BAKERSFIELD CITY SCHOOL DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2017

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1 ANNUAL FINANCIAL REPORT

2 TABLE OF CONTENTS FINANCIAL SECTION Independent Auditor's Report 2 Management's Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 14 Statement of Activities 15 Fund Financial Statements Governmental Funds - Balance Sheet 16 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 17 Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances 19 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 20 Proprietary Funds - Statement of Net Position 22 Proprietary Funds - Statement of Revenues, Expenses, and Changes in Fund Net Position 23 Proprietary Funds - Statement of Cash Flows 24 Fiduciary Funds - Statement of Net Position 25 Notes to Financial Statements 26 REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 71 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 72 Schedule of the District's Proportionate Share of the Net Pension Liability 73 Schedule of District Contributions 74 Note to Required Supplementary Information 75 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 77 Local Education Agency Organization Structure 79 Schedule of Average Daily Attendance 80 Schedule of Instructional Time 81 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements 82 Schedule of Financial Trends and Analysis 83 Proposition 10 Grants - Schedule of Revenues and Expenditures 84 Combining Statements - Non-Major Governmental Funds Combining Balance Sheet 85 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 86 Combining Statements - Agency Funds Combining Balance Sheet 87 Note to Supplementary Information 88

3 TABLE OF CONTENTS INDEPENDENT AUDITOR'S REPORTS 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 91 Report on Compliance for Each Major Program and Report on Internal Control Over Compliance Required by the Uniform Guidance 93 Report on State Compliance 95 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditor's Results 99 Financial Statement Findings 100 Federal Awards Findings and Questioned Costs 101 State Awards Findings and Questioned Costs 102 Summary Schedule of Prior Audit Findings 104 Management Letter 105

4 FINANCIAL SECTION 1

5 INDEPENDENT AUDITOR'S REPORT Governing Board Bakersfield City School District Bakersfield, California 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 Bakersfield City School District (the District) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, issued by the California Education Audit Appeals Panel as regulations. 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 the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District'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 District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 2

6 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 Bakersfield City School District, as of June 30, 2017, and the respective changes in financial position and, where applicable, cash flows thereof 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 on pages 5 through 13, budgetary comparison schedule on page 71, schedule of other postemployment benefits funding progress on page 72, schedule of the district's proportionate share of net pension liability on page 73, and the schedule of district contributions on page 74, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Bakersfield City School District's basic financial statements. The accompanying supplementary information such as the combining and individual non-major fund financial statements and Schedule of Expenditures of Federal Awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) and the other supplementary information as listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying supplementary information 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 supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 3

7 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 6, 2017, on our consideration of the Bakersfield City School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely 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 effectiveness of Bakersfield City School District's 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 Bakersfield City School District's internal control over financial reporting and compliance. Fresno, California December 6,

8 Fiscal Services 1300 Baker Street Bakersfield, CA (661) Sherry Gladin, Director EDUCATION CENTER, 1300 BAKER STREET BAKERSFIELD, CALIFORNIA (661) FAX: (661) Jacqueline Rojas, Assistant Director This section of the Bakersfield City School District's (the District) annual financial report presents our discussion and analysis of the District's financial performance during the fiscal year that ended on June 30, Please read it in conjunction with the District's financial statements, which immediately follow this section. OVERVIEW OF THE FINANCIAL STATEMENTS The Financial Statements The financial statements presented herein include all of the activities of the District and its component units using the integrated approach as prescribed by Governmental Accounting Standards Board (GASB) Statement No. 34. The Government-Wide Financial Statements present the financial picture of the District from the economic resources measurement focus using the accrual basis of accounting. They present governmental activities and business-type activities separately. These statements include all assets of the District (including capital assets), as well as all liabilities (including long-term obligations). Additionally, certain eliminations have occurred as prescribed by the statement in regards to interfund activity, payables, and receivables. The Fund Financial Statements include statements for each of the two categories of activities: governmental, and fiduciary. The Governmental Funds are prepared using the current financial resources measurement focus and modified accrual basis of accounting. The Fiduciary Funds are prepared using the economic resources measurement focus and the accrual basis of accounting. Reconciliation of the Fund Financial Statements to the Government-Wide Financial Statements is provided to explain the differences created by the integrated approach. The Primary unit of the government is the Bakersfield City School District. 5

