraft or deficit in any fiscal year for which appropriations are made by prorating without discrimination against any department, board, bureau, commission, agency, office or institution of the state, the available revenues among the various departments, boards, bureaus, commissions, agencies, offices and institutions of the state." In fiscal year 2011, the Governor of Alabama reduced monthly allotments from the Trust Fund because then-current-and-projected revenues accruing to the Trust Fund were not sufficient to pay all appropriations made by the Legislature from the Trust Fund. In that year, the amount withheld from the Board was $1,103,999, or approximately 3% of total revenue. Monthly allotments are not currently being reduced. State appropriations to the Board in fiscal year 2016 of $43,674,338 were 57% of the Board's total revenue. State appropriations are expected to account for 59.4% of the Board's total revenue for fiscal year The Education Trust Fund Rolling Reserve Act (codified as Chapter 9 of Title 29 of the Code of Alabama 1975, as amended, and referred to herein as "the Rolling Reserve Act") provides that, beginning with the fiscal year ended September 30, 2013, appropriations from the Trust Fund shall not exceed an annual formula-based amount ("the Fiscal Year Appropriation Cap") derived, in part, from historical collections of and growth rates in certain "recurring revenues" (generally being the proceeds of those taxes described above) and from certain "nonrecurring revenues" deposited into the Trust Fund. The cap essentially reduces year-to-year volatility in appropriations from the Trust Fund. The Rolling Reserve Act further provides that, to the extent revenues deposited into the Trust Fund exceed the Fiscal Year Appropriation Cap, such excess is first deposited into the Trust Fund's "Rainy Day Account" and any remaining excess is then deposited into "the Education Trust Fund Budget Stabilization Fund" and "the Education Trust Fund Capital Fund," in the order named. Both the Rainy Day Account and the Education Trust Fund Budget Stabilization Fund are reserve accounts designed to offset or reduce proration in the event Trust Fund revenues are not sufficient to pay appropriations made by the Legislature from the Trust Fund. The following table sets forth the years in which proration has been declared, since 2001, and the applicable percentage rate of proration: 50

55 Fiscal Year Ending September 30 Percentage Rate % The Board cannot predict, for the current or any subsequent fiscal year, whether State revenues appropriated to the Board will be subject to proration nor can it predict the extent of proration, should it occur. The State funds that are subject to proration are not pledged for payment of the principal of or interest on the Warrants. It is not possible for the Board to determine the extent to which proration may have an adverse impact on the Board's finances. Federal Programs The Board receives funds from the federal government under its program for vocational education, under Chapter II for enhancement of libraries, under Title 6 for supplement to special education programs and under the federal vocational program as well as several other programs. Federal funds accounted for approximately 11.3% of the Board's total revenue in fiscal year

56 GENERAL ECONOMIC AND DEMOGRAPHIC INFORMATION Population The population of Talladega County has been as follows: Census * Alabama 3,893,888 4,040,587 4,447,100 4,779,736 4,907,303 Talladega County 73,826 74,107 80,321 82,291 83,664 * As of July 1, Source: United States Bureau of the Census Vital Statistics Median Marriage Rate Divorce Rate Birth Rate Death Rate Age per 1,000 per 1,000 per 1,000 per 1, Source: Alabama Department of Public Health, Center of Health Statistics Estimated Median Family Income United States $65,000 $64,400 $63,900 $65,900 $65,700 $68,000 Alabama 55,400 53,600 52,300 55,500 55,500 55,000 Talladega County 47,500 41,700 42,000 43,000 46,400 47,700 Source: HUD Office of Economic Affairs, Economic and Market Analysis Division 52

57 Per Capita Personal Income United States $39,791 $42,453 $44,266 $44,438 $46,049 $47,669 Alabama 33,710 35,202 36,036 36,176 37,512 38,965 Talladega County 27,691 28,658 29,240 29,635 30,827 31,805 Estimates for reflect county population estimates available as of March Last updated: November 17, new estimates for 2015; revised estimates for Source: U.S. Department of Commerce, Bureau of Economic Analysis Poverty Estimates and Poverty Rates, 2015 Number of Poor Poverty Rate United States 46,153, % Alabama 875, Talladega County 17, Source: U.S. Census Bureau, Small Area Income and Poverty Estimates Program Housing, 2015 Occupied Total Total Owner Renter Alabama 2,199,329 1,848,325 1,269, ,180 Talladega County 37,211 31,379 21,178 10,201 Total Family Non-Family Mobile Home Households Households Households or Trailer Alabama 1,848,325 1,238, , ,217 Talladega County 31,424 14,302 9,736 8,316 Source: U.S. Department of Commerce, Bureau of the Census 53

58 Average Value of Owner-Occupied Housing Units, 2015 Alabama... $123,800 Talladega County... 99,100 Source: U. S. Department of Commerce, Bureau of the Census Transportation Area in Motor Persons Vehicle State Square Vehicle Per Per State County Licensed County Miles Registration Vehicle Road Mile System System Total Airports Talladega , ,052 1,206 2 Mean Travel Time Drove Alone-2015 Number of Number of Number of (Minutes) Number Percent Accidents Injuries Fatalities County Talladega , , Source: U.S. Bureau of the Census and Alabama Department of Transportation Health Services The City is served by Citizens Baptist Medical Center, a 122-bed fully accredited facility. The hospital is staffed by 616 administrative and support personnel; approximately 41 physicians are members of the active staff. Licensed Nursing Physicians Dentists Hospital Beds Home Beds Medicare Enrollees County Talladega ,942 17,384 Source: Center for Business and Economic Research, The University of Alabama 54

59 Agriculture Item ALL FARMS Farms...number Land in farms...acres.. 99, ,042 Average size of farm...acres Value of land and buildings Average per farm...dollars.. 559, ,771 Average per acre...dollars.. 2,909 2,325 Total crop land...acres.. 39,713 48,612 Market value of agricultural products sold...$1, ,704 28,384 Average per farm...dollars.. 78,428 45,414 Source: Alabama Department of Agriculture and Industries Employment Unemployment Rates * United States 8.9% 8.1% 7.4% 6.2% 5.3% 4.9% 4.6% Alabama Talladega County * As of May, 2017 Source: Alabama Department of Labor Annual Average Labor Force Estimates Employment Status * Civilian Labor Force 35,293 34,993 35,658 35,390 35,169 34,781 34,683 Employment 31,192 31,708 32,593 32,234 32,638 32,429 32,539 Unemployment 4,101 3,285 3,065 2,682 2,752 2,352 2,144 Rate * As of May, 2017 Source: Alabama Department of Labor 55

60 Employers The largest employers in Talladega County are as follows: Approximate Number of Employer Product or Service Employees Honda of Alabama automobiles and v-6 engines 5,000 New South Express Honda parts supplier 1,268 Alabama Institute for Deaf & Blind education institution 1,266 Talladega County Board of Education county public schools 952 Nemak Aluminum Components motor vehicle parts 460 Coosa Valley Medical Center hospital 675 Kasia North America Inc. plastic extrusion 400 Baptist Citizen Medical Center hospital 346 Legacy Cabinets cabinets 688 Fleetwood Metal Industries metal stamping 375 Federal Correctional Institution federal correctional facility 330 Talladega City Board of Education city public schools 321 Sylacauga City Board of Education city public schools 304 MasterBrand Cabinets cabinets 288 Wal-Mart SuperCenter (Sylacauga) discount retail store 285 Imerys USA Inc. marble quarry 280 Resolute Forest Products paper mill 252 Blue Bell Creameries ice cream, frozen desserts 245 City of Talladega city government 244 Alabama Specialty Products testing equipment 236 Ameribolt bolts, fasteners 167 Sylacauga Health & Rehab healthcare 167 Heritage Freight & Warehousing trucking, warehousing, logistics 140 International Enterprises aircraft control systems 123 ATAP Manufacturing overhauling, refurbishing military equipment 120 Precision Strip primary metal products/slitting 116 Specialties Manufacturing steel fabrication 101 BR Williams Trucking trucking, warehousing, logistics 100 Source: Talladega County Economic Development Authority, June 26,

61 LEGAL INVESTMENT Under the Code of Alabama 1975 (Section ), the Warrants will be legal investments for fiduciaries. Said Section provides: "The warrants issued pursuant to the provisions of this article shall be legal investments for executors, administrators, trustees, and other fiduciaries." RATINGS Standard & Poor's has assigned an underlying rating of "A+ (stable outlook)" to the Series 2017-A Warrants. Standard & Poor's is expected to assign the Series 2017-B Warrants the insured rating of "AA" based upon the issuance of the Policy by AGM at the time of delivery of the Warrants. Standard & Poor's has assigned an underlying rating of "A+ (stable outlook)" to the Series 2017-B Warrants. Any explanation of the significance of such ratings must be obtained from the rating agency. Ratings are not recommendations to buy, sell or hold the Warrants and should be evaluated independently. There is no assurance that such ratings will remain in effect for any given period of time or will not be lowered or withdrawn entirely if, in the judgment of the rating agency, circumstances should warrant such action. Any such downward revision or withdrawal of any rating assigned to the Warrants could have an adverse effect on the market price. Neither the Board nor the Underwriter has undertaken any responsibility after the issuance of the Warrants to assure maintenance of the ratings or to oppose any such revision or withdrawal. TAX MATTERS Opinion of Bond Counsel In the opinion of Bradley Arant Boult Cummings LLP, Birmingham, Alabama, Bond Counsel, under existing statutes and court decisions and assuming continuing compliance with certain tax covenants described herein, interest on the Series 2017-A and the Series 2017-B Warrants is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended ("the Code"). Interest on the Warrants is not treated as a preference item in calculating the alternative minimum tax imposed on individuals and corporations under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed on such corporations. In rendering its opinion, Bond Counsel has relied on certain representations, certifications of fact, and statements of reasonable expectations made by the Board and others in connection with the Warrants, and Bond Counsel has assumed compliance 57

62 with certain ongoing covenants to comply with applicable requirements of the Code to assure the exclusion of interest on the Warrants from gross income under Section 103 of the Code. Bond Counsel expresses no opinion regarding any other federal or state tax consequences with respect to the Warrants. Bond Counsel renders its opinion under existing statutes and court decisions as of the issue date and assumes no obligation to update its opinion after the issue date to reflect any future action, fact or circumstance, or change in law or interpretation, or otherwise. Bond Counsel expresses no opinion on the effect of any action taken in reliance upon an opinion of other counsel on the exclusion from gross income for federal income tax purposes of interest on the Warrants. Certain Ongoing Federal Tax Requirements and Covenants The Code establishes certain significant ongoing requirements that must be met subsequent to the issuance and delivery of the Warrants in order that interest on the Warrants be and remain excluded from gross income under Section 103 of the Code. These requirements include, but are not limited to, requirements relating to use and expenditure of gross proceeds of the Warrants, yield and other restrictions on investments of gross proceeds, and the arbitrage rebate requirement that certain excess earnings on gross proceeds be rebated to the federal government. Noncompliance with such requirements may cause interest on the Warrants to become included in gross income for federal income tax purposes retroactive to their issue date, irrespective of the date on which such noncompliance occurs or is discovered. The Board has covenanted to comply with certain applicable requirements of the Code to assure the exclusion of interest on the Warrants from gross income under Section 103 of the Code. Certain Collateral Federal Tax Consequences The following is a brief discussion of certain collateral federal income tax matters with respect to the Warrants. It does not purport to deal with all aspects of federal taxation that may be relevant to a particular owner of a Warrant. Prospective investors, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the federal tax consequences of owning and disposing of the Warrants. Prospective owners of the Warrants should be aware that the ownership of such obligations may result in collateral federal income tax consequences to various categories of persons, such as corporations (including S corporations and foreign corporations), financial institutions, property and casualty and life insurance companies, individual recipients of Social Security and railroad retirement benefits, individuals otherwise eligible for the earned income tax credit, and taxpayers deemed to have incurred or continued indebtedness to purchase or carry obligations the interest on which is not included in gross income for federal income tax purposes. Interest on the Warrants may be taken into account in determining the tax liability of foreign corporations subject to the branch profits tax imposed by Section 884 of the Code. 58

63 Original Issue Discount The initial public offering price to be paid for certain of the Warrants ("the Original Issue Discount Warrants") is less than the principal amount thereof. Under existing law, the difference between (i) the amount payable at the maturity of each Original Issue Discount Warrant, and (ii) the initial offering price to the public of such Original Issue Discount Warrant constitutes original issue discount with respect to such Original Issue Discount Warrant in the hands of any owner who has purchased such Original Issue Discount Warrant in the initial public offering of the Warrants. Such initial owner is entitled to exclude from gross income (as defined in Section 61 of the Code) an amount of income with respect to such Original Issue Discount Warrant equal to that portion of the amount of such original issue discount allocable to the period that such Original Issue Discount Warrant continues to be owned by such owner. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Warrant prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Warrant in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Warrant was held by such initial owner) is includable in gross income. Under existing law, the original issue discount on each Original Issue Discount Warrant is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the Warrants and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Warrant for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other taxable disposition thereof. The amount (if any) to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods (if any) multiplied by the yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Warrants. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original Issue Discount Warrants which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Warrants should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Warrants and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale, gift or other disposition of such Original Issue Discount Warrants. 59

