$14,175,000 STOCKTON UNIFIED SCHOOL DISTRICT San Joaquin County, California 2011 GENERAL OBLIGATION REFUNDING BONDS

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1 NEW ISSUE -- FULL BOOK-ENTRY Standard & Poor s Insured Rating: AA+ (stable outlook) Standard & Poor s Underlying Rating: A Moody s Insured Rating: Aa3 (negative outlook) Moody s Underlying Rating: A2 See RATINGS herein. In the opinion of Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, Bond Counsel, based upon an analysis of existing statutes, regulations, rulings, and court decisions and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excludable from gross income for federal income tax purposes and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not an item of tax preference for purposes of the alternative minimum tax imposed on individuals and corporations, however, such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See TAX MATTERS herein. $14,175,000 STOCKTON UNIFIED SCHOOL DISTRICT San Joaquin County, California 2011 GENERAL OBLIGATION REFUNDING BONDS Dated: Date of Delivery $56,146, STOCKTON UNIFIED SCHOOL DISTRICT San Joaquin County, California GENERAL OBLIGATION BONDS ELECTION OF 2008, SERIES D Due: As shown inside The Stockton Unified School District (the District ) is issuing the Stockton Unified School District, San Joaquin County, California, 2011 General Obligation Refunding Bonds (the Refunding Bonds ) in the aggregate principal amount of $14,175,000. The District is issuing the Stockton Unified School District, San Joaquin County, California, Election of 2008, Series D (the Series D Bonds ) in the aggregate principal amount of $56,146, The District s Refunding Bonds and Series D Bonds are collectively referred to herein as the Bonds. The Refunding Bonds are being issued to provide funds (i) to refund all or part of the Stockton Unified School District, San Joaquin County, California, General Obligation Bonds, Election of 2000, Series 2001 (the Series 2001 Bonds ) and the Stockton Unified School District, San Joaquin County, California, General Obligation Bonds, Election of 2000, Series 2003 (the Series 2003 Bonds, and together with the Series 2001 Bonds, the Prior Bonds ); and (ii) to pay costs of issuance of the Refunding Bonds. The Series D Bonds are being issued (i) to finance the construction, renovation, and repair of various District facilities, and (ii) to pay the costs of issuance of the Series D Bonds. The Board of Supervisors of San Joaquin County is empowered and obligated to annually levy ad valorem taxes, without limitation as to rate or amount, upon all property subject to taxation within the District (except certain personal property which is taxable at limited rates), for the payment of interest on, and principal of, the Bonds, all as more fully described herein under THE BONDS and SOURCES OF PAYMENT FOR THE BONDS herein. The Bonds will be initially issued and registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ( DTC ). Purchases of the Bonds are to be made in book-entry form only. Purchasers will not receive physical certificates representing their interests in the Bonds. See APPENDIX F Book-Entry Only System herein. The Refunding Bonds will be issued as current interest bonds. Interest related to the Refunding Bonds is payable semiannually on January 1 and July 1 of each year, commencing July 1, Principal of the Refunding Bonds is payable on July 1 in each of the years and in the amounts as shown on the inside cover. The Series D Bonds will be issued as capital appreciation bonds (the Capital Appreciation Bonds ) and capital appreciation bonds that convert to current interest bonds (the Convertible Capital Appreciation Bonds ). Interest on the Capital Appreciation Bonds will be compounded on August 1, 2011, and each February 1 and August 1 thereafter to maturity. The Convertible Capital Appreciation Bonds will accrete in value to the respective conversion dates (each a Conversion Date ) as shown on the inside cover. From their Conversion Date, the Convertible Capital Appreciation Bond will pay interest on the accreted value as of the Conversion Date thereof on the February 1 immediately following such Conversion Date and each February 1 and August 1 thereafter to maturity. The accreted value as of the Conversion Date of the Convertible Capital Appreciation Bonds is payable on August 1 in each of the years and in the amounts as shown on the inside cover. Payments of such principal and interest on the Bonds will be paid by Wells Fargo Bank, National Association, San Francisco, California, as Paying Agent, to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the Bonds. The Refunding Bonds are not subject to optional redemption prior to maturity as described herein. See THE BONDS - Redemption herein. The Series D Bonds are subject to optional and mandatory redemption prior to maturity as described herein. See THE BONDS Redemption herein. This cover page contains information for quick reference only. It is not a summary of all the provisions of the Bonds. Investors must read the entire official statement to obtain information essential in making an informed investment decision. The scheduled payment of principal of (or, in the case of the Capital Appreciation Bonds and Convertible Capital Appreciation Bonds, maturity value or accreted value at the Conversion Date, as applicable) and interest on the Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by ASSURED GUARANTY MUNICIPAL CORP. The Bonds are offered when, as and if issued, subject to the approval as to their legality by Kronick, Moskovitz, Tiedemann & Girard, A Professional Corporation, Sacramento, California, Bond Counsel. Certain legal matters also will be passed upon for the District by Kronick, Moskovitz, Tiedemann & Girard, A Professional Corporation, Sacramento, California, as Disclosure Counsel to the District. It is anticipated that the Bonds in definitive form will be available for delivery to Cede & Co., as nominee of The Depository Trust Company, on or about June 2, The date of this Official Statement is May 18, 2011.

2 $14,175,000 STOCKTON UNIFIED SCHOOL DISTRICT SAN JOAQUIN COUNTY, CALIFORNIA 2011 GENERAL OBLIGATION REFUNDING BONDS MATURITY SCHEDULE Maturity Date (July 1) Principal Amount Interest Rate Yield CUSIP Base: $295, % 0.760% QP , % 1.610% QQ , % 2.160% QR , % 2.560% QS , % 2.720% QT ,125, % 3.060% QU ,205, % 3.360% QV ,280, % 3.660% QW ,360, % 3.890% QX ,165, % 4.090% QY8 $56,146, STOCKTON UNIFIED SCHOOL DISTRICT SAN JOAQUIN COUNTY, CALIFORNIA GENERAL OBLIGATION BONDS ELECTION OF 2008, SERIES D MATURITY SCHEDULE $31,230, Capital Appreciation Bonds Maturity (August 1) Original Principal Amount Accretion Rate Yield to Maturity Maturity Value CUSIP Base: /1/2023 $ 496, % 5.890% $ 1,005,000 QZ5 8/1/ , % 6.160% 1,870,000 RA9 8/1/ , % 6.430% 2,280,000 RB7 8/1/2026 1,147, % 6.660% 3,100,000 RC5 8/1/2027 1,604, % 6.760% 4,700,000 RD3 8/1/ , % 6.850% 665,000 RE1 8/1/ , % 6.940% 1,185,000 RF8 8/1/ , % 7.030% 1,745,000 RG6 8/1/ , % 7.120% 2,345,000 RH4 8/1/ , % 7.210% 2,990,000 RJ0 8/1/2033 1,685, % 7.250% 8,170,000 RK7 8/1/2034 1,676, % 7.330% 8,885,000 RL5 8/1/2035 1,664, % 7.400% 9,635,000 RM3 8/1/2036 1,653, % 7.450% 10,420,000 RN1 8/1/2037 1,650, % 7.470% 11,245,000 RP6 8/1/2038 1,648, % 7.480% 12,115,000 RQ4 8/1/2039 1,641, % 7.490% 13,025,000 RR2 8/1/2040 1,632, % 7.500% 13,980,000 RS0 8/1/2041 1,621, % 7.510% 14,985,000 RT8 8/1/2042 1,597, % 7.540% 16,035,000 RU5 8/1/2043 1,571, % 7.570% 17,145,000 RV3 8/1/2044 1,542, % 7.600% 18,305,000 RW1 8/1/2045 1,512, % 7.630% 19,525,000 RX9 8/1/2046 1,237, % 7.660% 17,405,000 RY7 8/1/ , % 7.690% 1,520,000 RZ4 8/1/2048 1,519, % 7.720% 25,360,000 SA8 $24,915, Convertible Capital Appreciation Bonds Maturity (August 1) Original Principal Amount Accretion Rate Accreted Value at Conversion Date Conversion Date (August 1) Coupon Upon Conversion Reoffering Yield CUSIP Base: /1/2047 7,501, % $24,280,000 8/1/ % 7.400% SB6 8/1/ ,414, % $57,250,000 8/1/ % 7.500% SC4 CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by Standard & Poor s Financial Services LLC on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. Neither the Underwriters, the District, Bond Counsel, Disclosure Counsel, nor the Financial Advisor is responsible for the selection or correctness of the CUSIP numbers set forth herein.

3 STOCKTON UNIFIED SCHOOL DISTRICT COUNTY OF SAN JOAQUIN STATE OF CALIFORNIA DISTRICT GOVERNING BOARD David Varela, President Gloria Allen, Vice President Sal Ramirez, Trustee Angel Jimenez, Jr., Trustee Jose A. Morales, Trustee Sara L. Cazares, Trustee Steve Smith, Trustee DISTRICT ADMINISTRATION Carl Toliver, Superintendent Jason Willis, Chief Financial Officer Wayne Martin, Executive Director, Business Services FINANCIAL ADVISOR Dale Scott & Co., Inc. San Francisco, California BOND COUNSEL & DISCLOSURE COUNSEL Kronick, Moskovitz, Tiedemann & Girard, A Professional Corporation Sacramento, California PAYING AGENT, REGISTRAR, TRANSFER AGENT, AND ESCROW AGENT Wells Fargo Bank, National Association San Francisco, California VERIFICATION AGENT Causey, Demgen & Moore Inc. Denver, Colorado

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5 TABLE OF CONTENTS Page INTRODUCTION... 2 THE BONDS... 5 Authority for Issuance; Purpose... 5 Description of the Bonds... 5 Payment of Principal and Interest... 6 Security... 7 Book-Entry Only System... 7 Paying Agent... 7 Redemption... 8 Registration, Transfer and Exchange of Bonds Defeasance of Bonds BOND INSURANCE Bond Insurance Policy Assured Guaranty Municipal Corp SOURCES OF PAYMENT FOR THE BONDS Payment of Principal and Interest Ad Valorem Taxes Property Tax Collection Procedures Assessed Valuations Teeter Plan District Tax Rates Largest Property Owners Direct and Overlapping Debt DEBT SERVICE SCHEDULE COMBINED DEBT SERVICE SCHEDULE PLAN OF REFUNDING Application and Investment of Refunding Bond Proceeds SOURCES AND USES OF FUNDS COUNTY INVESTMENT POOL County Investment Portfolio LEGAL OPINION TAX MATTERS CONTINUING DISCLOSURE NO LITIGATION RATINGS UNDERWRITING ADDITIONAL INFORMATION APPENDIX A - General and Financial Information... A-1 APPENDIX B - Audited Financial Statements of the District for Fiscal Year ended June 30, B-1 APPENDIX C - General Information About the County of San Joaquin and the City of Stockton... C-1 APPENDIX D - Forms of Opinions of Bond Counsel... D-1 APPENDIX E - Forms of Continuing Disclosure Certificates...E-1 APPENDIX F - Book-Entry Only System...F-1 APPENDIX G - Capital Appreciation Bond Table of Accreted Values... G-1 APPENDIX H - Convertible Capital Appreciation Bond Table of Accreted Values... H-1 APPENDIX I - Specimen Municipal Bond Insurance Policy...I-1 i

6 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT This Official Statement, which includes the cover page, the inside cover page and the appendices, does not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. No dealer, broker, salesperson or other person has been authorized by the District or the Underwriter to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representation must not be relied upon as having been authorized by the District or the Underwriter. The information set forth in this Official Statement has been furnished by the District and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness. All summaries of the District Resolution or other documents referred to in this Official Statement are made subject to the provisions of such documents and qualified in their entirety to reference such documents, and do not purport to be complete statements of any or all of such provisions. The Underwriter has provided the following statement for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not a contract between any bond owner and the District or the Underwriter. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, give rise to any implication that there has been no change in the affairs of the District, the County, the other parties described in this Official Statement, or the condition of the property within the District since the date of this Official Statement. The Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon exceptions therein for the issuance and sale of municipal securities. The Bonds have not been registered or qualified under the securities laws of any state. Assured Guaranty Municipal Corp. ( AGM ) makes no representation regarding the Bonds or the advisability of investing in the Bonds. 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 and APPENDIX I - Specimen Municipal Bond Insurance Policy. In connection with the offering of the Bonds, the Underwriter may over allot or effect transactions that stabilize or maintain the market price of the Bonds, at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell Bonds to certain dealers and banks at prices lower than the initial public offering price stated on the inside cover page hereof and said initial public offering price may be changed from time to time by the Underwriters. 1

7 $14,175,000 STOCKTON UNIFIED SCHOOL DISTRICT San Joaquin County, California 2011 General Obligation Refunding Bonds $56,146, STOCKTON UNIFIED SCHOOL DISTRICT San Joaquin County, California General Obligation Bonds Election of 2008, Series D INTRODUCTION This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page, the inside cover page, and the appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. This Official Statement, which includes the cover page, the inside cover page, and the attached appendices, sets forth certain information concerning the sale and delivery by the Stockton Unified School District (the District ) $14,175,000 principal amount of Stockton Unified School District, San Joaquin County, California, 2011 General Obligation Refunding Bonds (the Refunding Bonds ), and $56,146, principal amount of Stockton Unified School District, San Joaquin County, California, General Obligation Bonds, Election of 2008, Series D (the Series D Bonds ), as described more fully herein. The District. The District was established on July 1, 1936 and is located in San Joaquin County (the County ), in California s Central Valley. The boundaries of the District cover an area of approximately 55 square miles. The District is located approximately 58 miles south of Sacramento, the State Capitol, 78 miles east of the San Francisco Bay Area, and 337 miles north of Los Angeles. The District has fifty-six schools, including forty-four K-8 schools (including one K-5 school, one 4-8 specialty school, and one charter school), ten high schools (including three specialty high schools, and three specialty charter high schools), one K-12 special education school, and one adult education school. The District also maintains an independent study program and a child development program. The average daily attendance (the ADA ) in the District for is projected to be 33,358 and is projected to be 31,753. Description of the Bonds. The Refunding Bonds will be dated their date of delivery and will be issued as fully registered bonds, without coupons, in the denominations of $5,000 or any integral multiple thereof. Interest payable with respect to the Refunding Bonds will be payable on January 1 and July 1 of each year, commencing July 1, 2011, and principal payable with respect to the Refunding Bonds will be paid on the dates as set forth on the inside cover page of this Official Statement. The Series D Bond will be issued as Capital Appreciation Bonds and/or Convertible Capital Appreciation Bonds as set forth on the inside cover of this Official Statement. The Series D Bonds will be dated their date of delivery and will be issued as fully registered bonds, without coupons, in the denomination of $5,000 or any integral multiple thereof, except one Capital Appreciation Bond and one Convertible Capital Appreciation Bond may be issued in an odd denomination. The Series D Bonds will pay or accrete interest as provided herein, commencing August 1, 2011, and on each February 1 and August 1 thereafter to maturity. Interest is calculated on the basis of a 360-day year of twelve 30-day 2

8 months. The Series D Bonds mature on August 1 in the years indicated on the inside front cover hereof. See THE BONDS - Payment of Principal and Interest herein. Registration. The Bonds will be issued in fully registered form only, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ( DTC ), and will be available to actual purchasers of the Bonds (the Beneficial Owners ) under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described herein. Beneficial Owners will not be entitled to receive physical delivery of the Bonds. See THE BONDS Book-Entry-Only System herein. Redemption. The Refunding Bonds are not subject to optional redemption prior to their respective maturity dates. See THE BONDS Redemption herein. The Series D Bonds are subject to optional and mandatory sinking fund redemption prior to their respective maturity dates. See THE BONDS Redemption herein Authority for Issuance of the Bonds. The Bonds are issued pursuant to the Constitution and laws of the State of California (the State ), including the provisions of Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, and applicable provisions of the Education Code of the State. The Refunding Bonds are authorized to be issued pursuant to that certain resolution adopted by the Governing Board of the District (the Board ) on October 26, 2010, and are issued pursuant to that certain Paying Agent Agreement dated as of June 1, 2011 (the Paying Agent Agreement ), between the District and Wells Fargo Bank, National Association, San Francisco, California (the Paying Agent ). The Series D Bonds are authorized to be issued pursuant to that certain resolution adopted by the Board on March 22, 2011, and are issued pursuant to that certain Indenture dated as of June 1, 2011 (the Indenture ) between the District and the Paying Agent. The Government Code permits the issuance of bonds payable from ad valorem taxes without a vote of the electors solely in order to refund other outstanding bonds which were originally approved by such a vote, provided that the total debt service to maturity on the refunding bonds does not exceed the total debt service to maturity on the bonds being refunded. See THE BONDS Authority for Issuance; Purpose herein. Security for the Bonds. The Bonds are general obligation bonds of the District payable solely from ad valorem taxes. The Board of Supervisors of the County has the power and is obligated to annually levy ad valorem taxes for the payment of the Bonds and the interest thereon upon all property within the District subject to taxation without limitation of rate or amount (except certain personal property which is taxable at limited rates). Proceeds of the ad valorem tax levy will be transferred semiannually by the San Joaquin Treasurer-Tax Collector (the Treasurer ) to the Paying Agent and deposited in the Debt Service Fund for the Series D Bonds, and retained by the Treasurer in the Debt Service Fund for the Refunding Bonds. See SOURCES OF PAYMENT FOR THE BONDS herein. Purpose of Issue. The proceeds of the Refunding Bonds will be used to (i) refund all or part of the Stockton Unified School District, San Joaquin County, California, General Obligation Bonds, Election of 2000, Series 2001 (the Series 2001 Bonds ), and the Stockton Unified School District, San Joaquin County, California, General Obligation Bonds, Election of 2000, Series 2003 (the Series 2003 Bonds, and together with the Series 2001 Bonds, the Prior Bonds ); and (ii) pay costs of issuance of the Refunding Bonds. See PLAN OF REFUNDING Application and Investment of Refunding Bond Proceeds herein. The proceeds of the Series D Bonds will be used to (i) finance the construction, renovation, and repair of various District facilities, and (ii) pay the costs of issuance of the Series D Bonds. Offering and Delivery of the Bonds. The Bonds are offered when, as and if issued and received by the purchasers, subject to approval as to their legality by Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, Bond Counsel. It is anticipated that the Bonds will be available for delivery in New York, New York on or about June 2,

9 Legal Matters. Issuance of the Bonds are subject to the approving opinion of Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, Bond Counsel, to be delivered in substantially the form attached hereto as Appendix D. Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, will also serve as Disclosure Counsel to the District. Payment of the fees of Bond Counsel and Disclosure Counsel is contingent upon issuance of the Bonds. Tax Matters. In the opinion of Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, Bond Counsel, based upon an analysis of existing statutes, regulations, rulings, and court decisions and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excludable from gross income for federal income tax purposes and is exempt from State of California personal income taxes. In the opinion of Bond Counsel, such interest is not an item of tax preference for purposes of the federal individual or corporate alternative minimum taxes, however, such interest is included in adjusted current earnings in calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of the Bonds or the accrual or receipt of such interest. See TAX MATTERS herein. Continuing Disclosure. The District has covenanted and agreed that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. The form of the Continuing Disclosure Certificate is included in Appendix E hereto. See CONTINUING DISCLOSURE herein. Other Information. This Official Statement speaks only as of its date, and the information contained herein is subject to change. For limiting factors about this Official Statement, See General Information About This Official Statement herein. Copies of documents referred to herein and information concerning the Bonds are available from the Office of the Superintendent, Stockton Unified School District, 701 North Madison Street, Stockton, California 95202; telephone (209) (the Superintendent s Office ). The District may impose a charge for copying, mailing and handling. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The summaries and references to documents, statutes and constitutional provisions referred to herein do not purport to be comprehensive or definitive, and are qualified in their entireties by reference to each of such documents, statutes and constitutional provisions. The information set forth herein has been obtained from official sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the District. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. 4

10 THE BONDS Authority for Issuance; Purpose The Bonds are issued pursuant to the Constitution and laws of the State of California (the State ), including the provisions of Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, and applicable provisions of the Education Code of the State. The Refunding Bonds are authorized to be issued pursuant to that certain resolution adopted by the Board on October 26, 2010, and are issued pursuant to that certain Paying Agent Agreement dated as of June 1, 2011 (the Paying Agent Agreement ), between the District and Wells Fargo Bank, National Association (the Paying Agent ). The Series D Bonds are authorized to be issued pursuant to that certain resolution adopted by the Board on March 22, 2011, and are issued pursuant to that certain Indenture dated as of June 1, 2011 (the Indenture ) between the District and the Paying Agent. The Government Code permits the issuance of bonds payable from ad valorem taxes without a vote of the electors solely in order to refund other outstanding bonds which were originally approved by such a vote, provided that the total debt service to maturity on the refunding bonds not exceed the total debt service to maturity on the bonds being refunded. Proceeds of the Refunding Bonds will be applied to refund the Prior Bonds, and to pay costs of issuance of the Refunding Bonds. See PLAN OF REFUNDING herein. Proceeds of the Series D Bonds will be applied to finance the construction, renovation, and repair of various District facilities, and to pay the costs of issuance of the Series D Bonds. Description of the Bonds The Refunding Bonds will be executed in the aggregate principal amount of $14,175,000. The Refunding Bonds will be dated their date of delivery, and will be issued in fully registered form without coupons, in the denomination of $5,000 or any integral multiple of $5,000. The Refunding Bonds will mature as provided on the inside cover hereof, and will bear interest at the rate (calculated on the basis of a 360 day year composed of twelve 30 day months), as shown on the inside cover page hereof, payable on January 1 and July 1 of each year, commencing July 1, The Series D Bonds will be executed in the aggregate principal amount of $56,146, The Series D Bonds will be dated their date of delivery, and will be issued in fully registered form without coupons, in the denomination of $5,000 or any integral multiple of $5,000, except that one Capital Appreciation Bond and one Convertible Capital Appreciation Bond may be issued in an odd denomination. The Series D Bonds will mature as provided on the inside cover hereof, and will bear interest at the rate (calculated on the basis of a 360 day year composed of twelve 30 day months), as shown on the inside cover page hereof, payable on February 1 and August 1 of each year, commencing August 1, The Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee for DTC. Purchasers will not receive physical certificates representing their interest in the Bonds. So long as the Bonds are registered in the name of DTC, or its nominee, all payments of principal and interest on the Bonds will be paid to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the Bonds. See APPENDIX F Book-Entry Only System herein. In the event that the Bonds are no longer registered in book-entry form, payment of interest on any Bond on any Interest Payment Date will be made to the person appearing on the registration books of the Paying Agent as the owner thereof as of the Record Date immediately preceding such Interest 5

11 Payment Date, such interest to be paid by check mailed to such owner on the Interest Payment Date at his address as it appears on such registration books or at such other address as he may have filed with the Paying Agent for that purpose on or before the Record Date. Interest Payment Date is the date or dates on which installments of interest are due and payable with respect to the Bonds. The owner in an aggregate principal amount of $1,000,000 or more may request in writing to the Paying Agent that such owner be paid interest by wire transfer to the bank and account number on file with the Paying Agent as of the Record Date. Record Date means the fifteenth day of the month immediately preceding the Interest Payment Date. The principal and accreted value payable on the Bonds shall be payable upon maturity or redemption upon surrender at the principal office of the Paying Agent. The interest and principal or accreted value on the Bonds shall be payable in lawful money of the United States of America. Payment of Principal and Interest The Refunding Bonds are issued as current interest bonds as set forth on the inside front cover hereof. Interest on the Refunding Bonds accrues from their date of delivery at the rates set forth on the inside cover of the Official Statement, and is payable on July 1, 2011, and semiannually thereafter on January 1 and July 1 of each year. The Refunding Bonds mature on July 1, in the years and amounts set forth in the maturity schedule on the inside cover hereof. The Series D Bonds will be issued as Capital Appreciation Bonds and/or Convertible Capital Appreciation Bonds as set forth on the inside front cover hereof. The Capital Appreciation Bonds will not bear current interest; instead, each Capital Appreciation Bond will increase in value by the accumulation of earned interest at the rates per annum set forth on the inside front cover page of this Official Statement from its initial principal amount on the date of issuance thereof to its Maturity Value as set forth on the inside cover of this Official Statement. Interest is compounded on August 1, 2011, and semiannually thereafter on February 1 and August 1 of each year. The Capital Appreciation Bonds shall accrete in value at the rates per annum, to the Maturity Values, and payable on the dates set forth in the maturity schedule on the inside front cover hereof. The Convertible Capital Appreciation Bonds will initially be capital appreciation bonds and will convert to current interest bonds on their respective Conversion Dates as set forth on the inside front cover hereof. Prior to the Conversion Date thereof, the Convertible Capital Appreciation Bonds will increase in value by the accumulation of earned interest at the rates per annum set forth on the inside front cover page of this Official Statement from its initial principal amount on the date of issuance thereof to its Accreted Value at Conversion Date thereof (which is its Maturity Value). Interest is compounded on August 1, 2011, and semiannually thereafter on February 1 and August 1 of each year. From the Conversion Date, the Convertible Capital Appreciation Bonds will bear current interest on the Maturity Value thereof at the rate applicable thereto set forth on the inside front cover hereof, payable on each February 1, and August 1, commencing on the February 1 immediately following such Conversion Date. The Maturity Value of the Convertible Capital Appreciation Bonds is payable on August 1 in each of the years and in the amounts set forth on the inside front cover hereof. The Underwriter has prepared the Tables of Accreted Values shown in Appendices G and H, in order to provide the value per $5,000 of Maturity Value for each Capital Appreciation Bond on each Interest Date prior to maturity and for each Convertible Capital Appreciation Bond on each Interest Date prior to the Conversion Date thereof. The imputed value on any other date may be calculated on the basis of a straight-line interpolation between the values calculated for the Interest Dates immediately preceding and following the date in question. Interest accruing on the Bonds will be computed using a year of 360 days consisting of twelve 30-day months. The record date for the Bonds shall be the fifteenth (15 th ) day of the calendar month immediately preceding the relevant Interest Payment Date. 6

12 Security Obligation to Levy Taxes for Payment of Bonds. The Board of Supervisors and officers of the County are obligated by statute to provide for the levy and collection of property taxes in each year sufficient to pay all principal or accreted value and interest coming due on the Bonds in such year, and to pay from such taxes all amounts due on the Bonds. The District shall take all steps required by law and by the County to ensure that the Board of Supervisors shall annually levy a tax upon all taxable property in the District sufficient to redeem the Bonds, and to pay the principal, redemption premium, if any, and interest thereon as and when the same become due. For further information regarding ad valorem property taxation in general and within the District in particular, see SOURCES OF PAYMENT FOR THE BONDS herein. Payment of Principal and Interest. At least one business day prior to the date any payment is due in respect of the Bonds, the District will cause monies to be deposited with the Paying Agent sufficient to pay the principal or accreted value and the interest (and premium, if any) to become due on all Bonds outstanding on such payment date. When and as paid in full, and following surrender thereof to the Paying Agent, all Bonds shall be cancelled by the Paying Agent, and thereafter they shall be destroyed. The Paying Agent hereby acknowledges that pursuant to the general laws of the State of California, the obligation to levy and collect taxes for the payment of the Bonds, and to pay principal or accreted value and interest on the Bonds when due, are legal obligations of the County and the Treasurer and shall be performed by the Treasurer. Book-Entry Only System The Bonds will be issued in fully registered form only, registered in the name of Cede & Co. as nominee of DTC, and will be available to the Beneficial Owners of the Bonds in the denominations set forth on the inside cover page hereof, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described herein. Beneficial Owners will not be entitled to receive physical delivery of the Bonds. See APPENDIX F Book-Entry Only System. In the event that the book-entry only system described below is no longer used with respect to the Bonds, the Bonds will be registered as described above. Paying Agent Wells Fargo Bank, National Association, San Francisco, California, will act as the registrar, transfer agent, and paying agent for the Bonds. Wells Fargo Bank, National Association, San Francisco, California, will also act the escrow agent for the Refunding Bonds. As long as DTC is the registered owner of the Bonds and DTC s book-entry method is used for the Bonds, the Paying Agent will send any notice of prepayment or other notices to owners only to DTC. Any failure of DTC to advise any DTC Participant, or of any DTC Participant to notify any Beneficial Owner, of any such notice and its content or effect will not affect the validity or sufficiency of the proceedings relating to the prepayment of the Bonds called for prepayment or of any other action covered by such notice. The Paying Agent, the District, the County and the Underwriter of the Bonds have no responsibility or liability for any aspects of the records relating to or payments made on account of beneficial ownership, or for maintaining, supervising or reviewing any records relating to beneficial ownership, of interests in the Bonds. 7