9 MANAGEMENT'S DISCUSSION AND ANALYSIS REPORTING THE DISTRICT AS A WHOLE The Statement of Net Position and the Statement of Activities The Statement of Net Position and the Statement of Activities report information about the District as a whole and about its activities. These statements include all assets and liabilities of the District using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the District's net position and changes in them. Net position is the difference between assets and liabilities, which is one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's net position will serve as a useful indicator of whether the financial position of the District is improving or deteriorating. Other factors to consider are changes in the District's property tax base and the condition of the District's facilities. The relationship between revenues and expenses is the District's operating results. Since the governing board's responsibility is to provide services to our students and not to generate profit as commercial entities do, one must consider other factors when evaluating the overall health of the District. The quality of the education and the safety of our schools will likely be an important component in this evaluation. In the Statement of Net Position and the Statement of Activities, we present the District activities as follows: Governmental Activities - Most of the District's services are reported in this category. This includes the education of kindergarten through grade eight students, the operation of child development activities, and the ongoing effort to improve and maintain buildings and sites. Property taxes, State income taxes, user fees, interest income, Federal, State, and local grants, as well as general obligation bonds, finance these activities. REPORTING THE DISTRICT'S MOST SIGNIFICANT FUNDS Fund Financial Statements The fund financial statements provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by State law and by bond covenants. However, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education. Governmental Funds - Most of the District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The differences of results in the governmental fund financial statements to those in the government-wide financial statements are explained in a reconciliation following each governmental fund financial statement. 6

10 MANAGEMENT'S DISCUSSION AND ANALYSIS Proprietary Funds - When the District charges users for the services it provides, whether to outside customers or to other departments within the District, these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Fund Net Position. In fact, the District's enterprise funds are the same as the business-type activities we report in the government-wide statements, but provide more detail and additional information, such as cash flows, for proprietary funds. We use internal service funds (the other component of proprietary funds) to report activities that provide supplies and services for the District's other programs and activities, such as the District's Self-Insurance Funds. The internal service funds are reported with governmental activities in the government-wide financial statements. THE DISTRICT AS A TRUSTEE Reporting the District's Fiduciary Responsibilities The District is the trustee, or fiduciary, for funds held on behalf of others for our associated student body activities. The District's fiduciary activities are reported in the Statements of Fiduciary Net Position. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes. FINANCIAL HIGHLIGHTS The District's financial status continues to remain solid. The District is able to meet all of its current needs and maintain an adequate reserve. Overall revenues for all governmental activities were $392,314,308, which was $13,363,875 less than expenditures. The General Fund balance decreased $8,906,803 excluding the impact of the consolidation of the Special Reserve Other Postemployment Benefits Fund and the Pupil Transportation Fund. The reserved nonspendable portion increased by $454,812; the restricted portion decreased by $2,161,190; and the unassigned portion decreased by $7,200,426. The District increased the outstanding long-term obligations by $28,006,318; the increase was primarily due to the issuance of general obligation bonds. Average Daily Attendance of the District increased by 0.6 percent. 7

11 MANAGEMENT'S DISCUSSION AND ANALYSIS THE DISTRICT AS A WHOLE Net Position The District's net position was $(11,593,272) for the fiscal year ended June 30, Of this amount, $18,378,209 was restricted. Restricted net position is reported separately to show legal constraints from debt covenants and enabling legislation that limits the governing board's ability to use net position for day-to-day operations. Our analysis below, in summary form, focuses on the net position (Table 1) and change in net position (Table 2) of the District's governmental activities. Table 1 Governmental Activities Variance Assets Current and other assets $ 167,406,546 $ 154,822,692 $ 12,583,854 Capital assets 210,884, ,031,126 19,853,656 Total Assets 378,291, ,853,818 32,437,510 Deferred Outflows of Resources 77,990,206 71,343,942 6,646,264 Liabilities Current liabilities 40,287,087 32,160,421 8,126,666 Long-term obligations 127,220,211 99,213,893 28,006,318 Aggregate net pension liability 289,369, ,291,686 52,077,948 Total Liabilities 456,876, ,666,000 88,210,932 Deferred Inflows of Resources 10,997,874 46,761,157 (35,763,283) Net Position Net investment in capital assets 125,833, ,426,402 8,407,042 Restricted 18,378,209 24,293,302 (5,915,093) Unrestricted (155,804,925) (139,949,101) (15,855,824) Total Net Position $ (11,593,272) $ 1,770,603 $ (13,363,875) The $(11,593,272) in net position of the governmental activities represents the accumulated results of all past years' operations. Unrestricted net position the part of net position that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements decreased by percent ($(155,804,925) compared to $(139,949,101)). 8