64 Original Issue Premium The initial public offering price to be paid for certain of the Warrants ("the Original Issue Premium Warrants") is greater than the principal amount thereof. Under existing law, any owner who has purchased an Original Issue Premium Warrant in the initial public offering of the Warrants is required to reduce his basis in such Original Issue Premium Warrant by the amount of premium allocable to periods during which he holds such Original Issue Premium Warrant, and the amount of premium allocable to each accrual period will be applied to reduce the amount of interest received by the owner during each such period. All owners of Original Issue Premium Warrants should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of interest accrued upon redemption, sale or other disposition of such Original Issue Premium Warrant and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale, gift or other disposition of such Original Issue Premium Warrant. Future Legislation Current and future legislative proposals, if enacted into law, may cause interest on the Warrants to be subject, directly or indirectly, to federal income taxation or otherwise prevent beneficial owners of the Warrants from realizing the full benefit of the current tax status of such interest. The introduction or enactment of any such legislative proposals may also affect the market price for, or marketability of, the Warrants. Prospective purchasers of the Series Warrants should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, and regarding the impact of future legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. Bank Qualification Section 265 of the Code provides that, as a general rule, banks, thrifts, and other financial institutions may not deduct that portion of their interest expense that is allocable to taxexempt obligations acquired after August 7, There is a specific exception in Section 265 for interest income from a "qualified tax-exempt obligation" which is defined as an obligation (not a private activity bond) that has been designated by the issuer for purposes of the Code as a "qualified tax-exempt obligation." Under the exception, interest allocable to qualified taxexempt obligations is subject to the 20% disallowance rule effective prior to the Tax Reform Act of Section 265 provides that not more than $10,000,000 of obligations may be designated by an issuer as "qualified tax-exempt obligations" during any calendar year and that obligations may not be designated as "qualified tax-exempt obligations" unless the issuer reasonably anticipates that the amount of qualified tax-exempt obligations issued by such issuer during such calendar year will not exceed $10,000,000. Section 265. The Warrants are not "qualified tax-exempt obligations" for purposes of 60

65 UNITED STATES BANKRUPTCY CODE Under certain conditions, Title 11 of the United States Code, 11 U.S.C. 101, et seq. ("the Bankruptcy Code") permits a municipality to file a petition for relief in federal bankruptcy court to adjust debts under Chapter 9 of the Bankruptcy Code. Debt adjustment may include restructuring, reduction or other impairment of debt, subject to various conditions and limitations set forth in the Bankruptcy Code. Section 101 of the Bankruptcy Code defines "municipality" to mean a political subdivision, public agency or instrumentality of a State. To be eligible to file a Chapter 9 bankruptcy petition under section 109 of the Bankruptcy Code, a municipality must be "specifically authorized, in its capacity as a municipality or by name, to be a debtor under [Chapter 9], or by a governmental officer or organization empowered by State law to authorize such entity to be a debtor under [Chapter 9]." Section 109 of the Bankruptcy Code imposes additional requirements for a municipality to be eligible to file bankruptcy. Without limitation, the municipality must (a) be insolvent (either unable to pay debts as they come due or generally not paying debts as they come due); (b) desire to effect a debt adjustment plan; and (c) meet certain requirements regarding negotiations with creditors (or certain exceptions to such requirements). Alabama law authorizes municipalities, counties and certain public authorities to file petitions under the Bankruptcy Code. However, there is no legislation currently in effect in Alabama authorizing boards of education to file such petitions for relief. Such legislation authorizing boards of education to file petitions for relief under the Bankruptcy Code may well be enacted by the Legislature of Alabama in the future. The other conditions to eligibility are fact-specific to the time of filing the petition. Section 922(d) of Chapter 9 of the Bankruptcy Code provides that a bankruptcy petition does not operate as a stay of "application of pledged special revenues" to the payment of indebtedness secured by such revenues in a manner consistent with other provisions of the Bankruptcy Code. Without limitation, section 928 of the Bankruptcy Code provides that special revenues acquired by the debtor after commencement of a chapter 9 case remain subject to any lien resulting from any security agreement entered into by the debtor before commencement of the case, but further provides that any such lien on special revenues (other than municipal betterment assessments) derived from a project or system shall be subject to "the necessary operating expenses of such project or system." It is not clear whether the pledge of the pledged tax proceeds made by the Board for the benefit of the Warrants would constitute "special revenues" as that term is defined in section 902(2) of the Bankruptcy Code. Moreover, the phrase "application of pledged special revenues" has given rise to arguments that the provisions of section 922(d) apply only to funds in possession and control of the debtholders, or their trustee. Therefore, it is uncertain whether or not the filing of a Chapter 9 petition would affect application of the respective tax proceeds for the payment of principal and interest on the Warrants. Similarly, it is uncertain whether section 928 of the Bankruptcy Code would control the claims of holders of the Warrants with respect to the respective tax proceeds. The approving legal opinion of Bond Counsel will contain the customary reservation that the rights of the holders of the Warrants and the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting 61

66 creditors' rights and the exercise of judicial discretion in appropriate cases. See "TAX MATTERS" above and the proposed form of approving legal opinion set forth in Appendix A. AUDIT The Board, like all county boards of education in the state, is audited by the State of Alabama Department of Examiners of Public Accounts. The most recent audit is for the period ended September 30, 2016, and is attached as Appendix B. UNDERWRITING The Underwriter has agreed, subject to certain customary conditions precedent to closing, to purchase the Series 2017-A Warrants from the Board at a price that reflects an underwriting discount of $85,000 plus an original issue premium of $262, and the Series 2017-B Warrants at a price that reflects an underwriting discount of $162, plus an original issue premium of $1,947, The Underwriter may offer and sell the Warrants to certain dealers (including dealers depositing the Warrants in investment trusts) and others at prices lower than the public offering prices set forth on the inside cover page. INVESTMENT ADVISOR Raymond James & Associates, Inc. ("Raymond James"), is acting as registered investment advisor to the Board in connection with the issuance of the Warrants. Raymond James may also receive compensation for serving as bidding agent in conducting a competitive bid procurement process for the investment of some or all of the proceeds of the Warrants. APPROVAL OF LEGAL MATTERS Certain legal matters incident to the authorization and issuance of the Warrants are subject to the approval of Bradley Arant Boult Cummings LLP, Birmingham, Alabama, Bond Counsel, whose approving legal opinions will be delivered at the time of delivery of the Warrants. The proposed forms of those opinions are included in this Official Statement as Appendix A-1 and A-2. Bond Counsel has been employed for the purpose of preparing certain documents and supporting certificates, reviewing the transcript of proceedings by which the Warrants have been authorized to be issued and rendering an opinion as to the essential legality and validity of the Warrants in substantially the forms set forth in Appendix A-1 and A-2. Although Bond Counsel has assisted in the preparation of certain portions of this Official Statement, Bond Counsel has not been requested to check or verify, has not checked or 62

67 verified and will not render any opinion with respect to, the adequacy, accuracy, completeness or fairness of any other information contained in this Official Statement. CONTINUING DISCLOSURE REQUIREMENTS The Board has entered into a Continuing Disclosure Agreement for the benefit of holders of the Warrants wherein the Board has agreed to provide annually certain financial information and operating data relating to the Board ("the Annual Report") and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the Board with the Electronic Municipal Market Access ("EMMA") system, a website created by the Municipal Securities Rulemaking Board ("MRSB") and approved by the SEC to provide a nationwide central location for municipal bond information. The notices of material events will be filed with the Municipal Securities Rulemaking Board on EMMA. The specific nature of the information to be contained in the Annual Report or the notices of material events and other provisions of the Continuing Disclosure Agreement are summarized in "Appendix C Summary of Continuing Disclosure Agreement." The Continuing Disclosure Agreement has been entered into in order to assist the purchaser of the Warrants in complying with Rule 15c2-12(b)(5) of the Securities and Exchange Commission. Compliance with Prior Undertakings During the past five years, the Board failed to file timely its Annual Report for the fiscal years 2011, 2012 and 2013, failed to file timely its financial statements for the fiscal years 2011, 2012, 2013 and 2014, failed to file timely when available its audited financial statements for the fiscal year 2015, and failed to file timely its budget summary for the fiscal years 2012, 2013, 2014, and 2015 with EMMA on or before the due date as required by Rule 15c2-12 and by the terms of continuing disclosure agreements executed by the Board in connection with the issuance of certain of its existing indebtedness. The Board also did not file a notice in accordance with Rule 15c2-12 with respect to its failure to provide its Annual Report, financial statements, audited financial statements and budget summary for the fiscal years noted above. Certain outstanding indebtedness of the Board has been secured by various forms of credit enhancement, including bond insurance. The ratings of the providers of such credit enhancement have changed at various times in the past five years. Information about the changes was publicly reported. The Board filed no notice in accordance with Rule 15c2-12 with respect to each such rating change. To remedy past non-compliance and to ensure future compliance with its continuing disclosure undertakings, the Board entered into a Disclosure Dissemination Agent Agreement with Digital Assurance Certification, L.L.C. ("DAC") on March 2,

68 LITIGATION At the time of the delivery of the Warrants, the Board will furnish its certificate to the effect that there is no litigation pending or threatened which would restrain or enjoin the issuance of the Warrants or contest the authority for or the validity of the Warrants or contest the corporate authority of the Board to issue the Warrants. FINANCIAL ADVISOR In connection with the issuance and sale of the Warrants, Rice Advisory LLC, Montgomery, Alabama, is serving as Financial Advisor to the Alabama State Department of Education. The Financial Advisor has not assisted in the preparation of this Preliminary Official Statement nor has it participated in other matter relating to the planning, structuring and issuance of the Warrants. The Financial Advisor is a financial advisory firm regularly engaged in the business of providing financial and advisory services. The Financial Advisor will not participate in underwriting any of the Warrants. MISCELLANEOUS Any statements made in this Official Statement involving matters of opinion or estimates whether or not expressly so stated, are intended as such and not as representations of fact. No representation is made that any of such statements will be realized. References herein to the Constitution of the State of Alabama and all acts referred to herein are intended to be only brief outlines of certain provisions of each thereof and do not purport to summarize or describe all provisions thereof. The distribution of this Official Statement has been approved by the Board. TALLADEGA COUNTY BOARD OF EDUCATION By /s/ Kathy P. Landers President Dated September 14,

69 APPENDIX A-1 FORM OF APPROVING LEGAL OPINION FOR THE WARRANTS

70 APPENDIX A-1 PROPOSED FORM OF APPROVING LEGAL OPINION WITH RESPECT TO THE SERIES 2017-A WARRANTS Bradley Arant Boult Cummings LLP One Federal Place 1819 Fifth Avenue North Birmingham, Alabama [Dated the date of issuance] Talladega County Board of Education Talladega, Alabama Ladies and Gentlemen: We have examined certified copies of proceedings of the Talladega County Board of Education ("the Board") in the State of Alabama and other documents pertaining to the authorization and issuance of $6,800,000 TALLADEGA COUNTY BOARD OF EDUCATION Special Tax School Warrants (5 Mill Lincoln Tax) Series 2017-A Dated, 2017 ("the Warrants"). The opinions hereinafter expressed are based upon our examination of the said proceedings and documents. The Warrants recite that they are issued pursuant to the provisions of Article 14 of Chapter 13 of Title 16 of the Code of Alabama 1975, as amended. The said proceedings show that the Board has reserved the right to issue additional parity warrants ("Parity Warrants") payable from and secured by a pledge of the special tax hereinafter referred to, subject to certain limitations and conditions, which pledge will be on a parity of lien with a pledge thereof heretofore made for the benefit of certain warrants 1

71 and such pledges as may hereafter be made subsequent to the issuance of the Warrants. The Warrants are being issued pursuant to the said reserved right. We are of the following opinion: that the Warrants are in due and legal form and have been authorized, sold and issued in the manner required by the applicable provisions of the laws of Alabama; that the Warrants are valid warrants of the Board and constitute valid orders on the Board's Chief School Financial Officer, who is the custodian of public school funds of Talladega County, Alabama ("the County"), for the payment thereof as provided in the Warrants; that the principal of and interest on the Warrants are payable solely out of the net proceeds of a special ad valorem tax for public school purposes that is authorized to be levied annually at the rate of five mills per annum on each dollar ($.50 on each $100) of the assessed valuation of all taxable property in the Lincoln School Tax District ("the District") in the County ("the Special Tax"); that the Special Tax has been duly authorized by the Constitution of Alabama and proceedings taken thereunder to be levied annually on all taxable property in the District that is subject to taxation by it, as said properties may be assessed for taxation for each tax year until and including the levy for the tax year ending September 30, 2038, for which tax year the said tax will become payable on October 1, 2038; that the proceeds of the Special Tax, after payment of the costs of assessment and collection, have been irrevocably pledged for payment of the principal of and interest on the Warrants to the extent necessary to pay the said principal and interest at the respective maturities thereof; that the said pledge is valid and irrevocable and the Warrants constitute a preferred claim on the net proceeds of the Special Tax; that the said pledge for the benefit of the Warrants will take precedence over any pledge of the Special Tax for the benefit of any other warrants of the Board that may hereafter be issued other than Parity Warrants; and that, under existing statutes, the interest on the Warrants is exempt from Alabama income taxation. We are of the further opinion that under the Internal Revenue Code of 1986, as amended ("the Code"), as presently construed and administered, and assuming compliance by the Board with the covenants set forth in the resolution of the Board pursuant to which the Warrants are being issued with respect to certain requirements of federal tax law, the interest on the Warrants will be excludable from gross income of the recipients thereof for federal income tax purposes pursuant to the provisions of Section 103(a) of the Code, and the interest on the Warrants will not be an item of tax preference included in alternative minimum taxable income for the purpose of computing the minimum tax imposed by Section 55 of the Code. We express no opinion with respect to the federal tax consequences of ownership of the Warrants under any other provision of the Code. The documents submitted to us include a certificate of officers of the Board that the Board has no other outstanding obligations that are secured by a pledge of the Special Tax except the Board's Special Tax School Warrants, Series 2016-A, dated April 6, 2016, now outstanding in the aggregate principal amount of $2,770,000, and the Board's Capital Outlay Warrants, Series 2009, dated May 1, 2009, and now outstanding in the aggregate principal amount of $430,000. 2

72 We express no opinion regarding the accuracy, adequacy, or completeness of the Official Statement of the Board relating to the Warrants. Further, we express no opinion regarding tax consequences arising with respect to the Warrants other than as expressly set forth herein. The rights of the holders of the Warrants and the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights and the exercise of judicial discretion in appropriate cases. This opinion is given 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 come to our attention, or any changes in law that may hereafter occur. Yours very truly, 3