13 Redemption Optional Redemption of the Refunding Bonds. The Refunding Bonds are not subject to optional redemption. Optional Redemption of the Series D Capital Appreciation Bonds. Appreciation Bonds are not subject to optional redemption. The Series D Capital Optional Redemption of Series D Convertible Capital Appreciation Bonds. The Convertible Capital Appreciation Bonds are subject to redemption prior to their respective stated maturity dates, at the option of the District, from any source of available funds, as a whole or in part (on such basis as shall be designated by the District and by lot within each maturity) on any date on or after August 1, 2037, at a redemption price equal to the stated Accreted Value of the Convertible Capital Appreciation Bonds to be redeemed, together with interest accrued thereon from the last Interest Payment Date for which interest has been paid, to the date of redemption without premium. Mandatory Sinking Account Redemption of Series D Convertible Capital Appreciation Term Bonds. The Series D Convertible Capital Appreciation Term Bonds maturing on August 1, 2047 are subject to redemption prior to their stated maturity, in part, by lot, from Mandatory Sinking Account Payments, on August 1 in each of the years set forth in the following schedule, at a redemption price equal to 100% of the stated Accreted Value amount to be redeemed (without premium), together with the accrued interest to the date fixed for redemption, but which amounts will be proportionally reduced by the principal amount of all Term Bonds optionally redeemed: Mandatory Redemption Dates (August 1) * Maturity Accreted Value to Be Redeemed 2046 $1,050, * 6,451, The Series D Convertible Capital Appreciation Term Bonds maturing on August 1, 2050 are subject to redemption prior to their stated maturity, in part, by lot, from Mandatory Sinking Account Payments, on August 1 in each of the years set forth in the following schedule, at a redemption price equal to 100% of the stated Accreted Value amount to be redeemed (without premium), together with the accrued interest to the date fixed for redemption, but which amounts will be proportionally reduced by the principal amount of all Term Bonds optionally redeemed: Mandatory Redemption Dates (August 1) * Maturity Accreted Value to Be Redeemed 2049 $8,164, * 9,250, Selection of Bonds for Redemption. If less than all the outstanding Series D Bonds are to be redeemed, not more than 60 days prior to the redemption date the Paying Agent shall select the particular Series D Bonds to be redeemed from the outstanding Series D Bonds that have not previously been called for redemption, in minimum denominations of $5,000, by lot in any manner that the Paying Agent in its sole discretion shall deem appropriate and fair. The Paying Agent shall promptly notify the District in writing of the Series D Bonds selected for redemption and, in the case of a Series D Bond selected for partial redemption, the principal amount or accreted value to be redeemed. 8

14 Notice of Redemption. Notice of redemption of any Series D Bond is required to be given by the Paying Agent not less than 30 nor more than 60 days prior to the redemption date (a) by first class mail to the respective owners of any Series D Bond designated for redemption at their addresses appearing on the bond register; (b) by registered or overnight mail to the securities depositories and the information service as identified in the Paying Agent Agreement; and (c) as may be further required in accordance with the Continuing Disclosure Certificate of the District. See APPENDIX E Form of Continuing Disclosure Certificate. Notice of any redemption of the Series D Bonds will specify: (i) the date of such notice; (ii) the name of the Series D Bonds and the date of issue of the Series D Bonds; (iii) the redemption date; (iv) the redemption price; (v) the dates of maturity of the Series D Bonds to be redeemed; (vi) if less than all of the Series D Bonds of any maturity are to be redeemed, the distinctive numbers of the Series D Bonds of each maturity to be redeemed; (vii) in the case of Series D Bonds redeemed in part only, the respective portions of the principal amount or accreted value of the Series D Bonds of each maturity to be redeemed; (viii) the CUSIP number, if any, of each maturity of Series D Bonds to be redeemed; (ix) a statement that such Series D Bonds must be surrendered by the Owners at the Paying Agent s Office, or at such other place or places designated by the Paying Agent; (x) a statement that on the redemption date there will become due and payable the redemption price of the Series D Bond (or the specified portion of the principal amount or accreted value if Series D Bonds are redeemed in part only) together with interest accrued thereon to the redemption date; (xi) notice that further interest on such Series D Bonds will not accrue after the designated redemption date; and (xii) such redemption notices may state that no representation is made as to the accuracy or correctness of the CUSIP numbers printed therein or on the Series D Bonds. A certificate of the Paying Agent or the District that notice of call and redemption has been given to Owners and to the securities depositories and the information service shall be conclusive as against all parties. The actual receipt by the Owner of any Series D Bond or by any securities depository or information service of notice of redemption shall not be a condition precedent to redemption, and failure to receive such notice, or any defect in the notice given, shall not affect the validity of the proceedings for the redemption of such Series D Bonds or the cessation of interest on the date fixed for redemption. When notice of redemption has been given substantially as provided in the Paying Agent Agreement, and when the redemption price of the Series D Bonds called for redemption is set aside, the Series D Bonds designated for redemption shall become due and payable on the specified redemption date and interest shall cease to accrue thereon as of the redemption date, and upon presentation and surrender of such Series D Bonds at the place specified in the notice of redemption, such Series D Bonds shall be redeemed and paid at the redemption price thereof out of the money provided therefore. The Owners of such Series D Bonds so called for redemption after such redemption date shall look for the payment of such Series D Bonds and the redemption premium thereon, if any, only to the Redemption Fund or the escrow fund established for such purpose. All Series D Bonds redeemed shall be cancelled forthwith by the Paying Agent and shall not be reissued. Right to Rescind Notice. The District may rescind any optional redemption and notice thereof for any reason on any date prior to the date fixed for redemption by causing written notice of the rescission to be given to the owners of the Series D Bonds called for redemption. Any optional redemption and notice thereof shall be rescinded if for any reason on the date fixed for redemption monies are not available in the Redemption Fund or otherwise held in trust for such purpose in an amount sufficient to pay in full on said date the principal or accreted value of, interest, and any premium due on the Series D Bonds called for redemption. Notice of rescission of redemption shall be given in the same manner in which notice of redemption was originally given. The actual receipt by the owner of any Series D Bond of notice of such rescission shall not be a condition precedent to rescission, and failure to receive such notice or any defect in such notice shall not affect the validity of the rescission. 9

15 Deposit of Redemption Price. Before optionally redeeming the Series D Bonds, the District shall establish a special fund designated as the Redemption Fund. The District shall establish such subaccounts in the Redemption Fund as necessary to segregate amounts deposited therein for different purposes. All moneys deposited by the District for the purpose of optionally redeeming the Series D Bonds shall, unless otherwise directed by the District, be deposited in the Redemption Fund. Prior to any date fixed for redemption of the Series D Bonds, the District shall deposit with the Paying Agent an amount of money sufficient to pay the redemption price of all the Series D Bonds that are to be redeemed on that date. Such money shall be held in trust for the benefit of the persons entitled to such redemption price. All such amounts deposited in the Redemption Fund shall be used and withdrawn solely for the purpose of redeeming the Series D Bonds, in the manner, at the times, and upon the terms and conditions specified in the Indenture. If, after all of the Series D Bonds have been redeemed and cancelled or paid and cancelled, there are monies remaining in the fund of the District or otherwise held in trust for the payment of redemption price of the Series D Bonds, said monies shall be held in or returned or transferred to the Debt Service Fund of the District for payment of any outstanding bonds of the District payable from said fund; provided, however, that if said monies are part of the proceeds of refunding bonds of the District, said monies shall be transferred to the fund created for the payment of principal of and interest on such refunding bonds. If no such bonds of the District are at such time outstanding, said monies shall be transferred to the general fund of the District as provided and permitted by law. Registration, Transfer and Exchange of Bonds The Paying Agent will keep or cause to be kept, at its principal corporate trust office, sufficient books for the registration and transfer of the Bonds, which shall at all times be open to inspection by the District, and, upon presentation for such purpose, the Paying Agent shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said books, the Bonds. In the event that the book-entry system described herein is no longer used with respect to the Bonds, the following provisions will govern the registration, transfer, and exchange of the Bonds. Whenever any Bond is surrendered for transfer, the designated District officials shall execute and the Paying Agent shall authenticate and deliver a new Bond of the same maturity, for a like aggregate principal amount and bearing the same rate of interest. All fees and costs of any transfer of the Bond shall be paid by the bondholder requesting such transfer. The Bonds may be exchanged at the Paying Agent s office, or such other place as the Paying Agent shall designate, for a like aggregate principal amount of Bonds of other authorized denominations of the same maturity and interest rate. All fees and costs of any exchange of the Bond shall be paid by the bondholder requesting such exchange. No transfer or exchange of the Refunding Bonds shall be required to be made by the Paying Agent during the period from the close of business on the Record Date next preceding any Interest Payment Date to and including such Interest Payment Date. No transfer or exchange of the Series D Bonds shall be required to be made by the Paying Agent (i) during the period established by the Paying Agent for the selection of the Series D Bonds, as applicable, for redemption, or (ii) with respect to any Series D Bonds selected for redemption in whole or in part, except the unredeemed portion of such Series D Bond selected for redemption in part, from and after the day that such Series D Bond has been selected for redemption in whole or in part. In addition, the Paying Agent will not be obligated to make any transfer or exchange of Series D Bonds less then fifteen (15) days prior to an Interest Payment Date. 10

16 Defeasance of Bonds If at any time the District shall pay or cause to be paid or there shall otherwise be paid to the Owners of all outstanding Bonds all of the principal or accreted value, interest and premium, if any, represented by the Bonds, then such Owners shall cease to be entitled to the obligation to levy taxes for payment of the Bonds, and such obligation and all agreements and covenants of the District to such Owners under the Paying Agent Agreement or Indenture, as appropriate, and under the Bonds shall thereupon be satisfied and discharged and shall terminate, except only that the District shall remain liable for payment of all principal or accreted value of and interest and premium, if any, on the Bonds. The District may pay and discharge any or all of the Bonds by depositing in trust with the Paying Agent or an escrow agent at or before maturity, money or non-callable direct obligations of the United States of America or other non-callable obligations the payment of the principal of and interest on which is guaranteed by a pledge of the full faith and credit of the United States of America, in an amount that will, together with the interest to accrue thereon and available monies then on deposit in the Debt Service Fund of the District, be fully sufficient in the opinion of a certified public accountant licensed to practice in the State to pay and discharge the indebtedness on such Bonds (including all principal, accreted value, interest and redemption premiums) at or before their respective maturity dates. 11

17 BOND INSURANCE Bond Insurance Policy Concurrently with the issuance of the Bonds, Assured Guaranty Municipal Corp. ("AGM") will issue its Municipal Bond Insurance Policy for the Bonds (the "Policy"). The Policy guarantees the scheduled payment of principal of (or, in the case of the Capital Appreciation Bonds and Convertible Capital Appreciation Bonds, maturity value or accreted value at the Conversion Date, as applicable) and interest on the Bonds when due as set forth in the form of the Policy included as APPENDIX I to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Assured Guaranty Municipal Corp. AGM is a New York domiciled financial guaranty insurance company and a wholly owned subsidiary of Assured Guaranty Municipal Holdings Inc. ("Holdings"). Holdings is 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. No shareholder of AGL, Holdings or AGM is liable for the obligations of AGM. AGM s financial strength is rated AA+ (stable outlook) by Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ) and Aa3 (negative outlook) by Moody s Investors Service, Inc. ( Moody s ). 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. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of any security guaranteed by AGM. AGM does not guarantee the market price 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 January 24, 2011, S&P published a Request for Comment: Bond Insurance Criteria (the Bond Insurance RFC ) in which it requested comments on its proposed changes to its bond insurance ratings criteria. In the Bond Insurance RFC, S&P notes that it could lower its financial strength ratings on existing investment-grade bond insurers (including AGM) by one or more rating categories if the proposed bond insurance ratings criteria are adopted, unless those bond insurers (including AGM) raise additional capital or reduce risk. Reference is made to the Bond Insurance RFC, a copy of which is available at for the complete text of S&P s comments. On October 25, 2010, S&P published a Research Update in which it downgraded AGM s counterparty credit and financial strength rating from AAA (negative outlook) to AA+ (stable outlook). Reference is made to the Research Update, a copy of which is available at for the complete text of S&P s comments. On December 18, 2009, Moody s issued a press release stating that it had affirmed the Aa3 insurance financial strength rating of AGM, with a negative outlook. Reference is made to the press release, a copy of which is available at for the complete text of Moody s comments. 12

18 There can be no assurance as to any further ratings action that Moody s or S&P may take with respect to AGM. 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, 2010, which was filed by AGL with the Securities and Exchange Commission (the SEC ) on March 1, 2011, and AGL s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, which was filed by AGL with the SEC on May 10, Capitalization of AGM. At March 31, 2011, AGM s consolidated policyholders surplus and contingency reserves were approximately $3,058,791,206 and its total net unearned premium reserve was approximately $2,285,987,748, in each case, in accordance with statutory accounting principles. Incorporation of Certain Documents by Reference. Portions of the following document filed by AGL with 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, 2010 (which was filed by AGL with the SEC on March 1, 2011); and (ii) the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011 (which was filed by AGL with the SEC on May 10, 2011). All information relating to AGM included in, or as exhibits to, documents filed by AGL pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, after the filing of the last document referred to above and before the termination of the offering of the 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.: 31 West 52 nd Street, New York, New York 10019, Attention: Communications Department (telephone (212) ). 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. AGM makes no representation regarding the Bonds or the advisability of investing in the Bonds. 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. 13

19 SOURCES OF PAYMENT FOR THE BONDS The Bonds are general obligation bonds of the District payable from ad valorem taxes. The Board of Supervisors of the County has the power and is obligated to levy ad valorem taxes upon all property within the District subject to taxation without limitation of rate or amount, for the payment of the Bonds and the interest thereon, in accordance with and subject to the Bond Law. The Bonds are not a debt of the County. Payment of Principal and Interest At least one business day prior to the date any payment is due in respect of the Bonds, the District will cause monies to be deposited with the Paying Agent sufficient to pay the principal or accreted value of and the interest (and premium, if any) to become due on all Bonds outstanding on such payment date. When and as paid in full, and following surrender thereof to the Paying Agent, all Bonds shall be cancelled by the Paying Agent, and thereafter they shall be destroyed. The Paying Agent hereby acknowledges that pursuant to the general laws of the State of California, the obligation to levy and collect taxes for the payment of the Bonds, and to pay principal or accreted value of and interest on the Bonds when due, are legal obligations of the County and the Treasurer and shall be performed by the Treasurer. Ad Valorem Taxes The Board of Supervisors of the County is empowered and is obligated to levy ad valorem taxes, without limitation as to rate or amount, for the payment of the principal or accreted value of and interest on the Bonds, upon all property subject to taxation by the District (except certain personal property which is taxable at limited rates). Such taxes will be levied annually in addition to all other taxes during the period that the Bonds are outstanding in an amount sufficient to pay the principal or accreted value of and interest on the Bonds when due. Such taxes, when collected, will be placed by the County in the District s interest and sinking fund for the Bonds, which is segregated and maintained by the County and used for the payment of the Bonds. Although the County is obligated to levy an ad valorem tax for the payment of the Bonds, and will maintain the interest and sinking fund for the repayment of the Bonds, the Bonds are not a debt of the County. The amount of the annual ad valorem tax levied by the County to repay the Bonds will be determined by the relationship between the assessed valuation of taxable property in the District and the principal or accreted value of and interest (and premium, if any) (the Debt Service Deposit ) due on the Bonds in any year. Fluctuations in the Debt Service Deposits and the assessed value of taxable property in the District may cause the annual tax rate to fluctuate. Economic and other factors beyond the District s control, such as economic recession, deflation of land values, a relocation out of the District by one or more major property owners, or the complete or partial destruction of such property caused by, among other eventualities, an earthquake, flood or other natural disaster, could cause a reduction in the assessed value of the District and necessitate an unanticipated increase in annual tax levy. Property Tax Collection Procedures Taxes are levied by the County for each fiscal year on taxable real and personal property which is situated in the District as of the preceding January 1. For assessment and collection purposes, property is classified either as secured or unsecured and is listed accordingly on separate parts of the assessment roll. The secured roll is that part of the assessment roll containing State-assessed public utilities property and real property having a tax lien which is sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the unsecured roll. 14

20 Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. Property on the secured roll with respect to which taxes are delinquent becomes tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1.5% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is subject to sale by the Treasurer. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid, on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1.5% attaches to them on the first day of each month until paid. The taxing authority has four ways of collecting delinquent unsecured personal property taxes: (1) bringing a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Clerk and County Recorder s office in order to obtain a lien on certain property of the taxpayer; and (4) seizing and selling personal property, improvements, or possessory interests belonging or assessed to the assessee. Assessed Valuations The assessed valuation of property in the District is established by the San Joaquin County Assessor, except for public utility property which is assessed by the State Board of Equalization. Assessed valuations are reported at 100% of the full value of the property, as defined in Article XIIIA of the California Constitution. Prior to , assessed valuations were reported at 25% of the full value of property. For a discussion of how properties currently are assessed, See APPENDIX A General and Financial Information about the District Constitutional and Statutory Provisions Affecting District Revenues and Appropriations. Certain classes of property, such as churches, colleges, not-for-profit hospitals, and charitable institutions, are exempt from property taxation and do not appear on the tax rolls. 15

21 Property within the District had a total assessed valuation for fiscal year of $10,320,047,783, a decrease of 7.8% from fiscal year Shown in the following table are the assessed valuations for the District for the past ten fiscal years. Given the downturn in the local real estate market, it is possible that the assessed valuation in the District could be further reduced in future fiscal years. These recent reductions in assessed valuation incorporate the San Joaquin County Assessor's review of properties eligible for a temporary reduction in assessed value under Proposition 8. Proposition 8 was a Constitutional amendment passed by the voters in 1978, which allows for a temporary reduction in assessed value when a property's market value declines below its assessed value. The County Assessor initiated an annual review process in 2008 to identify and grant Proposition 8 reductions for eligible properties. For fiscal year , their review included all single family residences and condominiums, most multi-family dwellings, apartments and commercial and industrial properties. In the event of reductions in assessed valuation, the County is obligated to increase the tax levy to an amount sufficient to pay the Bonds Table No. 1 STOCKTON UNIFIED SCHOOL DISTRICT Assessed Valuation Fiscal Year through Fiscal Year Local Secured Utility Unsecured $ 6,169,910,159 $18,774,589 $ 737,754,878 6,550,254,125 17,670, ,933,718 6,934,435,514 19,475, ,114,093 7,682,153,155 20,111, ,166,471 8,767,760,092 19,918, ,429,087 10,367,473,365 17,992, ,381,470 11,343,010,193 5,870, ,402,377 11,137,725,075 5,863,182 1,313,924,394 9,821,585,043 7,324,121 1,361,388,657 9,033,956,644 7,362,580 1,278,728,559 Total Before Redevelopment Increment $ 6,926,439,626 7,342,857,861 7,630,025,112 8,568,430,720 9,739,107,337 11,356,847,008 12,327,283,148 12,457,512,651 11,190,297,821 10,320,047,783 Annual % Change % Source: California Municipal Statistics, Inc. 16

22 Land use of parcels in the District as of fiscal year is shown below. Table No. 2 STOCKTON UNIFIED SCHOOL DISTRICT Assessed Valuation and Parcels by Land Use Fiscal Year % of No. of % of Assessed Valuation (1) Total Parcels Total Non-Residential: Agricultural $ 41,660, % % Commercial 1,137,229, , Vacant Commercial 80,113, Office and Professional Buildings 556,417, Industrial 1,529,835, , Vacant Industrial 122,206, Recreational/Golf 45,830, Government/Social/Institutional 27,758, Miscellaneous 1,474, Subtotal Non-Residential $3,542,525, % 4, % Residential: Single Family Residence $4,266,519, % 42, % Condominium/Townhouse 93,418, , Mobile Home 9,953, Mobile Home Park 29,295, Residential Units 506,713, , Residential Units/Apartments 470,063, Vacant Residential 115,466, , Subtotal Residential $5,491,431, % 51, % Total $9,033,956, % 56, % (1) Local secured assessed valuation; excluding tax-exempt property. Source: California Municipal Statistics, Inc. 17

23 Set forth in the following table is the per parcel assessed valuation of single family homes in the District for year Table No. 3 STOCKTON UNIFIED SCHOOL DISTRICT Per Parcel Assessed Valuation of Single Family Homes Fiscal Year No. of Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single Family Residential 42,853 $4,266,519,208 $99,562 $89, No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $24,999 1, % 2.889% $ 23,660, % 0.555% $25,000 - $49,999 7, ,794, $50,000 - $74,999 8, ,988, $75,000 - $99,999 7, ,119, $100,000 - $124,999 7, ,057, $125,000 - $149,999 4, ,047, $150,000 - $174,999 2, ,138, $175,000 - $199,999 1, ,913, $200,000 - $224, ,112, $225,000 - $249, ,914, $250,000 - $274, ,270, $275,000 - $299, ,529, $300,000 - $324, ,675, $325,000 - $349, ,103, $350,000 - $374, ,314, $375,000 - $399, ,220, $400,000 - $424, ,808, $425,000 - $449, ,933, $450,000 - $474, ,507, $475,000 - $499, ,114, $500,000 and greater ,296, Total 42, % $4,266,519, % (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc. Teeter Plan The District s total secured tax collections and delinquencies are apportioned on a County-wide basis, according to the District s designated tax rate amount. Therefore, the total secured tax levies, as well as collections and delinquencies reported, do not represent the actual secured tax levies, collections and delinquencies of tax payers within the tax areas of the District. In addition, the District s total secured tax levy does not include special assessments, supplemental taxes or other charges which have been assessed on property within the District or other tax rate areas of the County. The County has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the Teeter Plan ) as provided for in the State Revenue and Taxation Code, 18

24 which requires the County to pay 100% of secured property taxes due to local agencies in the fiscal year such taxes are due. Pursuant to these provisions, each county operating under the Teeter Plan establishes a delinquency reserve and assumes responsibility for all secured delinquencies, assuming that certain conditions are met. Because of this method of tax collection, the K-12 districts, including the District, located in counties operating under the Teeter Plan and participating in the Teeter Plan are assured of 100% collection of their secured tax levies if the conditions established under the applicable county s Teeter Plan are met. However, such districts are no longer entitled to share in the receipt of any penalties due to delinquent payments. This method of tax collection and distribution is subject to future discontinuance at the County s option or if demanded by the participating taxing agencies. The following table shows the secured tax charges and delinquencies for the District for fiscal years and Table No. 4 STOCKTON UNIFIED SCHOOL DISTRICT Secured Tax Charges and Delinquencies (1) Fiscal Year through Fiscal Year Secured Tax Charge (2) Amount Delinquent June 30 % Delinquent June $27,490, $1,528, % ,254, , (1) San Joaquin County utilizes the Teeter Plan for assessment levy and distribution. This method guarantees distribution of 100% of the assessments levied to the taxing entity, with the County retaining all penalties and interest. (2) 1% General Fund apportionment. Source: California Municipal Statistics, Inc. District Tax Rates The table below summarizes the typical tax rates levied by all taxing entities in a typical Tax Rate Area (TRA 3-000) within the District. Table No. 5 STOCKTON UNIFIED SCHOOL DISTRICT Typical Total Tax Rates (TRA 3-000) Fiscal Year through Fiscal Year General Stockton Unified School District San Joaquin Delta Community College District Total Source: California Municipal Statistics, Inc. 19

25 Largest Property Owners The following table shows the 20 largest owners of taxable property in the District as determined by secured assessed valuation in fiscal year (1) Table No. 6 STOCKTON UNIFIED SCHOOL DISTRICT Largest Local Secured Taxpayers Fiscal Year % of Property Owner Primary Land Use Assessed Valuation Total (1) 1. Arch Road LP Industrial $ 88,062, % 2. Kyoho Manufacturing California Corp. Industrial 81,950, Diamond Walnut Growers Inc. Industrial 67,097, Corn Products International Inc. Industrial 62,872, Prologis LP Industrial 61,441, California Water Service Co. Water Company 50,128, Buzz Oates Development LP/Marvin L. Oates Industrial 74,068, Stonecreek Village Shopping Center LLC Shopping Center 46,631, Sherwood Mall LLC Shopping Center 43,947, WTM Glimcher LLC Shopping Center 42,990, Tru Properties Inc. Industrial 38,994, Fresh & Easy Neighborhood Market Inc. Industrial 35,100, FR Net Lease Co-Invest Prog 10 LLC Industrial 34,978, Unilever Supply Chain Inc. Industrial 34,293, Stockton Industrial Park Investment LLC Industrial 31,506, ONI Stockton Inc. Industrial 31,297, Inland Western Stockton Airport Way LLC Industrial 28,351, IDI DCT Stockton LLC Industrial 28,033, Watt Elkhorn Center Partnership Shopping Center 27,058, Central Valley LLC Industrial 26,893, $935,697, % local secured assessed valuation: $9,033,956,644 Source: California Municipal Statistics, Inc. 20

26 Direct and Overlapping Debt Set forth below is a direct and overlapping debt report (the Debt Report ) prepared by California Municipal Statistics, Inc. dated as of May 1, The Debt Report is included for general information purposes only. The District has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such longterm obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. Table No. 7 STOCKTON UNIFIED SCHOOL DISTRICT Statement of Direct and Overlapping Bonded Debt Dated as of May 1, Assessed Valuation: $10,320,047,783 Redevelopment Incremental Valuation: 1,369,905,058 Adjusted Assessed Valuation: $ 8,950,142,725 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 5/1/11 San Joaquin Delta Community College District % $ 23,232,049 Stockton Unified School District ,435,000 (1) City of Stockton Community Facilities Districts ,562,844 City of Stockton 1915 Act Bonds Various 9,943,224 San Joaquin Area Flood Control Agency Assessment District ,476,142 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $335,649,259 DIRECT AND OVERLAPPING GENERAL FUND DEBT: San Joaquin County Certificates of Participation % $ 32,943,675 Stockton Unified School District Certificates of Participation ,790,935 City of Stockton General Fund Obligations ,629,770 City of Stockton Pension Obligations ,760,191 TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $211,124,571 COMBINED TOTAL DEBT $546,773,830 (2) (1) (2) Excludes bonds to be sold. Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and nonbonded capital lease obligations. Qualified Zone Academy Bonds are included based on principal due at maturity. Ratios to Assessed Valuation: Direct Debt ($271,435,000) 2.63% Total Overlapping Tax and Assessment Debt % Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($311,225,935) 3.48% Combined Total Debt % STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/10: $0 Source: California Municipal Statistics, Inc. 21

27 DEBT SERVICE SCHEDULE The following schedule shows the annual debt service schedule with respect to the Refunding Bonds, without regard to any optional redemption. REFUNDING BONDS DEBT SERVICE SCHEDULE Payment Date Principal Interest Debt Service 7/1/2011 $ 295,000 $ 47, $ 342, /1/ , , /1/ , , ,466, /1/ , , ,470, /1/ , , ,473, /1/ , , ,470, /1/2017 2,125, , ,565, /1/2018 2,205, , ,560, /1/2019 2,280, , ,547, /1/2020 2,360, , ,536, /1/2021 1,165,000 58, ,223, $14,175,000 $4,062, $18,237, The following schedule shows the annual debt service schedule with respect to the Series D Bonds, without regard to any optional redemption. SERIES D BONDS DEBT SERVICE SCHEDULE Year Ending July 1 Principal Interest Compounded Interest Debt Service 2024 $ 496, $ 508, $ 1,005, , ,028, ,870, , ,349, ,280, ,147, ,952, ,100, ,604, $ 3,045,235 3,095, ,745, , ,090, , ,755, , ,090, , ,275, , ,090,470 1,280, ,835, , ,090,470 1,772, ,435, , ,090,470 2,322, ,080, ,685, ,090,470 6,484, ,260, ,676, ,090,470 7,208, ,975, ,664, ,090,470 7,970, ,725, ,653, ,090,470 8,766, ,510, ,650, ,090,470 9,594, ,335, ,648, ,090,470 10,466, ,205, ,641, ,090,470 11,383, ,115, ,632, ,090,470 12,347, ,070, ,621, ,090,470 13,363, ,075, ,597, ,090,470 14,437, ,125, ,571, ,090,470 15,573, ,235, ,542, ,090,470 16,762, ,395, ,512, ,090,470 18,012, ,615, ,288, ,964,670 18,516, ,769, ,550, ,066,310 15,849, ,466, ,519, ,293,750 23,840, ,653, ,164, ,287,250 18,675, ,127, ,250, ,140,375 21,159, ,550,375 $56,146, $132,426,050 $265,023, $453,596,050 22

28 COMBINED DEBT SERVICE SCHEDULE The District received authorization at the November 7, 2000 bond election to issue general obligation bonds in a principal amount not to exceed $80,000,000 (the 2000 Authorization ). From the 2000 Authorization, the District issued (i) $22,800,000 of its Election of 2000, Series 2001 Bonds (the Series 2001 Bonds ) on July 11, 2001; (ii) $28,000,000 of its Election of 2000, Series 2003 Bonds (the Series 2003 Bonds ) on January 23, 2003; and (iii) $29,200,000 of its Election of 2000, Series 2004 Bonds (the Series 2004 Bonds ) on January 22, The Series 2001 Bonds and the Series 2003 Bonds, are collectively referred to as the Prior Bonds. The District received authorization at the November 8, 2005 bond election to issue general obligation bonds in a principal amount not to exceed $120,000,000 (the 2005 Authorization ). From the Series 2005 Authorization the District issued (i) $60,000,000 of its Election of 2005, Series 2006 Bonds (the Series 2006 Bonds ) on March 2, 2006; and (ii) $60,000,000 of its Election of 2005, Series 2007 Bonds (the Series 2007 Bonds ) on July 31, The District received authorization at the November 4, 2008 bond election to issue general obligation bonds in a principal amount not to exceed $464,500,000 (the 2008 Authorization ). From the Series 2008 Authorization the District issued (i) $65,000,000 of its Election of 2008, Series A Bonds (the Series A Bonds ) on May 21, 2008; (ii) $16,040,000 of its Election of 2008, Series B Bonds, Qualified School Construction Bonds (Tax Credit Bonds) (the Series B Bonds ) on December 30, 2009; and (iii) $14,930,000 of its Election of 2008, Series C Bonds, Qualified School Construction Bonds (Federally Taxable Direct Subsidy Bonds) (the Series C Bonds ) on August 5, Upon issuance of the Refunding Bonds and the Series D Bonds, the following schedule shows the combined debt service with respect to general obligation bonds issued by the District pursuant to its 2000 Authorization, the 2005 Authorization, and the 2008 Authorization. 23