12 MANAGEMENT'S DISCUSSION AND ANALYSIS Changes in Net Position The results of this year's operations for the District as a whole are reported in the Statement of Activities. Table 2 takes the information from the Statement and rearranges the numbers slightly so you can see our total revenues for the year. Table 2 Governmental Activities Variance Revenues Program revenues: Charges for services $ 1,306,097 $ 1,956,524 $ (650,427) Operating grants and contributions 80,684,066 82,345,492 (1,661,426) Capital grants and contributions 69,682 60,261 9,421 General revenues: Federal and State aid not restricted 279,703, ,577,282 11,126,626 Property taxes 22,927,895 23,321,636 (393,741) Other general revenues 7,622,660 4,212,437 3,410,223 Total Revenues 392,314, ,473,632 11,840,676 Expenses Instruction related 299,806, ,247,756 35,558,968 Student support services 49,541,214 42,998,846 6,542,368 Administration 16,308,409 14,401,862 1,906,547 Plant services 33,674,514 29,710,375 3,964,139 Other 6,347,322 8,149,218 (1,801,896) Total Expenses 405,678, ,508,057 46,170,126 Change in Net Position $ (13,363,875) $ 20,965,575 $ (34,329,450) Governmental Activities As reported in the Statement of Activities, the cost of all of our governmental activities this year was $405,678,183. However, the amount that our taxpayers ultimately financed for these activities through local taxes was only $22,927,895 because the cost was paid by those who benefited from the programs totaling $1,306,097 or by other governments and organizations who subsidized certain programs with grants and contributions totaling $80,753,748. We paid for the remaining "public benefit" portion of our governmental activities with $7,622,660 in State funds, and with other revenues, like interest and general entitlements. In Table 3, we have presented the cost and net cost of each of the District's largest functions: instruction related, student support services, administration and plant services. As discussed above, net cost shows the financial burden that was placed on the District's taxpayers by each of these functions. Providing this information allows our citizens to consider the cost of each function in comparison to the benefits they believe are provided by that function. 9

13 MANAGEMENT'S DISCUSSION AND ANALYSIS Table 3 Net Cost of Services Variance Instruction related $ 244,218,213 $ 205,866,969 $ 38,351,244 Student support services 26,459,851 21,032,962 5,426,889 Administration 14,737,235 12,586,442 2,150,793 Plant services 32,909,275 28,916,360 3,992,915 Other 5,293,764 6,743,047 (1,449,283) Total $ 323,618,338 $ 275,145,780 $ 48,472,558 THE DISTRICT'S FUNDS As the District completed this year, our governmental funds reported a combined fund balance of $115,805,143, which is a decrease of $151,774 from last year (Table 4). Table 4 (Amounts in millions) Balances June 30, 2017 June 30, 2016 General $ 73,026,301 $ 81,718,614 Child Development 527, ,922 Cafeteria 3,750,604 4,034,705 Building 21,627,912 10,387,441 Capital Facilities 4,025,635 4,005,941 County School Facilities 2,225,886 5,934,911 Special Reserve Capital Outlay 6,141,534 5,087,564 Bond Interest and Redemption 4,479,901 4,485,819 Total $ 115,805,143 $ 115,956,917 The primary reasons for the changes are: a. Our General Fund is our principal operating fund. The fund balance in the General Fund decreased $8,692,313 to $73,026,301. This net decrease is due primarily to increases in instruction-related activities and home-to-school transportation. b. Our special revenue funds reported a net decrease of $58,653. The majority of the decrease was in the Cafeteria Fund which saw decreased Federal revenues and increased food costs. c. The debt service fund remained fairly stable only reporting a decrease of $5,918. d. The capital outlay funds showed an overall increase of $8,605,110 due primarily to general obligation bond proceeds. 10