73 APPENDIX A-2 FORM OF APPROVING LEGAL OPINION FOR THE WARRANTS

74 APPENDIX A-2 PROPOSED FORM OF APPROVING LEGAL OPINION WITH RESPECT TO THE SERIES 2017-B WARRANTS Bradley Arant Boult Cummings LLP One Federal Place 1819 Fifth Avenue North Birmingham, Alabama [Dated the date of issuance] Talladega County Board of Education Talladega, Alabama Ladies and Gentlemen: We have examined certified copies of proceedings of the Talladega County Board of Education ("the Board") in the State of Alabama and other documents pertaining to the authorization and issuance of $12,965,000 TALLADEGA COUNTY BOARD OF EDUCATION Special Tax School Warrants (3 Mill District Tax) Series 2017-B Dated, 2017 ("the Warrants"). The opinions hereinafter expressed are based upon our examination of the said proceedings and documents. The Warrants recite that they are issued pursuant to the provisions of Article 14 of Chapter 13 of Title 16 of the Code of Alabama 1975, as amended. The said proceedings show that the Board has reserved the right to issue additional parity warrants ("Parity Warrants") payable from and secured by a pledge of the special tax hereinafter referred to, subject to certain limitations and conditions, which pledge will be on a parity of lien with the pledge thereof made for the benefit of the Warrants. 1

75 We are of the following opinion: that the Warrants are in due and legal form and have been authorized, sold and issued in the manner required by the applicable provisions of the laws of Alabama; that the Warrants are valid warrants of the Board and constitute valid orders on the Board's Chief School Financial Officer, who is the custodian of public school funds of Talladega County, Alabama ("the County"), for the payment thereof as provided in the Warrants; that the principal of and interest on the Warrants are payable solely out of the net proceeds of a special ad valorem tax for public school purposes that is authorized to be levied annually at the rate of three mills per annum on each dollar ($.30 on each $100) of the assessed valuation of all taxable property in the Talladega County School Tax District ("the District") in the County ("the Special Tax"); that the Special Tax has been duly authorized by the Constitution of Alabama and proceedings taken thereunder to be levied annually on all taxable property in the District that is subject to taxation by it, as said properties may be assessed for taxation for each tax year until and including the levy for the tax year ending September 30, 2032, for which tax year the said tax will become payable on October 1, 2032; that the proceeds of the Special Tax, after payment of the costs of assessment and collection, have been irrevocably pledged for payment of the principal of and interest on the Warrants to the extent necessary to pay the said principal and interest at the respective maturities thereof; that the said pledge is valid and irrevocable and the Warrants constitute a preferred claim on the net proceeds of the Special Tax; that the said pledge for the benefit of the Warrants will take precedence over any pledge of the Special Tax for the benefit of any other warrants of the Board that may hereafter be issued other than Parity Warrants; and that, under existing statutes, the interest on the Warrants is exempt from Alabama income taxation. We are of the further opinion that under the Internal Revenue Code of 1986, as amended ("the Code"), as presently construed and administered, and assuming compliance by the Board with the covenants set forth in the resolution of the Board pursuant to which the Warrants are being issued with respect to certain requirements of federal tax law, the interest on the Warrants will be excludable from gross income of the recipients thereof for federal income tax purposes pursuant to the provisions of Section 103(a) of the Code, and the interest on the Warrants will not be an item of tax preference included in alternative minimum taxable income for the purpose of computing the minimum tax imposed by Section 55 of the Code. We express no opinion with respect to the federal tax consequences of ownership of the Warrants under any other provision of the Code. We express no opinion regarding the accuracy, adequacy, or completeness of the Official Statement of the Board relating to the Warrants. Further, we express no opinion regarding tax consequences arising with respect to the Warrants other than as expressly set forth herein. 2

76 The rights of the holders of the Warrants and the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights and the exercise of judicial discretion in appropriate cases. This opinion is given 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 come to our attention, or any changes in law that may hereafter occur. Yours very truly, 3

77 APPENDIX B FINANCIAL REPORT OF FISCAL YEAR ENDING SEPTEMBER 30, 2016

78 Report on the Talladega County Board of Education Talladega County, Alabama October 1, 2015 through September 30, 2016 Filed: April 7, 2017 Department of Examiners of Public Accounts 50 North Ripley Street, Room 3201 P.O. Box Montgomery, Alabama Website: Ronald L. Jones, Chief Examiner

79 Ronald L. Jones Chief Examiner State of Alabama Department of Examiners of Public Accounts P.O. Box , Montgomery, AL North Ripley Street, Room 3201 Montgomery, Alabama Telephone (334) FAX (334) Honorable Ronald L. Jones Chief Examiner ofpublic Accounts Montgomery, Alabama Dear Sir: Under the authority of the Code of Alabama 1975, Section , I submit this report on the results of the audit of the Talladega County Board of Education, Talladega County, Alabama, for the period October 1, 2015 through September 30, Sworn to and subscribed befure me this the f!l;.lr.- day of,41(a_v-c'..--6, 20 L2_. ~~ija~cd rb Notary Public My Commlnlon Expires October 31,2019 Respectfully submitted, ~ll-~ BriAnna Upchurch Examiner ofpublic Accounts \ '

80 Table of Contents Page Summary A Contains items pertaining to federal, state and local legal compliance, Board operations and other matters. Independent Auditor s Report B Reports on whether the financial information constitutes a fair presentation of the financial position and results of financial operations in accordance with generally accepted accounting principles (GAAP). Basic Financial Statements 1 Provides the minimum combination of financial statements and notes to the financial statements that is required for the fair presentation of the Board s financial position and results of operations in accordance with GAAP. Exhibit #1 Statement of Net Position 2 Exhibit #2 Statement of Activities 4 Exhibit #3 Balance Sheet Governmental Funds 6 Exhibit #4 Exhibit #5 Exhibit #6 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position 8 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds 9 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 11 Notes to the Financial Statements 13 Talladega County Board of Education

81 Table of Contents Page Required Supplementary Information 41 Provides information required by the Governmental Accounting Standards Board to supplement the basic financial statements. This information has not been audited and no opinion is provided about the information. Exhibit #7 Schedule of the Employer s Proportionate Share of the Net Pension Liability 42 Exhibit #8 Schedule of the Employer s Contributions 43 Exhibit #9 Exhibit #10 Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual General Fund 44 Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual Special Revenue Fund 48 Supplementary Information 50 Contains financial information and notes relative to federal financial assistance. Exhibit #11 Schedule of Expenditures of Federal Awards 51 Notes to the Schedule of Expenditures of Federal Awards 55 Additional Information 56 Provides basic information related to the Board, including reports and items required by generally accepted government auditing standards and/or Title 2 U. S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) for federal compliance audits. Exhibit #12 Exhibit #13 Board Members and Administrative Personnel a listing of the Board members and administrative personnel. 57 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards a report on internal controls related to the financial statements and on whether the Board complied with laws and regulations which could have a direct and material effect on the Board s financial statements. 58 Talladega County Board of Education

82 Table of Contents Page Exhibit #14 Exhibit #15 Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance a report on internal controls over compliance with requirements of federal statutes, regulations, and the terms and conditions of federal awards applicable to major federal programs and an opinion on whether the Board complied with federal statutes, regulations, and the terms and conditions of the federal awards which could have a direct and material effect on each major program. 60 Schedule of Findings and Questioned Costs a schedule summarizing the results of audit findings relating to the financial statements as required by Governmental Auditing Standards and findings and questioned costs for federal awards as required by the Uniform Guidance. 63 Talladega County Board of Education

83

84 Department of Examiners of Public Accounts SUMMARY Talladega County Board of Education October 1, 2015 through September 30, 2016 The Talladega County Board of Education (the Board ) is governed by a five-member body elected by the citizens of Talladega County. The members and administrative personnel in charge of governance of the Board are listed on Exhibit 12. The Board is the governmental agency that provides general administration and supervision for Talladega County Public Schools, preschool through high school, with the exception of schools administered by the Talladega and Sylacauga City Boards of Education. This report presents the results of an audit the objectives of which were to determine whether the financial statements present fairly the financial position and results of financial operations and whether the Board complied with applicable laws and regulations, including those applicable to its major federal financial assistance programs. The audit was conducted 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 as well as the requirements of the Department of Examiners of Public Accounts under the authority of the Code of Alabama 1975, Section An unmodified opinion was issued on the financial statements, which means that the Board s financial statements present fairly, in all material respects, its financial position and the results of its operations for the fiscal year ended September 30, Tests performed during the audit did not disclose any significant instances of noncompliance with applicable state or local laws and regulations. The following officials/employees were invited to an exit conference to discuss the contents of this report: Superintendent: Dr. Suzanne Lacey; Chief School Financial Officer (CSFO): Avery Embry; and Board Members: Kathy Landers, John R. Ponder, Joan Doyle, and Mike Turner. The following individuals attended the exit conference, held at the Board s offices: Dr. Suzanne Lacey, Superintendent; Avery Embry, CSFO; Board Member: Kathy Landers, Joan Doyle, and Mike Turner; and representatives from the Department of Examiners of Public Accounts: Nikki Morrison, Audit Manager; and BriAnna Upchurch, Examiner A

85 This Page Intentionally Blank

86 Independent Auditor s Report B

87 Independent Auditor s Report To: Members of the Talladega County Board of Education, Superintendent and Chief School Financial Officer Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Talladega County Board of Education, as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the Talladega County Board of Education s basic financial statements as listed in the table of contents as Exhibits 1 through 6. Management s Responsibility for the Financial Statements The management of the Talladega County Board of Education 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 from 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 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 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 C

88 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, each major fund, and the aggregate remaining fund information of the Talladega County Board of Education, as of September 30, 2016, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis (MD&A), the Schedule of the Employer s Proportionate Share of the Net Pension Liability, Schedule of the Employer s Contributions and the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual (Exhibits 7 through 10) 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 principally 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. The Talladega County Board of Education has not presented a Management s Discussion and Analysis (MD&A) that the Governmental Accounting Standards Board has determined necessary to supplement, although not required to be a part of, the basic financial statements. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Talladega County Board of Education s basic financial statements. The accompanying Schedule of Expenditures of Federal Awards (Exhibit 11) as required by Title 2 U. S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), is presented for the purposes of additional analysis and is not a required part of the basic financial statements D

89 The accompanying Schedule of Expenditures of Federal Awards is the responsibility of management and was derived from and relates 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 accompanying Schedule of Expenditures of Federal Awards is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required bv Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 1, 2017, on our consideration of the Talladega County Board of Education'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 in considering Talladega County Board of Education's internal control over financial reporting and compliance. f,jt fi<#--' Ronald L. Jones Chief Examiner Department of Examiners of Public Accounts Montgomery, Alabama March I, E

90 Basic Financial Statements 1

91 Statement of Net Position September 30, 2016 Governmental Activities Assets Cash and Cash Equivalents $ 16,638, Investments 96, Ad Valorem Property Taxes Receivable 12,047, Receivables (Note 4) 2,185, Inventories 117, Prepaid Items 28, Capital Assets (Note 5): Nondepreciable 7,928, Depreciable, Net 75,243, Total Assets 114,285, Deferred Outflows of Resources Employer Pension Contribution 4,412, Proportionate Share of Collective Deferred Outflows Related to Net Pension Liability 4,008, Deferred Charges on Refunding 248, Total Deferred Outflows of Resources 8,668, Liabilities Accounts Payable 1,241, Accrued Interest Payable 332, Unearned Revenue 53, Salaries and Benefits Payable 4,380, Long-Term Liabilities: Portion Payable Within One Year 3,952, Portion Payable After One Year 109,597, Total Liabilities 119,557, Deferred Inflows of Resources Proportionate Share of Collective Deferred Inflows Related to Net Pension Liability 427, Unavailable Revenue - Property Taxes 11,928, Revenue Received in Advance - Motor Vehicle Taxes 455, Total Deferred Inflows of Resources $ 12,810, The accompanying Notes to the Financial Statements are an integral part of this statement. Talladega County Board of Education 2 Exhibit #1

92 Governmental Activities Net Position Net Investment in Capital Assets $ 40,151, Restricted for: Debt Service 466, Capital Projects 690, Other Purposes 1,802, Unrestricted (52,525,759.24) Total Net Position $ (9,414,709.36) Talladega County Board of Education 3 Exhibit #1

93 Statement of Activities For the Year Ended September 30, 2016 Program Revenues Charges Operating Grants Functions/Programs Expenses for Services and Contributions Governmental Activities Instruction $ 37,066, $ 860, $ 29,594, Instructional Support 14,766, , ,003, Operation and Maintenance 8,539, , ,825, Auxiliary Services: Student Transportation Services 5,259, , ,207, Food Services 5,957, ,514, , General Administrative and Central Support 2,500, , Interest and Fiscal Charges 1,529, Other Expenses 1,002, , , Total Governmental Activities $ 76,622, $ 7,158, $ 46,424, General Revenues: Taxes: Property Taxes for General Purposes Property Taxes for Specific Purposes Local Sales Tax Alcohol Beverage Tax Other Taxes Grants and Contributions Not Restricted for Specific Programs Investment Earnings Miscellaneous Total General Revenues Changes in Net Position Net Position - Beginning of Year Net Position - End of Year The accompanying Notes to the Financial Statements are an integral part of this statement. Talladega County Board of Education 4 Exhibit #2

94 Capital Grants and Contributions Net (Expenses) Revenues and Changes in Net Position Total Governmental Activities $ 1,119, $ (5,491,719.50) 86, (5,106,636.83) 520, (4,745,009.61) 729, (110,388.94) (1,134,168.85) 31, (2,227,118.57) (1,529,950.67) (206,814.58) $ 2,487, (20,551,807.55) 12,034, , ,826, , , , , ,706, ,797, , (9,660,240.92) $ (9,414,709.36) Talladega County Board of Education 5 Exhibit #2

95 Balance Sheet Governmental Funds September 30, 2016 General Fund Special Revenue Fund Assets Cash and Cash Equivalents $ 5,463, $ 2,507, Investments 96, Ad Valorem Property Taxes Receivable 12,047, Receivables (Note 4) 998, ,187, Inventories 117, Prepaid Items 28, Total Assets 18,537, ,908, Liabilities, Deferred Inflows of Resources and Fund Balances Liabilities Accounts Payable 908, , Unearned Revenue 53, Salaries and Benefits Payable 4,130, , Total Liabilities 5,039, , Deferred Inflows of Resources Unavailable Revenue - Property Taxes 11,928, Revenue Received in Advance - Motor Vehicle Taxes 455, Total Deferred Inflows of Resources 12,383, Fund Balances Nonspendable: Inventories 117, Prepaid Items 28, Restricted for: Debt Service Capital Projects Special Legislative 153, Federal Programs 5.65 Child Nutrition 1,354, Fleet Renewal E-Rate 94, Assigned to: Encumbrances 258, Local Schools 1,708, Unassigned 673, Total Fund Balances 1,114, ,273, Total Liabilities, Deferred Inflows of Resources and Fund Balances $ 18,537, $ 3,908, The accompanying Notes to the Financial Statements are an integral part of this statement. Talladega County Board of Education 6 Exhibit #3