29 Fiscal Year Ending June Authorization (*) Authorization STOCKTON UNIFIED SCHOOL DISTRICT COMBINED GENERAL OBLIGATION DEBT SERVICE SCHEDULES 2008 Authorization 2011 Refunding Bonds Combined Debt Service Series A Series B Series C Series D 2010 $4,937, $ 7,125, $ 3,765, $ 161, $633, $16,622, ,936, ,240, ,411, , $ 469, , ,991, ,926, ,362, ,445, ,416, , ,453, ,565, ,927, ,486, ,475, ,416, , ,451, ,718, ,108, ,604, ,599, ,421, , ,454, ,149, ,104, ,735, ,617, ,421, , ,450, ,289, ,112, ,855, ,631, ,421, , ,523, ,505, ,990, ,982, ,641, ,421, ,744, ,516, ,295, ,991, ,112, ,549, ,421, ,698, ,501, ,274, ,994, ,249, ,555, ,421, ,751, ,477, ,449, ,999, ,375, ,557, ,421, ,918, ,194, ,466, ,335, ,511, ,455, ,421, ,851, ,574, ,330, ,660, ,547, ,421, ,789, ,749, ,592, ,799, ,433, ,421, ,723, ,970, ,592, ,943, ,504, ,421, ,658, ,005, ,125, ,608, ,087, ,456, ,421, ,594, ,870, ,038, ,602, ,244, ,501, ,245, ,528, ,280, ,402, ,594, ,387, ,349, ,456, ,100, ,888, ,972, ,536, ,498, ,387, ,745, ,140, ,024, ,689, ,339, ,755, ,808, ,843, ,371, ,275, ,490, ,002, ,391, ,835, ,229, ,147, ,401, ,435, ,984, ,402, ,080, ,482, ,260, ,260, ,975, ,975, ,725, ,725, ,510, ,510, ,335, ,335, ,205, ,205, ,115, ,115, ,070, ,070, ,075, ,075, ,125, ,125, ,235, ,235, ,395, ,395, ,615, ,615, ,769, ,769, ,466, ,466, ,653, ,653, ,127, ,127, ,550, ,550, Total $86,683, $196,985, $106,901, $21,645, $26,378, $453,596, $18,237, $910,428, (*) Includes debt service on the Prior Bonds. 24

30 PLAN OF REFUNDING Application and Investment of Refunding Bond Proceeds A portion of the proceeds from the sale of the Refunding Bonds will be deposited in an escrow fund (the Escrow Fund ) to be created and maintained by Wells Fargo Bank, National Association, acting as Escrow Agent under that certain Escrow Agreement between the District and the Escrow Agent, dated as of June 1, On July 1, 2011 moneys in the Escrow Fund will be applied to the redemption of the following Series 2001 Bonds at a redemption price of 101% of par, plus interest accrued and not yet paid on the Series 2001 Bonds: Maturity Date July 1 Interest Par Amount % $ 835, % 875, % 915, % 960, % 1,005, % 1,055, % 1,110, % 1,165, % 1,225,000 $9,145,000 On January 1, 2012 moneys in the Escrow Fund will be applied to the redemption of the following Series 2003 Bonds at a redemption price of 101% of par, plus interest accrued and not yet paid on the Series 2003 Bonds: Maturity Date January 1 Interest Par Amount % $ 1,125, % 1,175, % 1,225, % 1,280,000 $ 4,805,000 Upon delivery of the Refunding Bonds, an independent Certified Public Accountant (licensed to practice in the State of California), Causey, Demgen & Moore Inc., acting as verification agent with respect to the Escrow Fund, will deliver a report stating that it has reviewed and confirmed the mathematical accuracy of certain computations relating to the adequacy of the escrowed funds and securities and the interest thereon to pay the debt service on the Prior Bonds as it comes due. A portion of the proceeds of the Refunding Bonds will be used to pay costs associated with the issuance of the Refunding Bonds and the refunding of the Prior Bonds. Any proceeds of sale of the Refunding Bonds not needed to pay costs of issuance of the Refunding Bonds will be transferred by the Paying Agent to the Treasurer for deposit into the Debt Service Fund of the District. Proceeds of taxes held in the Debt Service Fund for payment of the Refunding Bonds will be invested on behalf of the District by the Treasurer pursuant to law and the investment policy of the County. See COUNTY INVESTMENT POOL herein. 25

31 SOURCES AND USES OF FUNDS The proceeds of the Refunding Bonds and the Series D Bonds are expected to be applied as follows: Refunding Bonds Sources of Funds Amount (1) Principal Amount $14,175, Original Issue Premium $ 725, Total Sources $14,900, Uses of Funds Deposit to Escrow Fund $14,563, Underwriter s Discount $ 62, Costs of Issuance (1) $ 274, Total Uses $14,900, Includes fees of Bond Counsel, Disclosure Counsel, Paying Agent and Financial Advisor, Verification Agent, rating agency fees, printing fees, bond insurance premium, and other miscellaneous expenses. Series D Bonds Sources of Funds Amount (1) Principal Amount $56,146, Uses of Funds Total Sources $56,146, Building Fund $53,000, Underwriter s Discount $ 349, Costs of Issuance (1) $ 2,797, Total Uses $56,146, Includes fees of Bond Counsel, Disclosure Counsel, Paying Agent and Financial Advisor, rating agency fees, printing fees, bond insurance premium, and other miscellaneous expenses. 26

32 COUNTY INVESTMENT POOL The information in this section has been provided by the Treasurer. Neither the District nor the Underwriter has independently verified this information and neither guarantees the completeness or accuracy thereof. Further information may be obtained by contacting the County of San Joaquin, Office of the Treasurer-Tax Collector, 44 N. San Joaquin Street, Suite 150, Stockton, California 95202, Telephone: (209) , Facsimile: (209) County Investment Portfolio The Treasurer manages funds deposited in the County Treasury by the County, County School Districts, Special Districts, Trusts and Agencies. State law requires that all moneys of the County, school districts and certain special districts be held in the County by the Treasurer. The Treasurer has accepted funds only from entities located within the County that consists of approximately 930 funds. Twentyeight schools represent approximately 50% of the pool. The moneys on deposit are predominantly derived from local government revenues consisting of property taxes, State and Federal funding and other fees and charges. As of March 31, 2011, the Treasurer s investments were as follows: COUNTY OF SAN JOAQUIN INVESTMENT POOL Summary of Assets Held (At Cost) Currency and Vault $ 107,402 Investments: California Revenue Anticipation Notes 251,837,500 Commercial Paper 117, Rabobank Money Market Account 100,000,000 L.A.I.F. 50,000,000 Federal Agencies 914,127,792 Wells Fargo Sweep 8,375,348 Medium Term Notes 0.00 Bank Deposits: Treasury Bank Balance 31,573,259 Source: County Treasurer-Tax Collector TOTAL TREASURY BALANCE $ 1,474,001,966 The composition of investments in the County pool will vary from time-to-time depending on cash flow needs of the County and public agencies invested in the pool, the maturity of investments, purchases of new securities, and due to fluctuations in interest rates. As of March 31, 2011, the average maturity of the investments in the pool was approximately 249 days, assuming all callable bonds are held until maturity. Approximately twenty-nine percent (29%) of the portfolio had maturities less than one month. The County pool is managed stressing safety, liquidity, and return in that order, as required by California Government Code Section All investments are in compliance with California 27

33 Government Code Section et seq. and the County Treasurer-Tax Collector s Investment Policy, which was last approved May Subject to the approval of the Board of Supervisors, the Treasurer can amend the Investment Policy. A copy of the current Investment Policy is on file with the Board of Supervisors and a monthly detailed report of investments has been filed with the Board since LEGAL OPINION The proceedings in connection with the issuance of the Bonds are subject to the approval as to their legality of Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, Bond Counsel for the District. The opinion of Bond Counsel with respect to the Bonds will be delivered in substantially the form attached hereto as Appendix D. Certain legal matters will also be passed upon for the District by Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, as Disclosure Counsel. TAX MATTERS The following discussion of federal income tax matters written to support the promotion and marketing of the Bonds was not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding federal tax penalties that may be imposed. Each taxpayer should seek advice based on the taxpayer s particular circumstances from an independent tax advisor. In the opinion of Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, Bond Counsel, based upon the analysis of existing statutes, regulations, ruling and court decisions, and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, the interest on the Bonds is excludable from gross income for federal income tax purposes and is exempt from State of California personal income taxes. Bond Counsel is also of the opinion that interest on the Bonds is not an item of tax preference for purposes of the alternative minimum tax imposed on individuals and corporations, however, such interest is taken into account when determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. A complete copy of the proposed form of Opinion of Bond Counsel is set forth in Appendix D hereto. The amount, if any, by which the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds) constitutes original issue discount, the accrual of which, to the extent properly allocable to each owner thereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and which is exempt from State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public (excluding bond houses, brokers, or similar persons, or organizations acting in the capacity of underwriters, placement agents, or wholesalers). The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straightline interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Owners of the Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public. Bonds purchased, whether at original issuance or otherwise, for an amount greater than their principal amount payable on their respective maturity dates (or, in some cases, at their earlier call date) ( Premium Bonds ) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable premium in the case of bonds, like the Premium Bonds, the interest on which is excluded 28

34 from gross income for federal income tax purposes. However, a purchaser s basis in a Premium Bond, and under Treasury Regulations the amount of tax exempt interest received, will be reduced by the amount of amortizable premium properly allocable to such purchaser. Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable premium in their particular circumstances. The Internal Revenue Code of 1986, as amended, (the Code ) imposes various restrictions, conditions, and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The District has covenanted to comply with certain restrictions designed to assure that interest on the Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Bonds being included in federal gross income, possibly from the date of issuance of the Bonds. The opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after that date of issuance of the Bonds may adversely affect the tax status of interest on the Bonds. Prospective Bondholders are urged to consult their own tax advisors with respect to proposals to restructure the federal income tax. Certain requirements and procedures contained or referred to in the Resolution, the tax certificate to be entered into on the date of issuance of the Bonds (the Tax Certificate ), and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Bond Counsel expresses no opinion as to any Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of bond counsel other than Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation. Although Bond Counsel expects to render an opinion that interest on the Bonds is excludable from gross income for federal income tax purposes and exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect a Beneficial Owner s federal or state tax liability. The nature and extent of these other tax consequences will depend upon the particular tax status of the Beneficial Owner or the Beneficial Owner s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. In addition, no assurance can be given that any future legislation, including amendments to the Code, if enacted into law, or changes in interpretation of the Code, will not cause interest on the Bonds to be subject, directly or indirectly, to federal and/or state income taxation, or otherwise prevent beneficial owners of the Bonds from realizing the full current benefit of the tax status of such interest. Prospective purchasers of the Bonds should consult their own tax advisers regarding any pending or proposed federal and/or state tax legislation. Further, no assurance can be given that the introduction or enactment of any such future legislation, or any action of the Internal Revenue Service ( IRS ), including but not limited to regulation, ruling, or selection of the Bonds for audit examination, or the course or result of any IRS examination of the Bonds, or obligations that present similar tax issues, will not affect the market price or liquidity of the Bonds. The rights of the owners of the Bonds and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditor s rights heretofore or hereafter enacted to the extent constitutionally applicable, and their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. The IRS has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and target audits. It is possible that the Bonds will be selected for audit by the IRS. It is 29

35 also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds (or by an audit of similar bonds). CONTINUING DISCLOSURE The District has covenanted for the benefit of holders and Beneficial Owners of the Bonds to provide certain financial information and operating data relating to the District (the Annual Report ) not later than 290 days after the end of the District s fiscal year (which currently ends on June 30), commencing with the report for the fiscal year, and to provide notices of the occurrence of certain enumerated significant events. The Annual Report will be filed by the District with the Municipal Securities Rulemaking Board ( MSRB ) through its Electronic Municipal Market Access System ( EMMA System ). The notices of significant events will be filed by the District in the same manner as an Annual Report. The specific nature of the information to be contained in the Annual Report and in the notices of significant events is summarized under the caption APPENDIX E Form of Continuing Disclosure Certificate. These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5) (the Rule ). The District has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events. NO LITIGATION No litigation is pending or threatened concerning the validity of the Bonds, and a certificate to that effect will be furnished to purchasers at the time of the original delivery of the Bonds. The District is not aware of any litigation pending or threatened that (i) questions the political existence of the District, (ii) contests the District s ability to receive ad valorem taxes or to collect other revenues or (iii) contests the District s ability to issue and retire the Bonds. RATINGS Standard & Poor s Ratings Services ( Standard & Poor s ) and Moody s Investors Service ( Moody s ) have assigned their municipal bond ratings of AA+ (stable outlook) and Aa3 (negative outlook), respectively, to the Bonds based upon the issuance by Assured Guaranty Municipal Corp. of the Policy. Standard & Poor s and Moody s have assigned their underlying rating of A and A2, respectively, to the Bonds. There is no assurance the credit ratings given to the Bonds will be maintained for any period of time or that the ratings may not be lowered or withdrawn entirely by Standard & Poor s or Moody s if, in their judgment, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Bonds. Such ratings reflect only the views of Standard & Poor s and Moody s, respectively, and an explanation of the significance of such ratings may be obtained from Standard & Poor s and Moody s, respectively. See BOND INSURANCE herein for a description of certain recent actions taken with respect to Assured Guaranty Municipal Corp. UNDERWRITING The Bonds are being purchased by E. J. De La Rosa & Co., Inc. (the Underwriter ). The Underwriter has agreed to purchase the Refunding Bonds at a price of $14,838,030.75, which equals the par amount of the Refunding Bonds ($14,175,000), plus net original premium of $725,400.75, less the underwriter s discount of $62, The Underwriter will retain $274, to pay the costs of issuance (including bond insurance premium). The Underwriter has agreed to purchase the Series D Bonds at a price of $55,797,265.44, which equals the par amount of the Series D Bonds ($56,146,496.65) less the underwriter s discount of $349, The Underwriter will retain $2,797, to pay the costs of issuance (including bond insurance premium). The purchase contracts relating to the Bonds provides that the Underwriter will purchase all of the Bonds (if any are purchased), and provides that the 30

36 Underwriter s obligation to purchase is subject to certain terms and conditions, including the approval of certain legal matters by counsel. The Underwriter may offer and sell Bonds to certain dealers and others at prices lower than the offering prices stated on the cover page hereof. The offering prices may be changed by the Underwriter. ADDITIONAL INFORMATION The discussions herein about the District Resolution, the Paying Agent Agreement and the Continuing Disclosure Certificate are brief outlines of certain provisions thereof. Such outlines do not purport to be complete and for full and complete statements of such provisions reference is made to such documents. Copies of these documents mentioned are available from the Underwriter and following delivery of the Bonds will be on file at the offices of the Paying Agent in San Francisco, California. References are also made herein to certain documents and reports relating to the District; such references are brief summaries and do not purport to be complete or definitive. Copies of such documents are available upon written request to the District. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or owners of any of the Bonds. The execution and delivery of this Official Statement have been duly authorized by the District. STOCKTON UNIFIED SCHOOL DISTRICT By: /s/ Carl Toliver Superintendent 31

37 APPENDIX A GENERAL AND FINANCIAL INFORMATION DISTRICT INFORMATION General Information The District was established on July 1, 1936 and is located in San Joaquin County (the County ), in California s Central Valley. The boundaries of the District cover an area of approximately 55 square miles. The District is located approximately 58 miles south of Sacramento, the State Capitol, 78 miles east of the San Francisco Bay Area, and 337 miles north of Los Angeles. The District has fifty-six schools, including forty-four K-8 schools (including one K-5 school, one 4-8 specialty school, and one charter school), ten high schools (including three specialty high schools, and three specialty charter high schools), one K-12 special education school, and one adult education school. The District also maintains an independent study program and a child development program. The average daily attendance (the ADA ) in the District for is projected to be 33,358 and is projected to be 31,753. Administration Board of Trustees. The District is governed by a seven-member Board of Trustees (the Governing Board ), each member of which is elected to a four-year term. The office of Vice President and Clerk are vacant but will be filled by a current member of the Board. Current members of the Governing Board, together with their office and the date their term expires, are listed below: Name Office Term Expires David Varela President December 2014 Gloria Allen Vice President December 2012 Sal Ramirez Member December 2014 Angel Jimenez, Jr. Member December 2012 Jose A. Morales Member December 2012 Sara L. Cazares Member December 2014 Steve Smith Member December 2014 Superintendent. The Superintendent of the District, appointed by the Governing Board, is responsible for management of the day-to-day operations and supervises the work of other District administrators. Carl Toliver was appointed Interim Superintendent of the District on June 24, 2010, and subsequently appointed Superintendent on July 27, Mr. Toliver spent his career in the Stockton Unified School District as a teacher, principal, and Interim Superintendent for 33 years, retiring in He received his Bachelor of Science Degree in Social Science and Master of Arts Degree in Educational Administration from the University of the Pacific. Recent Enrollment Trends The following table shows enrollment history for the District for the last ten fiscal years and the projected enrollment through fiscal year A-1

38 STOCKTON UNIFIED SCHOOL DISTRICT Annual Enrollment Fiscal Years through (projected) Fiscal Year Enrollment Annual Change ,213 1, , , , , , , ,806-1, , , (1) 36, Employee Relations (1) Projected Source: Stockton Unified School District. The District has eight recognized bargaining units which represent its non-management employees. The largest of these, the Stockton Unified School District Teachers Association, represents the members of the District s certificated teaching staff. Other bargaining units include the Stockton Pupil Personnel Association, representing the District s psychologists and counselors; the California School Employees Association, representing the District s classified personnel; the Operating Engineers Union, representing the District transportation workers; the Operating Engineers Union, representing the District police unit; the Stockton Unified Supervisor s Union, representing the non-teaching supervisors of the District; the United Stockton Administrators, representing principals and other administrators. The following table shows the District s bargaining units, number of employees, and contract status: STOCKTON UNIFIED SCHOOL DISTRICT Bargaining Units, Number of Employees, and Contract Status Certificated Number of Employees Status Stockton Teachers Association 1,804 Extended. Contract expires 08/31/11. United Stockton Administrators 93 Extended. Contract expires 06/30/11. Stockton Pupil Personnel Association 151 Contract expired 08/31/08. District is currently in negotiations. California School Employees Association, Chapter 821 California School Employees Association, Chapter 318 Paraprofessionals Classified Number of Employees Status Operating Engineers Local #3, (Police Unit) 895 Extended. Contract expires 06/30/ Extended. Contract expires 06/30/ Contract expired 06/30/10. District is currently in negotiations. Stockton Unified Supervisor s Union 31 Extended. Contract expires 06/30/11. Operating Engineers Local #3 (Transportation Department Bus Drivers) 71 Extended. Contract expires 06/30/11. A-2

39 District Retirement Systems The District participates in the California State Teacher s Retirement System ( STRS ). This plan covers basically all full-time certificated and part-time contracted employees. The District s contributions to STRS for fiscal years , , were $12,957,852, $13,334,117, and $12,502,994, respectively. The projected contribution for fiscal year is $11,274,777. Each of these contributions equals 100% of the required contribution for such fiscal year. The District also participates in the California Public Employees Retirement System ( PERS ). This plan covers all classified personnel who are employed four or more hours per day. The District s contributions to PERS for fiscal years , , and , were $4,508,604, $4,878,439, and $4,600,188, respectively. The projected contribution for fiscal year is $5,133,791. Each of these contributions equals 100% of the required contribution for such fiscal year. Both STRS and PERS are operated on a statewide basis. For more information on the District s retirement systems, See APPENDIX B Audited Financial Statements of the District for Fiscal Year Ended June 30, 2010 Note 8 Employee Retirement Systems, attached hereto. Post-Retirement Health Care Obligations of District In addition to the STRS and PERS benefits described above, the District provides post retirement health care benefits to all employees who retire from the District on or after attaining age 55 with at least 10 years of service. As of June 30, 2010, 431 retirees met these eligibility requirements. Benefits are provided for retirees aged 55 to 65. The District pays up to $1, per month for health benefits of retirees on a pay-as-you-go basis. The liability at June 30, 2010 is estimated at $32,834,334, which consists of future costs associated with premium-based health plans, as well as estimated future costs of self-insured plans. For more information on the District s post retirement health care benefits, See APPENDIX B Audited Financial Statements of the District for Fiscal Year Ended June 30, 2010 Note 6 Long-Term Liabilities Post-Employment Healthcare Benefits, attached hereto. Insurance The District maintains property insurance with the Northern California Relief risk retention pool for claims up to $250,000,000, with a self-insured retention (SIR) limit of $150,000 per occurrence. The District maintains liability insurance through the Northern California Relief risk retention pool for claims up to $25,000,000, with a self-insured retention of $100,000 per occurrence. The District is self-insured for dental and vision coverage for all employees, and is also self-insured for Workers Compensation with a self-insured retention of $1,500,000 per claim. Workers Compensation liability excess insurance is purchased above the retention level and meets the state statutory standards of coverage required. Property and liability claims are administered above the SIR by Keenan and Associates. Property and liability claims below the SIR are administered by the District s Risk Manager or an assigned third party administrator. The self-insurance fund contains financial allocations to pay the self-insured retention limits for property and liability claims. A-3

40 DISTRICT FINANCIAL INFORMATION The information in this section concerning the operations of the District and the District s general fund finances is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Bonds is payable from the general fund of the District. The Bonds are payable from the proceeds of an ad valorem tax required to be levied by the County in an amount sufficient for the payment thereof. See SOURCES OF PAYMENT FOR THE BONDS in the front half of this Official Statement. Accounting Practices The accounting practices of the District conform to generally accepted accounting principles in accordance with policies and procedures of the California School Accounting Manual. This manual, according to Section of the California Education Code, is to be followed by all California school districts. The financial resources of the District are divided into separate funds for which separate accounts are maintained for recording cash, other resources and all related liabilities, obligations and equities. The major fund classification is the general fund which accounts for all financial resources not required to be accounted for in another fund. The District s fiscal year begins on July 1 and ends on June 30. All governmental funds and fiduciary funds are maintained on the full accrual basis of accounting. As such, revenues are recognized when they become susceptible to accrual, that is, both measurable and available to finance expenditures for the current period. For more information on the District s accounting method, See APPENDIX B Audited Financial Statements of the District for Fiscal Year Ended June 30, 2010 Note 1 Summary of Significant Accounting Policies, attached hereto. GASB published its Statement No. 34 Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments on June 30, Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management s Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting; (iii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting; and (iv) required supplementary information. The District implemented Statement No. 34 for the fiscal year audited financial statements. Financial Statements The District s Audited Financial Statements for the fiscal year ending June 30, 2010 were prepared by Perry-Smith, LLP, Sacramento, California (the Auditor ). Audited financial statements for the District for the fiscal year ended June 30, 2010 and prior fiscal years are on file with the District and available for public inspection at the Superintendent s Office. See APPENDIX B hereto for the Audited Financial Statements. Copies of such financial statements will be mailed to prospective investors and their representatives upon written request to the District. The District considers its audited financial statements to be public information, and accordingly no consent has been sought or obtained from the auditor in connection with the inclusion of such statements in this Official Statement. The auditor has made no representation in connection with inclusion of the audit in the Official Statement. The following table shows the audited revenue and expenditure statements for the District for fiscal years through , and the Second Interim Report for fiscal year A-4

41 STOCKTON UNIFIED SCHOOL DISTRICT Summary of General Fund Revenues, Expenditures and Changes in Fund Balance for Fiscal Years through (Audited) and Fiscal Year (Second Interim) Audited Audited Audited Audited Second Interim REVENUE: Revenue Limit Sources: State Apportionments $161,900,344 $165,871,322 $161,159,409 $140,393,160 $146,140,675 Local Sources 36,841,472 37,589,571 35,738,308 33,121,342 30,636,662 Total Revenue Limit 198,741, ,460, ,897, ,514, ,777,337 Federal 34,869,927 36,218,959 50,937,810 43,191,530 65,233,159 Other State 91,645,595 93,435,758 84,331,683 89,646,091 79,916,737 Other Local 8,896,600 9,038,311 7,168,699 5,333,206 6,313,805 Total Revenues $334,153,938 $342,153,921 $339,335,909 $311,685,329 $328,241,038 EXPENDITURES: Certificated salaries $154,924,070 $157,131,193 $165,556,362 $150,697,880 $146,105,931 Classified salaries 47,838,369 49,951,372 50,184,846 46,632,063 45,289,907 Employee benefits 62,629,829 65,643,925 66,367,973 73,230,204 71,611,894 Books and supplies 18,850,351 30,708,068 20,490,896 16,812,374 35,797,184 Services and operating expenses 30,283,577 38,000,437 34,956,359 35,416,360 36,905,549 Capital outlay 914, ,452 27,932 39, ,689 Other outgo 1,296, , , , ,841 Debt service: Principal 981, , , , ,249 Debt service: Interest 87,412 54,550 35,191 25,897 6,746 Transfers of indirect/direct costs (1,084,708) $317,805,158 $342,904,591 $338,220,898 $323,686,833 $335,632,283 Excess (deficiency) of Revenues over (under) Expenditures $ 16,348,780 ($ 750,670) $ 1,115,011 ($ 12,001,504) ($ 7,391,245) Other Financing Sources (Uses) Operating transfers in $ 595,299 $ 817,411 $ 1,017,115 $ 2,759,446 $ 0.00 Operating transfers out (1,534,471) (1,729,693) (635,020) (623,126) 438,782 Debt proceeds 253, All other financing sources Contributions Total Other Financing Sources (Uses) ($ 685,542) ($ 912,282) $ 382,095 $2,136,320 ($ 438,782) Change in fund balance $ 15,663,238 ($1,662,952) $ 1,497,106 ($ 9,865,184) ($ 14,717,970) Fund Balances/Equity, July 1 $ 33,850,270 $ 49,513,508 $ 47,850,556 $ 49,347,662 $ 39,482,478 Fund Balances/Equity, June 30 $ 49,513,508 $ 47,850,556 $ 49,347,662 $ 39,482,478 $ 31,652,451 Source: Stockton Unified School District. A-5

42 District Debt The following table summarizes the District s outstanding long-term debt as of June 30, 2010: Governmental activities: Balance, July 1, 2009 Additions Deductions Balance, June 30, 2010 Amounts Due Within One Year General Obligation Bonds $250,966,000 $16,040,000 $5,130,000 $261,876,000 $6,120,000 General Obligation Bonds Premium 4,431, ,604 4,224, ,604 Bond Anticipation Notes 21,955, ,955,000 21,955,000 Bond Anticipation Notes Premium 81, ,703 30,162 30,162 Certificates of Participation 53,992, ,456,268 52,536, Certificates of Participation Premium 162, , ,451 6,096 Capitalized lease obligations 1,148, , , California Energy Commission Loan 600, , , ,755 Qualified Zone Academy Bonds 6,635, ,635, Post-employment healthcare benefits 7,475,837 5,603,738 4,969,929 8,109, PARS Liability -- 9,166,494 1,839,338 7,327,156 1,831,789 Compensated absences 3,517, , ,232, ,226 $350,967,088 $31,525,159 $14,466,225 $368,026,022 $30,751,632 Payments on the District s outstanding general obligation bonds are made from property tax levies. Payments on the District s outstanding certificates of participation and capitalized lease obligations are made from the general fund, capital facilities fund and cafeteria fund. Payments on the California Energy Commission Loan are made from the general fund. Payments on the State School Building Aid Loan are made from the tax override fund. Payments on the post-employment benefits and compensated absences are made from the fund for which the related employee worked. General Obligation Bonds Authorization. In July 2001, the District issued its General Obligation Bonds, Election of 2000, Series 2001 (the Series 2001 Bonds ) in the aggregate principal amount of $22,800,000, of which $17,865,000 is currently outstanding. The Series 2001 Bonds mature on July 1, 2026 and are subject to optional and mandatory redemption prior to maturity. In January 2003, the District issued its General Obligation Bonds, Election of 2000, Series 2003 (the Series 2003 Bonds ) in the aggregate principal amount of $28,000,000, of which $22,505,000 is currently outstanding. The Series 2003 Bonds mature on January 1, 2028 and are subject to optional and mandatory redemption prior to maturity. In January 2004, the District issued its General Obligations Bonds, Election of 2000, Series 2004 (the Series 2004 Bonds ) in the aggregate principal amount of $29,200,000, of which $24,325,000 is currently outstanding. The Series 2004 Bonds mature on January 1, 2029 and are subject to optional and mandatory redemption prior to maturity Authorization. In March 2006, the District issued its General Obligation Bonds, Election of 2005, Series 2006 (the Series 2006 Bonds ) in the aggregate principal amount of $60,000,000, of which $56,855,000 is currently outstanding. The Series 2006 Bonds mature on September 1, 2030 and are subject to optional and mandatory redemption prior to maturity. In July 2007, the District issued its General Obligation Bonds, Election of 2005, Series 2007 (the Series 2007 Bonds ) in the aggregate principal amount of $60,000,000, of which $56,415,000 is currently outstanding. The Series 2007 Bonds mature on August 1, 2031 and are subject to optional and mandatory redemption prior to maturity. A-6