14 MANAGEMENT'S DISCUSSION AND ANALYSIS General Fund Budgetary Highlights The difference between the original budget and the final amended budget was an increase of $16,034,768 or (4.330 percent) of the total General Fund expenditures, excluding the impact of the consolidation of the Pupil Transportation Fund and the Special Reserve Other Postemployment Benefits Fund, as summarized below: $6,738,176 or percent increase in Instructional Services $4,048,241 or percent increase in Pupil Services $3,427,485 or percent increase in Plant Services $1,820,866 or percent increase in Other Supporting Services Over the course of the year, the District revises its budget as it attempts to deal with unexpected changes in revenues and expenditures. The final amendment to the budget was adopted on September 26, A schedule showing the District's original and final budget amounts compared with amounts actually paid and received is provided in our annual report. These budget amendments fall into the following categories: Budgets are revised when revisions are made to the enacted or proposed state budget. Budgets are revised when negotiations are completed. Final amounts for state and federal grants become available and budgets are revised mid-year. New grants become available. Final budget revisions are made to cover all areas of expenditures. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At June 30, 2017, the District had $210,884,782 in a broad range of capital assets (net of depreciation), including land, buildings, furniture, and equipment. This amount represents a net increase (including additions, deductions, and depreciation) of $19,853,656, or percent, from last year (Table 5). Table 5 Governmental Activities Variance Land $ 14,803,221 $ 14,580,278 $ 222,943 Construction in progress 18,502,241 13,561,665 4,940,576 Land improvements 28,844,111 28,857,468 (13,357) Buildings and improvements 134,504, ,553,053 8,951,039 Furniture and equipment 14,231,117 8,478,662 5,752,455 Total $ 210,884,782 $ 191,031,126 $ 19,853,656 11

15 MANAGEMENT'S DISCUSSION AND ANALYSIS This year's additions of $29,105,977 included on-going construction projects, various site improvements, portable classrooms, various site modernization projects, vehicles and cafeteria equipment. General obligation bonds were issued to help finance on-going construction projects. Several capital projects are planned for the year. We anticipate capital additions to be $24,401,625 for the year. We present more detailed information about our capital assets in the Notes to Financial Statements. Long-Term Obligations At the end of this year, the District had $127,220,221 in outstanding debt versus $99,213,893 last year, an increase of 28.2 percent. The outstanding debt consisted of: Table 6 Governmental Activities Variance General obligation bonds $ 101,324,860 $ 79,404,722 $ 21,920,138 Bond premium, net of amortization 5,354,390 4,587, ,947 Compensated absences 1,224,662 1,115, ,545 Other postemployment benefits 19,316,299 14,106,611 5,209,688 Total $ 127,220,211 $ 99,213,893 $ 28,006,318 The District's general obligation bond ratings continue to be "A+ and Aa2" from Standard & Poor's and Moody's, respectively. Other obligations include compensated absences payable and other postemployment benefits. We present more detailed information regarding our long-term obligations in the Notes to Financial Statements. Net Pension Liability (NPL) As June 30, 2015, the District implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions an amendment of GASB No. 27, which required the District to recognize its proportionate share of the unfunded pension obligation for CalSTRS and CalPERS. As of June 30, 2017, the District reported Deferred Outflows from pension activities of $77,990,206, Deferred Inflows from pension activities of $10,997,874 and a Net Pension Liability of $289,369,634. We present more detailed information regarding our net pension liability in the Notes to Financial Statements. 12

16 MANAGEMENT'S DISCUSSION AND ANALYSIS FACTORS BEARING ON THE DISTRICT'S FUTURE In the District anticipates receiving approximately $10 million in additional LCFF funding over the prior year which will allow the district to increase services to students and accomplish goals outlined in the district's Local Control and Accountability Plan. These goals include: 1) providing additional behavioral support services to students; 2) lowering class sizes; 3) providing additional extended learning opportunities to students; 4) increasing student access to computers; 5) providing professional development opportunities to teachers and 6) developing regional Parent Resource Centers. For the eleventh consecutive year the District's enrollment has continued to climb bringing additional revenues to the District while also creating additional operational costs and facility demands. The District has accommodated the growing student population and lower class sizes by opening two new school sites in and adding additional classrooms to existing campuses each year. The District has purchased land to build an additional elementary school in the southeast, which is currently in the design and planning phase. CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have questions about this report or need any additional financial information, contact the Bakersfield City School District, Fiscal Services Department, 1300 Baker Street, Bakersfield, California,

17 STATEMENT OF NET POSITION Governmental Activities ASSETS Deposits and investments $ 151,111,364 Receivables 13,870,757 Prepaid expenses 969,890 Discount on bond issuance 858,544 Stores inventories 595,991 Nondepreciable capital assets 33,305,462 Capital assets being depreciated 277,037,388 Accumulated depreciation (99,458,068) Total Assets 378,291,328 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources related to pensions 77,990,206 LIABILITIES Accounts payable 38,759,556 Interest payable 597,056 Unearned revenue 930,475 Long-term obligations: Current portion of long-term obligations other than pensions 1,420,000 Noncurrent portion of long-term obligations other than pensions 125,800,211 Total Long-Term Obligations 127,220,211 Aggregate net pension liability 289,369,634 Total Liabilities 456,876,932 DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources related to pensions 10,997,874 NET POSITION Net investment in capital assets 125,833,444 Restricted for: Debt service 4,479,901 Capital projects 6,251,521 Educational programs 3,896,183 Other activities 3,750,604 Unrestricted (155,804,925) Total Net Position $ (11,593,272) The accompanying notes are an integral part of these financial statements. 14