96 Capital Other Total Projects Governmental Governmental Fund Funds Funds $ 7,868, $ 798, $ 16,638, , ,047, ,185, , , ,868, , ,113, , ,241, , ,380, , ,675, ,928, , ,383, , , , , ,784, ,784, , ,354, , , , , ,708, , ,867, , ,054, $ 7,868, $ 798, $ 31,113, Talladega County Board of Education 7 Exhibit #3

97 This Page Intentionally Blank

98 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position September 30, 2016 Total Fund Balances - Governmental Funds (Exhibit 3) $ 13,054, Amounts reported for governmental activities in the Statement of Net Position (Exhibit 1) are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The Cost of Capital Assets is $ 119,858, Accumulated Depreciation is (36,687,485.05) 83,171, Losses on refunding of debt are reported as deferred outflows of resources and are not available to pay for current-period expenditures and, therefore, are deferred on the Statement of Net Position. 248, Long-term liabilities, including net pension obligations and bonds/warrants payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Current Portion of Long-Term Debt $ 3,807, Noncurrent Portion of Long-Term Debt 109,742, (113,550,017.91) Deferred Outflows and Inflows of Resources related to pensions are applicable to future periods and, therefore, are not reported in the governmental funds. Employer Pension Contribution $ 4,412, Proportionate Share of Collective Deferred Outflows Related to Net Pension Liability 4,008, Proportionate Share of Collective Deferred Inflows Related to Net Pension Liability (427,000.00) 7,993, Interest on long-term debt is not accrued in the funds but rather is recognized as an expenditure when due. Accrued Interest Payable (332,704.79) Total Net Position - Governmental Activities (Exhibit 1) $ (9,414,709.36) The accompanying Notes to the Financial Statements are an integral part of this statement. Talladega County Board of Education 8 Exhibit #4

99 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended September 30, 2016 General Fund Special Revenue Fund Revenues State $ 41,191, $ Federal 79, ,525, Local 18,954, ,327, Other 195, , Total Revenues 60,421, ,080, Expenditures Current: Instruction 31,416, ,605, Instructional Support 11,560, ,440, Operation and Maintenance 7,135, , Auxiliary Services: Student Transportation Services 4,362, , Food Services ,122, General Administrative and Central Support 1,940, , Capital Outlay 194, , Debt Service: Principal Retirement 388, Interest and Fiscal Charges 2, Debt Issuance Costs 22, Other 46, , Total Expenditures 57,071, ,098, Excess (Deficiency) of Revenues Over Expenditures 3,349, (1,017,865.66) Other Financing Sources (Uses) Indirect Cost 543, Long-Term Debt Issued 1,193, Premiums on Long-Term Debt Issued Transfers In 1,019, ,812, Other Financing Sources 107, Transfers Out (5,536,166.16) (454,529.57) Payments to Refunding Escrow Agent Total Other Financing Sources (Uses) (2,672,158.95) 1,358, Net Changes in Fund Balances 677, , Fund Balances - Beginning of Year 436, ,933, Fund Balances - End of Year $ 1,114, $ 3,273, The accompanying Notes to the Financial Statements are an integral part of this statement. Talladega County Board of Education 9 Exhibit #5

100 Capital Other Total Projects Governmental Governmental Fund Funds Funds $ 2,192, $ 289, $ 43,674, ,605, , , ,058, , ,846, , ,760, , ,771, , ,119, , ,470, , ,475, ,122, , , ,542, ,469, ,805, , ,087, ,961, , ,451, ,530, , , ,742, ,838, ,750, (1,896,218.73) (4,425,447.36) (3,989,544.44) 543, ,465, ,658, , , ,009, ,723, ,565, , (529,505.08) (8,045,195.21) (14,565,396.02) (4,310,659.33) (4,310,659.33) 7,480, ,948, ,115, ,583, (476,500.03) 6,125, ,283, ,275, ,928, $ 7,867, $ 798, $ 13,054, Talladega County Board of Education 10 Exhibit #5

101 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended September 30, 2016 Net Changes in Fund Balances - Total Governmental Funds (Exhibit 5) $ 6,125, Amounts reported for governmental activities in the Statement of Activities (Exhibit 2) are different because: Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which depreciation expense exceeds capital outlays in the period. Capital Outlays $ 2,805, Depreciation Expense (2,905,497.69) (100,437.45) Some of the capital assets acquired this year were financed with capital leases. The amount financed by the leases is reported in the governmental funds as a source of financing. On the other hand, the capital leases are not revenues in the Statement of Activities, but rather constitute long-term liabilities in the Statement of Net Position. (1,193,930.01) Repayment of debt principal is an expenditure in the governmental funds, but it reduces long-term liabilities in the Statement of Net Position and does not affect the Statement of Activities. 3,961, Payments to refunding escrow agent are recorded as expenditures or other financing uses in the governmental funds, but reduce long-term liabilities in the Statement of Net Position and do not affect the Statement of Activities. 4,310, Proceeds from the issuance of debt are reported as financing sources in governmental funds and thus contribute to the change in fund balance. Issuing long-term debt increases liabilities in the Statement of Net Position but does not affect the Statement of Activities. (12,465,000.00) Premiums on debt issuance are reported as other financing sources in the governmental funds, but are amortized in the Statement of Activities. (116,612.25) The accompanying Notes to the Financial Statements are an integral part of this statement. Talladega County Board of Education 11 Exhibit #6

102 In the Statement of Activities, only the gain or loss on the sale of capital assets is reported, whereas in the governmental funds, the proceeds from the sale increase financial resources. The change in net position differs from the change in fund balances by this amount. Loss on Disposition of Capital Assets $ (1,602.41) 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. Accrued Interest Payable, Current Year Increase/(Decrease) $ 70, Compensated Absences, Current Year Increase/(Decrease) in Noncurrent Portion 4, Amortization of Bond Discounts/Premiums (93,386.56) Pension Expense 293, (274,463.17) Change in Net Position of Governmental Activities (Exhibit 2) $ 245, Talladega County Board of Education 12 Exhibit #6

103 Notes to the Financial Statements For the Year Ended September 30, 2016 Note 1 Summary of Significant Accounting Policies The financial statements of the Talladega County Board of Education (the Board ) have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant of the government's accounting policies are described below. A. Reporting Entity The Board is governed by a separately elected board composed of five members elected by the qualified electors of the County. The Board is responsible for the general administration and supervision of the public schools for the educational interests of the County (with the exception of cities having a city board of education). Generally accepted accounting principles (GAAP) require that the financial reporting entity consist of the primary government and its component units. Accordingly, the accompanying financial statements present the Board (a primary government). Component units are legally separate organizations for which the elected officials of the primary government are financially accountable and other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. Based on the application of these criteria, there are no component units which should be included as part of the financial reporting entity of the Board. B. Government-Wide and Fund Financial Statements Government-Wide Financial Statements The Statement of Net Position and the Statement of Activities display information about the Board. These statements include the financial activities of the overall government. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. Talladega County Board of Education 13

104 Notes to the Financial Statements For the Year Ended September 30, 2016 The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the Board s governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. The Board does not allocate indirect expenses to the various functions. Program revenues include (a) charges to customers or applicants who purchase, use or directly benefit from goods, services, or privileges provided by a given function or program and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements The fund financial statements provide information about the Board s funds. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds in the Other Governmental Funds column. The Board reports the following major governmental funds: General Fund The General Fund is the primary operating fund of the Board. It is used to account for all financial resources except those required to be accounted for in another fund. The Board primarily receives revenues from the Education Trust Fund (ETF) and local taxes. Amounts appropriated from the ETF were allocated to the school board on a formula basis. Special Revenue Fund This fund is used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. Various federal and local funding sources are included in this fund. Some of the significant federal funding sources include the federal funds that are received for Special Education, Title I and the Child Nutrition Program, in addition to various smaller grants, which are required to be spent for the purposes of the applicable federal grants. Also included in this fund are the public and non-public funds received by the local schools which are generally not considered restricted or committed. Capital Projects Fund This fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlay, including the acquisition or construction of capital facilities and other capital assets. Talladega County Board of Education 14

105 Notes to the Financial Statements For the Year Ended September 30, 2016 The Board reports the following fund type in Other Governmental Funds column: Governmental Fund Type Debt Service Fund This fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest and the accumulation of resources for principal and interest payments maturing in future years. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of the timing of related cash flows. Nonexchange transactions, in which the Board gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Revenue from property taxes is recognized in the fiscal year for which the taxes are levied. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. 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 Board considers revenues to be available if they are collected within sixty (60) days of the end of the current fiscal year. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. General long-term debt issued and acquisitions under capital leases are reported as other financing sources. Under the terms of grant agreements, the Board funds certain programs by a combination of specific cost-reimbursement grants, categorical block grants, and general revenues. Thus, when program expenses are incurred, there are both restricted and unrestricted net position available to finance the program. It is the Board s policy to first apply cost-reimbursement grant resources to such programs, followed by categorical block grants and then by general revenues. Talladega County Board of Education 15

106 Notes to the Financial Statements For the Year Ended September 30, 2016 D. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position/Fund Balances 1. Deposits and Investments Cash and cash equivalents include cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. Statutes authorize the Board to invest in obligations of the U. S. Treasury, obligations of any state of the United States, general obligations of any Alabama county or city board of education secured by the pledged of the three-mill school tax and certificates of deposit. The Board s investments consisted entirely of certificates of deposit and are stated at cost. 2. Receivables Sales tax receivables are based on the amounts collected within 60 days after year-end. Millage rates for property taxes are levied at the first regular meeting of the County Commission in February of each year. Property is assessed for taxation as of October 1 of the preceding year based on the millage rates established by the County Commission. Property taxes are due and payable the following October 1 and are delinquent after December 31. Amounts receivable, net of estimated refunds and estimated uncollectible amounts, are recorded for the property taxes levied in the current year. However, since the amounts are not available to fund current year operations, the revenue is deferred and recognized in the subsequent fiscal year when the taxes are both due and collectible and available to fund operations. Receivables due from other governments include amounts due from grantors for grants issued for specific programs and capital projects. Receivables from external parties are amounts that are being held in a trustee or agency capacity by the fiduciary funds. 3. Inventories Inventories are valued at cost, which approximates market, using the first-in/first-out (FIFO) method. Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased. 4. Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. Talladega County Board of Education 16

107 Notes to the Financial Statements For the Year Ended September 30, Restricted Assets Certain funds received from the State Department of Education for capital projects and improvements, as well as certain resources set aside for repayment of debt, are considered restricted assets because they are maintained separately and their use is limited. The Public School Capital Projects, Fleet Renewal, and Bonds and Warrants are used to report proceeds that are restricted for use in various construction projects and the purchase of school buses. The Debt Service Fund is used to report resources set aside to pay the principal and interest on debt as it become due. 6. Capital Assets Capital assets, which include property and equipment, are reported in the applicable governmental activities column in the government-wide financial statements. Such assets are valued at cost where historical records are available and at an estimated historical cost where no historical records exist. Donated fixed assets are valued at their estimated fair market value on the date received. Additions, improvements and other capital outlays that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. Major outlays of capital assets and improvements are capitalized as projects are constructed. Depreciation on all assets is provided on the straight-line basis over the assets estimated useful life. Capitalization thresholds (the dollar values above which asset acquisitions are added to the capital asset accounts) and estimated useful lives of capital assets reported in the governmentwide statements and proprietary funds are as follows: Capitalization Threshold Estimated Useful Life Land Improvements $50, years Buildings $50, years Building Improvements $50, years Equipment and Furniture $ 5, years Vehicles $ 5, years Equipment Under Capital Lease $ 5, years 7. Deferred Outflows of Resources Deferred outflows of resources are reported in the government-wide financial statements. Deferred outflows of resources are defined as a consumption of net position by the government that is applicable to a future reporting period. Deferred outflows of resources increase net position, similar to assets. Talladega County Board of Education 17

108 8. Long-Term Obligations Notes to the Financial Statements For the Year Ended September 30, 2016 In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities statement of net position Bond/Warrant premiums and discounts are deferred and amortized over the life of the debt. Bonds/Warrants payable are reported net of the applicable bond/warrant premium or discount. Bond/Warrant issuance costs are reported as an expense in the period incurred. In the fund financial statements, governmental fund types recognize premiums and discounts, as well as issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 9. Compensated Absences The Board's vacation leave policy consists of the following: All administrative and supervisory personnel who are employed for twelve months are entitled to earn one day vacation leave per month. Unused leave days may be carried over to the next year. The Board will pay for a maximum of 20 days-unused vacation leave upon resignation or retirement. 10. Deferred Inflows of Resources Deferred inflows of resources are reported in the government-wide and fund financial statements. Deferred inflows of resources are defined as an acquisition of net position/fund balances by the government that is applicable to a future reporting period. Deferred inflows of resources decrease net position/fund balances, similar to liabilities. 11. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, the Teachers Retirement System of Alabama (the Plan ) financial statements are prepared using the economic resources measurement focus and accrual basis of accounting. Contributions are recognized as revenues when earned, pursuant to plan requirements. Benefits and refunds are recognized as revenues when due and payable in accordance with the terms of the Plan. Expenses are recognized when the corresponding liability is incurred, regardless of when the payment is made. Investments are reported at fair value. Financial statements are prepared in accordance with requirements of the Governmental Accounting Standards Board (GASB). Under these requirements, the Plan is considered a component unit of the State of Alabama and is included in the State s Comprehensive Annual Financial Report. Talladega County Board of Education 18