43 2008 Authorization. In May 2008, the District issued its General Obligation Bonds, Election of 2008, Series A in the aggregate principal amount of $65,000,000 (the Series A Bonds ), of which $62,500,000 is currently outstanding. The Series A Bonds mature on August 1, 2032 and are subject to optional and mandatory redemption prior to maturity. In December 2009, the District issued its General Obligation Bonds, Election of 2008, Series B Qualified School Construction Bonds (Tax Credit Bonds) in the aggregate principal amount of $16,040,000 (the Series B Bonds ), of which $16,040,000 is currently outstanding. The Series B Bonds were designated by the District as qualified school construction bonds under the Code, and the owners of the Series B Bonds were eligible to receive federal tax credits. The Series B Bonds mature on December 15, 2025 and are subject to extraordinary mandatory redemption prior to maturity. In August 2010, the District issued its General Obligation Bonds, Election of 2008, Series C, Qualified School Construction Bonds (Federally Taxable Direct Subsidy Bonds) in the aggregate principal amount of $14,930,000 (the Series C Bonds ), of which $14,930,000 is currently outstanding. The Series C Bonds were designated by the District as qualified school construction bonds under the Code, and the District expects to receive cash subsidy payments from the U.S. Treasury on or about each Interest Payment Date. The Series C Bonds mature on August 1, 2027 and are subject to mandatory redemption, extraordinary mandatory redemption and extraordinary optional redemption prior to maturity. Qualified Zone Academy Bonds. On June 1, 2000, the District issued $1,635,000 in Qualified Zone Academy Bonds and entered into a purchase contract with Bank of Agriculture of Commerce. On November 4, 2003, the District issued $5,000,000 in Qualified Zone Academy Bonds and entered into a purchase contract with the Union Safe Deposit Bank. Certificates of Participation. On February 3, 2004, the District issued Certificates of Participation (the 2004 Certificates of Participation ) in the amount of $11,999, (with interest rates ranging from 1.7% to 5.5%), of which $11,185,935 is currently outstanding. All of the 2004 Certificates of Participation maturing on or after February 1, 2014 ($10,738,279) will be defeased with a portion of the proceeds of the 2007 Certificates of Participation (as described below, the 2007 Certificates of Participation ), through a crossover refunding on the cross-over date of February 1, On March 7, 2007, the District issued the 2007 Certificates of Participation in the amount of $45,050,000 (with interest rates ranging from 4.00% to 5.00%), of which $39,860,000 is currently outstanding. A-7

44 Future net payments with respect to the District s outstanding certificates of participation are as follows: Year Ending June 30 Certificates Issued 2/04 Certificates Issued 3/07 Total 2011 $260, $2,622, $2,882, , ,618, ,913, , ,623, ,948, ,621, ,621, ,619, ,619, ,620, ,620, ,618, ,618, ,619, ,619, ,622, ,622, ,622, ,622, ,619, ,619, ,619, ,619, ,615, ,615, ,620, ,620, ,616, ,616, ,618, ,618, ,617, ,617, ,618, ,618, ,620, ,620, ,619, ,619, ,620, ,620, ,617, ,617, ,617, ,617, ,619, ,619, ,620, ,620, ,617, ,617, Tax and Revenue Anticipation Notes. On July 1, 2010, the District issued Tax and Revenue Anticipation Notes in the amount of $26,535,000 that will mature on June 1, The Tax and Revenue Anticipation Notes are payable from the District s general fund and from other lawfully available revenues received during or attributable to fiscal year Capital Leases. The District has made use of various capital and bonded lease arrangements in the past under agreements which provide for title of items and equipment being leased to pass to the District upon expiration of the lease period. The District has promised to annually appropriate the amounts necessary to make all future lease payments from available revenues. The District has never defaulted on any of its lease obligations. See APPENDIX B Audited Financial Statements of the District for Fiscal Year Ended June 30, 2010 Note 6 Long-Term Liabilities for summaries and expected debt service requirements of the above-listed long-term debt. A-8

45 State Funding of Education and Revenue Limitations Annual State apportionments of basic and equalization aid to school districts for general purposes are computed up to a revenue limit per unit of average daily attendance ( A.D.A. ). Such apportionments will, generally speaking, amount to the difference between the District s revenue limit and the District s local property tax allocation. Revenue limit calculations are adjusted annually in accordance with a number of factors designed primarily to provide cost of living increases and to equalize revenues among California school districts. A schedule of the District s A.D.A. and base revenue limit since , as well as the estimate for fiscal year and the projection for fiscal year , is shown below. STOCKTON UNIFIED SCHOOL DISTRICT Average Daily Attendance Fiscal Years through , (estimated), and (projected) Fiscal Year A.D.A. Annual Change Base Revenue Limit , $4, , , ,939 1,574 4, , , , , , , , , , , , , , , , , (1) 33, , (2) 31,753-1,605 6, (1) Estimated (2) Projected Source: Stockton Unified School District. Most California school districts receive a significant portion of their funding from State appropriations. As a result, decreases in State revenues may affect appropriations made by the Legislature to school districts. A-9

46 Revenue Sources The District categorizes its general fund revenues into four sources: STOCKTON UNIFIED SCHOOL DISTRICT District Revenue Sources Percentage of Total District General Fund Revenues Revenue Source (2) Revenue limit sources (1) 59.5% 59.5% 56.8% 56.3% 53.9% Federal revenues Other State revenues Other local revenues (1) Consists of a mix of State apportionments of basic and equalization aid and local property tax revenues. (2) From District s Unaudited Actuals Report Source: Stockton Unified School District. Each of these revenue sources is described below. Revenue Limit Sources. Since fiscal year , California school districts have operated under general purpose revenue limits established by the State Legislature. In general, revenue limits are calculated for each school district by multiplying (1) the average daily attendance for such district by (2) a base revenue limit per unit of A.D.A. The revenue limit calculations are adjusted annually in accordance with a number of factors designated primarily to provide cost of living increases and to equalize revenues among all California school districts of the same type. Funding of the District s revenue limit is provided by a mix of (1) local property taxes and (2) State apportionments of basic and equalization aid. Generally, the State apportionments will amount to the difference between the District s revenue limit and its local property tax revenues. Beginning in , Proposition 13 and its implementing legislation provided for each county to levy (except for levies to support prior voter-approved indebtedness) and collect all property taxes, and prescribed how levies on county-wide property values are to be shared with local taxing entities within each county. Federal Revenues. The federal government provides funding for several District programs, including special education programs, programs under No Child Left Behind, the Individuals With Disabilities Education Act, and specialized programs such as Drug Free Schools. Other State Revenues. As discussed above, the District receives State apportionment of basic and equalization aid in an amount equal to the difference between the District s revenue limit and its property tax revenues. In addition to such apportionment revenue, the District receives substantial other State revenues. A large proportion of these other State revenues are restricted to particular uses (categorical programs) mandated by the Legislature, such as special education, home-to-school transportation, afterschool safety and education programs, and nutrition. As part of the February 2009 budget package, the Legislature allowed school districts to use the funding associated with about forty categorical programs for any education purpose. This flexibility is currently authorized only through A-10

47 The District receives State aid from the California State Lottery (the Lottery ), which was established by a constitutional amendment approved in the November 1984 general election. Lottery revenues must be used for the education of students and cannot be used for non-instructional purposes such as real property acquisition, facility construction, or the financing of research. Moreover, State Proposition 20 approved in March 2000 requires that 50% of the increase in Lottery revenues over levels must be restricted to use on instructional material. Lottery revenues generally comprise approximately 2% of general fund revenues. Other Local Revenues. In addition to property taxes, the District receives additional local revenues from items such as interest earnings and other local sources. Revenue for Public Education GENERAL SCHOOL DISTRICT FINANCIAL INFORMATION Sources of Revenue. The State s K-12 education system is supported primarily from State revenues, mostly sales and income taxes. The availability of State funds for public education is a function of constitutional provisions affecting school district revenues and expenditures (See APPENDIX A CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND EXPENDITURES). As a result, changes in State revenues may affect appropriations made by the State to school districts. State revenue sources for school districts are supplemented with local property taxes, federal aid, local miscellaneous funds, and the California State Lottery. In recent years, approximately 58% of all funds for California K-12 public education came from the State budget, which is required to be proposed by the governor of California (the Governor ) by January 10 and adopted by June 15 of each year (although the State often is late adopting the budget). Approximately 21% of funding for K-12 education comes from local property taxes. The California Constitution limits property taxes to one percent of the value of property; property taxes may only exceed this limit to repay voter approved debt. Statewide, approximately 13% of school districts revenues come from the federal government, and about 6% come from local miscellaneous sources. The latter category includes items such as food sales, money for debt repayment, interest on reserves and, in some cases, more significant sources such as developer fees and parcel taxes. Developer fees are fees that school districts can levy on new residential or commercial development within their boundaries to finance the construction or renovation of school facilities. Many school districts also seek grants or contributions, sometimes channeled through private foundations established to solicit donations from local families and businesses. School districts that still have unused school buildings or sites can lease or sell them for miscellaneous income as well. A significant number of school districts have secured the required two-thirds approval from local voters to levy special taxes on parcels or residences and/or have won voter approval, with either a two-thirds vote or a 55% majority, to sell general obligation bonds or to establish special taxing districts for the construction of schools. Use of such taxes is restricted by law. The final revenue source for school districts is the California State Lottery. Approved by voters in late 1984, the lottery generates about 1% of total school revenues. Every three months the Lottery Commission calculates 34% of lottery proceeds for all public education institutions, the minimum according to the lottery law. Every K-14 school district receives the same amount of lottery funds per pupil from the State, which may be spent for any instructional purpose, excluding capital projects. No other source of general purpose revenue is currently permitted for schools. Proposition 13 eliminated the possibility of raising additional ad valorem property taxes for general school support, and the courts have declared that fees may not be charged for school-related activities other than for busing services. A-11

48 The State Revenue Limit. The State Revenue Limit was first instituted in to provide a mechanism to calculate the amount of general purpose revenue a school district, community college district or county board of education is entitled to receive from State and local sources. Each school district has its own target amount of funding from State funds and local property taxes per ADA. This target is known as revenue limit, and the funding from this calculation forms the bulk of all school districts' income. The State Legislature usually grants annual cost-of-living adjustments (COLAs) to revenue limits. The exact amount depends on whether the school district is an elementary, high school or a unified school district. Apportionments for revenue limits are calculated three times a year for each school district, community college district and county board of education. The first calculation is performed for the February 20th First Principal Apportionment, the second calculation for the June 25th Second Principal Apportionment, and the final calculation for the end of the year Annual Apportionment. Calculations are reviewed by the county and submitted to the State Department of Education with respect to school districts and to the Chancellor of the California Community Colleges with respect to community college districts, which, respectively, reviews the calculations for accuracy, calculates the amount of state aid owed to such school district or community college district, as the case may be, and notifies the State Controller of the amount, who then distributes the state aid. School districts that receive their revenue limit income entirely from property taxes are called basic aid school districts. They are permitted to keep all their property tax money (even if it exceeds their revenue limit). As guaranteed in the California Constitution, the State must apportion $120 per pupil. However, the categorical aid (see below) that school districts receive counts toward this requirement. Distribution of Revenue for School Districts General Purpose. The largest part of each school district's revenue funds general operating expenses associated with providing education, including salaries, benefits, supplies, textbooks and regular maintenance. As previously mentioned, the Revenue Limit governs the amount each school district receives. Each school district also receives some State and federal money for special programs, special costs, or categories of children with particular educational needs, called categorical aid. Categorical Aid. This special support goes into a school district's General Fund, but its expenditure is restricted to the purpose for which it is granted. About seventy-five percent (75%) of the total money generated for education is for general purposes, and about twenty-five percent (25%) is for categorical aid. The complex allocation system is adjusted somewhat by the State Legislature almost every year, with unpredictable effects on individual school districts. There are a number of major federal and State categorical aid programs. Some allocations come automatically to school districts, while others require an application. Some programs are based on the characteristics of the children or families in a particular school district, such as gifted and talented, non- English speaking, migrant, low income or handicapped students. Other programs are for specific activities or expenses, such as transportation, textbooks or childcare. Each year a large amount of aid is allocated directly to the State Teachers' Retirement System (STRS) fund. For the past several years, supplemental grants have been directed to equalizing school districts' income from revenue limits plus specific categoricals. Most of the federal funds flow through the California Department of Education, which retains a certain percentage for administration. In terms of dollars and the number of children served, the largest categorical aid program is Special Education for the Handicapped. According to court decisions and federal and California law, school districts are responsible for the appropriate education of each handicapped child from age 3 to 21 A-12

49 who lives within their boundaries. The allocations do not cover the cost of educating them. School districts are required to contribute a certain amount of general purpose funds for Special Education, and many spend much more. This is known as encroachment. School Facilities. Growing enrollments and/or aging facilities require school districts to build or make major renovations to school buildings. The income from developer fees on residential or commercial property is insufficient to fund all facilities costs. Voter approved general obligation bond moneys may only be used for purchase or improvement of real property, while Mello-Roos taxes can be used for this as well as for ongoing maintenance or purchase of needed equipment. A majority of voters has regularly approved state bond measures for the construction or reconstruction of schools. The State Budget Process According to the State Constitution, the Governor is required to propose a budget to the State Legislature no later than January 10 of each year, and a final budget must be adopted by a two-thirds vote of each house of the Legislature no later than June 15, although this deadline is routinely missed. The budget becomes law upon the signature of the Governor, who retains veto power over specific items of expenditure. School district budgets must generally be adopted by July 1, and revised by the district s governing board within 45 days after the Governor signs the budget act to reflect any changes in budgeted revenues and expenditures made necessary by the adopted State budget. Possible Delays in Apportionments. If the State budget is not adopted on time, basic appropriations and the categorical funding portion of each school district s State funding may be treated differently. In 2002, a California Court of Appeal held in White v. Davis (also referred to as Jarvis v. Connell) that the State Controller cannot disburse State funds after the beginning of the fiscal year until the adoption of the budget bill or an emergency appropriation, unless the expenditure is (i) authorized by a continuing appropriation found in statute, (ii) mandated by the State constitution, such as appropriations for salaries of elected state officers, or (iii) required by federal law, such as payments to State workers (but at no more than minimum wage). The court specifically held that pre-budget disbursements of Proposition 98 funding for school districts are invalid. In 2003, the California Supreme Court upheld the decision of the Court of Appeal. During the State budget impasse, the State Controller nonetheless treated revenue limit apportionments to school districts as continuous legislative appropriations under statute. The State Controller did not disburse certain categorical and other funds to school districts until the Budget Act was enacted. Additional Delays in Apportionments. Urgency legislation enacted March 1, 2010, authorized deferral of certain payments during the fiscal year for K-12 schools (not to exceed $2.5 billion in the aggregate at any one time). Deferrals were authorized for July 2010, October 2010 and March 2011, for not to exceed 60, 90 and 60 days, respectively, but, depending on actual cash flow conditions at the time, the Controller, Treasurer and Director of Finance were permitted to either accelerate or delay the deferrals up to 30 days or reduce the amounts deferred. Certain school districts that can demonstrate hardship will not be subject to these deferrals. While the District believes this legislation will affect the District s cash flow and interest income, it expects the effects to be similar to the delays in State apportionments it frequently experiences due to delay in adoption of the State Budget, as described above. Fiscal Year Budget. The Legislature adopted and the Governor signed the fiscal year budget on October 8, 2010, and closed an estimated budget gap of $19.3 billion by a combination of expenditure reductions, federal funds and other solutions. The budget projected total revenues of $89.4 billion (an increase of 8.4% from the prior year) and authorized total expenditures of $86.5 billion (an increase of 0.2% from the prior year). The Governor exercised his line-item veto authority to reduce the general fund spending authorized by the Legislature by $963 million in order to increase the projected reserve for economic uncertainties from $375 million to $1.3 billion. A-13

50 The Proposition 98 minimum guarantee for , as estimated at the time of budget enactment, was $53.8 billion. The Legislature determined that the State could not afford to fund at that level and suspended the Proposition 98 minimum guarantee for The $49.7 billion provided in the budget for Proposition 98 funding in is $4.1 billion lower than the guarantee. As a result of the suspension, that amount became a maintenance factor obligation, which will require the State to increase K 14 funding in the future by that amount. The LAO estimated that, at the end of , the State would have an outstanding maintenance factor obligation of $9.6 billion. Despite the total Proposition 98 funding level s remaining relatively flat from to , significant declines in local property tax revenues necessitated an increase in general fund spending. For , the State expected to achieve some participation/attendance related savings from its K 3 Class Size Reduction, Economic Impact Aid, and special education programs. Most of the savings, however, come not from cuts but from payment deferrals with the largest spending change in being a $1.7 billion deferral of K 12 payments until (The LAO estimated that, together with prior-year deferrals, the State would be deferring more than $8 billion in Proposition 98 payments.) The budget and related bills (the budget package ) provide $300 million in non Proposition 98 general fund monies to support two mandate related actions. The funds constitute a first payment toward reducing the State s Proposition settle up obligation. Of the $300 million, the State budgeted $90 million for the cost of mandates. Providing this annual payment effectively stops the State s practice of deferring K 14 mandate payments, which a Superior Court in 2008 declared unconstitutional. In addition, the State allocated $210 million on a per student basis, with monies first used for any unpaid prior year K 14 mandate claims. This latter action was intended to help pay off a portion of the K 14 mandate backlog. The budget package also included several provisions that reduce the State s mandate related debt in future years and relieve districts from performing certain mandated activities, reduce costs associated with several mandates, and suspend all or part of other mandates. Even with the mandate actions taken as part of the budget package, the LAO estimated the State would end with $3.7 billion in unpaid K 14 mandate claims costs that the State is constitutionally required to pay at some point in the future. In addition to these constitutional obligations, the State has kept track of recent foregone cost of living adjustments (COLAs) as well as base reductions to K 12 revenue limits, and it has made a statutory commitment to increase K 12 revenue limits accordingly at some point in the future. The estimated cost of funding these COLAs and restoring these cuts is $7.2 billion. (The State would need to provide this amount every year on an ongoing basis to retire what is commonly referred to as the statutory revenue limit deficit factor. ) LAO s Fiscal Outlook Report. In a report released on November 10, 2010, the LAO projected a current year deficit of $6 billion based on its assumption that the State will be unable to secure around $3.5 billion of budgeted federal funding in fiscal year , projected higher-than-budgeted costs in prisons and other programs, and assumed that the passage of Proposition 22 will prevent the State from achieving approximately $800 million of budgeted solutions in fiscal year The LAO also predicted that the temporary nature of most of the State Legislature s 2010 budgetbalancing actions and the extremely slow economic recovery would contribute to a $19 billion projected operating deficit in fiscal year The LAO also projected annual budget deficits of about $20 billion each year through The LAO projected that general fund tax revenues would decline significantly in , because of the expiration of temporary tax increases and other factors, which would in turn reduce the Proposition 98 minimum guarantee. The LAO s forecast was that the guarantee will decline from $49.7 billion in (when the Legislature suspended Proposition 98) to $47.5 billion in If the Legislature funds schools at the forecasted minimum guarantee in , school districts would face A-14

51 significant programmatic reductions due to the decline in Proposition 98 funding coupled with the State s cost of the payments deferred into as one-time fiscal year budget solutions. Fiscal Year Proposed Budget. On January 10, 2011, Governor Brown submitted the proposed State Budget to the State Legislature. The Administration now forecasts current law General Fund revenues and transfers of $90.7 billion in This is up by $3.7 billion (4.2%) from revenues, but down by $3.5 billion (3.7%) from the revenue forecast adopted with passage of the State Budget in October The Governor s proposed budget estimates that, without corrective action by the Legislature and the Governor, the State would end with a $25.4 billion deficit. The Governor s plan, totaling $26.4 billion in budget solutions, relies on a mixture of expenditure reductions, tax increases, and borrowing from special funds and other sources. The Governor s proposed budget projects $89.7 billion of General Fund revenues for and would authorize $84.6 billion of expenditures. If adopted and achieved in full, the Governor s budget plan would leave the State with a reserve of around $1 billion at the end of The Governor s proposal funds Proposition 98 at the minimum guarantee in The proposed spending level assumes adoption of the Governor s tax plan to raise $4.8 billion in additional State General Fund revenues, primarily from the extension of higher personal income tax rates. These additional revenues increase the Proposition 98 minimum guarantee by $2 billion in Absent these additional revenues, the minimum guarantee would have fallen year over year, whereas, with the additional revenues, the guarantee stays virtually flat. Under the Governor s plan, K-12 programmatic funding per student decreases by about $100 or 1.4% from to Most of the decline in K 12 per student funding is attributable to the loss of federal stimulus funding. The Governor s Proposition 98 plan includes $2.2 billion in new inter year deferrals of K-12 revenue limit payments from to Although the Administration has not yet determined from which months K-12 revenue limit payments would be deferred, it has indicated that deferrals likely would not be repaid until September or October of In addition to the inter year deferrals, the Governor proposes to continue intra year deferrals to help with the State s cash flow problems. The Governor s intra year deferral plan would delay $2.5 billion in K-12 payments beginning in July 2011, reflecting the same magnitude as the intra year deferrals. The Governor s plan also includes a two-year extension of existing K-12 fiscal relief options. The Governor proposes to extend categorical flexibility from through With this flexibility, school districts can use the funding associated with about 40 categorical programs for any educational purpose.) The Governor s plan also would extend the existing K-3 Class Size Reduction rules from through (These rules apply more modest funding reductions to K-3 classes that exceed 20 students.) Additionally, the Governor proposes extending for two years the existing statutory provisions that reduce routine maintenance requirements, suspend deferred maintenance requirements, postpone instructional materials purchases, and lower unrestricted budget reserve requirements. Election to Extend Temporary Taxes. The Governor s budget plan called for asking voters to approve a five-year extension of temporary income, sales and vehicle taxes before they expire at the end of June However, the Governor has been unable to obtain the 2/3 vote of the California Legislature needed to call a special statewide election in June. Without extension of the temporary taxes, significant additional cuts to education funding will be required to balance the budget. Enacted Budget Trailer Bills. On March 24, 2011, the Governor signed into law several budget trailer bills, even though the fiscal year State budget is yet to be finalized. One bill signed into law, Senate Bill No. 70 (Chapter 7, Statutes of 2011) ( SB 70 ), provides certain statutory changes in the area of education in order to enact modifications to the fiscal year State budget and fiscal year State budget. Among other things SB 70: A-15

52 Provides a revenue limit deficit factor of % for fiscal year to reflect a deficit of $7.7 billion for school districts. Establishes a zero percent cost-of-living adjustment (COLA) for K-12 programs in fiscal year Though the actual COLA of 1.67% is not provided, it is applied to the deficit factors established in the bill. Defers an additional $2.1 billion in K-12 funds from fiscal year to fiscal year Specifically, SB 70 shifts $1.3 billion in March 2012 payments and $763 million in April 2012 payments to August This schedule is shorter than the 13-month deferral proposed in the Proposed State Budget. Extends for an additional two years (to fiscal year ) various flexibility options relating to deferred maintenance contributions, use of proceeds from the sale of surplus real property, general fund reserve requirements, categorical program funding expenditures, reduction of instructional minutes, Class Size Reduction Program penalties, and new State instructional materials purchase and adoption requirements. Authorizes a statutory appropriation for the K-3 Class Size Reduction program for fiscal year The statute authorizes the Superintendent of Public Instruction to certify the funding needed for the program in fiscal year to ensure full funding for the program. Suspends the statutory division of Proposition 98 funding among K-12 educational agencies, community colleges, and other state agencies, and instead conforms the division of funding based upon actual budget appropriations in fiscal year Requires the state to adjust the Proposition 98 calculation so that any shift in local property taxes previously received by redevelopment agencies has no effect on the Proposition 98 minimum guarantee in fiscal year May Revision of Fiscal Year Proposed Budget. On May 16, 2011, the Governor released his May Revision of the proposed State budget. The administration now estimates that the State s budget gap for and has been reduced from its previous estimate of $25 billion to $9.6 billion, owing to over $13 billion of expenditure actions, fund shifts, and other measures approved by the Legislature earlier this year and an estimated $6.6 billion improvement in State tax collections. These improvements are offset by some higher spending estimates. To achieve a $1.2 billion General Fund reserve at the end of , the Governor proposes a net amount of $10.8 billion of budget balancing actions. The May Revision reduces the amount proposed to be generated from various tax extensions by about $3 billion from the January proposal. The Governor proposes that the tax extensions be approved by the Legislature and then submitted to the voters for ratification but has not proposed a specific date for the election. The May Revision also reflects a $3 billion increase in the Proposition 98 minimum funding guarantee for schools and community colleges owing to (1) estimated improvements in both State personal income tax and local property tax collections, (2) an expansion of the administration s new revenue accrual policy, and (3) two adjustments (or rebenchings ) of the guarantee so that the minimum guarantee is held harmless for specific changes in tax policy and shifts in programmatic responsibilities. According to the LAO, the legality of the rebenchings is uncertain, because the California Constitution is silent on whether the Proposition 98 minimum guarantee can be adjusted to account for policy changes. While the March legislation contained a new $2.2 billion deferral of K 14 payments in (bringing total K 14 deferrals up to $10.4 billion), the May Revision provides $2.8 billion to eliminate A-16

53 the new deferrals and begin paying down prior year deferrals. Specifically, the May Revision provides $2.5 billion to reduce K 12 deferrals and $350 million to reduce community college deferrals. Thus, while State expenditures under Proposition 98 will increase compared to the January budget proposal, school districts will not experience a net increase in expenditure authority. Additional Information on State Finances The full text of the adopted state budget may be found at the internet website of the California Department of Finance, under the heading California Budget, and the Legal Analyst s Office overview of the state budget may be found at The complete May Revision is available from the California Department of Finance website at In addition, various State of California official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on school districts in the State, may be found at the website of the State Treasurer, Periodic reports on revenues and/or expenditures during the fiscal year are issued by the Governor s Office, the State Controller s Office and the LAO. The Department of Finance issues a monthly Bulletin, which reports the most recent revenue receipts as reported by State departments, comparing them to budget projections. The Governor s Office also formally updates its budget projections three times during each fiscal year, in January, May and at budget enactment. These bulletins and other reports are available on the Internet. The information referred to above is prepared by the respective State agencies maintaining each website and not by the District, and the District can take no responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references. Future State Budgets The District cannot predict what actions will be taken in the future by the Legislature and the Governor to deal with changing State revenues and expenditures or the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and state economic conditions and other factors over which the District will have no control. Certain actions could result in a significant shortfall of revenue and cash, and could impair the State s ability to fund schools as budgeted. Legal Challenge to State s Funding Method From time to time, litigation is filed challenging the constitutionality of various aspects of the system of financing for public schools in California. In the latest such case, Maya Robles-Wong, et al. v. State of California, filed May 20, 2010, a plaintiff class of California public school students, several school districts, and the California Congress of Parents, Teachers & Students, the Association of California School Administrators and the California School Boards Association seeks a permanent injunction compelling the State to abandon the existing system of public school finance in favor of one that would provide equal educational opportunity to all school-aged children in the State. On January 14, 2011, the Superior Court dismissed major portions of the case, allowing the plaintiffs to proceed only on the question of whether State's public education funding scheme provides equal opportunities to students throughout the State but rejecting that part that claimed that the State constitution mandates an overall qualitative standard for public education. A-17

54 The District is not a party to the case. The District cannot predict the outcome of the Robles- Wong litigation. However, if successful, the lawsuit could result in a change in how education funding is implemented in the State. State Funding of Schools Without A State Budget On May 29, 2002, the Court of Appeal of the State of California for the Second Appellate District in White v. Davis et al. (combined with Howard Jarvis Taxpayers Association et al. v. Westly in appeal) held, among other things, that absent adoption of a budget bill or an emergency appropriation by the Legislature, the State Controller may disburse State funds authorized by (a) a continuing appropriation enacted by the Legislature, (b) a self-executing provision of the State Constitution, including payment of certain funds for public schools under Article XVI, Section 8.5 of the Constitution, and (c) mandate of federal law, such as prompt payment of minimum wage and overtime compensation mandated by the federal Fair Labor Standards Act and benefits under federal food stamp, foster care and adoption, child support and child welfare programs. The Court of Appeal specifically concluded that Article XVI, Section 8.0 does not constitute a self-executing authorization to disburse revenue limit apportionment to school districts; legislative appropriation is required for revenue limit disbursement. On May 1, 2003, the California Supreme Court in its decision in White v. Davis et al. granted review to two other matters and let these particular conclusions of the Court of Appeal stand without ruling on them. During the State budget impasse, the State Controller announced that only payments of prior year obligations, constitutional authorizations, federal mandates and continuous legislative appropriations would be made. The State Controller concluded that revenue limit apportionments to school districts, under provisions of the Education Code implementing Article XVI, Section 8 of the State constitution, are authorized as continuous legislative appropriations, so disbursed these funds without a budget bill or emergency appropriation enacted. The State Controller did not disburse certain categorical and other funds to school districts until the Budget Act was enacted. During the recent delayed adoption of the budget, the State Controller also delayed these disbursements until the Budget Act was enacted. State Funding of School Construction The State makes funding for school facility construction and modernization available to K-12 districts throughout the State through the Office of Public School Construction ( OPSC ) and the State Allocation Board ( SAB ), from proceeds of State general obligation bonds authorized and issued for this purpose (the State Facility Program ). Such bonds were authorized in the amount of $13.05 billion, $11.40 billion of which were for K-12 school facilities and $1.65 billion of which were for higher education facilities, on November 5, 2002 under Proposition 47, passed by 58.9% of the State-wide vote. An additional bond measure for education capital projects was approved on March 2, 2004 under Proposition 55, passed by 50.6% of the State-wide vote, in an authorization amount of $12.3 billion, $10.0 billion of which is for K-12 school facilities and $2.3 billion of which is for higher education facilities. A State general obligation bond measure that includes $7.329 billion for construction, modernization and related purposes for K-12 school districts was approved by a majority of voters in the November 7, 2006 State-wide election. The SAB allocates bond funds for 50% of approved new construction costs, 60% of approved modernization costs (80% for modernization project applications made prior to February 1, 2002), or up to 100% of approved costs of any type if the school district is approved for hardship funding. The school district is responsible for the portion of costs not funded by the State, commonly funding their portion with their own general obligation bonds, certificates of participation or accumulated builder s fee revenue. School districts routinely apply for such funding whenever they have projects they believe meet OPSC and SAB criteria for funding. A-18