18 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED Program Revenues Charges for Operating Capital Services and Grants and Grants and Functions/Programs Expenses Sales Contributions Contributions Governmental Activities: Instruction $ 252,466,535 $ 271,721 $ 44,252,249 $ 69,682 Instruction-related activities: Supervision of instruction 24,581,000 3,586 10,172,760 - Instructional library, media, and technology 424,742-6,657 - School site administration 22,334, ,856 - Pupil services: Home-to-school transportation 11,275,478 1, ,736 - Food services 21,266, ,033 19,742,456 - All other pupil services 16,999,322 14,364 2,455,392 - Administration: Data processing 4,185, All other administration 12,123,402 19,585 1,551,589 - Plant services 33,674,514 12, ,541 - Ancillary services 899,590-11,830 - Community services 2,537, ,326 - Enterprise services 257,765 24,653 4,373 - Interest on long-term obligations 5,132, Other outgo (2,479,767) 532, ,301 - Total Governmental Activities $ 405,678,183 $ 1,306,097 $ 80,684,066 $ 69,682 General revenues and subventions: Property taxes, levied for general purposes Property taxes, levied for debt service Taxes levied for other specific purposes Federal and State aid not restricted to specific purposes Interest and investment earnings Miscellaneous Subtotal, General Revenues Change in Net Position Net Position - Beginning Net Position - Ending The accompanying notes are an integral part of these financial statements. 15

19 Net (Expenses) Revenues and Changes in Net Position Governmental Activities $ (207,872,883) (14,404,654) (418,085) (21,522,591) (10,831,360) (1,098,925) (14,529,566) (4,185,007) (10,552,228) (32,909,275) (887,760) (2,174,833) (228,739) (5,132,474) 3,130,042 (323,618,338) $ 20,172,077 2,455, , ,703, ,501 6,750, ,254,463 (13,363,875) 1,770,603 (11,593,272) 15

20 GOVERNMENTAL FUNDS BALANCE SHEET Non-Major General Building Governmental Fund Fund Funds ASSETS Deposits and investments $ 86,985,885 $ 22,410,632 $ 19,471,450 Receivables 8,786,695 85,242 4,953,331 Due from other funds 2,489, , ,093 Prepaid expenditures 969, Stores inventories 157, ,600 Total Assets $ 99,389,460 $ 22,667,709 $ 25,408,474 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 24,413,729 $ 788,042 $ 1,480,507 Due to other funds 1,126, ,755 2,669,717 Unearned revenue 823, ,320 Total Liabilities 26,363,159 1,039,797 4,257,544 Fund Balances: Nonspendable 1,176, ,050 Restricted 3,368,813 21,627,912 14,519,649 Committed 6,725,296-49,697 Assigned 171,074-6,141,534 Unassigned 61,585, Total Fund Balances 73,026,301 21,627,912 21,150,930 Total Liabilities and Fund Balances $ 99,389,460 $ 22,667,709 $ 25,408,474 The accompanying notes are an integral part of these financial statements. 16

21 Total Governmental Funds $ $ 128,867,967 13,825,268 3,206, , , ,465,643 $ 26,682,278 4,047, ,475 31,660,500 1,616,068 39,516,374 6,774,993 6,312,608 61,585, ,805,143 $ 147,465,643 16

22 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION Total Fund Balance - Governmental Funds $ 115,805,143 Amounts Reported for Governmental Activities in the Statement of Net Position 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 $ 310,342,850 Accumulated depreciation is (99,458,068) Net Capital Assets 210,884,782 Expenditures relating to contributions made to pension plans were recognized on the modified accrual basis, but are not recognized on the accrual basis. 25,438,280 Unamortized costs: In governmental funds, bond discounts are recognized as expenditures in the period they are incurred. In the government-wide statements, bond discounts are amortized over the life of the debt. Unamorized bond discounts is reported in discount on bond issuance on the Statement of Net Position are: 858,544 In governmental funds, unmatured interest on long-term obligations is recognized in the period when it is due. On the government-wide financial statements, unmatured interest on long-term obligations is recognized when it is incurred. (597,056) Internal service funds are used by the District's management to charge the costs of the health and welfare and the workers' compensation insurance programs to the individual funds. The assets and liabilities of the internal service funds are included with governmental activities. 11,052,828 The net change in proportionate share of net pension liability as of the measurement date is not recognized as an expenditure under the modified accrual basis, but is recognized on the accrual basis over the expected average remaining service life of members receiving pension benefits. 16,827,427 The difference between projected and actual earnings on pension plan investments are not recognized on the modified accrual basis, but are recognized on the accrual basis as an adjustment to pension expense. 28,883,149 The differences between expected and actual experience in the measurement of the total pension liability are not recognized on the modified accrual basis, but are recognized on the accrual basis over the expected average remaining service life of members receiving pension benefits. (1,822,509) The accompanying notes are an integral part of these financial statements. 17