109 12. Net Position/Fund Balances Notes to the Financial Statements For the Year Ended September 30, 2016 Net position is reported on the government-wide financial statements and is required to be classified for accounting and reporting purposes into the following categories: Net Investment in Capital Assets Capital assets minus accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets plus or minus any deferred outflows of resources and deferred inflows of resources that are attributable to those assets or related debt. Any significant unspent related debt proceeds and any deferred outflows or inflows at year-end related to capital assets are not included in this calculation. Restricted Constraints imposed on net position by external creditors, grantors, contributors, laws or regulations of other governments, or law through constitutional provision or enabling legislation. Unrestricted is the net amount of assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted portion of net position. Assignments and commitments of unrestricted net position should not be reported on the face of the Statement of Net Position. The Board s fund balance policy is to report the following five categories of fund balances in the governmental funds: A. Nonspendable Fund Balances include amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact. Examples of nonspendable fund balance reserves for which fund balance shall not be available for financing general operating expenditures include: inventories, prepaid items and long-term receivables. B. Restricted Fund Balances consist of amounts that are subject to externally enforceable legal restrictions imposed by creditors, grantors, contributors or laws and regulations of other governments; or through constitutional provisions or enabling legislation. Examples of restricted fund balances include: restricted grants. C. Committed Fund Balances consist of amounts that are subject to a purpose constraint imposed by formal action of the Board before the end of the fiscal year and that require the same level of formal action to remove the constraint. Talladega County Board of Education 19

110 Notes to the Financial Statements For the Year Ended September 30, 2016 D. Assigned Fund Balances consist of amounts that are intended to be used by the school system for specific purposes. The Board authorized the Superintendent or Chief School Financial Officer to make a determination of the assigned amounts of fund balance. Such assignments may not exceed the available (spendable, unrestricted, uncommitted) fund balance in any particular fund. Assigned fund balances require the same level of authority to remove the constraint. E. Unassigned Fund Balances include all spendable amounts not contained in the other classifications. This portion of the total fund balance in the General Fund is available to finance operating expenditures. When an expenditure is incurred for purposes for which both restricted and unrestricted (committed, assigned or unassigned) amounts are available, it is the policy of the Board to reduce restricted amounts first. When an expenditure is incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used, it is the policy of the Board that committed amounts will be reduced first, followed by assigned amounts and then unassigned amounts. 13. Minimum Fund Balance Policy The Board recognizes that the establishment and maintenance of adequate fund reserves is necessary to avoid disruption in the educational programs in the schools. The Superintendent or the Chief School Financial Officer will inform the Board, before the Board votes on a budget or budget amendment, if the approval of the budget or budget amendment will prevent the establishment or maintenance of a one-month s operating balance. A one-month s operating balance shall be determined by dividing the General Fund expenditures and fund transfers out by 12 (twelve). In determining the General Fund expenditures and fund transfers out, the proposed budget or budget amendments, shall be used. Talladega County Board of Education 20

111 Notes to the Financial Statements For the Year Ended September 30, 2016 Note 2 Stewardship, Compliance, and Accountability Budgets are adopted on a basis of accounting consistent with accounting principles generally accepted in the United States of America (GAAP) for the General Fund with the exception of salaries and benefits, which are budgeted only to the extent expected to be paid rather than on the modified accrual basis of accounting. Also, ad valorem taxes and certain federal revenues are budgeted only to the extent expected to be received rather than on the modified accrual basis of accounting. The Special Revenue Fund budgets on a basis of accounting consistent with GAAP with the exception of salaries and benefits, which are budgeted only to the extent expected to be paid rather than on the modified accrual basis of accounting. All other governmental funds adopt budgets on the modified accrual basis of accounting, with the exception of the Capital Projects Fund, which adopts project-length budgets. All appropriations lapse at fiscal year-end. On or before October 1 of each year, each county board of education shall prepare and submit to the State Superintendent of Education the annual budget to be adopted by the County Board of Education. The Superintendent or County Board of Education shall not approve any budget for operations of the school for any fiscal year which shall show expenditures in excess of income estimated to be available plus any balances on hand. Note 3 Deposits and Investments Deposits The custodial credit risk for deposits is the risk that, in the event of a bank failure, the Board will not be able to cover deposits or will not be able to recover collateral securities that are in the possession of an outside party. The Board's deposits at year-end were entirely covered by federal depository insurance or by the Security for Alabama Funds Enhancement Program (SAFE Program). The SAFE Program was established by the Alabama Legislature and is governed by the provisions contained in the Code of Alabama 1975, Sections 41-14A-1 through 41-14A-14. Under the SAFE Program all public funds are protected through a collateral pool administered by the Alabama State Treasurer s Office. Under this program, financial institutions holding deposits of public funds must pledge securities as collateral against those deposits. In the event of failure of a financial institution, securities pledged by that financial institution would be liquidated by the State Treasurer to replace the public deposits not covered by the Federal Deposit Insurance Corporation (FDIC). If the securities pledged fail to produce adequate funds, every institution participating in the pool would share the liability for the remaining balance. All of the Board's investments were in certificates of deposit. These certificates of deposit are classified as "Deposits" in order to determine insurance and collateralization. However, they are classified as "Investments" on the financial statements. Talladega County Board of Education 21

112 Notes to the Financial Statements For the Year Ended September 30, 2016 The Board also has deposits totaling $7,892, in various debt service and capital projects funds which are included in Cash and Cash Equivalents on the fund financial statements and on the government-wide financial statements. These funds are invested in Fidelity Institutional & Treasury Only Funds. This money market fund invests primarily in U. S. Treasury Obligations maturing in 397 days or less. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The Board does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increased interest rates. Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The Board does not have a formal investment policy that addresses its investment choices. Custodial Credit Risk For an investment, this is the risk that, in the event of the failure of the counterparty, the government will not be able to cover the value of its investments or collateral securities that are in the possession of an outside party. The Board does not have a formal investment policy that limits the amount of securities that can be held by counterparties. Concentrations of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government s investment in a single issuer. The Board does not have a formal investment policy that limits the amount the Board may invest in any one issuer. Note 4 Receivables On September 30, 2016, receivables for the Board s individual major funds are as follows: General Fund Special Revenue Fund Total Receivables: Accounts $ 60, $ $ 60, Sales Tax Receivable 630, , Intergovernmental 255, ,187, ,442, Other 52, , Total Receivables $998, $1,187, $2,185, Talladega County Board of Education 22

113 Note 5 Capital Assets Notes to the Financial Statements For the Year Ended September 30, 2016 Capital asset activity for the year ended September 30, 2016, was as follows: Balance 10/01/2015 Additions/ Reclassifications (*) Retirements/ Reclassifications (*) Balance 09/30/2016 Governmental Activities: Capital Assets, Not Being Depreciated: Land and Land Improvements $ 5,846, $ $ $ 5,846, Construction in Progress 1,720, ,797, (1,435,620.96) 2,081, Total Capital Assets, Not Being Depreciated 7,566, ,797, (1,435,620.96) 7,928, Capital Assets Being Depreciated: Land Improvements Exhaustible 4,256, , ,761, Buildings and Building Improvements 90,195, ,321, ,516, Equipment and Furniture 5,501, , (160,244.27) 5,572, Vehicles 9,694, , ,079, Total Capital Assets Being Depreciated 109,647, ,443, (160,244.27) 111,930, Less Accumulated Depreciation for: Land Improvements (914,321.43) (154,979.39) (1,069,300.82) Buildings and Building Improvements (23,508,918.62) (1,618,113.64) (25,127,032.26) Equipment and Furniture (3,452,874.37) (340,835.24) 158, (3,635,067.75) Vehicles (6,064,514.80) (791,569.42) (6,856,084.22) Total Accumulated Depreciation (33,940,629.22) (2,905,497.69) 158, (36,687,485.05) Total Capital Assets, Being Depreciated, Net 75,706, (462,095.81) (1,602.41) 75,243, Governmental Activities Capital Assets, Net $ 83,273, $ 1,335, $(1,437,223.37) $ 83,171, (*) The Additions/Reclassifications and the Retirements/Reclassifications columns include $960, reclassified from Construction in Progress to Buildings and Building Improvements and $475, reclassified to Land Improvements. Depreciation expense was charged to functions/programs of the primary government as follows: Current Year Depreciation Expense Governmental Activities: Instruction $1,124, Instructional Support 584, Operation and Maintenance 60, Auxiliary Services: Transportation 760, Food Service 300, General Administrative 1, Other Expenditures 72, Total Depreciation Expense Governmental Activities $2,905, Talladega County Board of Education 23

114 Note 6 Defined Benefit Pension Plan A. Plan Description Notes to the Financial Statements For the Year Ended September 30, 2016 The Teachers Retirement System of Alabama (TRS), a cost-sharing multiple-employer public employee retirement plan (the Plan ), was established as of September 15, 1939, under the provisions of Act Number 419, Acts of Alabama 1939, for the purpose of providing retirement allowances and other specified benefits for qualified persons employed by State-supported educational institutions. The responsibility for the general administration and operation of the TRS is vested in its Board of Control. The TRS Board of Control consists of 15 trustees. The plan is administered by the Retirement Systems of Alabama (RSA). The Code of Alabama 1975, Section , grants the authority to establish and amend the benefit terms to the TRS Board of Control. The Plan issues a publicly available financial report that can be obtained at B. Benefits Provided State law establishes retirement benefits as well as death and disability benefits and any ad hoc increase in postretirement benefits for the TRS. Benefits for TRS members vest after 10 years of creditable service. TRS members who retire after age 60 with 10 years or more of creditable service or with 25 years of service (regardless of age) are entitled to an annual retirement benefit, payable monthly for life. Service and disability retirement benefits are based on a guaranteed minimum or a formula method, with the member receiving payment under the method that yields the highest monthly benefit. Under the formula method, members of the TRS are allowed % of their average final compensation (highest 3 of the last 10 years) for each year of service. Act Number , Acts of Alabama, established a new tier of benefits (Tier 2) for members hired on or after January 1, Tier 2 TRS members are eligible for retirement after age 62 with 10 years or more of creditable service and are entitled to an annual retirement benefit, payable monthly for life. Service and disability retirement benefits are based on a guaranteed minimum or a formula method, with the member receiving payment under the method that yields the highest monthly benefit. Under the formula method, Tier 2 members of the TRS are allowed 1.65% of their average final compensation (highest 5 of the last 10 years) for each year of service. Members are eligible for disability retirement if they have 10 years of creditable service, are currently in-service, and determined by the RSA Medical Board to be permanently incapacitated from further performance of duty. Preretirement death benefits are calculated and paid to the beneficiary based on the member s age, service credit, employment status and eligibility for retirement. Talladega County Board of Education 24

115 Notes to the Financial Statements For the Year Ended September 30, 2016 C. Contributions Covered members of the TRS contributed 5% of earnable compensation to the TRS as required by statute until September 30, From October 1, 2011 to September 30, 2012, covered members of the TRS were required by statute to contribute 7.25% of earnable compensation. Effective October 1, 2012, covered members of the TRS are required by statute to contribute 7.50% of earnable compensation. Certified law enforcement, correctional officers, and firefighters of the TRS contributed 6% of earnable compensation as required by statute until September 30, From October 1, 2011 to September 30, 2012, certified law enforcement, correctional officers, and firefighters of the TRS were required by statute to contribute 8.25% of earnable compensation. Effective October 1, 2012, certified law enforcement, correctional officers, and firefighters of the TRS are required by statute to contribute 8.50% of earnable compensation. Tier 2 covered members of the TRS contribute 6% of earnable compensation to the TRS as required by statute. Tier 2 certified law enforcement, correctional officers, and firefighters of the TRS are required by statute to contribute 7% of earnable compensation. Participating employers contractually required contribution rate for the year ended September 30, 2016, was 11.94% of annual pay for Tier 1 members and 10.84% of annual pay for Tier 2 members. These required contribution rates are a percent of annual payroll, actuarially determined as an amount that, when combined with member contributions, is expected to finance the costs of benefits earned by members during the year, with an additional amount to finance any unfunded accrued liability. Total employer contributions to the pension plan from the Board were $4,412, for the year ended September 30, D. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At September 30, 2016, the Board reported a liability of $61,222, for its proportionate share of the collective net pension liability. The collective net pension liability was measured as of September 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of September 30, The Board s proportion of the collective net pension liability was based on the employers shares of contributions to the pension plan relative to the total employer contributions of all participating TRS employers. At September 30, 2015, the Board s proportion was %, which was a decrease of % from its proportion measured as of September 30, Talladega County Board of Education 25

116 Notes to the Financial Statements For the Year Ended September 30, 2016 For the year ended September 30, 2016, the Board recognized pension expense of $4,706, At September 30, 2016, the Board reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows Deferred Inflows of Resources of Resources Differences between expected and actual experience $ $332, Net difference between projected and actual earnings on pension plan investments 4,008, Changes in proportion and differences between Employer contributions and proportionate share contributions 95, Employer contributions subsequent to the measurement date 4,412, Total $8,420, $427, $4,412, reported as deferred outflows of resources related to pensions resulting from Board contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended September 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ending: September 30, 2017 $ 645, $ 645, $ 645, $1,661, $ (15,000) Thereafter $ E. Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of September 30, 2013, using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 3.00% Investment rate of return (*) 8.00% Projected salary increases 3.50% % (*) Net of pension plan investment expense Talladega County Board of Education 26

117 Notes to the Financial Statements For the Year Ended September 30, 2016 The actuarial assumptions used in the actuarial valuation as of September 30, 2013, were based on the results of an investigation of the economic and demographic experience for the TRS based upon participant data as of September 30, The Board of Control accepted and approved these changes on January 27, 2012, which became effective at the beginning of fiscal year Mortality rates for TRS were based on the RP-2000 Combined Mortality Table for Males or Females, as appropriate, with adjustments for mortality improvements based on Scale AA projected to 2015 and set back one year for females. The long-term expected rate of return on pension plan investments was determined using a log-normal distribution analysis 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 long-term 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 asset allocation and best estimates of geometric real rates of return for each major asset class are as follows: Long-Term Target Expected Rate Allocation of Return (*) Fixed Income 25.00% 5.00% U. S. Large Stocks 34.00% 9.00% U. S. Mid Stocks 8.00% 12.00% U. S. Small Stocks 3.00% 15.00% International Developed Market Stocks 15.00% 11.00% International Emerging Market Stocks 3.00% 16.00% Real Estate 10.00% 7.50% Cash 2.00% 1.50% Total % (*) Net assumed rate of inflation of 2.50% F. Discount Rate The discount rate used to measure the total pension liability was 8%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that the employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, components of the pension plan s fiduciary net position were projected to be available to make all projected future benefit payments of current plan members. 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. Talladega County Board of Education 27