55 State Retirement Programs School districts participate in the State of California Teachers Retirement System ( STRS ). STRS covers all full-time and most part-time employees with teaching certificates. In order to receive STRS benefits, an employee must be at least 55 years old and have provided five years of service to California public schools. School districts also participate in the State of California Public Employees Retirement System ( PERS ). PERS covers all classified personnel, generally those employees without teaching certificates, who are employed at least four hours per day. In order to receive PERS benefits, an employee must be at least 50 years old and have had five years of covered PERS service as a public employee. Contribution rates to PERS varies with changes in actuarial assumptions and other factors, such as changes in benefits and investment performance, and are set by a State retirement board for PERS. The contribution rates are set by statute for STRS at a constant 8.25% of salary. STRS has a substantial State-wide unfunded liability. Under current law, the liability is the responsibility of the State and not of individual school districts. See DISTRICT INFORMATION District Retirement Systems herein for information regarding the District s contributions to these retirement systems. County Office of Education In each county there is a county superintendent of schools (the County Superintendent ) and a county board of education. The Office of the County Superintendent, frequently known as the County Office of Education (the County Office herein) in each county provides the staff and organization that carries out the activities and policies of the County Superintendent and county board of education for that county. County Offices provide instructional and support services to school districts within their counties, and various State mandated services county-wide, particularly in special education and juvenile court education services. County Office business services departments act as a control point for a variety of information, including pupil data collection, attendance accounting, teacher credential registration, payroll accounting, retirement and tax information and school district budgets, and also report such information to the State Department of Education. All school district budgets must be approved by their County Office and each district must provide its County Office with scheduled interim reports throughout the fiscal year. County Offices also act as enforcement entities which intervene in district fiscal matters should a district fail to meet State budget and reporting criteria. The District is under the jurisdiction of, and is served by, the County Office for San Joaquin County. School District Budget Process School districts are required by provisions of the State Education Code to maintain a balanced budget each year, in which the sum of expenditures and the ending fund balance cannot exceed the sum of revenues and the carry-over fund balance from the previous year. School districts annual general fund expenditures are characterized in large part by multi-year expenditure commitments such as union contracts. Year-to-year fluctuations in State and local funding of school district general funds could result in revenue decreases which, if large enough, may not easily be offset by an equal reduction in expenditures until at least the following fiscal year. School districts are required by State law to maintain general fund reserves which can be drawn upon in the event of a resulting excess of expenditures over revenues for a given fiscal year. The State Department of Education imposes a uniform budgeting and accounting format for school districts. A-19

56 School districts must adopt a budget no later than June 30 of each year. The budget must be submitted to the County Superintendent within five days of adoption or by July 1, whichever occurs first. A district may be on either a dual or single budget cycle. The dual budget option requires a revised and readopted budget by September 1 that is subject to State mandated standards and criteria. The revised budget must reflect changes in projected income and expenses subsequent to July 1. The single budget is only readopted if it is disapproved by the County Superintendent, or as needed. Under either procedure, the school board must revise its adopted budget within 45 days after the Governor signs the State budget act to reflect any changes in budgeted revenues or expenditures made necessary by the adoption of the State s budget. For both dual and single budgets submitted on July 1, the County Superintendent will examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical corrections necessary to bring the budget into compliance, and will determine if the budget allows the district to meet its current obligations and is consistent with a financial plan that will enable the district to meet its multi-year financial commitments. On or before August 15, the County Superintendent will approve or disapprove the adopted budget for each school district. Pursuant to State law, the county superintendent has available various remedies by which to impose and enforce a budget that complies with State criteria, depending on the circumstances, if a budget is disapproved. Subsequent to approval, the County Superintendent throughout the fiscal year is authorized to monitor each school district under his or her jurisdiction pursuant to its adopted budget to determine on an ongoing basis if the district can meet its current or subsequent year financial obligations. If a County Superintendent determines that a district cannot meet its current or subsequent year obligations, the County Superintendent will notify the district s governing board of the determination and the County Superintendent may do either or both of the following: (a) assign a fiscal advisor to enable the district to meet those obligations or (b) if a study and recommendations are made and a district fails to take appropriate action to meet its financial obligations, the County Superintendent will so notify the State Superintendent of Public Instruction, and then may do any or all of the following for the remainder of the fiscal year: (i) request additional information regarding the district s budget and operations; (ii) develop and impose, after also consulting with the district s board, revisions to the budget that will enable the district to meet its financial obligations; and (iii) stay or rescind any action inconsistent with such revisions. However, the County Superintendent may not abrogate any provision of any collective bargaining agreement that was entered into prior to the date upon which the County Superintendent assumed authority. At minimum, school districts are required by statute to file with their County Superintendent and the State Department of Education a First Interim Financial Report by December 15 th covering financial operations from July 1 through October 31 st, and a Second Interim Financial Report by March 15 th covering financial operations from November 1 through January 31 st. Section of the Education Code requires that each interim report be certified by the school board as either (a) positive, certifying that the district, based upon current projections, will meet its financial obligations for the current fiscal year and subsequent two fiscal years, (b) qualified, certifying that the district, based upon current projections, may not meet its financial obligations for the current fiscal year or two subsequent fiscal years, or (c) negative, certifying that the district, based upon current projections, will be unable to meet its financial obligations for the remainder of the fiscal year or the subsequent fiscal year. A certification by a school board may be revised by the County Superintendent. If either the First or Second Interim Report is not positive, the County Superintendent may require the district to provide a Third Interim Financial Report by June 1 st covering financial operations from February 1 st through April 30 th. If not required, a Third Interim Financial Report generally is not prepared (though may be at the election of the district). Each interim report shows fiscal year to date financial operations and the current budget, with any budget amendments made in light of operations and conditions to that point. After the close of A-20

57 the fiscal year, an unaudited financial report for the fiscal year is prepared and filed without certification with the County Superintendent and the State Department of Education. The District has never had an adopted budget disapproved by the county superintendent of schools. The District filed a qualified certification for its First Interim Financial Report and its Second Interim Financial Report for fiscal year Temporary Inter-Fund Borrowing The Education Code generally authorizes a school district to temporarily transfer cash from a specific purpose fund to any other district fund by district board action, including transfer of cash from proceeds of general obligation bonds; provided that, (a) the transferred cash is repaid to the original fund within the same fiscal year or (b), if transferred within the final 120 days of a fiscal year, then repaid to the original fund within the following fiscal year. However, depending on the circumstances of a particular such transfer, other State law, grant or contractual restrictions, or in the case of proceeds of taxexempt obligations, federal tax law, may apply and may further restrict the use of such cash. Accounting Practices The accounting policies of California school districts conform to generally accepted accounting principles, as modified in accordance with policies and procedures of the California School Accounting Manual. This manual, pursuant to Section of the Education Code, is to be followed by all California school districts. Revenues are recognized in the period in which they become both measurable and available to finance expenditures of the current fiscal period. Expenditures are recognized in the period in which the liability is incurred. See APPENDIX B Audited Financial Statements of the District for Fiscal Year Ended June 30, 2010 for further discussion of applicable accounting policies. County Investment Pool In accordance with Education Code Section 41001, each California public school district maintains substantially all of its operating funds in the county treasury of the county in which it is located, and each county treasurer or finance director serves as ex officio treasurer for those school districts located within the county. Each county treasurer or finance director has the authority to invest school district funds held in the county treasury. Generally, the county treasurer or finance director pools county funds with school district funds and funds from certain other public agencies within the County and invests the cash. These pooled funds are carried at cost. Interest earnings are accounted for on either a cash or accrual basis and apportioned to pool participants on a regular basis. Each county treasurer is required to invest funds, including those pooled funds described above, in accordance with Government Code Sections et seq. In addition, each county treasurer is required to establish an investment policy which may impose further limitations beyond those required by the Government Code. Certain information concerning the County s pooled investment policy and its portfolio as of January 31, 2011, are included herein. See COUNTY INVESTMENT POOL. A-21

58 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS The information in this section concerning certain provisions of Articles XIIIA, XIIIB, XIIIC and XIIID of the State constitution, Propositions 98 and 111 and certain other law is provided as supplementary information only, to outline the principal constitutional and statutory laws under which the operating revenue and finances of K-12 school districts in the State are determined. The tax for the Bonds was approved in conformity with all applicable constitutional and statutory limitations. For specific financial information on the District, see DISTRICT INFORMATION herein. Article XIIIA - Limit on Property Tax Article XIIIA of the State constitution (the Constitution ) limits, subject to certain exceptions, the amount of ad valorem taxes on real property to 1% of full cash value as determined by the county assessor. Article XIIIA defines full cash value to mean the county assessor s valuation of real property as shown on the tax bill under full cash value or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment, subject to exemptions in certain circumstances of property transfer or reconstruction. The full cash value is subject to annual adjustment to reflect increases, not to exceed 2% for any year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors. Article XIIIA requires a vote of two-thirds of those voting in an election to impose ad valorem taxes, and, except to pay debt service on certain voter approved indebtedness, prohibits the imposition of any additional ad valorem, sales or transaction taxes on real property. Article XIIIA does permit ad valorem taxes to be levied in excess of the basic 1% tax limitation as required to pay debt service (a) on any indebtedness approved by the voters prior to July 1, 1978, (b) on any bonded indebtedness approved by two-thirds of the votes cast by the voters for the acquisition or improvement of real property on or after July 1, 1978, or (c) on any bonded indebtedness approved by fifty-five percent of the votes cast by the voters of a school or community college district for the construction, reconstruction, rehabilitation or replacement of, including furnishing and equipping of, or the acquisition or lease of real property for, school facilities, provided that certain accountability and other requirements are satisfied. In addition, Article XIIIA requires the approval of two-thirds of all members of the State Legislature to change any State taxes for the purpose of increasing tax revenues, while prohibiting the imposition by the State Legislature of any new ad valorem, sales or transaction taxes on real property. Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax except to pay voter-approved indebtedness. The 1% property tax is automatically levied by each county in the State and distributed according to a formula among taxing agencies within that county. The formula apportions the tax roughly in proportion to the relative shares of taxes last levied prior to That portion of annual property tax revenues generated by increases in assessed valuations within each tax rate area within a county, subject to redevelopment agency claims, if any, on tax increment and subject to changes in organization, if any, of affected jurisdictions, is allocated to each jurisdiction within the tax rate area in the same proportion that the total property tax revenue from the tax rate area for the prior year was allocated to such jurisdictions. Article XIIIB - Appropriations Limit Article XIIIB of the Constitution, approved by voters in 1979 and subsequently amended by Propositions 98 and 111, limits the annual appropriations of the State and of any city, county, school A-22

59 district, authority or other political subdivision of the State, to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and in population, for transfers in the financial responsibility for providing services and for certain declared emergencies (the Gann limit ). As amended, Article XIIIB defines: (a) (b) change in the cost of living with respect to school districts to mean the percentage change in California per-capita income from the preceding year, and change in population with respect to a school district to mean the percentage change in the average daily attendance of the school district from the preceding fiscal year. The appropriations of an entity of local government subject to Article XIIIB limitations include the proceeds of taxes levied by or for that entity and the proceeds of certain State subventions to that entity. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to the entity from (a) regulatory licenses, user charges and user fees (but only to the extent that these proceeds exceed the reasonable costs in providing the regulation, product or service), and (b) the investment of tax revenues. For school districts, Article XIIIB constrains appropriations from State and local tax sources, but not federal aid or non-tax income, such as revenues from cafeteria sales or adult education fees. Appropriations subject to limitation do not include (a) refunds of taxes, (b) appropriations for debt service, (c) appropriations required to comply with certain mandates of the courts or the federal government, (d) appropriations of certain special districts, (e) appropriations for all qualified capital outlay projects as defined by the legislature, (f) appropriations derived from certain fuel and vehicle taxes and (g) appropriations derived from certain taxes on tobacco products. Article XIIIB includes a requirement that all revenues received by an entity of government other than the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be returned by a revision of tax rates or fee schedules within the next two fiscal years. If a school district receives any proceeds of taxes in excess of its appropriations limit, it may increase its appropriations limit to equal that amount by taking the appropriations limit from the State. Article XIIIB also includes a requirement that fifty percent of all revenues received by the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be transferred and allocated to the State School Fund pursuant to Section 8.5 of Article XVI of the Constitution. See Propositions 98 and 111 below. Article XIIIB does not impact the ability of the County to levy and collect the property tax or pay debt service on District general obligation bonds. Propositions 98 and State Funding for School Districts On November 8, 1988 the voters approved Proposition 98, an initiative constitutional amendment and statute called The Classroom Instructional Improvement and Accountability Act ( Proposition 98 ). In addition to adding certain provisions to the California Education Code, Proposition 98 also amended Article XIIIB and Section 8 of Article XVI of the Constitution and added Section 8.5 of Article XVI to the Constitution, the effects of which are to establish a minimum level of State funding for school districts, to allocate to school districts, within limits, State revenues in excess of the State s appropriations limit and to exempt such excess funds from school district appropriations limits. On June 5, 1990, the voters approved Proposition 111 (Senate Constitutional Amendment No. 1) called the Traffic Congestion Relief and Spending Limit Act of 1990 ( Proposition 111 ) which further A-23

60 modified Article XIIIB and Sections 8 and 8.5 of Article XVI of the Constitution with respect to appropriations limitations and school funding priority and allocation. Article XIIIB, as amended by both Proposition 98 and Proposition 111, is discussed above under Article XIIIB. The provisions of Sections 8 and 8.5 of Article XVI, as added to or amended by Propositions 98 and 111, may be summarized as follows: (a) State Funding of Schools (Section 8). Monies to be applied by the State for the support of school districts must be at a level equal to the greater of the following tests : (i) The amount which, as a percentage of the State general fund revenues which may be appropriated pursuant to Article XIIIB, equals the percentage of general fund revenues appropriated for school districts in fiscal year ; (ii) The amount actually appropriated to school districts in the prior fiscal year from general fund proceeds and from allocated local proceeds of taxes (excluding any excess state revenues allocated pursuant to Section 8.5), adjusted for changes in enrollment and for the change in the cost of living (operative only in a fiscal year in which the percentage growth in California per capita personal income is less than or equal to the percentage growth in per capita general fund revenues plus one-half of one percent); (iii) The amount actually appropriated to school districts in the prior fiscal year from general fund proceeds and from allocated local proceeds of taxes (excluding any excess State revenues allocated pursuant to Section 8.5) adjusted for changes in enrollment and for the change in per capita general fund revenues, and, in addition, an amount equal to one-half of one percent times the prior year appropriations (excluding any excess State revenues) adjusted for changes in enrollment (operative only in a fiscal year in which the percentage growth in California per capita personal income is greater than the percentage growth in per capita general fund revenues plus one-half of one percent). If the third test is used in any year the difference between the third test and the second test will become a credit to schools which will be paid in future years when the general fund revenue growth exceeds personal income growth. The State legislature by a two-thirds vote of both houses, with the Governor s concurrence, may suspend for one year the minimum funding provisions for school districts as provided for in Section 8. (b) Allocations to the State School Fund (Section 8.5). In addition to the amounts applied to school districts under the tests discussed above, the State Controller is directed to allocate available excess State revenues (pursuant to Article XIIIB) to the State School Fund. However, no such allocation is required at any time that the Director of Finance and the Superintendent of Public Instruction mutually determine that current annual expenditures per student equal or exceed the average annual expenditures per student of the 10 states with the highest annual expenditures per student and the average class size equals or is less than the average class size of the 10 states with the lowest class size. Such allocations do not constitute appropriations subject to Article XIIIB limitations and are to be made in an equal amount per enrollment. A-24

61 The State s estimate of the total guaranteed amount varies through the stages of the annual budgeting process, from the Governor s initial budget proposal to actual expenditures to post-year-end revisions, as various factors change. The guaranteed amount will increase as enrollment and per capita personal income grow. If, at year-end, the guaranteed amount is calculated to be higher than the amount actually appropriated in that year, the difference becomes an additional education funding obligation, referred to as settle-up. If the amount appropriated is higher than the guaranteed amount in any year, that higher funding level permanently increases the base guaranteed amount in future years. If the Proposition 98 guaranteed amount is suspended, in subsequent years in which State general fund revenues are growing faster than personal income (or sooner, as the Legislature may determine), the funding level must be restored to the guaranteed amount. The State has also sought to avoid or delay paying settle-up amounts when State revenues have lagged. The State has also sought to avoid increases in the base guaranteed amount through several devices: by treating any excess appropriations as advances (or loans) against subsequent years Proposition 98 minimum funding levels rather than current year increases; by permanently deferring yearend apportionments of Proposition 98 funds from June 30 to July 2, to reduce the ending fiscal year s base; and by suspending Proposition 98, as the State did in The California Teachers Association, the State Superintendent and others sued the State or Governor in 1995, 2005 and 2009 to force them to fund the full settle-up amounts. Existing settle-up obligations are estimated by the Legislative Analyst to total over $4 billion. While legislation adopted to implement the settlements of these suits requires the State to pay down the obligation in annual installments, the repayments have also become part of annual budget negotiations, resulting in repeated adjustments and deferrals of the settle-up amounts. Propositions 1A and 22 - Limit On Property Tax Revenue Shifts To School Districts In recent years, the State s response to fiscal difficulties has had a significant impact on Proposition 98 funding and settle-up treatment. In , , , and , the State required counties, cities, and special districts to shift property tax revenues to school districts through a local Educational Revenue Augmentation Fund (ERAF) in each county, thereby relieving the State General Fund of some of the burden of the Proposition 98 guarantee. At the November 2004 election, State voters approved Proposition 1A, which prohibits the State from shifting property taxes from other local governments to school or community college districts without a two-thirds vote of both houses of the State Legislature. Proposition 22, approved by State voters on November 2, 2010, prohibits the State from enacting new laws that require redevelopment agencies to shift funds to schools or other agencies and eliminated the State s authority to shift property taxes temporarily during a severe financial hardship of the State that had been permitted by Proposition 1A. As a result of these changes, the State will have to rely more heavily on State general fund moneys for Proposition 98 funding of school districts. Articles XIIIC and XIIID - Right to Vote on Taxes, Assessments, Fees and Charges On November 5, 1996, the voters of the State approved Proposition 218, the so-called Right to Vote on Taxes Act. Proposition 218 added Articles XIIIC and XIIID to the Constitution, which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect taxes, assessments, fees and charges. Among other things, Article XIIIC establishes that every tax is either a general tax (imposed for general governmental purposes) or a special tax (imposed for specific purposes); prohibits special purpose government agencies such as school districts from levying general taxes; and prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds vote. Article XIIIC also provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the Constitution and special taxes approved by a two-thirds vote under Article XIIIA, A-25

62 Section 4. The ad valorem property tax levied to pay debt service on the District s general obligation bonds is a special tax approved by two-thirds of the District s voters in the manner required by Article XIIIC. Article XIIIC also provides that the initiative power shall not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. In respect to school district general obligation bonds, the Constitution and laws of the State impose a mandatory duty on county tax collectors to levy a property tax sufficient to pay debt service on such bonds coming due in each year. The initiative power cannot be used to reduce or repeal the authority and obligation to levy such taxes which are pledged as security for payment of such bonds or to otherwise interfere with performance of the mandatory duty of a school district and its county with respect to such taxes which are pledged as security for payment of such bonds. Legislation adopted in 1997 provides that Article XIIIC shall not be construed to mean that any owner or beneficial owner of a municipal security assumes the risk of, or consents to, any initiative measure which would constitute an impairment of contractual rights under the contracts clause of the U.S. Constitution. Voter approved special taxes (including those levied pursuant to the Mello-Roos Community Facilities Act), parcel taxes and assessments levied pursuant to the Landscape and Lighting District Act of 1972 (among other assessments), that are not pledged to the payment of bonds, may be subject to reduction or repeal by voter initiative under the provisions of Article XIIIC. Article XIIID deals with assessments and property-related fees and charges. Article XIIID explicitly provides that nothing in Article XIIIC or XIIID shall be construed to affect laws existing prior to enactment of Articles XIIIC and XIIID relating to the imposition of fees or charges as a condition of property development; however it is not clear whether the initiative power is therefore unavailable to repeal or reduce developer and mitigation fees imposed by a school district. By its terms, Article XIIID does not apply to ad valorem property tax of the type levied to pay debt service on the District s general obligation bonds. The interpretation and application of Article XIIIC and Article XIIID will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination. Future Initiatives Articles XIIIA, XIIIB, XIIIC and XIIID and Propositions 98, 111 and 1A were each adopted as measures that qualified for the ballot pursuant to the State s initiative process. From time to time other initiative measures could be adopted, further affecting school districts revenues or ability to expend revenues. A-26

63 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2010 B-1

64 STOCKTON UNIFIED SCHOOL DISTRICT COUNTY OF SAN JOAQUIN STOCKTON, CALIFORNIA FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED JUNE 30, 2010 AND INDEPENDENT AUDITOR'S REPORT II PERRY-SMITH THE POWER OF CONFIDENCE

65 STOCKTON UNIFIED SCHOOL DISTRICT FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION For the Year Ended June 30, 2010 TABLE OF CONTENTS Page Independent Auditor's Report 1-2 Management's Discussion and Analysis 3-15 Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Assets 16 Statement of Activities 17 Fund Financial Statements: Balance Sheet - Governmental Funds 18 Reconciliation of the Governmental Funds Balance Sheet - to the Statement of Net Assets 19 Statement of Revenues, Expenditures and Change in Fund Balances - Governmental Funds 20 Reconciliation of the Statement of Revenues, Expenditures and Change in Fund Balances - Governmental Funds - to the Statement of Activities Statement of Fund Net Assets - Proprietary Fund - Self-Insurance Fund 23 Statement of Revenues, Expenses and Change in Fund Net Assets - Proprietary Fund - Self-Insurance Fund 24 Statement of Cash flows - Proprietary Fund - Self-Insurance Fund 25 Statement of Fiduciary Net Assets - Trust and Agency Funds 26 Statement of Change in Fiduciary Net Assets - Fiduciary Fund 27 Notes to Basic Financial Statements 28-53

66 STOCKTON UNIFIED SCHOOL DISTRICT FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION For the Year Ended June 30, 2010 TABLE OF CONTENTS (Continued) Pane Required Supplementary Information: General Fund Budgetary Comparison Schedule 54 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 55 Supplementary Information: Combining Balance Sheet - All Non-Major Funds 56 Combining Statement of Revenues, Expenditures and Change in Fund Balances - All Non-Major Funds 57 Organization 58 Schedule of Average Daily Attendance Schedule of Instructional Time 61 Schedule of Expenditure of Federal Awards Reconciliation of Unaudited Actual Financial Report with Audited Financial Statements 64 Schedule of Financial Trends and Analysis 65 Schedule of Charter Schools 66 Notes to Supplementary Information Independent Auditor's Report on Compliance with State Laws and Regulations Independent Auditor's 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 on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A

67 STOCKTON UNIFIED SCHOOL DISTRICT FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION For the Year Ended June 30, 2010 TABLE OF CONTENTS (Continued) Findings and Recommendations: Schedule of Audit Findings and Questioned Costs Status of Prior Year Findings and Recommendations

68 M PERRY-SMITH THE POWER OF CONFDENCE Perry-Smith LLP 400 Capitol Mall I Suite 1200 Sacramento, CA INDEPENDENT AUDITOR'S REPORT Board of Education Stockton Unified School District Stockton, California We have audited the accompanying financial statements of the governmental activities, each major fund and the aggregate remaining fund information of Stockton Unified School District, as of and for the year ended June 30, 2010, which collectively comprise Stockton Unified School District's basic financial statements as listed in the Table of Contents. These financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 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 Stockton Unified School District as of June 30, 2010, and the respective changes in financial position and cash flows, where applicable, for the year then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated December 7, 2010 on our consideration of Stockton Unified School District's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Sacramento I San Francisco

69 INDEPENDENT AUDITOR'S REPORT (Continued) Management's Discussion and Analysis and the Required Supplementary Information, such as the General Fund Budgetary Comparison Schedule and the Schedule of Other Postemployment Benefits Funding Progress, are not required parts of the basic financial statements, but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purposes of forming an opinion on the financial statements that collectively comprise Stockton Unified School District's basic financial statements. The accompanying financial and statistical information listed in the Table of Contents, including the Schedule of Expenditure of Federal Awards, which is required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis and is not a required part of the basic financial statements of Stockton Unified School District. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Sacramento, California December 7, 2010 eftt-srv1:101n(aie

70 Stockton Unified School District Management's Discussion and Analysis An overview of Stockton Unified School District's financial activities for the fiscal year ended June 30, 2010, is presented in this discussion and analysis of the District's financial position and performance. This Management's Discussion and Analysis should be read in conjunction with the District's financial statements, including notes and supplementary information, which immediately follow this section. Financial Highlights Total government-wide revenue for the 2010 fiscal year was $366.1 million. Expenditures totaled $383 million. Net assets decreased by $16.9 million. This represents a 6% decrease over the prior year. Capital assets, net of depreciation, increased by $25.9 million. Projects completed during the fiscal year included the construction of Alex G. Spanos Elementary School, the modernization of Nolan D. Pulliam Elementary School, and District-wide networking and electrical upgrades. Construction and modernization work continued at a number of District school sites. Costs expended on projects in the construction phase totaled $73.7 million at the end of the fiscal year. Long-term debt increased by $17.1 million due, in part, to the issuance of $16.0 million in General Obligation Bonds. The bonds issued were given a credit rating of "A" by Standards & Poor's Rating Services. The proceeds from the sale of the notes will be used for construction projects at Nightingale and Van Buren Elementary schools, and Edison High School. Overview of the Financial Statements This annual report consists of three parts management's discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements that present different views of the District: The first two statements are government-wide financial statements that provide both short-term and longterm information about the District's overall financial status. The remaining statements are fund financial statements that focus on individual parts of the District, reporting the District's operations in more detail than the government-wide statements. The fund financial statements can be further broken down into three types: Governmental funds statements, which tell how basic services, such as regular and special education, were financed in the short-term, as well as what remains for future spending. Proprietary funds statements, offering short and long-term financial information about the activities the District operates like a business, such as the self-insurance and retiree benefit funds. Fiduciary funds statements, providing information about the financial relationships in which the District acts solely as trustee or agent for the benefit of others to whom the resources belong. 3

71 The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements with a comparison of the District's budget for the fiscal year The chart below summarizes the major features of the District's financial statements, including the portion of the District's activities they cover and the types of information they contain. The remainder of this overview section of management's discussion and analysis highlights the structure and contents of each of the statements. Major Features of the Government-wide and Fund Financial Statements Fund Statements Government-wide Statements Governmental Funds Proprietary Funds Fiduciary Funds Scope Entire District, except fiduciary activities The activities of the District that are not proprietary or fiduciary, such as special education and building maintenance Activities the District operates similar to private businesses: selfinsurance and retiree benefits. Instances in which the District administers resources on behalf of someone else, such as student activities monies. Required financial statements Statement of Net Assets Statement of Activities Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balance Statement of Net Assets Statement of Revenues, Expenses and Changes in Fund Net Assets Statement of Fiduciary Net Assets Statement of Cash Flows Accounting basis and measurement focus Accrual accounting and economic resources focus Modified accrual accounting and current financial resources focus Accrual accounting and economic resources focus Accrual accounting and economic resources focus Type of asset/liability information All assets and liabilities, both financial and capital, shortterm and long-term Only assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets included All assets and liabilities, both financial and capital, and short-term and long-term All assets and liabilities both short-term and longterm; Standard funds do not currently contain non-financial assets, though they can Type of inflow/outflow information All revenues and expenses during the year, regardless of when cash is received or paid Revenues for which cash is received during or soon after the end of the year; expenditures when goods or services have been received and payment is due during the year or soon thereafter All revenues and expenses during year, regardless of when cash is received or paid All revenues and expenses during the year, regardless of when cash is received or paid 4