23 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION, Continued The changes of assumptions is not recognized as an expenditure under the modified accrual basis, but is recognized on the accrual basis over the expected average remaining service life of members receiving pension benefits. $ (2,334,015) Net pension liability is not due and payable in the current period, and is not reported as a liability in the funds. (289,369,634) Long-term obligations, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. General obligation bonds, including premiums $ 106,679,250 Compensated absences 1,224,662 Other postemployment benefits 19,316,299 Total Long-Term Obligations (127,220,211) Total Net Position - Governmental Activities $ (11,593,272) The accompanying notes are an integral part of these financial statements. 18

24 GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED General Building Fund Fund REVENUES Local Control Funding Formula $ 287,891,806 $ - Federal sources 25,356,967 - Other State sources 43,639,809 - Other local sources 4,539, ,761 Total Revenues 361,427, ,761 EXPENDITURES Current Instruction 234,964,792 - Instruction-related activities: Supervision of instruction 22,937,974 - Instructional library, media and technology 148,306 - School site administration 20,825,900 - Pupil services: Home-to-school transportation 16,523,481 - Food services 44,576 - All other pupil services 16,235,700 - Administration: Data processing 4,418,044 - All other administration 10,519,285 - Plant services 32,565,103 - Facility acquisition and construction 4,653,363 10,591,318 Ancillary services 871,722 - Community services 2,426,636 - Other outgo 720,233 - Enterprise services 2,583 - Debt service Principal - - Interest and other - 311,972 Total Expenditures 367,857,698 10,903,290 Excess (Deficiency) of Revenues Over Expenditures (6,430,061) (10,759,529) Other Financing Sources (Uses) Transfers in - - Other sources - 22,000,000 Transfers out (2,262,252) - Net Financing Sources (Uses) (2,262,252) 22,000,000 NET CHANGE IN FUND BALANCES (8,692,313) 11,240,471 Fund Balance - Beginning 81,718,614 10,387,441 Fund Balance - Ending $ 73,026,301 $ 21,627,912 The accompanying notes are an integral part of these financial statements. 19

25 Non-Major Governmental Funds Total Governmental Funds $ - $ 287,891,806 19,511,752 44,868,719 4,359,331 47,999,140 6,398,450 11,081,266 30,269, ,840,931 2,338, ,303, ,196 23,141, ,306 63,925 20,889,825-16,523,481 20,681,222 20,725,798-16,235,700-4,418, ,926 11,345, ,453 33,195,556 6,334,824 21,579, ,722-2,426, , , ,545 1,270,000 1,270,000 3,710,041 4,022,013 36,302, ,063,804 (6,033,283) (23,222,873) 2,262,252 2,262,252 1,071,099 23,071,099 - (2,262,252) 3,333,351 23,071,099 (2,699,932) (151,774) 23,850, ,956,917 $ 21,150,930 $ 115,805,143 19

26 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED Total Net Change in Fund Balances - Governmental Funds $ (151,774) Amounts Reported for Governmental Activities in the Statement of Activities are Different Because: Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures; however, for governmental activities, those costs are shown in the Statement of Net Position and allocated over their estimated useful lives as annual depreciation expenses in the Statement of Activities. This is the amount by which capital outlays exceed depreciation in the period. Capital outlays $ 29,105,977 Depreciation expense (9,245,019) Net Expense Adjustment 19,860,958 Loss on disposal of capital assets is reported in the government-wide Statement of Net Position, but is not recorded in the governmental funds. (7,302) In the Statement of Activities compensated absences (vacations) are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). Vacation earned was more than the amounts paid by $109,545. (109,545) In the governmental funds, pension costs are based on employer contributions made to pension plans during the year. However, in the Statement of Activities, pension expense is the net effect of all changes in the deferred outflows, deferred inflows and net pension liability during the year. (9,668,401) Postemployment benefits other than pensions (OPEB): In governmental funds, OPEB costs are recognized when employer contributions are made. In the Statement of Activities, OPEB costs are recognized on the accrual basis. This year, the difference between OPEB costs and actual employer contributions was: (5,209,688) Proceeds received from the sale of bonds, including the premium, is a revenue in the governmental funds, but it increases long-term obligations in the Statement of Net Position and does not affect the Statement of Activities. (23,071,099) The accompanying notes are an integral part of these financial statements. 20