118 Notes to the Financial Statements For the Year Ended September 30, 2016 G. Sensitivity of the Board s Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following table presents the Board s proportionate share of the net pension liability calculated using the discount rate of 8%, as well as what the Board s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (7%) or 1-percentage-point higher (9%) than the current rate: 1% Decrease Current Rate 1% Increase (7.00%) (8.00%) (9.00%) Board s proportionate share of collective net pension liability $80,992,000 $61,222,000 $44,454,000 H. Pension Plan Fiduciary Net Position Detailed information about the pension plan s fiduciary net position is available in the separately issued RSA Comprehensive Annual Report for the fiscal year ended September 30, The supporting actuarial information is included in the GASB Statement Number 67 Report for the TRS prepared as of September 30, The auditor s report dated October 17, 2016, on the total pension liability, total deferred outflows of resources, total deferred inflows of resources, total pension expense for the sum of all participating entities as of September 30, 2015, along with supporting schedules is also available. The additional financial and actuarial information is available at Note 7 Other Postemployment Benefits (OPEB) A. Plan Description The Board contributes to the Alabama Retired Education Employees Health Care Trust (the Trust ), a cost-sharing multiple-employer defined benefit postemployment healthcare plan. The Trust provides health care benefits to state and local school system retirees and was established in 2007 under the provisions of Act Number , Acts of Alabama, as an irrevocable trust fund. Responsibility for general administration and operations of the Trust is vested with the Public Education Employees Health Insurance Board (PEEHIB) members. The Code of Alabama 1975, Section 16-25A-4, provides the PEEHIB with the authority to amend the benefit provisions in order to provide reasonable assurance of stability in future years. The Trust issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained at the Public Educations Employees Health Insurance Plan website, under the Employers Financial Reports section. Talladega County Board of Education 28

119 Notes to the Financial Statements For the Year Ended September 30, 2016 B. Funding Policy The Public Education Employees Health Insurance Fund (PEEHIF) was established in 1983 under the provisions of Act Number , Act of Alabama, to provide a uniform plan of health insurance for current and retired employees of state educational institutions. The plan is administered by the PEEHIB. Any Trust assets used in paying administrative costs and retiree benefits are transferred to and paid from the PEEHIF. The PEEHIB periodically reviews the funds available in the PEEHIF and if excess funds are determined to be available, the PEEHIB authorizes a transfer of funds from the PEEHIF to the Trust. Retirees are required to contribute monthly as follows: Fiscal Year 2016 Individual Coverage/Non-Medicare Eligible $ Family Coverage/Non-Medicare Eligible Retired Member and Non-Medicare Eligible Non-Spousal Dependent(s) $ Family Coverage/Non-Medicare Eligible Retired Member and Non-Medicare Eligible Dependent(s) With Non-Medicare Eligible Spouse $ Family Coverage/Non-Medicare Eligible Retired Member and Non-Spousal Dependent Medicare Eligible $ Family Coverage/Non-Medicare Eligible Retired Member and Spouse Dependent Medicare Eligible $ Individual Coverage Medicare Eligible Retired Member $ Family Coverage/Medicare Eligible Retired Member and Non-Medicare Eligible Dependent(s) No Spouse $ Family Coverage/Medicare Eligible Retired Member and Non-Medicare Eligible Dependent(s) With Non-Medicare Eligible Spouse $ Family Coverage/Medicare Eligible Retired Member and Non-Spousal Dependent Medicare Eligible $ Family Coverage/Medicare Eligible Retired Member and Spousal Dependent Medicare Eligible $ Surviving Spouse Non-Medicare Eligible $ Surviving Spouse Non-Medicare Eligible and Dependent Non-Medicare Eligible $ Surviving Spouse Non-Medicare Eligible and Dependent Medicare Eligible $1, Surviving Spouse Medicare Eligible $ Surviving Spouse Medicare Eligible and Dependent Non-Medicare Eligible $ Surviving Spouse Medicare Eligible and Dependent Medicare Eligible $ For employees that retire other than for disability on or after October 1, 2005 and before January 1, 2012, for each year under 25 years of service, the retiree pays two percent of the employer premium and for each year over 25 years of service, the retiree premium is reduced by two percent of the employer premium. Employees who retire on or after January 1, 2012, with less than 25 years of service, are required to pay 4% for each year under 25 years of service. In addition, non-medicare eligible employees are required to pay 1% more for each year less than 65 (age premium) and to pay the net difference between the active employee subsidy and the non-medicare eligible retiree subsidy (subsidy premium). When the retiree becomes Medicare eligible, the age and subsidy premium no longer applies, but the years of service premium (if applicable to the retiree) will continue to be applied throughout retirement. These changes are being phased in over a 5 year period. The tobacco premium is $50.00 per month for retired members that use tobacco. Talladega County Board of Education 29

120 Notes to the Financial Statements For the Year Ended September 30, 2016 The Board is required to contribute at a rate specified by the State for each active employee. The Board s share of premiums for retired Board employees health insurance is included as part of the premium for active employees. The following shows the required contributions in dollars and the percentage of that amount contributed for Board retirees: Fiscal Year Ended September 30, Active Health Insurance Premiums Paid by Board Amount of Premium Attributable to Retirees Percentage of Active Employee Premiums Attributable to Retirees Total Amount Paid Attributable to Retirees Percentage of Required Amount Contributed 2016 $ $ % $2,443, % 2015 $ $ % $2,038, % 2014 $ $ % $2,487, % Each year the PEEHIB certifies to the Governor and to the Legislature the contribution rates based on the amount needed to fund coverage for benefits for the following fiscal year and the Legislature sets the premium rate in the annual appropriation bill. This results in a pay-as-you-go funding method. Note 8 Construction and Other Significant Commitments As of September 30, 2016, the Board was obligated under the following significant construction contracts: LES Traffic Lane Improvements $ 16, CHS Baseball Field Modifications 438, CHS New Football Stadium 6,512, MHS New Girls Softball Dugout 121, Total $7,089, Talladega County Board of Education 30

121 Note 9 Lease Obligations Capital Leases Notes to the Financial Statements For the Year Ended September 30, 2016 The Board is obligated under certain leases for non-capitalized equipment accounted for as capital leases. If the Board completes the lease payments according to the schedule below, which is the stated intent of the Board, ownership of the leased equipment will pass to the Board. The following is a schedule of future minimum lease payments under capital leases, together with the net present value of the minimum lease payments as of September 30, Fiscal Year Ending Governmental Activities September 30, 2017 $ 569, , , , , Total Minimum Lease Payments 1,750, Less: Amount Representing Interest (107,027.22) Present Value of Net Minimum Lease Payments $1,643, Note 10 Funding Agreements On December 15, 2009, the Talladega County Commission issued $16,965, in Special Obligation School Warrants pursuant to the provisions of the constitution and laws of the State of Alabama. A portion of the proceeds, totaling $12,157,927.29, was used to refund the Series 2003 Special Obligation Warrants that were part of the 2003 Funding Agreement with the Board. The remaining portion of the warrants, $4,367,174.45, was used to refund the Warrant Anticipation Notes issued by the Board to purchase buses. Simultaneously, the Commission entered into a lease agreement with the Talladega County Board of Education. Under the terms of the agreement, the Board transferred the titles of four schools with a book value of $20,101, to the Talladega County Commission. The Board agreed to lease these facilities from the Talladega County Commission and pay lease payments sufficient to pay principal and interest due on the 2009 Special Obligation School Warrants. Under the terms of the lease agreement, the Board will continue to be completely responsible for the property. At the end of the lease term, the Board can buy the schools for $1.00. Until that time, the Board will continue to carry the assets on their financial statements. The payments will be made with proceeds from property taxes. Talladega County Board of Education 31

122 Notes to the Financial Statements For the Year Ended September 30, 2016 If the Board completes the lease payments according to the schedule below, which is the stated intent of the Board, ownership of the assets will pass to the Board. The following is a schedule of future minimum lease payments under capital lease, together with the net present value of the minimum lease payments as of September 30, Fiscal Year Ending Governmental Activities September 30, 2017 $ 1,208, ,206, ,209, ,205, ,205, ,042, ,039, Total Minimum Lease Payments 18,117, Less: Amount Representing Interest 4,922, Present Value of Net Minimum Lease Payments $13,195, Note 11 Long-Term Debt A. Long-Term Liabilities During the fiscal year ending September 30, 2016, the Board issued a Special Tax School Warrant, Series 2016-A, B, and C in the amount of $12,465, to provide funds to refund Special Tax School Warrants, Series 2015; Capital Outlay Warrants, Series 1997-A; Capital Outlay Warrants, Series 2005-A; and the Capital Outlay Warrants, Series 2006-A; and to provide funds for various public school capital improvements. During the fiscal year ending September 30, 2015, the Board issued a Special Tax School Warrant, Series 2015, in the amount of $2,840, to provide funds for capital improvements in the Lincoln area. During the fiscal year ending September 30, 2014, the Board, as part of a pooled bond issuance with other school systems in the State of Alabama issued Capital Improvement Pool Bonds, Series 2014-A, to refund the Capital Improvement Pool Bonds, Series 2006, in anticipation of their Public School Fund allocation, which is received from the Alabama Department of Education. The Alabama Department of Education withholds the required debt service payments from the Board s Public School fund allocation. The proceeds from these bonds provided funds for the acquisition, construction and renovation of school facilities. Talladega County Board of Education 32

123 Notes to the Financial Statements For the Year Ended September 30, 2016 During the fiscal year ending September 30, 2013, the Board issued tax anticipation warrants entitled 2013-A, 2013-B, and 2013-C to provide funds to refund the tax anticipation warrants entitled Series 1999, Series 2000-A, Series 2000-B, and Series 2002-A and to provide funds for various public school capital improvements. During the fiscal year ending September 30, 2009, the Board issued Capital Outlay Warrants, Series 2009, to acquire, construct and equip certain capital improvements, to pay the cost of the warrants and to retire the Board s Warrant Anticipation Note of $1,545,000. During the fiscal year ending September 30, 2007, the Board issued tax anticipation warrants 2006-A and 2006-B to refund the tax anticipation warrants entitled Series 2000-C and to provide funds for the acquisition, construction and renovation of school facilities. The Board issued tax anticipation warrants entitled Series 2005-A and 2005-B to provide funds for the acquisition, construction and renovation of school facilities and to refund a portion of the Capital Outlay Warrants, Series The Board issued tax anticipation warrant entitled Series 2002-B to provide funds for the acquisition, construction and renovation of school facilities and to refund a portion of the Special School Tax Anticipation Warrant, Series The Board issued tax anticipation warrants entitled Series 1997-A and 1997-B to provide funds for the acquisition, construction and renovation of school facilities. Talladega County Board of Education 33

124 Notes to the Financial Statements For the Year Ended September 30, 2016 The following is a summary of long-term debt transactions for the Commission for the year ended September 30, 2016: Debt Debt Amounts Outstanding Issued/ Repaid/ Outstanding Due Within 10/01/2015 Increased Decreased 09/30/2016 One Year Governmental Activities: Warrants Payable: Capital Outlay Warrants $ 28,479, $12,465, $(4,177,828.40) $ 36,766, $2,713, Warrant Anticipation Notes 2,840, (2,840,000.00) Deferred Amounts: Premium on Debt Issued 355, , (159,999.79) 312, , Discount on Debt Issued (3,662.05) (3,424.51) (237.54) Total Warrants Payable 31,671, ,581, (7,177,590.65) 37,075, ,745, Other Liabilities: Capital Leases 1,042, ,193, (593,284.55) 1,643, , Compensated Absences 409, , , , Net Pension Liability 53,152, ,070, ,222, Funding Agreements 13,815, (620,000.00) 13,195, , Total Other Liabilities 68,419, ,268, (1,213,284.55) 76,474, ,206, Total Governmental Activities Long-Term Liabilities $100,090, $21,850, $(8,390,875.20) $113,550, $3,952, Payments on the Capital Improvement Pool Bonds, Series 2014-A, are made by bonds and warrants funds with Public School Funds withheld from the Board s allocation from the Alabama Department of Education. Payments on the tax anticipation warrants and the capital outlay warrants are made by the debt service fund with property taxes, sales taxes and PSCA revenues. The funding agreement is paid with general operating funds. The compensated absences liability will be liquidated by the General Fund or the fund for which the employee worked. In the past, most has been paid by the General Fund and the remainder by Special Revenue Funds. Talladega County Board of Education 34

125 Notes to the Financial Statements For the Year Ended September 30, 2016 The following is a schedule of debt service requirements to maturity: Capital Outlay Bonds/Warrants 2009 Refunding Agreement Fiscal Year Ending Principal Interest Principal Interest September 30, 2017 $ 2,713, $ 1,234, $ 645, $ 563, ,565, ,093, , , ,528, ,035, , , ,597, , , , ,138, , , , ,377, ,551, ,315, ,727, ,435, ,278, ,385, , ,060, ,377, ,695, , ,655, , Totals $36,766, $13,154, $13,195, $4,922, B. Deferred Inflows/Outflows on Refunding, Discounts and Premiums The Board has issuance costs, as well as premiums, discounts and deferred outflows on the early extinguishment of debt, in connection with the issuance of its 2005 Series B Capital Outlay Warrant, 2006 B Capital Outlay Warrant, 2009 Capital Outlay Warrants, 2013 Capital Outlay Warrants, 2014 Series A Capital Improvement Pool Bond, 2016 Capital Outlay Warrants and 2009 Funding Agreement. The issuance costs, premium, discount, and deferred outflows are being amortized using the straight-line method. Deferred Charges on Refunding Premium Discount Total Issuance Costs, Deferred Charges on Refunding, Premium and Discount $403, $525, $5, Amount Amortized Prior Years 87, , , Balance Issuance Costs, Deferred Charges on Refunding, Premium and Discount 315, , , Current Amount Amortized 66, , Balance Issuance Costs, Deferred Charges on Refunding, Premium and Discount $248, $312, $3, Talladega County Board of Education 35