72 Government-wide Statements The government-wide statements report information about the District as a whole using accounting methods similar to those used by private-sector companies. The Statement of Net Assets includes all of the District's assets and liabilities. All of the current year's revenues and expenses are accounted for in the Statement of Activities regardless of when cash is received or paid. The two government-wide statements report the District's net assets and how they have changed. Net Assets, the difference between the District's assets and liabilities, is one way to measure the District's financial health or position. Over time, increases or decreases in the District's net assets are an indicator of whether its financial position is improving or deteriorating. To assess the overall health of the District, you need to consider additional non-financial factors including the condition of the District's school buildings and other facilities. In the government-wide financial statements, the District's activities are reported as Governmental activities. Most of the District's services are included here, such as regular and special education, transportation, and administration. Funding received from the State of California through the revenue limit, along with categorical and special funding received from the federal and state governments, finance most of these activities. Fund Financial Statements The fund financial statements provide more detailed information about the District's most significant funds not the District as a whole. Funds are accounting devices the District uses to keep track of specific sources of funding and spending on particular programs: Some funds are required by state law and by bond covenants. The District establishes other funds to control and manage money for particular purposes or to show that certain revenues have been properly used. There are three types of funds that the District utilizes: Governmental funds Most of the District's basic services are included in governmental funds, which generally focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out, and (2) the balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed short-term view that helps in the determination of whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. Because this information does not encompass the additional long-term focus of the government-wide statements, we provide additional information at the bottom of the governmental funds statements that explain the relationship (or differences) between them. Proprietary funds Services for which the District charges a fee are generally reported in proprietary funds. Proprietary funds are reported in the same way as the government-wide statements. > Internal Service funds are used to report activities that provide supplies and services for the District's other programs and activities. The District currently has two internal service funds the self-insurance fund and the retiree benefits fund. Fiduciary funds The District is the trustee, or fiduciary, for assets that belong to others, such as the scholarship fund and the student activities funds. The District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. All of the District's fiduciary activities are reported in a separate Statement of Fiduciary Net Assets. These activities are excluded from the government-wide financial statements because the District cannot use these assets to finance operations. 5

73 Financial Analysis of the District as a Whole The computation of District net assets at June 30, 2010 and 2009 is presented by category in the table below: Government-Wide Activities 2010 I 2009 Year Over Year Change Current and other assets: Cash and investments $ 195,597,061 $ 222,690,526 $(27,093,465) Receivables 61,616,293 48,871,284 12,745,009 Inventories 1,223,495 1,379,292 (155,797) Other current assets 5,578,916 4,371,847 1,207,069 Capital assets, net of depreciation , ,776 Total assets 698,361, ,724,321 12,637,592 Long-term debt outstanding 368,026, ,967,088 17,058,934 Other liabilities 65,339,305 52,874, Total liabilities 433, ,841,915 29, Net assets: Invested in capital assets, net of related debt 206,143, ,904,578 4,238,443 Restricted 60,047,456 68,107,489 (8,060,033) Unrestricted (1, ) 11,870,339 (13, ) Total Net Assets $ 21A S 281,882,406 S(16,885,820) Total assets increased by $12.6 million during the 2010 fiscal year. Of this total, cash accounts decreased by $27.1 million and receivables increased by $12.7 million. Capital assets, net of depreciation, increased by a total of $25.9 million. Capital assets are discussed in more detail later in this Management Discussion and Analysis report. Total liabilities increased by $29.5 million. Long-term debt accounted for $17.1 million of this increase, primarily due to the issuance of $16.0 million in General Obligation Bonds. In addition, other liabilities increased by a total of $12.5 million. Other liabilities include accounts payable and deferred revenue. A discussion of the District's longterm debt is included later in this report. The difference between the $12.6 million increase to Total Assets and the $29.5 million increase to Total Liabilities results in a net $16.9 million decrease to Total Net Assets, a 6% change from the balance at June 30,

74 Changes in Net Assets A summary of total District revenues, expenses, and change in net assets is presented in the table below. Government-Wide Activities Year Over Year Change Revenues Program: Charges for Services $ 2,973,214 $ 3,059,949 $ (86,735) Operating Grants and Contributions 121,255, ,827,522 (12,572,019) Capital Grants and Contributions 6,903,894 21,395,442 (14,491,548) Revenues General: Unrestricted Federal and State Aid 179,598, ,653,764 (5,054,913) Taxes Levied for General Purposes 34,758,099 37,306,413 (2,548,314) Taxes Levied for Debt Service 15,515,064 19,161,752 (3,646,688) Taxes Levied for Other Purposes 1,061, , ,567 Interest and Investment Earnings 2,326,108 4,065,491 (1,739,383) Other General Revenues 1,734,049 3,345,585 (1,611,536) Total Revenues , ,195,618 (41,069,569) Expenses: Instruction 236,224, ,078, ,961 Pupil and Instructional Services 82,169,452 92,632,545 (10,463,093) General Administration 15,101,452 15,096,451 5,001 Plant Services 34,330,841 35,722,359 (1,391,518) Other Expenses 15,185,669 16,166,800 (981,131) Total Expenses 383,011, ,696,649 (12,684,780) Increase (Decrease) in Net Assets (16,885,820) 11,498,969 (28,384,789) Net Assets, Beginning of the Year 281,882, ,383,437 11,498,969 Net Assets, End of the Year $ 264,996,586 $ 281,882,406 $ (16,885,820) For the 2010 fiscal year, total District revenues were $366.1 million. Total District expenses were $383 million. The difference, $16.9 million, is the decrease in District net assets, reducing the total net assets at June 30, 2010 to $264.9 million. A main source of revenue for the District is the State Aid portion of the Revenue Limit, included in the Unrestricted Federal and State Aid total. The Revenue Limit is based on Average Daily Attendance (ADA), the fractional proportion of the number of days a student attends school to the number of days the student is enrolled. Enrollment, including the District's dependent charter schools, was higher in 2010 when compared with the prior school year. Total second month enrollment in Grades K 12 for the 2010 fiscal year was 37,310 students, an increase of 156 students from the 2009 year. When District charter schools are not included in the totals, enrollment continued in a declining pattern with a loss of 79 students from the prior year. Average Daily Attendance for the Second Reporting Period (P-2) declined when compared with the prior year. For the 2010 fiscal year, the P-2 ADA totaled 34,206, a decrease of 262 ADA from the prior fiscal year. 7

75 Governmental Activities Governmental Activities Expenditures Total Cost of Services Net Cost of Services Instruction, Instruction-related Services and Pupil Services $ 318,393,907 $ 328,711,039 $ 191,715,647 $ 191,255,958 General Administrative and Plant Services 49,432,293 50,818,810 45,683,482 30,585,883 Ancillary Services 917, ,751 Totals S 368,744,088 $ 380,442,501 $ 238,228,269 $_ _92 This table displays by function the total and net cost of services provided for the 2010 and 2009 fiscal years. The net cost of services represents the total cost less operating and capital grants and contributions, and for revenue received where a charge is made for the service provided. Financial Analysis of the District's Funds At June 30, 2010, the District had fourteen governmental funds reporting a combined fund balance of $197.7 million, a decrease of $25.2 million over the prior year. Of these funds, six had revenues which exceeded expenditures, contributing to the combined fund balance. The following table details the fund balances of the individual governmental funds. Governmental Funds Fund Balance Fund Balance June 30, Year Over Year Change General Fund $ 39,482,478 $ 49,347,662 $ (9,865,184) Charter Schools Special Revenue Fund 13,252 13,252 Adult Education Fund 1,108,799 3,843,967 (2,735,168) Child Development Fund 2,080,127 (557,187) 2,637,314 Cafeteria Special Revenue Fund 7,444,207 5,203,523 2,240,684 Deferred Maintenance Fund 786,570 1,257,435 (470,865) Building Fund 25,573,491 30,992,744 (5,419,253) Capital Facilities Fund 30,461,489 31,451,495 (990,006) County School Facilities Fund 24,883 16,965 7,918 Special Reserve for Capital Outlay Projects 72,325,056 80,185,668 (7,860,612) Capital Proj. Fund for Blended Component Units 1,510 2,154,414 (2,152,904) Bond Interest and Redemption Fund 13,486,482 14,221,069 (734,587) Tax Override Fund 13,058 12, Debt Service Fund 4,930,669 4,769, Totals $ 197,732,071 $ 222,900,124 SJ.25,161= 8

76 General Fund Budgetary Highlights The District's 2010 General Fund operating budget was adopted by the Governing Board in June of As adopted, budgeted expenditures of $334.5 million were $5.9 million more than the $328.6 million budgeted for revenue. There were several formal revisions made to the budget during the year. These revisions fell into three main categories: Increases to both estimated income and appropriations due to the receipt of new grant awards or donations. The budgeting of carryover balances from prior years. It is District policy to not budget expenditure totals carried over from a prior year until after the unaudited actual balances for that year have been calculated. Increases in appropriations to prevent budget overruns. The tables following display General Fund revenue and expenditures by major object categories with a comparison to the revised budget totals. Actual General Fund Revised Budget Increase (Decrease) Revenue: Revenue Limit Sources $ 173,514,502 $ 171,349,640 $ 2,164,862 Federal Revenue 43,191,530 63,517,886 (20,326,356) Other State Revenue 89,646,091 82,017,689 7,628,402 Other Local Revenue 5,333,206 7,516,034 (2,182,828) Transfers In/Other Sources 2,759, ,021 2,610,425 Total Revenue $ 309,664,775 1_32A,550,270 $ (14,885,495) Actual General Fund Revised Budget Increase (Decrease) Expenditures: Certificated Salaries $ 150,697,880 $ 161,256,916 $ (10,559,036) Classified Salaries 46,632,063 47,483,320 (851,257) Employee Benefits 73,230,204 78,592,954 (5,362,750) Books and Supplies 16,812,374 38,612,790 (21,800,416) Services and Other Operating Expenses 35,416,360 39,694,447 (4,728,087) Capital Outlay 39,134 62,599 (23,465) Other Outgo/ Direct Support/Indirect Costs 858, ,893 (57,075) Transfers Out/Other Uses 623, , ,616 Total Expenditures $ 324,309,959 $ 366,999,429 $ (42,689,470) 9

77 The table below displays unaudited actual General Fund revenue by major category for fiscal year 2010, along with the increase or decrease to fiscal year 2009 and breakdowns by percentage. The table does not include Transfers In and Other Financing Sources. General Fund Increase Percent FY-2010 Percent (Decrease) Increase or Actual Of Total from FY-2009 (Decrease) Revenues: Revenue Limit $ 173,514, % $ (23,383,215) (11.88)% Federal Revenue 43,191, % (7,746,280) (15.21)% Other State Revenue 89,646, % 5,314, % Other Local Revenue 5,333, % (1,835,493) (25.60)% Total Revenues $ 311,685, % $ (27,650)580) (8.15)% Expenditures for the General Fund are reflected in the following table by major expenditure category. The table does not include Transfers Out and Other Financing Uses. General Fund Increase Percent FY-2010 Percent (Decrease) Increase or Actual Of Total from FY-2009 (Decrease) Expenditures:. Certificated Salaries $ 150,697, % $ (14,858,482) (8.97)% Classified Salaries 46,632, % (3,552,783) (7.08)% Employee Benefits 73,230, % 6,862, % Books and Supplies 16,812, % (3,678,522) (17.95)% Services, Other Operating Expenses 35,416, % 460, % Capital Outlay 39, % 11, % Other Outgo/Dir. SuppAndirect Costs 858, % 222, % Total Expenditures $ 323,686, % I L U L 51 4 tmn (4.29)% The District's fmancial condition was tested during the 2010 fiscal year because of declining average daily attendance and the uncertainty of the national and state economies. The District's plan for moving forward in these turbulent economic times is discussed more fully in the "Economic Factors and Next Year's Budgets and Rates" section found later in this document. 10

78 Capital Asset and Debt Administration Capital Assets at Year-End (Net of Depreciation) Government-Wide Activities Land $ 25,735,353 $ 21,169,097 Improvement of Sites 3,238,781 2,077,980 Buildings 328,621, ,083,331 Equipment 3,026,495 3,945,053 Construction in Progress 73,723,919 69,135,911 Totals $ 434,346,148 $ 408,411,372 Capital assets in the table above are reflected at June 30, 2010 and 2009, net of depreciation. The District uses a capitalization threshold of $50,000. Depreciation on each capitalized asset has been calculated using the straightline method over applicable useful lives. The amount shown for Construction in Progress represents expenditures for projects currently in the construction phase. Depreciation will not be taken on these assets until a project is completed. Capital assets, net of depreciation, increased by $25.9 million during the year. Major capital asset projects completed during the year include the following: 1 Land Alex G. Spanos Elementary School I Land Improvements Alex G. Spanos Elementary School Construction Alex G. Spanos Elementary School 1 Modernization Nolan D. Pulliam Elementary School Networking District-wide Networking Project 1 Electrical Upgrade Electrical Upgrading Project $4.6 million $1.3 million $19.8 million $4.8 million $0.7 million $0.3 million A total of $73.7 million has been expended on projects still in the construction phase. This includes construction work on the Valentine Peyton Elementary School, construction on the A.A. Stagg High School athletic facilities project, and modernization projects at a number of school sites. Outstanding Debt at Year-End Government-Wide Activities General Obligation Bonds $ 266,100,251 $ 255,397,855 Certificates of Participation 52,692,766 54,155,130 Bond Anticipation Notes 21,985,162 22,036,865 Qualified Zone Academic Bonds Payable 6,635,000 6,635,000 Lighting Retrofit Payable 177, ,565 Compensated Absences 4,232,263 3,517,336 Other Postretirement Benefits 8,109,646 7,475,837 Capital Leases 766,023 1,148,500 PARS Liability 7,327,156 Totals $ 368,026,022 $ 350,967,088 11

79 Outstanding debt increased by a net amount of $17.1 million during the fiscal year. This increase primarily results from the issuance of $16.0 million in General Obligation Bonds. These bonds, representing Series B from the bonds approved by District voters in 2008, carry a Standard and Poor's credit rating of "A." The funds received from the sale of the bonds will be used for the construction of classrooms and other site improvements at Nightingale and Van Buren Elementary schools, and for the construction of a football/soccer stadium and related facilities at Edison High School. The notes to the financial statements are an integral part of the financial presentation and contain more detailed information as to interest, principal, retirement amounts, and future debt retirement dates. Economic Factors and Next Year's Budgets and Rates The Stockton Unified School District budget has been developed with all components of the proposal presented by the Governor in January and any applicable May Revise adjustments. This has been a difficult budget to prepare and monitoring it will be a challenge as the year continues. The national and state economic situation, while slowly improving, is far from stable. Concerns over being in a recession, the high unemployment rate, construction slowdowns and the depressed housing market continue to drag on a quick economic recovery. The adage "two steps forward, one step back" certainly applies to the situation currently faced by the District and State. The federal government provided stimulus funds to assist in helping governmental entities, including school Districts, deal with the current economic situation. While helpful, these funds were a one-time revenue source and cannot be relied on as a long-term solution. The state government has decided to deal with its own budget problems by deferring payments to state agencies. At the time this report was prepared, the state had deferred 33% of payments which should have been made to local agencies. Other measures, such as deficit factors, have also been imposed by the state to reduce funds that come to school Districts. This puts Stockton Unified in a precarious situation where cash management becomes critical. The District has dealt with the current cash flow situation by monitoring cash flow projections on a regular basis, closely tracking the payment of outstanding invoices, and by issuing Tax and Revenue Anticipation Notes (TRANs). These notes provide cash funds to "even out" the irregular funding stream coming from the state. In addition, the District is looking at cost cutting measures and soliciting ideas from staff, bargaining units, and the public to further reduce the budget. District employees and administration, the unions, and the community have a vested interest in finding ways to maintain the financial stability of Stockton Unified School District. By working together, the District "family" will weather this economic storm while continuing to provide a quality educational program for our students. Critical assumptions used to prepare the budget are discussed below. Student Enrollment and Enrollment Projections One of the economic factors affecting the school District's future outlook and growth potential is enrollment. Enrollment represents the number of students attending school within the District's boundaries. Additional revenues are generated from average daily attendance (ADA) when a greater number of students attend District schools. When enrollment is lower, the District receives less of this general purpose funding. As the school year began, the District's enrollment continued to reflect a pattern of declining enrollment. Enrollment can decline in a school district for many reasons: charter schools, home schooling, movement to neighboring districts, and migration to other states. Decisions made within the school district can also affect the student enrollment that converts to revenue for operational purposes. To illustrate, Richard A. Pittman Elementary School was converted from a regular school to a charter school for the start of the school year. While this change does not affect the overall enrollment of the District, the revenue generated from attendance by Pittman students is accounted for in a fund separate from the General Fund. To offset this revenue loss to the General Fund, the District works to make these school conversions as "cost neutral" as possible. This is accomplished through the transfer of school personnel and other operational costs, and charging for services provided. These services include transportation costs, textbook costs, rent for facilities, and a percentage cost for fiscal oversight. The District is looking into further allocation of central office costs, including services provided by the Payroll, Human Resources, Purchasing and Accounts Payable departments. 12

80 In planning a viable budget, the preparation of accurate enrollment projections is critical. It becomes even more important when the economy is struggling and revenue coming to the District is restricted or deferred by decisions made at the state level. The District continues to be vigilant in monitoring and projecting student enrollment. Over the last four years, projections have had a 0.4% variance to actual student enrollment. Work continues to refine methods in projecting enrollment which allows for better planning of the educational program and control over operational costs. The District also continues to explore new alternatives to the traditional educational structure. Over the years, Stockton Unified School District has opened schools designed to meet the specialized needs of our students. Schools such as the Institute for Business, Management and Law, the Stockton Early College Academy, and the Primary Years Academy are just three examples of schools designed to meet the needs of students looking to accelerate their studies or wanting to concentrate in a certain occupational area. On the drawing board for the school year is the Health Careers Academy, a school designed for those students wishing to explore a career in the health care field. In summary, student enrollment is the lifeblood of the District. Stockton Unified continues to work to provide educational programs which stimulate student learning and allows the District to retain the current student population and attract additional students. The chart which follows provides an overview of the school District's enrollment pattern over the past eight years. Regular Student Enrollment Over Eight Years 30, ,000 15,000 10,000 5, Gr. K-8 PM Gr Revenue Limit COLA The Revenue Limit COLA represents a percentage of additional dollars allocated to school districts in support of local operations. It is the state's way of recognizing increased costs experienced by school districts. To help in balancing its' budget, the state can apply a deficit factor to reduce the amount of funding a school district actually receives. Depending on the sizes of the COLA and deficit factor, a school district can receive more or less revenue in a given year. For the year, a negative statutory COLA of 0.39% has been determined. This would normally reduce funding to school districts. The effects of the negative COLA are offset, however, through the imposition of a reduced deficit factor. The net effect of these adjustments is that, providing the state budget assumptions remain valid, the average school district will receive over $250 of additional revenue per unit of Average Daily Attendance. The effect of this is displayed in the graph below. It is important to note that at the time this analysis is being prepared, a reported $6.1 billion state budget deficit exists for the year, with a $25.4 billion deficit projected through June of The Governor of California has called for a special session of the 13

81 State Legislature to address these shortfalls. Any adjustments made to the state budget could affect the funded Revenue Limit received by the district. $7,000 Funded Revenue Limit Per ADA $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $- $482 $1,430 S1,147 $258 additional revenue per ADA, assuming the State budget assumptions remains valid Funded Revenue Limit Deficit/Cuts Note: See the narrative above regarding the Funded Revenue Limit per ADA for FY Salaries and Benefits Salaries and benefits are subject to negotiations each year based on collective bargaining agreements. Most school Districts negotiate based on "total compensation" which consists of salaries and benefits. Total compensation generally refers to increases in salaries and health benefits. The school District anticipates that upward pressure to increase salary compensation and health benefits will continue over the next few years. Currently, the District allocates approximately 83% of the total General Fund expenditure budget toward salary and benefit related areas. The District controls salary costs in a number of ways, including the monitoring of authorized positions in the budget, issuing hiring freezes when necessary, and restricting the use of additional and overtime pay. Health Rates The cost of health care is expected to increase over the next few years. The District has established a health benefits allowance for ; however, upward pressure to increase the health benefits allowance will undoubtedly continue as health care cost continue to rise. The District is working with the employee bargaining groups to explore ways to maintain acceptable levels of employee health care at affordable costs. Even so, the District does not expect reduced health care costs in future years. Fund Balance The fund balance represents yearly differences between revenues and expenditures. The fund balance is either added "to" or subtracted "from" based on operational results of the District. Additionally, the fund balance is either unrestricted or restricted. An unrestricted fund balance means that unspent dollars are left to the District's discretion. On the other hand, restricted dollars are not left to the school District's discretion and are restricted based on guidelines established by the State Department of Education. 14

82 Additionally, the State Department of Education requires school Districts to maintain a "Reserve for Economic Uncertainties" for unforeseen emergencies. The reserve for this District is based on 2% of the total General Fund expenditures (approximately $6.5 million.). Setting aside a state required reserve means that the District has fewer dollars available for operational areas. Based on current fmancial projections, the unrestricted fund balance for the District is expected to decline over the next few years due to the national economic situation, the expectation of low state COLA increases, and the continuing decline in student enrollment. The graph below shows the history of the District's General Fund balance. $60 Fund Balance (in millions) $50 $40 $30 $ proj. est. Note: The estimated fund balance for FY includes any restricted balance estimates. Conclusion The District continues to face many challenges: decreasing state funding, negotiating salary compensation, increased health care costs, maintenance of a positive fund balance, and effective cash management. Proper planning and foresight will be required for the District to balance financial resources with educational goals and objectives. School site staff, central office employees, and District administration are up to meeting these challenges with the goal being an educational program that will allow our students to gain the knowledge necessary to progress through life as informed and productive citizens. Contacting the District's Financial Management This financial report is designed to provide our parents, citizens, taxpayers, 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 any questions regarding this report or need additional financial information, contact Mr. Jason Willis, Chief Financial Officer, Stockton Unified School District, 701 North Madison Street, Stockton, CA

83 BASIC FINANCIAL STATEMENTS

84 STOCKTON UNIFIED SCHOOL DISTRICT STATEMENT OF NET ASSETS June 30, 2010 Governmental Activities ASSETS Cash and investments (Note 2) $ 195,597,061 Accounts receivable 61,616,293 Prepaid expenditures 5,578,916 Stores inventory 1,223,495 Capital assets, net of accumulated depreciation (Note 4) 434,346,148 Total assets 698,361,913 LIABILITIES Accounts payable 35,780,551 TRANs payable 10,240,000 Claims liability (Note 5) 11,229,719 Deferred revenue 8,089,035 Long-term liabilities (Note 6): Due within one year 30,751,632 Due after one year 337,274, 390 Total liabilities 433,365,327 NET ASSETS Invested in capital assets, net of related debt 206,143,021 Restricted (Note 7) 60,047,456 Unrestricted (1,193,891) Total net assets $ 264,996,586 The accompanying notes are an integral part of these financial statements. 16

85 STOCKTON UNIFIED SCHOOL DISTRICT STATEMENT OF ACTIVITIES For the Year Ended June 30, 2010 Expenses Charges For Services Operating Grants and Contributions Capital Grants and Contributions Net (Expense) Revenue and Change in Net Assets Governmental Activities Governmental activities (Note 4): Instruction $ 236,224,455 $ 1,417,464 $ 73,481,471 $ 6,903,894 $ (154,421,626) Instruction-related services: Supervision of instruction 21,784, ,843 16,243,727 (5,369,486) Instructional library, media and technology 1,321,251 1, ,657 (822,059) School site administration 19,697,509 40,133 1,012,775 (18,644,601) Pupil services: Home-to-school transportation 10,289,558 40,098 4,486,387 (5,763,073) Food services 14,200, ,384 15,127,476 1,703,445 All other pupil services 14,876, ,629 6,096,787 (8,398,247) General administration: Data processing 2,914,242 14,737 (2,899,505) All other general administration 12,187,210 78,454 2,470,671 (9,638,085) Plant services 34,330,841 45,351 1,139,598 (33,145,892) Ancillary services 917,888 88,748 (829,140) Community service 17,318 (17,318) Enterprise activities 11,438 (11,438) Other outgo 408,103 21, , ,689 Interest on long-term liabilities 13,427,703 (13,427,703) Unallocated depreciation (403,219) Total governmental activities $ 383,011,869 $ 2,973,214 $ 121,255,503 $ 6,903,894 (251,879,258) General revenues: Taxes and subventions: Taxes levied for general purposes 34,758,099 Taxes levied for debt service 15,515,064 Taxes levied for other specific purposes 1,061,267 Federal and state aid not restricted to specific purposes 179,598,851 Interest and investment earnings 2,326,108 Interagency revenues 133,941 Miscellaneous 1,600,108 Total general revenues 234,993,438 Change in net assets (16,885,820) Net assets, July 1, ,882,406 Net assets, June 30, 2010 $ 264, The accompanying notes are an integral part of these financial statements. 17

86 STOCKTON UNIFIED SCHOOL DISTRICT BALANCE SHEET GOVERNMENTAL FUNDS June 30, 2010 General Fund (01) Building Fund (21) Capital Facilities Fund (25) Special Reserve Fund (40) All Non-Major Funds * Total Governmental Funds ASSETS Cash and investments: Cash in County Treasury $ 12,740,594 $ 13,691,782 $ 25,872,144 $ 52,304,520 Cash in County Treasury restricted for capital projects $ 26,808,205 $ 79,259, ,067,348 Cash in revolving fund 70,000 2,500 72,500 Cash awaiting deposit 2,503 2,503 Cash with Fiscal Agent 1,598,473 17,324, ,368 4,930,588 24,732,123 Accounts receivable 59,006,029 31,183 18, ,178 1,741,535 60,919,399 Prepaid expenditures 821,066 1, ,146 Due from other funds 2,705, , ,494 3,886,788 Stores inventory ,339 1,223,495 Total assets $ 77,865,910 $ 27,376,090 $ 31,034,950 $ 80,259,689 $ 33,494,183 $ 250,030,822 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 18,909,938 $ 1,793,838 $ 517,073 $ 7,922,467 $ 939,612 $ 30,082,928 Deferred revenue 8,088, ,089,035 Due to other funds 1,145,447 8,761 56,388 12,166 2,664,026 3,886,788 TRANs Payable 10, ,240,000 Total liabilities , ,934,633 3,604,626 52,298,751 Fund balances: Reserved for: Revolving fund 70,000 2,500 72,500 Prepaid expenditures 821,066 1, ,146 Stores inventory 924, ,339 1,223,495 Unspent categorical revenue 14,404,933 14,404,933 Unreserved, reported in: General Fund 23,262,323 23,262,323 Special Revenue Funds 11,130,036 11,130,036 Capital Projects Funds 25,573,491 30,461,489 72,325,056 26, ,386,429 Debt Service Funds 18,430,209 18,430,209 Total fund balances 39, ,573,491 30,461,489 72,325,056 29,889, ,732,071 Total liabilities and fund balances $ 77,865,910 $ 27,376,090 $ 31,034,950 $ 80,259,689 $ 33,494,183 $ 250,030,822 Refer to page 56. The accompanying notes are an integral part of these financial statements. 18

87 STOCKTON UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET - TO THE STATEMENT OF NET ASSETS June 30, 2010 Total fund balances - Governmental Funds $ 197,732,071 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used for governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of the assets is $572,893,130 and the accumulated depreciation is $138,546,982 (Note 4). 434,346,148 Long-term liabilities are not due and payable in the current period and, therefore, are not reported as liabilities in the governmental funds. Long-term liabilities at June 30, 2010 consisted of (Note 6): General Obligation Bonds $ (266,100,251) Bond Anticipation Notes (21,985,162) Certificates of Participation (52,692,766) Capitalized lease obligations (766,023) California Energy Commission Loan (177,755) Qualified Zone Academy Bonds (6,635,000) Post-employment healthcare benefits (8,109,646) PARS Liability (7,327,156) Compensated absences (4,232,263) (368,026,022) Internal service funds are used to conduct certain activities for which costs are charged to other funds on a full costrecovery basis. Net assets of the Self-Insurance Fund are: In the governmental funds, interest on long-term liabilities is not recognized until the period in which it matures and is paid. In the government-wide statement of activities, it is recognized in the period that it is incurred. In the governmental funds, revenue is recognized only to the extent it is available. Receivables for revenues that are earned but unavailable are deferred until the period in which the revenues become available. In the government-wide statements, revenue is recognized when earned, regardless of availability. Costs associated with the issuance of long-term liabilities are not financial resources and, therefore, are not reported as assets in governmental funds. 974,767 (4,376,768) 155,584 4,190,806 Total net assets - governmental activities $ 264, The accompanying notes are an integral part of these financial statements. 19

88 STOCKTON UNIFIED SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES GOVERNMENTAL FUNDS For the Year Ended June 30, 2010 General Fund (01) Building Fund (21) Capital Facilities Fund (25) Special Reserve Fund (40) All Non-Major Funds * Total Governmental Funds Revenues: Revenue limit sources: State apportionment $ 140,393,160 $ 2,764,519 $ 143,157,679 Local sources , Total revenue limit 173,514,502 2,764, ,279,021 Federal sources 43,191,530 15,925,492 59,117,022 Other state sources 89,646,091 15,546, ,192,849 Other local sources $ 1,239,450 $ 2,041,544 $ 535,088 16, ,693,084 Total revenues ,329 1, , , ,281,976 Expenditures: Certificated salaries 150,697,880 3,797, ,495,503 Classified salaries 46,632, ,324 6,328,043 53,184,430 Employee benefits 73,230,204 97,088 4,923,713 78,251,005 Books and supplies 16,812, ,603 80,308 6,534,319 24,405,604 Contract services and operating expenditures 35,416, , ,277 1,010,242 1,216,312 39,338,841 Capital outlay 39,134 12,145, ,046 21,574,116 1,140,051 35,672,307 Other outgo 332, ,736 Debt service: Principal retirement 500, ,913 6,291,457 7,391,555 Interest ,366 12,878,472 14,418,049 Total expenditures 323,686,833 13,824,213 3,031,550 23,837, , ,490,030 (Deficiency) excess of revenues (under) over expenditures (12,001,504) (12,584,763) (990,006) (23, ) 7,670,575 (41,208,054) Other financing sources (uses): Operating transfers in 2,759,446 6,903,894 15,441, ,766 26,064,850 Operating transfers out (623,126) (15,778,384) (9,663,340) (26,064,850) Proceeds from the issuance of long-term liabilities 16,040, Total other financing sources (uses) 2,136,320 7, ,441,744 (8,703,574) 16,040,000 Change in fund balances (9,865,184) (5,419,253) (990,006) (7,860,612) (1,032,999) (25,168,054) Fund balances, July 1, ,347,662 30,992,744 31, ,668 30,922, Fund balances, June 30, 2010 $ 39,482,478 $ 25,573,491 $ 30,461,489 $ 72,325,056 $ 29,889,557 $ 197,732,071 " Refer to page 57. The accompanying notes are an integral part of these financial statements. 20