27 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES, Continued FOR THE YEAR ENDED In governmental funds, debt issue costs are recognized as expenditures in the period they are incurred and premiums are recognized as revenues. In the government-wide statements, these items are amortized over the life of the debt. Amortization of debt premium $ 304,152 Amortization of discount (51,800) Combined adjustment $ 252,352 Payment of principal on long-term obligations is an expenditure in the governmental funds, but it reduces long-term obligations in the Statement of Net Position and does not affect the Statement of Activities: General obligation bonds 1,270,000 Interest on long-term obligations in the Statement of Activities differs from the amount reported in the governmental funds because interest is recorded as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the Statement of Activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. The additional interest reported in the Statement of Activities includes additional accumulated interest that was accreted on the District's capital appreciation general obligation bonds and accrued interest on the general obligation bonds. (1,362,813) An internal service fund is used by the District's management to charge the costs of the insurance programs (health and welfare and workers' compensation) to the individual funds. The net revenue of the Internal Service Fund is reported with governmental activities. 4,833,437 Change in Net Position of Governmental Activities $ (13,363,875) The accompanying notes are an integral part of these financial statements. 21

28 PROPRIETARY FUNDS STATEMENT OF NET POSITION ASSETS Current Assets Governmental Activities Internal Service Funds Self Insurance Workers' Self Insurance Compensation Healthcare Fund Fund Totals Deposits and investments $ 12,695,063 $ 9,548,334 $ 22,243,397 Receivables 37,234 8,255 45,489 Due from other funds 881, ,735 Total Assets 13,614,032 9,556,589 23,170,621 LIABILITIES Current Liabilities Accounts payable 7,079,365 4,997,913 12,077,278 Due to other funds 16,206 24,309 40,515 Total Current Liabilities 7,095,571 5,022,222 12,117,793 NET POSITION Unrestricted 6,518,461 4,534,367 11,052,828 Total Net Position $ 6,518,461 $ 4,534,367 $ 11,052,828 The accompanying notes are an integral part of these financial statements. 22

29 PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION FOR THE YEAR ENDED Governmental Activities Internal Service Funds Self Insurance Workers' Self Insurance Compensation Healthcare Fund Fund Totals OPERATING REVENUES Charges to other funds and miscellaneous revenues $ 3,626,442 $ 58,747,578 $ 62,374,020 OPERATING EXPENSES Professional and contract services 2,993,486 54,707,516 57,701,002 Operating Income 632,956 4,040,062 4,673,018 NONOPERATING REVENUES Interest income 130,507 29, ,419 Change in Net Position 763,463 4,069,974 4,833,437 Total Net Position - Beginning 5,754, ,393 6,219,391 Total Net Position - Ending $ 6,518,461 $ 4,534,367 $ 11,052,828 The accompanying notes are an integral part of these financial statements. 23

30 PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED Governmental Activities Internal Service Funds Self Insurance Workers' Self Insurance Compensation Healthcare Fund Fund Totals CASH FLOWS FROM OPERATING ACTIVITIES Cash received from premiums $ 3,558,322 $ 53,192,185 $ 56,750,507 Cash received from refunds 68,120 5,555,393 5,623,513 Cash paid for claims (2,625,198) (52,114,755) (54,739,953) Cash paid for contracted services (478,492) (2,259,228) (2,737,720) Net Cash Provided by Operating Activities 522,752 4,373,595 4,896,347 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Nonoperating funds received/(spent) (266,458) 9,390 (257,068) CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments 118,722 27, ,302 Net Increase in Cash and Cash Equivalents 375,016 4,410,565 4,785,581 Cash and Cash Equivalents - Beginning 12,320,047 5,137,769 17,457,816 Cash and Cash Equivalents - Ending $ 12,695,063 $ 9,548,334 $ 22,243,397 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 632,956 $ 4,040,062 $ 4,673,018 Changes in assets and liabilities: Accounts payable and loss estimate (110,204) 333, ,329 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 522,752 $ 4,373,595 $ 4,896,347 The accompanying notes are an integral part of these financial statements. 24