126 Notes to the Financial Statements For the Year Ended September 30, 2016 Total Principal and Interest Capital Leases Requirements Principal Interest to Maturity $ 520, $ 48, $ 5,725, , , ,579, , , ,151, , , ,858, , ,253, ,971, ,753, ,437, ,226, ,831, $1,643, $107, $69,789, C. Pledged Revenues The Board issued Series 2014-A Capital Improvement Pool Bonds which are pledged to be repaid from their allocation of public school funds received from the State of Alabama. The proceeds are to be used for the acquisition, construction and renovation of school facilities. Future revenues in the amount of $2,818, pledged to repay the principal and interest on the bonds at September 30, Pledged funds in the amount of $289, were used to pay principal and interest on the bonds during the fiscal year ended September 30, This amount represents 100 percent of the pledged funds received by the Board. The Series 2014 Bonds will mature in fiscal year Talladega County Board of Education 36

127 Notes to the Financial Statements For the Year Ended September 30, 2016 The Board issued Series 2002-B, Series 2005 A and B, Series 2006 A and B, Series 2013-C and Series 2016-C Capital Outlay Warrants, which are pledged to be repaid with the Board s share of the County Sales and Use tax. This is a special sales tax levied by the Talladega County Commission pursuant to provisions of the Code of Alabama 1975, Series The proceeds of the Capital Outlay Warrants, Series 2005-B and 2006-B were used to refund a portion of the Series 1999 Capital Outlay Warrants and the Series 2000-C Capital Outlay Warrants. The proceeds of the Capital Outlay Warrant 2013-C were used to refund, on a current basis, the remaining portion of the Series 1999 Capital Outlay Warrant. The proceeds of the Capital Outlay Warrant 2016-C were used to refund the Series 1997-A, 2005-A and 2006-A Warrants, pay issuance expenses and fund various public school capital improvements. Future revenues in the amount of $11,859, are pledged to repay the capital outlay warrants as of September 30, Proceeds from the County s Sales and Use Tax in the amount of $5,763, were received by the Board during the fiscal year ending September 30, 2016, of which $1, was used to pay the principal and interest on the capital outlay warrants. The Series 2002-B Warrants matured in fiscal year The Series 2005-A and 2006-A Warrants were refunded in fiscal year The Series 2005-B, Series 2006-B and Series 2013-C Warrants will mature in fiscal years 2017, 2026, and 2025, respectively. The Series 2016-C Warrant will mature in fiscal year The Board issued Series 2009 and Series 2016-A Capital Outlay Warrants for the purpose of acquiring, constructing and equipping certain capital improvements and to retire the Board s Warrant Anticipation Note dated April 1, The Board pledged to repay the capital outlay warrants with the 5 mill district tax levied in the Lincoln School Tax District. Future revenues in the amount of $15,443, are pledged to repay the principal and interest on the warrants at September 30, Proceeds of the tax in the amount of $2,159, were received by the Board during the fiscal year ended September 30, 2016, of which $353, was used to pay principal and interest on the warrants. The Series 2009 and Series 2016-A Capital Outlay Warrants will mature in The Board issued Series 2013-A and 2013-B Capital Outlay Warrants which are pledged to be repaid from the Board s share of the County s special ad valorem tax ( the Special School Tax ) for public school purposes. This is a special sales tax levied by the Talladega County Commission pursuant to provisions of Amendment Number 98 to the Constitution of Alabama of 1901 which is collected annually at the rate of three mills on each dollar of the assessed valuation of all taxable property in the County, as assessed for taxation after deducting lawful exemptions, without limit as to time. The proceeds of these warrants were used to provide the funds to pay issuance expenses, various public school capital improvements, and to refund, on a current basis, Capital Outlay Warrants, Series 2000-A, Series 2000-B, and Series 2002-A. Future revenues in the amount of $8,496, are pledged to repay the capital outlay warrants as of September 30, Proceeds of the tax in the amount of $2,286, were received by the Board during the fiscal year ended September 30, 2016, of which $1,103, was used to pay the principal and interest on the warrants. The Series 2013-A and Series 2013-B will mature in fiscal years 2026 and 2018 respectively. Talladega County Board of Education 37

128 Notes to the Financial Statements For the Year Ended September 30, 2016 The Board issued Series 2016-B Capital Outlay Warrant for the purpose of acquiring, constructing and equipping certain capital improvements. The Board pledged to repay the capital outlay warrants with the 5 mill district tax levied in the Childersburg School Tax District. Future revenues in the amount of $11,000, are pledged to repay the principal and interest on the warrants at September 30, The Series 2016-B will mature in fiscal year D. Defeasance of Debt On April 6, 2016, the Board issued $2,870,000 in Special Tax School Warrant Series 2016-A ( Series 2016-A ), with an interest rate of 2% to 3% to refund, on a current basis, $2,840,000 of outstanding Special Tax School Warrants, Series 2015 ( Series 2015 ), which were scheduled to mature in fiscal year 2016 with an interest rate of 1.67%. After a premium of $38, and payment of $68, in underwriting fee and other issuance costs, the net proceeds of Series 2016-A were $2,840,000. This amount was repaid to First Bank to fully refund the Series 2015 Warrants. This refunding did not result in a difference between the reacquisition price and the net carrying amount of the refunded warrants. As a result of the refunding, the Board increased its total debt service requirements by $1,079,027.33, which resulted in an economic loss (difference between the present value of the debt service payments on the old and new debt) of $104, The Special Tax School Warrant, Series 2015 ($2,840,000), was a short-term financing for various capital improvements in the Lincoln School Tax District established to cover expenditures prior to securing long-term 2016-A financing. The financing took longer than planned, which contributed to the economic loss. On April 6, 2016, the Board issued $2,950,000 in Special Tax School Warrant, Series 2016-C ( Series 2016-C ), with an interest rate of 2% to 4% to refund on a current basis $215,000 of outstanding Capital Outlay Board Warrants, Series 1997-A ( Series 1997-A ), which were scheduled to mature in fiscal year 2018 with an interest rate of 5.125%; $730,000 of outstanding Capital Outlay Board Warrants, Series 2005-A ( Series 2005-A ), which were scheduled to mature in fiscal year 2032 with an interest rate of 3.50% to 4.65%; and on an advance basis $485,000 of outstanding Capital Outlay Board Warrant, Series 2006-A ( Series 2006-A ), which was scheduled to mature in fiscal year 2034 with an interest rate of 4.25%. After a premium of $57, and payment of $75, in underwriting fee and other issuance costs, the net proceeds of Series 2016-C were $2,932, Of this amount, $1,470, was sent to an escrow agent to refund the Series 1997-A, Series 2005-A and Series 2006-A Warrants. This refunding resulted in a difference between the reacquisition price and the net carrying amount of the refunded warrants of $40, As a result of the refunding, the Board increased its total debt service requirements by $49,576.33, which resulted in an economic gain (difference between the present value of the debt service payments on the old and new debt) of $81, Talladega County Board of Education 38

129 Note 12 Risk Management Notes to the Financial Statements For the Year Ended September 30, 2016 The Board is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Board has insurance for its buildings and contents through the State Insurance Fund (SIF) part of the State of Alabama, Department of Finance, Division of Risk Management, which operates as a common risk management and insurance program for state owned properties and county boards of education. The Board pays an annual premium based on the amount of coverage requested. The SIF is self-insured up to $3.5 million per occurrence and purchases commercial insurance for claims in excess of $3.5 million. Automobile liability insurance is purchased from Auto- Owners Insurance. Errors and omissions insurance is purchased from the Alabama Trust for Boards of Education (ATBE), a public entity risk pool. The ATBE collects the premiums and purchases excess insurance for any amount of coverage requested by pool participants in excess of the coverage provided by the pool. Employee health insurance is provided through the Public Education Employees Health Insurance Fund (PEEHIF), administered by the Public Education Employees Health Insurance Board (PEEHIB). The Fund was established to provide a uniform plan of health insurance for current and retired employees of state educational institutions and is self-sustaining. Monthly premiums for employee and dependent coverage are determined annually by the plan s actuary and are based on anticipated claims in the upcoming year, considering any remaining fund balance on hand available for claims. The Board contributes a specified amount monthly to the PEEHIF for each employee of state educational institutions. The Board s contribution is applied against the employees premiums for the coverage selected and the employee pays any remaining premium. Settled claims resulting from these risks have not exceeded the Board s coverage in any of the past three fiscal years. The Board does not have insurance coverage of job-related injuries. Board employees who are injured while on the job are entitled to salary and fringe benefits of up to ninety working days in accordance with the Code of Alabama 1975, Section (d). Any unreimbursed medical expenses and costs which the employee incurs as a result of an on-the-job injury may be filed for reimbursement with the State Board of Adjustment. Talladega County Board of Education 39

130 Note 13 Interfund Transactions Interfund Transfers Notes to the Financial Statements For the Year Ended September 30, 2016 The amounts of interfund transfers during the fiscal year ending September 30, 2016, were as follows: Transfers Out Special Capital Other General Revenue Projects Governmental Fund Fund Fund Funds Total Transfers In: General Fund $ $454, $529, $ 35, $ 1,019, Special Revenue Fund 1,812, ,812, Capital Projects Fund 8,009, ,009, Other Governmental Funds 3,723, ,723, Totals $5,536, $454, $529, $8,045, $14,565, The Board typically used transfers to fund ongoing operating subsidies, to recoup certain expenditures paid on-behalf of the local schools, and to transfer the portion from the General Fund to the Debt Service Fund to service current-year debt requirements. Talladega County Board of Education 40

131 This Page Intentionally Blank

132 Required Supplementary Information Talladega County Board of Education 41

133 Schedule of the Employer's Proportionate Share of the Net Pension Liability For the Year Ended September 30, Employer's proportion of the net pension liability % % Employer's proportionate share of the net pension liability $ 61,222,000 $ 53,152,000 Employer's covered-employee payroll during the measurement period (*) $ 38,377,000 $ 38,420,000 Employer's proportionate share of the collective net pension liability as a percentage of its covered-employee payroll % % Plan fiduciary net position as a percentage of the total collective pension liability 67.51% 71.01% (*) Employer's covered-employee payroll during the measurement period is the total payroll paid to covered employees (not just pensionable payroll). For fiscal year 2016, the measurement period is October 1, September 30, This schedule is intended to show information for 10 years. Additional years will be displayed as they become available. Talladega County Board of Education 42 Exhibit #7

134 Schedule of the Employer's Contributions For the Year Ended September 30, Contractually required contribution $ 4,412,000 $ 4,317,000 Contributions in relation to the contractually required contribution $ 4,412,000 $ 4,317,000 Contribution deficiency (excess) $ $ Employer's covered-employee payroll $ 37,491,000 $ 38,377,000 Contributions as a percentage of covered-employee payroll 11.77% 11.25% This schedule is intended to show information for 10 years. Additional years will be displayed as they become available. Talladega County Board of Education 43 Exhibit #8

135 Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual - General Fund For the Year Ended September 30, 2016 Budgeted Amounts Actual Amounts Original Final Budgetary Basis Revenues State $ 40,979, $ 41,213, $ 41,191, Federal 22, , , Local 17,544, ,544, ,988, Other 195, Total Revenues 58,546, ,780, ,455, Expenditures Current: Instruction 30,597, ,602, ,555, Instructional Support 10,911, ,952, ,571, Operation and Maintenance 5,374, ,546, ,132, Auxiliary Services: Student Transportation Services 4,490, ,491, ,383, Food Service General Administrative and Central Support 1,940, ,953, ,935, Capital Outlay 194, Debt Service: Principal Retirement 388, Interest and Fiscal Charges 2, Debt Issuance Costs/Other Debt Service 23, , , Other 16, , , Total Expenditures 53,354, ,600, ,234, Excess (Deficiency) of Revenues Over Expenditures 5,192, ,179, ,221, Other Financing Sources (Uses) Indirect Cost 473, , , Long-Term Debt Issued 1,193, Transfers In 218, , ,019, Other Financing Sources 107, Transfers Out (5,884,566.00) (5,884,782.00) (5,536,166.16) Total Other Financing Sources (Uses) (5,192,337.63) (5,179,870.72) (2,672,158.95) Net Changes in Fund Balances 549, Fund Balances - Beginning of Year 4,000, ,137, ,150, Fund Balances - End of Year $ 4,000, $ 5,137, $ 5,700, Talladega County Board of Education 44 Exhibit #9

136 Budget to GAAP Differences Actual Amounts GAAP Basis $ $ 41,191, , (34,399.69) 18,954, , (34,399.69) 60,421, (139,082.90) 31,416, (10,273.29) 11,560, , ,135, (21,454.89) 4,362, , ,940, , , , , , (162,903.23) 57,071, , ,349, , ,193, ,019, , (5,536,166.16) (2,672,158.95) 128, , (4,714,411.00) 436, $ (4,585,907.46) $ 1,114, Talladega County Board of Education 45 Exhibit #9

137 Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual - General Fund For the Year Ended September 30, 2016 Explanation of differences: The Board budgets revenues and expenditures to the extent they are expected to be received or paid in the current fiscal period, rather than on the modified accrual basis. Talladega County Board of Education 46 Exhibit #9

138 $ 128, Talladega County Board of Education 47 Exhibit #9

139 Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual - Special Revenue Fund For the Year Ended September 30, 2016 Budgeted Amounts Actual Amounts Original Final Budgetary Basis Revenues Federal $ 8,050, $ 8,958, $ 8,525, Local 2,837, ,837, ,327, Other 134, , , Total Revenues 11,022, ,931, ,080, Expenditures Current: Instruction 4,347, ,417, ,605, Instructional Support 804, ,221, ,440, Operation and Maintenance 445, , , Auxiliary Services: Student Transportation Services 111, Food Services 6,660, ,661, ,128, General Administrative and Central Support 121, , , Capital Outlay 141, Other 313, , , Total Expenditures 12,691, ,599, ,104, Excess (Deficiency) of Revenues Over Expenditures (1,668,560.00) (1,668,776.00) (1,024,421.08) Other Financing Sources (Uses) Transfers In 1,899, ,899, ,812, Sale of Capital Assets Transfers Out (231,065.00) (231,065.00) (454,529.57) Total Other Financing Sources (Uses) 1,668, ,668, ,358, Net Changes in Fund Balances 334, Fund Balances - Beginning of Year 2,733, ,180, Fund Balances - End of Year $ $ 2,733, $ 3,514, Explanation of differences: The Board budgets revenues and expenditures to the extent they are expected to be received or paid in the current fiscal period, rather than on the modified accrual basis. Talladega County Board of Education 48 Exhibit #10