89 STOCKTON UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES - GOVERNMENTAL FUNDS - TO THE STATEMENT OF ACTIVITIES For the Year Ended June 30, 2010 Net change in fund balances - Total Governmental Funds $ (25,168,054) Amounts reported for governmental activities in the statement of activities are different because: Acquisition of capital assets is an expenditure in the governmental funds, but increases capital assets in the statement of net assets (Note 4). $ 36,626,863 In government funds, the entire proceeds from disposal of capital assets are reported as revenue. In the statement of activities, only the resulting gain or loss is reported. The difference between the proceeds from disposal of capital assets and the resulting gain or loss is: (Note 4). (4,000) Depreciation of capital assets is an expense that is not recorded in the governmental funds (Note 4). (10,688,087) Issuance of long-term liabilities is an other financing source in the governmental funds, but increases the long-term liabilities in the statement of net assets. Amounts recognized in government funds as proceeds from debt, net of issue premium or discount, were (Note 6): Repayment of principal on long-term liabilities is an expenditure in the governmental funds, but decreases the longterm liabilities in the statement of net assets (Note 6). In government funds, debt issue costs are recognized as expenditures in the period they are incurred. In government-wide statements, issue costs are amortized over the life of the debt. In the governmental funds, revenue is recognized only to the extent it is available. Receivables for revenues that are earned but unavailable are deferred until the period in which the revenues become available. In the governmentwide statements, revenue is recognized when earned, regardless of availability. In governmental funds, interest on long-term liabilities is recognized in the period that it becomes due. In the government-wide statement of activities, it is recognized in the period that it is incurred. (16,040,000) 7,391, ,772 (151,931) 729,273 (Continued) 21

90 STOCKTON UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES - GOVERNMENTAL FUNDS - TO THE STATEMENT OF ACTIVITIES (Continued) For the Year Ended June 30, 2010 Internal service funds are used to conduct certain activities for which costs are charged to other funds on a full cost recovery basis. The change in net assets for the Self-Insurance Fund was: In government funds, OPEB costs are recognized when when employer contributions are made. In the statement of activities, OPEB costs are recognized on the accrual basis (Note 6). In government funds, expenses related to the supplemental employee retirement program are measured by the amounts paid in the year. In the statement of activities, SERP is recognized on the accrual basis (Note 6). In the statement of activities, expenses related to postemployment benefits and compensated absences are measured by the amounts earned during the year. In the governmental funds, expenditures are measured by the amount of financial resources used (Note 6). $ (1,098,319) (633,809) (7,327,156) (714,927) $ 8.282,234 Change in net assets of governmental activities $ (16,885,820) The accompanying notes are an integral part of these financial statements. 22

91 STOCKTON UNIFIED SCHOOL DISTRICT STATEMENT OF FUND NET ASSETS - PROPRIETARY FUND SELF-INSURANCE FUND June 30, 2010 ASSETS Cash and investments: Cash in County Treasury $ 12,028,067 Cash with Fiscal Agent 390,000 Accounts receivable 541,310 Prepaid expenses 565,964 Total assets 13, LIABILITIES Accounts payable 1,320,855 Claims liability 11,229,719 Total liabilities 12,550,574 NET ASSETS Restricted $ 974,767 The accompanying notes are an integral part of these financial statements. 23

92 STOCKTON UNIFIED SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENSES AND CHANGE IN FUND NET ASSETS - PROPRIETARY FUND SELF-INSURANCE FUND For the Year Ended June 30, 2010 Operating revenues: Self-insurance premiums $ 19,150,198 Other local revenues 1,116,282 Total operating revenues 20,266,480 Operating expenses: Classified salaries 281,249 Employee benefits 125,848 Books and supplies 30,117 Contract services Total operating expenses 21,442,716 Operating loss (1,176,236) Non-operating income: Interest income Change in net assets (1,098,319) Total net assets, July 1, , Total net assets, June 30, 2010 $ The accompanying notes are an integral part of these financial statements. 24

93 STOCKTON UNIFIED SCHOOL DISTRICT STATEMENT OF CASH FLOWS - PROPRIETARY FUND SELF-INSURANCE FUND For the Year Ended June 30, 2010 Cash flows from operating activities: Cash received from self-insurance premiums $ 20,078,571 Cash paid for employee benefits (15,462,742) Cash paid for other expenses (5,649,779) Net cash used in operating activities (1,033,950) Cash flows provided by investing activities: Interest income received 77,917 Transfer from other fund 450,000 Decrease in cash and cash equivalents (506,033) Cash and cash equivalents, July 1, ,924,100 Cash and cash equivalents, June 30, 2010 $ 12,418,067 1 Reconciliation of operating loss to net cash used in operating activities: Operating loss $ (1,176,236) Adjustments to reconcile operating loss to net cash used in operating activities: (Increase) decrease in: Accounts receivable (187,909) Prepaid expenses (565,964) Increase (decrease) in: Accounts payable 898,942 Amount due to other funds (2,783) Total adjustments 142,286 Net cash used in operating activities $ (1,033,950) The accompanying notes are an integral part of these financial statements. 25

94 STOCKTON UNIFIED SCHOOL DISTRICT STATEMENT OF FIDUCIARY NET ASSETS TRUST AND AGENCY FUNDS June 30, 2010 Trust Agency Fund Fund Student Scholarship Body Trust Funds Total ASSETS Cash on hand and in banks (Note 2) $ 868,873 $ 627,514 $ 1,496,387 LIABILITIES Due to student groups 627, ,514 NET ASSETS Restricted (Note 7) $ 868,873 $ $ 868,873 The accompanying notes are an integral part of these financial statements. 26

95 STOCKTON UNIFIED SCHOOL DISTRICT STATEMENT OF CHANGE IN FIDUCIARY NET ASSETS FIDUCIARY FUND For the Year Ended June 30, 2010 Scholarship Trust Revenues: Other local sources $ 34,746 Expenditures: Contract services and operating expenditures 49,182 Deficiency of revenues under expenditures (14,436) Net assets, July 1, ,309 Net assets, June 30, 2010 $ 868,873 The accompanying notes are an integral part of these financial statements. 27

96 STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Stockton Unified School District (the "District") accounts for its financial transactions in accordance with the policies and procedures of the California Department of Education's California School Accounting Manual. The accounting policies of the District conform to accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board and the American Institute of Certified Public Accountants. The following is a summary of the more significant policies: Reporting Entity The Board of Education is the level of government which has governance responsibilities over all activities related to public school education in the District. The Board is not included in any other governmental "reporting entity" as defined by the Governmental Accounting Standards Board since Board members have decisionmaking authority, the power to designate management, the responsibility to significantly influence operations and primary accountability for fiscal matters. The District, Stockton Unified School District Community Facilities District No. 1 (the "CFD") and Stockton Unified School District Financing Corporation (the "Corporation") have a financial and operational relationship which meet the reporting entity definition criteria of the Codification of Governmental Accounting and Financial Reporting Standards, Section 2100, for inclusion of the CFD and the Corporation as component units of the District. Therefore, the financial activities of the CFD and the Corporation have been included in the basic financial statements of the District. The following are those aspects of the relationship between the District, the CFD and the Corporation which satisfy Codification of Governmental Accounting and Financial Reporting Standards, Section 2100 criteria: A - Manifestations of Oversight 1. The CFD's and Corporation's Board of Directors were appointed by the District's Board of Education. 2. The Corporation has no employees. The District's Superintendent and Assistant Superintendent/Chief Financial Officer function as agents of the Corporation. Neither individual received additional compensation for work performed in this capacity. 3. The District exercises significant influence over operations of the CFD and the Corporation as it is anticipated that the District will be the sole lessee of all facilities owned by the CFD and the Corporation. 28

97 STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Reporting Entity (Continued) Accounting for Fiscal Matters 1. All major financing arrangements, contracts, and other transactions of the CFD and the Corporation must have the consent of the District. 2. Any deficits incurred by the CFD and the Corporation will be reflected in the lease payments of the District. Any surpluses of the CFD and the Corporation revert to the District at the end of the lease period. 3. It is anticipated that the District's lease payments will be the sole revenue source of the CFD and the Corporation. 4. The District has assumed a "moral obligation," and potentially a legal obligation, for any debt incurred by the CFD and the Corporation. Scope of Public Service and Financial Presentation 1. The CFD and the Corporation were created for the sole purpose of financially assisting the District. 2. The CFD is a legally-constituted governmental entity, established under the authority of the Mello-Roos Community Facilities Act of The Corporation is a nonprofit, public benefit corporation incorporated under the laws of the State of California and recorded by the Secretary of State. The CFD and the Corporation were formed to provide financing assistance to the District for construction and acquisition of major capital facilities. Upon completion the District intends to occupy all CFD and the Corporation facilities. When the CFD's and the Corporation's long-term li abilities have been paid with state reimbursements and the District's developer fees, title of all CFD and the Corporation property will pass to the District for no additional consideration. 3. The CFD's financial activity is presented in the financial statements as the Mello-Roos Fund. The Corporation's financial activity is presented in the financial statements as the Capital Facilities Fund. 29

98 STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Presentation - Financial Statements The basic financial statements include a Management's Discussion and Analysis (MD & A) section providing an analysis of the District's overall financial position and results of operations, financial statements prepared using full accrual accounting for all of the District's activities, including infrastructure and a focus on the major funds. Basis of Presentation - Government-Wide Financial Statements The Statement of Net Assets and the Statement of Activities displays information about the reporting government as a whole. Fiduciary funds are not included in the government-wide financial statements. Fiduciary funds are reported only in the Statement of Fiduciary Net Assets and the Statement of Change in Fiduciary Net Assets at the fund financial statement level. The Statement of Net Assets and the Statement of Activities are prepared using the economic resources measurement focus and the accrual basis of accounting. Revenues, expenses, gains, losses, assets and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. Revenues, expenses, gains, losses, assets and liabilities resulting from nonexchange transactions are recognized in accordance with the requirements of Governmental Accounting Standards Board Codification Section (GASB Cod. Sec.) N Program revenues: Program revenues included in the Statement of Activities derive directly from the program itself or from parties outside the District's taxpayers or citizenry, as a whole; program revenues reduce the cost of the function to be financed from the District's general revenues. Allocation of indirect expenses: The District reports all direct expenses by function in the Statement of Activities. Direct expenses are those that are clearly identifiable with a function. Depreciation expense is specifically identified by function and is included in the direct expense of each function. Interest on general long-term liabilities is considered an indirect expense and is reported separately on the Statement of Activities. 30

99 STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Presentation - Fund Accounting The accounts of the District are organized on the basis of funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. District resources are allocated to and accounted for in individual funds based upon the purpose for which they are to be spent and the means by which spending activities are controlled. The District's accounts are organized into three broad categories which, in aggregate, include seven fund types as follows: A - Governmental Fund Types 1. General Fund: The General Fund is the general operating fund of the District and accounts for all revenues and expenditures of the District not encompassed within other funds. All general tax revenues and other receipts that are not allocated by law or contractual agreement to some other fund are accounted for in this fund. General operating expenditures and the capital improvement costs that are not paid through other funds are paid from the General Fund. 2. Special Revenue Funds: The Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. This classification includes the Charter School, Adult Education, Child Development, Cafeteria and Deferred Maintenance Funds. 3. Capital Projects Funds: The Capital Projects Funds are used to account for resources used for the acquisition or construction of capital facilities by the District. This classification includes the Building, Capital Facilities, Special Reserve, County School Facilities and Mello-Roos Funds. 4. Debt Service Funds: The Debt Service Funds are used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest, and related costs. This classification includes the Bond Interest and Redemption, Tax Override and Debt Service Funds. 31

100 STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Presentation - Fund Accounting (Continued) Proprietary Funds 1. Self-Insurance Fund: The Self-Insurance Fund is an Internal Service Fund used to account for services rendered on a cost-reimbursement basis within the District. The Self-Insurance Fund is used to provide workers' compensation, dental and vision benefits to employees of the District. Fiduciary Funds 1. Trust Funds: The District maintains one Trust Fund. The Scholarship Trust Fund is used to account for assets held by the District as Trustee. 2. Agency Funds: Basis of Accounting Student Body Funds: Student Body Funds are used to account for revenues and expenditures of the various student body organizations. All cash activity, assets and liabilities of the various student bodies of the District are accounted for in Student Body Funds. Basis of accounting refers to when revenues and expenditures or expenses are recognized in the accounts and reported in the basic financial statements. Basis of accounting relates to the timing of the measurement made, regardless of the measurement focus applied. Accrual Both governmental and business-type activities in the government-wide financial statements and the proprietary and fiduciary fund financial statements are presented on the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when incurred. 32

101 STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Modified Accrual The governmental funds financial statements are presented on the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual; i.e., both measurable and available. "Available" means collectible within the current period or within 60 days after year end. Expenditures are generally recognized under the modified accrual basis of accounting when the related liability is incurred. The exception to this general rule is that principal and interest on general obligation long-term liabilities, if any, is recognized when due. Budgets and Budgetary Accounting By state law, the Board of Education must adopt a final budget by July 1. A public hearing is conducted to receive comments prior to adoption. The Board of Education complied with these requirements. The District employs budget control by major object code and by individual appropriation accounts. Expenditures cannot legally exceed appropriations by major object code. The budgets are revised during the year by the Board of Education to provide for unanticipated revenues and expenditures. The originally adopted and final revised budgets for the General Fund are presented as Required Supplementary Information. Stores Inventory Inventories in the General and Cafeteria Funds are valued at average cost. Inventory recorded in the General and Cafeteria Funds consists mainly of school supplies and consumable supplies. Inventories are recorded as an expenditure at the time the individual inventory items are transferred from the warehouse to schools and offices. Cafeteria Food Purchases Cafeteria purchases include food purchased through the State of California Office of Surplus Property, for which the District is required to pay only a handling charge. The state does not require the Cafeteria Fund to record the fair market value of these commodities. The expenditures for these items would have been greater had the District paid fair market value for the government surplus food commodities. Capital Assets Capital assets purchased or acquired, with an original cost of $50,000 or more, are recorded at historical cost or estimated historical cost. Contributed assets are reported at fair market value as of the date received. Additions, improvements and other capital outlay that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. Capital assets are depreciated using the straight-line method over 5-50 years depending on asset types. 33

102 STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Compensated Absences Compensated absences totaling $4,232,263 are recorded as a liability of the District. The liability is for the earned but unused benefits. Accumulated Sick Leave Sick leave benefits are not recognized as liabilities of the District. The District's policy is to record sick leave as a operating expenditure or expense in the period taken since such benefits do not vest nor is payment probable; however, unused sick leave is added to the creditable service period for calculation of retirement benefits for certain STRS and CalPERS employees, when the employee retires. Deferred Revenue Revenue from federal, state, and local special projects and programs is recognized when qualified expenditures have been incurred. Funds received but not earned are recorded as deferred revenue until earned. Restricted Net Assets Restrictions of the ending net assets indicate the portions of net assets not appropriable for expenditure or amounts legally segregated for a specific future use. The restrictions for revolving cash fund, prepaid expenditures and stores inventory reflect the portions of net assets represented by revolving cash fund, prepaid expenditures and stores inventory, respectively. These amounts are not available for appropriation and expenditure at the balance sheet date. The restriction for unspent categorical program revenues and state programs represent programs where the revenue received is restricted for expenditures only in that particular program. The restriction for special revenues represents the portion of net assets restricted for special purposes. The restriction for debt service repayments represents the portion of net assets which the District plans to expend on debt repayment. The restriction for capital projects represents the portion of net assets restricted for capital projects. The restriction for self insurance represents the portion of net assets restricted for paying insurance premiums. The restriction for scholarships represents the portion of net assets to be used to provide financial assistance to students of the District. Property Taxes Secured property taxes are attached as an enforceable lien on property as of January 1. Taxes are due in two installments on or before November 15 and March 15. Unsecured property taxes are due in one installment on or before August 31. The County of San Joaquin bills and collects taxes for the District. Tax revenues are recognized by the District when received. 34

103 STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Encumbrances Encumbrance accounting is used in all budgeted funds to reserve portions of applicable appropriations for which commitments have been made. Encumbrances are recorded for purchase orders, contracts, and other commitments when they are written. Encumbrances are liquidated when the commitments are paid. Eliminations and Reclassifications In the process of aggregating data for the Statement of Net Assets and the Statement of Activities, some amounts reported as interfund activity and balances in the funds were eliminated or reclassified. Interfund receivables and payables were eliminated to minimize the "grossing up" effect on assets and liabilities within the governmental activities column. Estimates The preparation of basic financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Accordingly, actual results may differ from those estimates. 2. CASH AND INVESTMENTS Cash and investments at June 30, 2010 are reported at fair value and consisted of the following: Governmental Activities Governmental Proprietary Funds Fund Total Fiduciary Activities Pooled Funds: Cash in County Treasury $ 52,304,520 $ 12,028,067 $ 64,332,587 Cash in County Treasury - restricted for capital projects 106,067, ,067,348 Cash awaiting deposit 2,503 2,503 Total pooled funds 158,374,371 12, , Deposits: Cash on hand and in banks $ 1,496,387 Cash in revolving fund 72,500 72,500 Total deposits 72,500 72,500 1,496,387 Investments: Cash with Fiscal Agent 24,732, ,000 25,122,123 Total cash and investments $ 183,178,994 $ 12,418,067 $ 195,597,061 $ 1,496,387 35

104 STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 2. CASH AND INVESTMENTS (Continued) Pooled Funds In accordance with Education Code Section 41001, the District maintains substantially all of its cash in the San Joaquin County Treasury. The County pools these funds with those of school districts in the County and invests the cash. These pooled funds are carried at cost which approximates fair value. Interest earned is deposited monthly into participating funds. Any investment losses are proportionately shared by all funds in the pool. Because the District's deposits are maintained in a recognized pooled investment fund under the care of a third party and the District's share of the pooled investment fund does not consist of specific, identifiable investment securities owned by the District, no disclosure of the individual deposits and investments or related custodial credit risk classifications is required. In accordance with applicable state laws, the San Joaquin County Treasurer may invest in derivative securities. However, at June 30, 2010, the San Joaquin County Treasurer has represented that the Treasurer's pooled investment fund contained no derivatives or other investments with similar risk profiles. Deposits - Custodial Credit Risk - Deposits Cash balances held in banks and revolving funds are insured up to $250,000 by the Federal Depository Insurance Corporation (FDIC). As of June 30, 2010, the carrying amount of the District's accounts were $1,568,887, and the bank balances were $1,371,399. Of the bank balances, $255,479 was covered by the FDIC insurance and $1,115,920 was uninsured. Uninsured balances are fully collateralized by the banks in accordance with applicable law. Investments The Cash with Fiscal Agent in the Governmental Funds represents Debt proceeds that have been set aside for capital projects and the repayment of long-term liabilities. These amounts are held by a third party custodian in the District's name. The Cash with Fiscal Agent in the Proprietary Fund represents cash segregated for the future payment of self-insured benefits. These amounts are held by a third party custodian in the District's name. Interest Rate Risk The District does not have a formal investment policy that limits cash and investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. At June 30, 2010, the District had no significant interest rate risk related to cash and investments held. 36

105 STOCKTON UNIFIED SCHOOL DISTRICT 2. CASH AND INVESTMENTS (Continued) Credit Risk NOTES TO BASIC FINANCIAL STATEMENTS (Continued) The District does not have a formal investment policy that limits its investment choices other than the limitations of state law. Concentration of Credit Risk The District does not place limits on the amount it may invest in any one issuer. At June 30, 2010, the District had no concentration of credit risk. 3. INTERFUND TRANSACTIONS Interfund Activity Transactions between funds of the District are recorded as interfund transfers, except for the Self-Insurance Fund activity which is recorded as income and expenditures of the Self-Insurance Fund and the funds which incur payroll costs, respectively. The unpaid balances at year end, as a result of such transactions, are shown as due to and due from other funds. Interfund Receivables/Payables Individual interfund receivable and payable balances at June 30, 2010 were as follows: Fund Interfund Receivables Interfund Payables Major Funds: General $ 2,705,592 $ 1,145,447 Building 536,702 8,761 Capital Facilities 56,388 Special Reserve 12,166 Non-Major Funds: Charter School 242, ,595 Adult Education 26,842 2,164,690 Child Development 276, ,204 Cafeteria ,537 Totals $ 3, $ 3,

106 STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 3. INTERFUND TRANSACTIONS (Continued) Interfund Transfers Interfund transfers consist of operating transfers from funds receiving revenue to funds through which the resources are to be expended. lnterfund transfers for the fiscal year were as follows: Transfer from the General Fund to the Charter School Fund to cover Charter High School expenses. $ 623,126 Transfer from the Building Fund to the Special Reserve Fund of General Obligation Bond proceeds to support Measure Q project expenses. 15,441,744 Transfer from the Building Fund to the Bond Interest Redemption Fund for the portion of the General Obligation Bond proceeds to be invested in the County investment pool. 336,640 Transfer from the Adult Education Fund to the General Fund to account for the current year allocation of adult education funding. 2,004,050 Transfer from the Adult Education Fund to the General Fund for indirect support. 29,263 Transfer from the Child Development Fund to the General Fund for indirect support. 140,740 Transfer from the Cafeteria Fund to the General Fund for indirect support. 518,479 Transfer from the County School Facilities Fund to the Building Fund for reimbursement/support for the approved projects from State apportionment funding. 6,903,894 Transfer from the Debt Service Fund to the General Fund for residual of interest earned. 66,914 $ 26,064,850 38

107 4. CAPITAL ASSETS STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) A schedule of changes in capital assets for the year ended June 30, 2010 is shown below: Governmental Activities Balance July 1, 2009 Transfers and Additions Transfers and Deductions Balance June 30, 2010 Non-depreciable: Land $ 21,169,097 $ 4,566,256 $ 25,735,353 Work-in-process 69,135,911 36,626,863 $ (32,038,855) 73,723,919 Depreciable: Buildings 428,050,356 26,160, ,211,151 Equipment 12,845,333 80,000 12,765,333 Site Improvements 5,145,570 1,311,804 6,457,374 Totals, at cost 536, ,665,718 (31,958,855) 572,893,130 Less accumulated depreciation: Buildings (115,967,025) (9,622,526) (125,589,551) Site Improvements (3,067,590) (151,003) (3,218,593) Equipment (8,900,280) ( ) (76,000) (9,738,838) Total accumulated depreciation (127,934,895) (10,688,087) (76,000) (138,546,982) Capital assets, net $ 408,411,372 $ 57,977,631 $ (32, ) $ 434,346,148 Depreciation expense was charged to governmental activities as follows: Instruction $ 9,713,323 Home to school 358,357 Food services 22,849 All other general administration 132,825 Plant services 57,514 Unallocated Total depreciation expense $ RISK MANAGEMENT/CLAIMS LIABILITIES The District has established a Self-Insurance Fund to account for employee vision benefits, employee dental benefits and workers' compensation plans. The employee vision and dental plans are self insured and contract with a third party administrator for benefits processing. Until July 31, 1998 and from July 1, 2001 through June 30, 2005, the workers' compensation plan provided coverage up to $250,000 and purchased excess insurance for claims over the retained coverage limit. Between August 1, 1998 and June 30, 2001, and after July 1, 2005, the District purchased insurance for the workers' compensation coverage. The liability for unpaid claims and claim adjustment expenses represents the ultimate cost of claims that have been reported but not settled and of claims that have been incurred but not reported. These claims will be paid in future years. 39

108 STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 5. RISK MANAGEMENT/CLAIMS LIABILITIES (Continued) District management recomputes the liability annually using available updated claims data. Every three years, the District contracts with an actuary who performs an actuarial study using a variety of statistical techniques to produce current estimates that consider claim frequency and other economic factors. The liability for workers compensation is based on an actuarial study dated April 1, The liabilities for unpaid claims and claim adjustment expenses are as follows: June 30, June 30, Unpaid claim and claim adjustment expenses, beginning of year $ 11,359,427 $ 13,290,628 Total incurred claims and claim adjustment expenses 15,207,186 13,000,959 Total payments ( ) (14, ) Total unpaid claims and claim adjustment expenses at end of year $ ,719 $ 11,359, LONG-TERM LIABILITIES General Obligation Bonds Series 2001: On June 20, 2001, the District issued General Obligation Bonds, Series 2001, totaling $22,800,000. The bonds bear interest at rates ranging from 4.25% to 6.00% and are scheduled to mature through July 2026 as follows: Year Ended June 30, Principal Interest Total 2011 $ 765,000 $ 902,519 $ 1,667, , ,269 1,661, , ,731 1,657, , ,444 1,661, , ,531 1,662, ,295,000 3,052,491 8,347, ,800,000 1,630,375 8,430, ,900 1,755,900 $ 17, $ 8,963,260 $ 26,

109 6. LONG-TERM LIABILITIES (Continued) STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) General Oblipation Bonds (Continued) Series 2003: On January 9, 2003, the District issued General Obligation Bonds, Series 2003, totaling $28,000,000. The bonds bear interest at rates ranging from 3.00% to 5.25% and are scheduled to mature through January 2028 as follows: Series 2004: Year Ended June 30, Principal Interest Total 2011 $ 885,000 $ 1,101,064 $ 1,986, ,000 1,071,859 1,996, ,000 1,039,484 1,999, ,000 1,001,084 1,996, ,035, ,309 1,991, ,885,000 3,870,519 9,755, ,370,000 2,240,086 9,610, , $ 23,390,000 $ 11,689,030 $ 35,079,030 On January 8, 2004, the District issued General Obligation Bonds, Series 2004, totaling $29,200,000. The bonds bear interest at rates ranging from 3.00% to 5.00% and are scheduled to mature through January 2029 as follows: Year Ended June 30, Principal Interest Total 2011 $ 900,000 $ 1,109,184 $ 2,009, ,000 1,064,184 1,999, ,000 1,036,134 2,001, ,000,000 1,003,565 2,003, ,035, ,565 2,003, ,870,000 4,083,728 9,953, ,315,000 2,607,024 9,922, , ,476 7,904,476 $ ,000 $ 12,571,860 $ 37,796,860 41

110 6. LONG-TERM LIABILITIES (Continued) STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) General Obligation Bonds (Continued) Series 2006: On February 8, 2006, the District issued General Obligation Bonds, Series 2006, totaling $60,000,000. The bonds bear interest at rates ranging from 4.00% to 5.00% and are scheduled to mature through September 2030 as follows: Series 2007: Year Ended June 30, Principal Interest Total 2011 $ 165,000 $ 2,501,525 $ 2,666, ,000 2,490,025 2,900, ,000 2,470,625 3,030, ,000 2,444,925 3,169, ,000 2,412,525 3,307, ,710,000 11,236,550 18,946, ,830,000 8,798,506 23,628, ,115,000 4,555,731 29,670, , ,378 6, $ 57,020,000 $ 37,060,790 $ 94,080,790 On July 12, 2007, the District issued General Obligation Bonds, Series 2007, totaling $60,000,000. The bonds bear interest at rates ranging from 4.00% to 5.00% and are scheduled to mature through August 2031 as follows: Year Ended June 30, Principal Interest Total 2011 $ 1,805,000 $ 2,769,250 $ 4,574, ,765,000 2,697,850 4,462, ,830,000 2,625,950 4,455, ,885,000 2,549,294 4,434, ,960,000 2,467,588 4,427, ,755,000 10,874,381 21,629, ,410,000 7,964,375 20,374, ,230,000 4,800,963 18,030, ,580, ,500 12,827,500 $ 58,220,000 $ 36,997,151 $ 95,

111 6. LONG-TERM LIABILITIES (Continued) STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) General Obligation Bonds (Continued) 2008 Series A: On May 6, 2008, the District issued 2008 General Obligation Bonds, Series A, totaling $65,000,000. The bonds bear interest at rates ranging from 4.00% to 5.00% and are scheduled to mature through August 2032 as follows: 2008 Series B: Year Ended June 30, Principal Interest Total 2011 $ 1,600,000 $ 2,811,175 $ 4,411, ,700,000 2,745,175 4,445, ,800,000 2,675,175 4,475, ,000,000 2,599,175 4,599, ,100,000 2,517,175 4,617, ,700,000 11,233,875 22,933, ,800,000 8,598,350 22,398, ,100,000 4,960,113 22,060, ,300, ,375 13, $ 64,100,000 $ 39,035,588 $103,135,588 On December 17, 2009, the District issued 2008 General Obligation Bonds, Series B, totaling $16,040,000. The bonds bear a coupon rate of 2.19% and are scheduled to mature through December 2025 as follows: Year Ended June 30, Principal Interest Total 2011 $ 351,276 $ 351, , , , , , , , , ,756,380 1,756, ,756,380 1,756, $ 16,040, ,215,638 $ 16,040,000 $ 5,444,778 $ 21,484,778 43