31 FIDUCIARY FUNDS STATEMENT OF NET POSITION Agency Funds ASSETS Deposits and investments $ 110,888 LIABILITIES Due to student groups $ 110,888 The accompanying notes are an integral part of these financial statements. 25

32 NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Reporting Entity The Bakersfield City School District (the District) was established in 1882 under the laws of the State of California. The District operates under a locally elected five-member Board form of government and provides educational services to grades K - 8 as mandated by the State and/or Federal agencies. The District operates 33 elementary schools, seven middle schools, two junior high schools, and two alternative sites for special education. A reporting entity is comprised of the primary government and other organizations that are included to ensure the financial statements are not misleading. The primary government of the District consists of all funds, departments, boards, and agencies that are not legally separate from the District. For Bakersfield City School District, this includes general operations, food service, and student related activities of the District. Basis of Presentation - Fund Accounting The accounting system is organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The District's funds are grouped into three broad fund categories: governmental, proprietary, and fiduciary. Governmental Funds Governmental funds are those through which most governmental functions typically are financed. Governmental fund reporting focuses on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the District's major and non-major governmental funds: Major Governmental Funds General Fund The General Fund is the chief operating fund for all districts. It is used to account for the ordinary operations of the District. All transactions except those accounted for in another fund are accounted for in this fund. Two funds currently defined as special revenue funds in the California State Accounting Manual (CSAM) do not meet the GASB Statement No. 54 special revenue fund definition. Specifically, Fund 20, Special Reserve Other Postemployment Benefits Fund, and Fund 15, Pupil Transportation Fund, are not substantially composed of restricted or committed revenue sources. While these funds are authorized by statute and will remain open for internal reporting purposes, these funds function effectively as extensions of the General Fund, and accordingly have been combined with the General Fund for presentation in these audited financial statements. As a result, the General Fund reflects an increase in assets, fund balance, revenues, and expenditures of $6,896,370, $6,896,370, $80,886, and $3,066,396, respectively. 26

33 NOTES TO FINANCIAL STATEMENTS Building Fund The Building Fund exists primarily to account separately for proceeds from the sale of bonds (Education Code Section 15146) and may not be used for any purposes other than those for which the bonds were issued. Non-Major Governmental Funds Special Revenue Funds The Special Revenue funds are used to account for the proceeds from specific revenue sources (other than trusts, major capital projects, or debt service) that are restricted or committed to expenditures for specified purposes and that compose a substantial portion of the inflows of the fund. Additional resources that are restricted, committed, or assigned to the purpose of the fund may also be reported in the fund. Child Development Fund The Child Development Fund is used to account separately for Federal, State, and local revenues to operate child development programs and is to be used only for expenditures for the operation of child development programs. Cafeteria Fund The Cafeteria Fund is used to account separately for Federal, State, and local resources to operate the food service program (Education Code Sections ) and is used only for those expenditures authorized by the governing board as necessary for the operation of the District's food service program (Education Code Sections and 38100). Capital Project Funds The Capital Project funds are used to account for financial resources that are restricted, committed, or assigned to the acquisition or construction of major capital facilities and other capital assets (other than those financed by proprietary funds and trust funds). Capital Facilities Fund The Capital Facilities Fund is used primarily to account separately for monies received from fees levied on developers or other agencies as a condition of approving a development (Education Code Sections ). Expenditures are restricted to the purposes specified in Government Code Sections or to the items specified in agreements with the developer (Government Code Section 66006). County School Facilities Fund The County School Facilities Fund is established pursuant to Education Code Section to receive apportionments from the 1998 State School Facilities Fund (Proposition la), the 2002 State School Facilities Fund (Proposition 47), the 2004 State School Facilities Fund (Proposition 55), or the 2006 State Schools Facilities Fund (Proposition 1D) authorized by the State Allocation Board for new school facility construction, modernization projects, and facility hardship grants, as provided in the Leroy F. Greene School Facilities Act of 1998 (Education Code Section et seq.). Special Reserve Capital Outlay Fund The Special Reserve Capital Outlay Fund exists primarily to provide for the accumulation of General Fund monies for capital outlay purposes (Education Code Section 42840). Debt Service Funds The Debt Service funds are used to account for the accumulation of restricted, committed, or assigned resources for, and the payment of, principal and interest on general long-term obligations. Bond Interest and Redemption Fund The Bond Interest and Redemption Fund is used for the repayment of bonds issued for a district (Education Code Sections ). 27