140 Budget to GAAP Differences Actual Amounts GAAP Basis $ $ 8,525, ,327, , ,080, ,605, ,440, , , (6,555.42) 6,122, , , , (6,555.42) 14,098, , (1,017,865.66) 1,812, (454,529.57) 1,358, , , (246,743.25) 2,933, $ (240,187.83) $ 3,273, $ 6, Talladega County Board of Education 49 Exhibit #10

141 This Page Intentionally Blank

142 Supplementary Information Talladega County Board of Education 50

143 Schedule of Expenditures of Federal Awards For the Year Ended September 30, 2016 Federal Grantor/ Federal Pass-Through Pass-Through Grantor/ CFDA Grantor's Program Title Number Identifying Number U. S. Department of Agriculture Passed Through Alabama Department of Education Child Nutrition Cluster: School Breakfast Program N.A. National School Lunch Program: Cash Assistance N.A. Non-Cash Assistance (Commodities) N.A. Summer Food Service Program for Children N.A. Total National School Lunch Program Total Child Nutrition Cluster (M) State Administrative Expenses for Child Nutrition N.A. Passed Through Talladega County Commission Schools and Roads - Grants to States N.A. Total U. S. Department of Agriculture U. S. Department of Education Passed Through Alabama Department of Education Special Education Cluster: Special Education - Grants to States N.A. Special Education - Preschool Grants N.A. Sub-Total Special Education Cluster Title I Grants to Local Educational Agencies N.A. Career and Technical Education - Basic Grants to States N.A. Twenty-First Century Community Learning Centers N.A. Advanced Placement Program N.A. Rural Education N.A. Improving Teacher Quality State Grants N.A. Total U. S. Department of Education U. S. Department of Health and Human Services Passed Through Alabama Department of Education Childcare and Development Block Grant N.A. Total U. S. Department of Health and Human Services Sub-Total Forward Talladega County Board of Education 51 Exhibit #11

144 Pass-Through to Subrecipents Total Federal Expenditures N.A. $ 815, N.A. 2,557, N.A. 307, N.A. 23, ,888, ,703, N.A. 12, N.A. 76, ,792, N.A. 1,684, N.A. 29, ,714, N.A. 2,200, N.A. 107, N.A. 158, N.A. 18, N.A. 187, N.A. 412, ,799, N.A. 9, , $ 8,601, Talladega County Board of Education 52 Exhibit #11

145 Schedule of Expenditures of Federal Awards For the Year Ended September 30, 2016 Federal Grantor/ Federal Pass-Through Pass-Through Grantor/ CFDA Grantor's Program Title Number Identifying Number Sub-Total Brought Forward Social Security Administration Passed Through Alabama Department of Education Social Security - Disability Insurance N.A. Total Social Security Administration Total Expenditures of Federal Awards (M) = Major Program N.A. = Not Available or Not Applicable The accompanying Notes to the Schedule of Expenditures of Federal Awards are an integral part of this schedule. Talladega County Board of Education 53 Exhibit #11

146 Pass-Through to Subrecipents Total Federal Expenditures $ 8,601, N.A. 2, , $ 8,604, Talladega County Board of Education 54 Exhibit #11

147 Note 1 Basis of Presentation Notes to the Schedule of Expenditures of Federal Awards For the Year Ended September 30, 2016 The accompanying Schedule of Expenditures of Federal Awards (the Schedule ) includes the federal grant activity of the Talladega County Board of Education and is presented on the modified accrual basis of accounting. The information in this Schedule is presented in accordance with the requirements of Title 2 U. S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the Talladega County Board of Education, it is not intended to and does not present the financial position or changes in net position of Talladega County Board of Education. Note 2 Summary of Significant Accounting Policies Expenditures reported on the Schedule are reported on the modified accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance wherein certain types of expenditures are not allowable or are limited as to reimbursement. The Talladega County Board of Education has not elected to use the 10-percent de minimis indirect cost rate as allowed in the Uniform Guidance. Talladega County Board of Education 55

148 Additional Information Talladega County Board of Education 56

149 Board Members and Administrative Personnel October 1, 2015 through September 30, 2016 Board Members Term Expires Hon. John R. Ponder Chairman (1) 2018 Hon. Mike Turner Chairman (2) 2016 Hon. Beulah Garrett Member Deceased Hon. Joan Doyle Member 2020 Hon. Kathy Landers Member 2016 Administrative Personnel Dr. Suzanne Lacey Mr. Avery Embry Superintendent Director of Finance, Chief School Financial Officer (1) Chairman November 2014 November 2015 (2) Chairman November 2015 November 2016 Talladega County 57 Exhibit #12 Board of Education

150 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Independent Auditor s Report To: Members of the Talladega County Board of Education, Superintendent and Chief School Financial Officer We have audited, 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, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Talladega County Board of Education (the Board ) as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the Board s basic financial statements and have issued our report thereon dated March 1, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Board s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Board s internal control. Accordingly, we do not express an opinion on the effectiveness of the Board s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Talladega County 58 Exhibit #13 Board of Education

151 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Compliance and Other Matters As part of obtaining reasonable assurance about whether the Board' s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose o(this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. '1(,.11 fi<!*' Ronald L. Jones Chief Examiner Department of Examiners of Public Accounts Montgomery, Alabama March 1, Talladega County Board of Education 59 Exhibit # 13

152 Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance Independent Auditor's Report To: Members of the Talladega County Board of Education, Superintendent and Chief School Financial Officer Report on Compliance for Each Major Federal Program We have audited the Talladega County Board of Education s (the Board ) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Board s major federal programs for the year ended September 30, The Board s major federal program is identified in the Summary of Examiner s Results Section of the accompanying Schedule of Findings and Questioned Costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance with each of the Board s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U. S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Board s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination of the Board s compliance. Talladega County 60 Exhibit #14 Board of Education

153 Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance Opinion on Each Major Federal Program In our opinion, the Board complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended September 30, Report on Internal Control Over Compliance Management of the Board is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Board s internal control over compliance with the types of requirements that could have a direct and material effect on a major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Board s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of the internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Talladega County 61 Exhibit #14 Board of Education

154 Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance The purpose of this report on internal control over compliance is solely to describe the scope of our testing on internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Montgomery, Alabama March 1, 2017 ~ti(~ Ronald L. Jones Chief Examiner Department of Examiners of Public Accounts Talladega County Board of Education 62 Exhibit #14

155 Financial Statements Schedule of Findings and Questioned Costs For the Year Ended September 30, 2016 Section I Summary of Examiner's Results Type of opinion issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? Yes X No Significant deficiency(ies) identified? Yes X None reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major programs: Material weakness(es) identified? Yes X No Significant deficiency(ies) identified? Yes X None reported Type of auditor s report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR (a) of Uniform Guidance? Yes X No Identification of major programs: CFDA Numbers Name of Federal Program or Cluster , and Child Nutrition Program Cluster Dollar threshold used to distinguish between Type A and Type B programs: $750, Auditee qualified as low-risk auditee? X Yes No Talladega County 63 Exhibit #15 Board of Education

156 Schedule of Findings and Questioned Costs For the Year Ended September 30, 2016 Section II Financial Statement Findings (GAGAS) Ref. No. Type of Finding Finding/Noncompliance Questioned Costs No matters were reportable. Section III Federal Awards Findings and Questioned Costs Ref. No. CFDA No. Program Finding/Noncompliance No matters were reportable. Questioned Costs Talladega County 64 Exhibit #15 Board of Education

157 APPENDIX C SUMMARY OF CONTINUING DISCLOSURE AGREEMENT

158 APPENDIX C SUMMARY OF CONTINUING DISCLOSURE AGREEMENT The following is a summary of the Continuing Disclosure Agreement ("the Agreement") entered into by the Board, for the benefit of the holders of the Warrants, in order to assist the purchaser of the Warrants in complying with the provisions of Rule 15c2-12 ("the Rule"), promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of Except where otherwise defined in the Appendix, all capitalized terms have the meaning assigned in the front portion of this Official Statement. Annual Report. The Board agrees, in accordance with the provisions of the Rule, to provide or cause to be provided through the Electronic Municipal Market Access ("EMMA") System established by the Municipal Securities Rulemaking Board, (i) in the case of audited financial statements referred to in clause (a) below, when available, and (ii) in all other cases, within 180 days after the close of each fiscal year of the Board commencing with the fiscal year that ends September 30, 2017, the following annual financial information and operating data ("the Annual Report"): (a) the audited financial statements of the Board and notes thereto, prepared in accordance with generally accepted accounting principles and to include such schedules from which can be derived the financial information with respect to the Board comparable to that set forth in the Official Statement under the headings "SOURCES OF PAYMENT" and "GENERAL FINANCIAL INFORMATION"; (b) unless included in audited financial statements referred to in clause (a) above and submitted with the balance of the Annual Report, unaudited financial information with respect to the revenues and expenditures referable to the Board; (c) a statement of the net proceeds of the Special Lincoln Tax during such fiscal year; (d) a statement of the average annual debt service and maximum annual debt service with respect to indebtedness of the Board payable from proceeds of the Special Lincoln Tax; (e) a statement of the net proceeds of the Special County District Tax during such fiscal year; and (f) a statement of the average annual debt service and maximum annual debt service with respect to indebtedness of the Board payable from the proceeds of the Special County District Tax. 1

159 The Board reserves the right to modify from time to time the specific types of information provided or the format of the presentation of the Annual Report, to the extent necessary or appropriate in the judgment of the Board; provided that, the Board agrees that any such modification will be done in a manner consistent with the Rule. Notice of Material Events. The Board agrees to provide or cause to be provided, in a timely manner not in excess of ten (10) business days after the occurrence of the event, through the EMMA System, notice of the occurrence of any of the following events with respect to the Warrants: (a) the Warrants; (b) (c) difficulties; (d) difficulties; (e) perform; (f) the Warrants; (g) delinquency in payment when due of any principal of or interest on non-payment related defaults, if material; unscheduled draws on debt service reserves reflecting financial unscheduled draws on credit enhancements reflecting financial substitution of credit or liquidity providers, or their failure to adverse tax opinions or events affecting the tax-exempt status of modifications of the rights of holders of the Warrants; (h) calls for redemption, other than scheduled mandatory redemption, of any of the Warrants; (i) (j) Warrants; (k) defeasance of the Warrants or any portion thereof; release, substitution or sale of property securing repayment of the any change in any rating on the Warrants; (l) bankruptcy, insolvency, receivership or similar event of the Board or of any obligated person respecting the Warrants; (m) the consummation of a merger, consolidation, or acquisition involving the Board or any obligated person respecting the Warrants (each, an "Obligated Person") or the sale of all or substantially all of the assets of the 2

160 Obligated Person, 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 related to any such actions, other than pursuant to its terms, if material; and (n) appointment of a successor or additional trustee or the change of name of a trustee, if material. The Board may from time to time choose to provide notice of the occurrence of certain other events, in addition to those listed above, if, in the judgment of the Board such other event is material with respect to the Warrants, but the Board does not undertake to commit to provide any such notice of the occurrence of any material event except those events listed above. Notice of Non-Compliance. The Board agrees to provide or cause to be provided, in a timely manner, through the EMMA System, notice of any failure by it to provide the annual financial information described in Sections 1 and 2 hereof on or prior to the dates respectively set forth in said sections. Beneficiaries and Enforcement. The Board agrees that its undertaking pursuant to the Rule set forth in the Agreement is intended to be for the benefit of the holders of the Warrants and shall be enforceable by such holders; provided, that the right of the holders of the Warrants to enforce the provisions of the Agreement shall be limited to a right to obtain specific enforcement of the respective obligations of the Board hereunder. No failure by the Board to comply with its obligations under the Agreement shall constitute an event of default under the Authorizing Resolution. Amendment. The Agreement may be amended without the consent of any holders of the Warrants if (a) such amendment is made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of the Board; (b) the agreement, as so amended, would have complied with the requirements of the Rule at the time of the execution hereof, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the Board receives an opinion of nationally recognized bond counsel that such amendment does not materially impair the interests of any of the holders of the Warrants. 3

161 APPENDIX D SPECIMEN MUNICIPAL BOND INSURANCE POLICY WITH RESPECT TO SERIES 2017-B WARRANTS 1/

162 MUNICIPAL BOND INSURANCE POLICY ISSUER: BONDS: $ in aggregate principal amount of Policy No: -N Effective Date: Premium: $ ASSURED GUARANTY MUNICIPAL CORP. ("AGM"), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the "Trustee") or paying agent (the "Paying Agent") (as set forth in the documentation providing for the issuance of and securing the Bonds) for the Bonds, for the benefit of the Owners or, at the election of AGM, 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 Business Day next following the Business Day on which AGM shall have received Notice of Nonpayment, AGM will disburse to or for the benefit of each Owner of a Bond the face amount of principal of and interest on the Bond that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by AGM, in a form reasonably satisfactory to it, of (a) evidence of the Owner's right to receive payment of the 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 AGM. 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 AGM is incomplete, it shall be deemed not to have been received by AGM for purposes of the preceding sentence and AGM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, who may submit an amended Notice of Nonpayment. Upon disbursement in respect of a Bond, AGM shall become the owner of the Bond, any appurtenant coupon to the Bond or right to receipt of payment of principal of or interest on the Bond and shall be fully subrogated to the rights of the Owner, including the Owner's right to receive payments under the Bond, to the extent of any payment by AGM hereunder. Payment by AGM to the Trustee or Paying Agent for the benefit of the Owners shall, to the extent thereof, discharge the obligation of AGM under this Policy. 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 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 AGM 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 of principal or interest that is Due for Payment made to an Owner by or on behalf of the Issuer which has been recovered from such Owner pursuant to the