112 6. LONG-TERM LIABILITIES (Continued) STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) General Obligation Bonds (Continued) Series 2009: On February 1, 2009, the District issued Bond Anticipation Notes, Series 2009, totaling $21,955,000. The 2009 Notes were issued for the purpose of financing costs relating to the acquisition and construction of education projects and facilities, funding capitalized interest through maturity, and paying cost of issuance. These Notes were issued in anticipation of the issuance of a series of general obligation bonds which were approved on the general election on February 5, The notes bear an interest rate of 4.00% and are scheduled to mature on February 2011 as follows: Year Ended June 30, Principal Interest Total 2011 $ $ 878,200 $ 22,833,200 Certificates of Participation (COPs) In January 2004, the District issued Certificates of Participation in the amount of $11,999,981 with interest rates from 1.700% to 5.50%, maturing on February 3, 2034: Year Ending June 30, COPs Payments 2011 $ 260, , , , , ,845, ,855, ,575, , Total payments 33,650,020 Less amount representing interest (22,258,705) Net present value of minimum payments $ 11,391,315 44

113 6. LONG-TERM LIABILITIES (Continued) STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) Certificates of Participation (COPs) (Continued) In February 2007, the District issued Certificates of Participation in the amount of $45,050,000 with interest rates from 4.00% to 5.00%, maturing on February 1, Scheduled payments for the COPs are as follows: Year Ending June 30, COPs Payments 2011 $ 3,164, ,124, ,099, ,621, ,619, ,104, ,091, ,094, ,095, Total payments 69,633,734 Less amount representing interest (28,488,734) Net present value of minimum payments 41, Capitalized Lease Obligations The District leases computers, office equipment and buses under long-term lease purchase agreements. The following is a schedule of future lease payments: Year Ending June 30, Lease Payments 2011 $ 428, ,014 Total payments 814,390 Less amount representing interest (48,367) Net minimum lease payments $ 766,023 45

114 6. LONG-TERM LIABILITIES (Continued) STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) California Energy Commission Loans In August 2000 and June 2001 the District entered into contracts with the California Energy Commission to receive money for energy conservation projects. On March 7, 2003, the District entered into an agreement with Sun Trust Leasing to replace the contracts with California Energy Commission. The agreement with Sun Trust Leasing bears interest at 3.41% and matures on June 22, 2011: Year Ended June 30, Principal Interest Total 2011 $ 177,755 $ 4,556 $ Qualified Zone Academy Bonds On June 1, 2000, the District issued $1,635,000 in Qualified Zone Academy Bonds and entered into a purchase contract in the amount of $1,635,000 with the Bank of Agriculture and Commerce, whereby the Bank agreed to finance the acquisition of certain improvements to the District's Weber Institute and sell the improvements to the District upon specified terms and conditions. Under the terms of the contract, the District has deposited $770,000 with the Bank as collateral for the bonds, which the Bank will hold for the account of the District in the form of a certificate of deposit bearing interest at percent per annum, compounded monthly, and payable on June 13, The certificate of deposit together with the interest earnings will be sufficient to repay the Bonds which mature on June 13, On November 24, 2003, the District issued $5,000,000 in Qualified Zone Academy Bonds and entered into a purchase contract in the amount of $5,000,000 with Union Safe Deposit Bank, whereby the Bank agreed to finance the acquisition of certain improvements to the District's Stockton Center, Stagg, Edison and Franklin High Schools to modernize the business and automotive programs and sell the improvements to the District upon specified terms and conditions. Under the terms of the contract, the District has deposited $2,729,105 with the Bank as collateral for the bonds, which the Bank will hold for the account of the District in the form of a certificate of deposit bearing interest at percent per annum, compounded monthly, and payable on November 24, The certificate of deposit together with the interest earnings will be sufficient to repay the Bonds which mature on November 24, Post-Employment Healthcare Benefits In addition to the pension benefits described in Note 8, the District provides postemployment health care benefits to all employees who retire from the District on or after attaining age 55 with at least 10 years of service, in accordance with contracts between the District and employee groups. As of June 30, 2010, 333 retirees met these eligibility requirements. Benefits are provided for retirees age 55 to 65. The District pays up to $1,095 per month for health benefits of retirees on a pay-as-you-go basis. 46

115 6. LONG-TERM LIABILITIES (Continued) STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) Post-Employment Healthcare Benefits (Continued) The District's annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of Cod. Sec. P The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District's net OPEB obligation: Annual required contribution $ 5,229,946 Interest on net OPEB obligation 373,792 Adjustment to annual required contribution Annual OPEB cost (expense) 5,603,738 Contributions made (4,969,929) Decrease in net OPEB obligation 633,809 Net OPEB obligation - beginning of year 7,475,837 Net OPEB obligation - end of year $ 8,109,646 The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the year ended June 30, 2010 was as follows: Percentage of Annual Fiscal Year Annual OPEB Cost Net OPEB Ended OPEB Cost Contributed Obligation June 30, 2008 $ 3,012, % $ 5,658,083 June 30, 2009 $ 3,101, % $ 7,475,837 June 30, 2010 $ 5,603, % $ 8,109,646 As of May 3, 2010, the most recent actuarial valuation date, the plan was zero percent funded. The actuarial accrued liability for benefits was $45.3 million, and the actuarial value of assets was zero, resulting in an unfunded actuarial accrued liability (UAAL) of $45.3. The covered payroll (annual payroll of active employees covered by the Plan) was $189 million, and the ratio of the UAAL to the covered payroll was 24 percent. 47

116 6. LONG-TERM LIABILITIES (Continued) STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) Post-Retirement Healthcare Benefits (Continued) Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the May 3, 2010 actuarial valuation, the entry age actuarial cost method was used. The actuarial assumptions included a 5.0 percent investment rate (net of administrative expenses), which is a blended rate of the expected long-term investment returns on plan assets and on the employer's own investments calculated based on the funded level of the plan on the valuation date, and an annual healthcare cost trend rate of 4.0 percent. Both rates included a 3 percent inflation assumption. The actuarial value of assets was determined using techniques that spread the effects of short-term volatility in the market value of investments over a five-year period. The UAAL is being amortized as a level percentage of projected payroll on an open basis. The remaining amortization period at June 30, 2010, was 28 years. Public Agency Retirement Services (PARS) During 2010, the District provided the option of a Supplemental Employee Retirement Plan to the District employees. As of June 30, 2010, there were 187 employees in the Plan. Employees under the SERP will receive monthly annuity benefits. The District is obligated to pay annual installments for the calculated benefits for employees under the SERP and for the administration of the plan. 48

117 6. LONG-TERM LIABILITIES (Continued) STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) Public Agency Retirement Services (PARS) (Continued) The annual requirements to amortize the SERP liability outstanding as of June 30, 2010 are as follows: Year Ending June 30, 2011 $ 1,831, ,831, ,831, ,831,789 Schedule of Changes in Long-Term Liabilities $ 7,327,156 A schedule of changes in long-term liabilities for the year ended June 30, 2010 is shown below: Balance July 1, 2009 Additions Deductions Balance June 30, 2010 Amounts Due Within One Year Governmental activities: General Obligation Bonds $ 250,966,000 $ 16,040,000 $ 5,130,000 $ 261,876,000 $ 6,120,000 General Obligation Bonds Premium 4,431, ,604 4,224, ,604 Bond Anticipation Notes 21,955,000 21,955,000 21,955,000 Bond Anticipation Notes Premium 81,865 51,703 30,162 30,162 Certificates of Participation 53,992,583 1,456,268 52,536,315 Certificates of Participation Premium 162,547 6, ,451 6,096 Capitalized lease obligations 1,148, , ,023 California Energy Commission Loan 600, , , ,755 Qualified Zone Academy Bonds 6,635,000 6,635,000 Post-employment healthcare benefits 7,475,837 5,603,738 4,969,929 8,109,646 PARS Liability 9,166,494 1,839,338 7,327,156 1,831,789 Compensated absences ,927 4,232, ,226 $ 350,967,088 $ 31,525,159 $ 14,466,225 $ 368,026,022 $ 30,751,632 Payments on the General Obligation Bonds are made from the Bond Interest and Redemption Fund. Payments on the Certificates of Participation and capitalized lease obligations are made from the General Fund, Capital Facilities Fund and Cafeteria Fund. Payments on the California Energy Commission Loan are made from the General Fund. Payments on post-employment benefits, PARS liability and compensated absences are made from the fund for which the related employee worked. 49

118 7. RESTRICTED NET ASSETS STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) Restricted net assets consisted of the following at June 30, 2010: Governmental Activities Fiduciary Funds Restricted for revolving cash $ 72,500 Restricted for prepaid expenditures 5,578,916 Restricted for stores inventory 1,223,495 Restricted for unspent categorical program revenues 14,404,933 Restricted for special revenues 11,130,036 Restricted for debt service 13,499,621 Restricted for capital projects 13,163,188 Restricted for self insurance 974,767 Restricted for scholarships $ Total restricted net assets $ ,456 $ EMPLOYEE RETIREMENT SYSTEMS 1 Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the State Teachers' Retirement System (STRS), and classified employees are members of the California Public Employees' Retirement System (CalPERS). Plan Description and Provisions California Public Employees' Retirement System (CalPERS) Plan Description The District contributes to the School Employer Pool under the California Public Employees' Retirement System (CalPERS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalPERS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the Public Employees' Retirement Law. CalPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalPERS annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California

119 STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 8. EMPLOYEE RETIREMENT SYSTEMS (Continued) Plan Description and Provisions (Continued) California Public Employees' Retirement System (CalPERS) (Continued) Funding Policy Active plan members are required to contribute 7.0% of their salary and the District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the CalPERS Board of Administration. The required employer contribution rate for fiscal year was 9.709% of annual payroll. The contribution requirements of the plan members are established by state statute. The District's contributions to CalPERS for the fiscal years ending June 30, 2008, 2009 and 2010 were $4,508,640, $4,878,439 and $4,600,188, respectively, and equal 100% of the required contributions for each year. State Teachers' Retirement System (STRS) Plan Description The District contributes to the State Teachers' Retirement System (STRS), a costsharing multiple-employer public employee retirement system defined benefit pension plan administered by STRS. The plan provides retirement, disability and survivor benefits to beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the State Teachers' Retirement Law. STRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the STRS annual financial report may be obtained from the STRS Executive Office, 100 Waterfront Place, West Sacramento, California Funding Policy Active plan members are required to contribute 8.0% of their salary. The required employer contribution rate for fiscal year was 8.25% of annual payroll. The contribution requirements of the plan members are established by state statute. The District's contributions to STRS for the fiscal years ending June 30, 2008, 2009 and 2010 were $12,957,852, $13,334,117 and $12,502,994, respectively, and equal 100% of the required contributions for each year. 51

120 9. JOINT POWERS AGREEMENTS STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) The District participates in two joint ventures under joint powers agreements. Northern California Regional Liability Excess Fund The District is a member with other districts in San Joaquin County and the San Joaquin County Office of Education in Northern California Regional Liability Excess Fund (NCReLiEF) for the operation of a common risk management and insurance program. NCReLiEF is governed by a board consisting of representatives of member districts. The board controls the operations of NCReLiEF, including the selection of management and approval of operating budgets, independent of any influence by the member districts beyond their representation on the board. Condensed audited financial information for NCReLiEF for the year ended June 30, 2010 is as follows: Total assets $ 53,768,412 Total liabilities $ 33,726,756 Total net assets $ 20,041,656 Total revenues $ 37,856,693 Total expenditures $ 29,885,518 Change in net assets $ 7,971,175 School Project for Utility Rate Reduction The District is also a member in School Project for Utility Rate Reduction (SPURR), which is a California joint powers authority, whose members are California public K-12 school districts, community college districts and county offices of education. SPURR provides members access to the wholesale natural gas market that would otherwise be unavailable to them. Condensed audit information for SPURR for the year ended June 30, 2009 (the latest information available) is as follows: Total assets $ 18,870,053 Total liabilities $ 12,884,337 Total revenue $ 49,708,518 Total expenditures $ 48,435,784 Change in net assets $ 1,272,734 Net assets $ 5,985, CONTINGENCIES The District is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position or results of operations of the District. 52

121 10. CONTINGENCIES (Continued) STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO BASIC FINANCIAL STATEMENTS (Continued) The District has received federal and state funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could result in expenditure disallowances under terms of the grants, it is management's opinion that any required reimbursements of future revenue offsets subsequently determined will not have a material effect on the District's financial position. On April 27, 2009, the District issued $10,240,000 of Tax and Revenue Anticipation Notes (TRANs) maturing on December 30, 2010, with an interest rate of 2.50%, to provide for anticipated cash flow deficits from operations. The TRANs are a general obligation of the District and are payable from revenues and cash receipts generated by the District during the fiscal year ended June 30, As of June 30, 2010, the District is fully utilizing the cash from the TRANs and has recorded a liability of $10,240,000 in the basic financial statements. 11. SUBSEQUENT EVENTS General Obligation Bonds On July 22, 2010, the District issued General Obligation Bonds, Election 2008, Series C, totaling $14,930,000. The notes bear an interest rate ranging from 5.170% to 7.080% and are scheduled to mature through August The Series C Bonds were authorized at an election of the registered voters of the District held on February 5, 2008, which authorized a total of $464,500,000 principal amount of general obligation bonds to finance new construction and additions to and modernization of school facilities for the District. The Series C are the third series issued pursuant to such authorization. Subsequent Events The District has reviewed all events occurring from June 30, 2010 through December 7, 2010, the date the financial statements were issued. No subsequent events occurred requiring accrual or disclosure. 53

122 REQUIRED SUPPLEMENTARY INFORMATION

123 STOCKTON UNIFIED SCHOOL DISTRICT GENERAL FUND BUDGETARY COMPARISON SCHEDULE For the Year Ended June 30, 2010 Original Budget Final Actual Variance Favorable (Unfavorable) Revenues: Revenue limit sources: State apportionment $ 146,852,132 $ 138,717,979 $ 140,393,160 $ 1,675,181 Local sources 33,850, , ,681 Total revenue limit 180,702, ,349, ,514, Federal sources 62,914,584 63,517,886 43,191,530 (20,326,356) Other state sources 80,549,402 82,017,689 89,646,091 7,628,402 Other local sources 4,478,956 7,516,034 5, (2.182,828) Total revenues 328,645, ,401, , (12,715,920) Expenditures: Certificated salaries 150,486, ,256, ,697,880 10,559,036 Classified salaries 42,987,072 47,483,320 46,632, ,257 Employee benefits 67,363,989 78,592,954 73,230,204 5,362,750 Books and supplies 40,547,599 38,612,790 16,812,374 21,800,416 Contract services and operating expenditures 32,412,802 39,694,447 35,416,360 4,278,087 Capital outlay 30,484 62,599 39,134 23,465 Other outgo 37, , ,736 (156,895) Debt service: Principal retirement 714, , , ,897 Interest , Total expenditures 334, ,618, ,833 42,932,086 Deficiency of revenues under expenditures (5,961,110) (42, ) (12,001,504) 30, Other financing sources (uses): Operating transfers in 156, ,021 2,759,446 2,610,425 Operating transfers out (78,970) (380,510) (623,126) ( ) Total other financing sources (uses) (231,489) 2.136,320 2, Change in fund balance (5,883,922) (42,449,159) (9,865,184) 32,583,975 Fund balance, July 1, ,347,662 49,347,662 49,347,662 Fund balance, June 30, 2010 $ 43, $ 6,898,503 $ 39,482,478 $ 32,583,975 The accompanying notes are an integral part of these financial statements. 54

124 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB) FUNDING PROGRESS For the Year Ended June 30, 2010 Schedule of Fundin g Progress Unfunded UAAL as a Actuarial Actuarial Percentage Fiscal Actuarial Actuarial Accrued Accrued of Year Valuation Value of Liability Liability Funded Covered Covered Ended Date Assets (AAL) (UAAL) Ratio Payroll Payroll 6/30/2008 November 7, 2007 $ 5.2 million $46.9 million $41.7 million 11% $210 million 19.9% 6/30/2009 June 1, 2009 $ - $23.3 million $23.3 million 0% $211 million 11% 6/30/2010 May 3, 2010 $ - $45.3 million $45.3 million 0% $189 million 24% The accompanying notes are an integral part of these financial statements, 55

125 SUPPLEMENTARY INFORMATION

126 STOCKTON UNIFIED SCHOOL DISTRICT COMBINING BALANCE SHEET ALL NON-MAJOR FUNDS June 30, 2010 Child Deferred County Bond Charter Adult Develop- Mainten- School Mello- Interest and Tax Debt School Education ment Cafeteria ance Facilities Roos Redemption Override Service Fund (091 Fund 11 Fund 12 Fund 13 Fund 14 Fund 35 Fund 49 Fund 51 Fund (531 Fund (561 Total ASSETS Cash in County Treasury $ 40,474 $ 2,795,963 $ 1,504,677 $ 7,150,558 $ 856,623 $ 22,819 $ 1,508 $ 13,486,482 $ 13,040 $ 25,872,144 Cash awaiting deposit 2, ,503 Cash in revolving fund 2,500 2,500 Cash with Fiscal Agent $ 4,930,588 4,930,588 Accounts receivable 543, , , ,189 1,607 2, ,741,535 Prepaid expenditures 1,080 1,080 Store inventory 299, ,339 Due from other funds 242,199 26, Total assets $ $ 3.307,489 $ 2,316,106 $ 7.729,529 $ 858,230 $ 24,883 $ $ ,482 $ $ 4, $ LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 536,380 $ 34,000 $ 84,787 $ 212,785 $ 71,660 $ 939,612 Deferred revenue Due to other funds , ,204 72, Total liabilities 812,975 2,198, , ,322 71,660 3,604,626 Fund balances 13, ,127 7, ,570 $ 24,883 $ 1,510 $ 13,486,482 MM $ 4.930, Total liabilities and fund balances L , 22 1 $ 2316,106 $ 7.729,529 $ 858,230 $ 24,883 $ 1,510 $ 13,486,482 $ 13,058 $ 4,930,669 $ 33, The accompanying notes are an integral part of these financial statements. 56

127 STOCKTON UNIFIED SCHOOL DISTRICT COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES ALL NON-MAJOR FUNDS For the Year Ended June 30, 2010 Charter School Fund 09 Adult Education Fund 11 Child Development Fund 12 Cafeteria Fund 13 Deferred Maintenance Fund 14 County School Facilities Fund 35 Mello- Roos Fund 49 Bond Interest and Redemption Fund (51) Tax Override Fund 53 Debt Service Fund 56 Total Revenues: Revenue limit sources: State apportionment $ 2,764,519 $ 2,764,519 Federal sources 450,000 $ 717,828 $ 14,086 $ 14,743,578 15,925,492 Other state sources 442,961 45,727 6,550,969 1,399,525 $ 6,903,894 $ 203,682 15,546,758 Other local sources ,545 7, ,266 $ 8, $ 9,608 15, $ 83 $ Total revenues , ,594, , Expenditures: Certificated salaries 2,017, ,554 1,371,439 3,797,623 Classified salaries 295,870 95, ,742 4,941,122 6,328,043 Employee benefits 798, ,783 1,053,685 2,952,744 4,923,713 Books and supplies 545,143 80, ,249 5,712,413 6,534,319 Contract services and operating expenditures 566, , , , ,710 1,216,312 Capital outlay 43, ,045 73, ,160 1,140,051 Debt service: Principal retirement 305, ,355 5,130,000 6,291,457 Interest , ,535,405 12,878,472 Total expenditures ,251, , ,512 16, (Deficiency) excess of revenues (under) over expenditures (609,874) (701,855) ,759,163 (470,865) (2,152,904) (1.071,227) ,670,575 Other financing sources (uses): Operating transfers in 623, , ,766 Operating transfers out (2,033,313) ( ) ( ) (6.903,894) ) (9.663,340) Total other financing sources (uses) (2,033,313) (140,740) (518,479) (6,903,894) (6E94) (8, ) Net change in fund balances 13,252 (2,735,168) 2,637,314 2,240,684 (470,865) 7,918 (2,152,904) (734,587) ,274 (1,032,999) Fund balances, July 1, (557,187) , , , , Fund balances, June 30, 2010 $ 13,252 $ 1,108,799 $ 2,080;127 $ 7,444,207 $ 786,570 $ 24,883 $ 1,510 $ 13, $ 13,058 $ 4,930,669 $ 29,889,557 The accompanying notes are an integral part of these financial statements. 57

128 STOCKTON UNIFIED SCHOOL DISTRICT ORGANIZATION June 30, 2010 Stockton Unified School District was established on July 1, The District operates 42 elementary schools, 1 intermediate alternative school and 9 high schools, including Weber Institute of Technology, Institute of Business, Management and Law, Stockton Early College Academy, and Stockton Alternative High School. The district also maintains an adult education school, a special education school, a continuation high school, an independent study program and a child development program. There were no changes in District boundaries during the year. GOVERNING BOARD Name Beverly Fitch McCarthy Colleen Boardman Steve Smith Jose A. Morales Gloria Allen William (Bill) Ross Sal Ramirez Office President Vice President Member Member Member Member Member Term Expires ADMINISTRATION Carl Toliver Superintendent Robert Thompson Interim Assistant Superintendent, Human Resources Jason Willis Chief Financial Officer Wayne Martin Executive Director, Business Services 58

129 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF AVERAGE DAILY ATTENDANCE For the Year Ended June 30, 2010 Second Period Report ( Revised) Annual Report DISTRICT Elementary: Kindergarten 2,928 2,945 First through Third 8,535 8,542 Fourth through Eighth 12,995 13,000 Home and Hospital 4 4 Special Education Total Elementary Secondary: Regular Classes 8,208 8,116 Special Education Compulsory Continuation Education Home and Hospital Opportunity School Total Secondary 8,930 8,834 CHARTER SCHOOL - CLASSROOM BASED 34,206 34,144 Elementary: Kindergarten First through Third Fourth through Eighth Secondary: Regular classes Total Classroom Based 1,128 1,115 (Continued) 59

130 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF AVERAGE DAILY ATTENDANCE (Continued) For the Year Ended June 30, 2010 Second Period Report ( Revised) Annual Report CHARTER SCHOOL - NON-CLASSROOM BASED Elementary: Kindergarten First through Third Fourth through Eighth Secondary: Regular classes Total Non-classroom Based See accompanying notes to supplementary information. 60

131 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF INSTRUCTIONAL TIME For the Year Ended June 30, 2010 Grade Level Minutes Requirement Actual Minutes Actual Minutes Number of Days Traditional Calendar Status DISTRICT Kindergarten 36,000 31,500 36, In Compliance Grade 1 50,400 50,250 54, In Compliance Grade 2 50,400 50,250 54, In Compliance Grade 3 50,400 50,250 54, In Compliance Grade 4 54,000 53,850 54, In Compliance Grade 5 54,000 53,850 54, In Compliance Grade 6 54,000 53,850 54, In Compliance Grade 7 54,000 58,500 56, In Compliance (1) Grade 8 54,000 58,500 56, In Compliance (1) Grade 9 64,800 64,980 64, In Compliance Grade 10 64,800 64,980 64, In Compliance Grade 11 64,800 64,980 64, In Compliance Grade 12 64,800 64,980 64, In Compliance (1) The District offers K-8 education, therefore, the actual number of minutes was reduced in the current year. The District is utilizing the weighted average method of calculating instructional minutes for seventh and eighth grades. Using the weighted average methodology, the District is in compliance with the instructional minutes requirements. CHARTER SCHOOL Grade 9 64,800 N/A 65, In Compliance Grade 10 64,800 N/A 65, In Compliance Grade 11 64,800 N/A 65, In Compliance Grade 12 64,800 N/A 65, In Compliance See accompanying notes to supplementary information. 61

132 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURE OF FEDERAL AWARDS For the Year Ended June 30, 2010 Federal Catalog Number Federal Grantor/Pass-Through Grantor/Program or Cluster Title Pass- Through Entity Identifying Number Federal Expenditures U.S. Department of Education - Passed through California Department of Education Special Education Cluster: Special Education IDEA: Basic and Local Assistance Entitlement, Part B, Sec $ 6,570, Special Education Preschool Grants , a Special Education IDEA: Preschool Local Entitlement, Part B, Sec 611 (Age 3-5) , A Special Education IDEA Preschool Staff Development, Part B, Sec , ARRA: Special Education, IDEA Part B, Sec 611, Basic Local Assistance ,285, ARRA: Special Education, IDEA Preschool, Part B Sec ,211 Subtotal Special Education Cluster 12,506,018 Title I Cluster: NCLB: Title I, Part A, Basic Grants Low Income ,215, NCLB: Title I, Part A, Program Improvement LEA Corrective Action, Extensive Performance Problems , ARRA: Title I, Part A, School Improvement ,151, ARRA: Title I, Part A, Basic Grants Low Income ,540, ARRA: Title I, Part D, Local Delinquent Programs ,493 Subtotal Title I Cluster 22,139, Adult Education: Adult Basic Education & ESL , Adult Education Priority 5 Adult Secondary Education , a Adult Education English Literacy and Citizenship , Special Education IDEA Early Intervention , B International Baccalaureate , A Transition to Teaching Program 137, Smaller Learning Communities 569, Title X McKinney Vento Homeless Assistance , Indian Education , NCLB: Title II Part A Improving Teacher Quality ,563, NCLB: Title III Immigrant Education Program , NCLB Title III Limited English Proficiency , Title II Part D Enhancing Education through Technology , Vocational Education - Carl Perkins , Title IV Safe and Drug Free Schools , Twenty First Century Learning Centers ,060, NCLB: Title V, Part B, Public Charter School Grants ,000 (Continued) 62

133 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURE OF FEDERAL AWARDS (Continued) For the Year Ended June 30, 2010 Federal Catalog Number Federal Grantor/Pass-Through Grantor/Program or Cluster Title Pass- Through Entity Identifying Number Federal Expenditures U.S. Department of Education - Passed through California Department of Education (Continued) ARRA: Title X McKinney Vento Homeless Assistance , ARRA: State Fiscal Stabilization Funds , Total U.S. Department of Education 49,301,452 U.S. Department of Health and Human Services - Passed through California Department of Education Child Development: Quality Improvement , Child Development: Program for Infant/Toddler Caregiver , Medical assistance Program ,736 Total U.S. Department of Health and Human Services 153,347 U.S. Department of Agriculture - Passed through California Department of Education ARRA: Equipment Assistance Grants , National School Lunch Program ,204,903 U.S. Department of Justice Total U.S. Department of Agriculture 14,283, Gang Prevention 46,616 U.S. Department of Defense ROTC Federal Funding 67,810 Total Federal Programs $ ,315 See accompanying notes to supplementary information. 63

134 STOCKTON UNIFIED SCHOOL DISTRICT RECONCILIATION OF UNAUDITED ACTUAL FINANCIAL REPORT WITH AUDITED FINANCIAL STATEMENTS For the Year Ended June 30, 2009 There were no adjustments made to any funds of the District. See accompanying notes to supplementary information. 64

135 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS For the Year Ended June 30, 2010 General Fund (Budget) Revenues and other financing sources $ 285,542,252 $ 314,444,775 $ 340,353,024 $ 342,971,332 Expenditures 307,017, ,686, ,220, ,904,591 Other uses and transfers out 315, , ,020 1,729,693 Total outgo 307,332, ,309, ,855, ,634,284 Change in fund balance $ (21,790,436) $ (9,865,184) $ 1,497,106 $ (1,662,952) Ending fund balance $ 17,692,042 $ 39,482,478 $ 49,347,662 $ 47,850,556 Available reserves $ 10,818,048 $ 7,273,085 $ 10,246,289 $ 21,019,340 Designated for economic uncertainties $ 6,143,674 $ 6,472,430 $ 6, $ 6,876,337 Undesignated fund balance $ 4,674,374 $ 800,655 $ 3, $ 14,143,003 Available reserves as percentages of total outgo 3.52% 2.24% 3.00% 6.10% All Funds Total long-term liabilities $ 337,274,390 $ 368,026,022 $ 350,967,088 $ 339,179,892 Average daily attendance at P-2, excluding Adult and Charter School 33,282 34,206 34,468 34,764 The General Fund fund balance has decreased by $10,031,030 over the past three years. The District has incurred operating deficits in two the past three years, and anticipates incurring an operating deficit during the fiscal year. The fiscal year budget projects a decrease of $21,790,436. For a district this size, the state recommends available reserves of at least 2% of total General Fund expenditures, transfers out, and other uses. For the year ended June 30, 2010, the District has met this requirement. Total long-term liabilities have increased by $28,846,130 over the past two years, due primarily to the issuance of General Obligation Bonds, Bond Anticipation Notes and increases in the OPEB liability. Average daily attendance has decreased by 558 over the past two years. The District anticipates a decrease of 924 ADA for the fiscal year. See accompanying notes to supplementary information. 65

136 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF CHARTER SCHOOLS For the Year Ended June 30, 2010 Charter Schools Chartered b y District Institute of Business, Management and Law Stockton Alternative High School Stockton Early College Academy Dr. Lewis Dolphin Stallworth Sr. Charter Schools Aspire Langston Hughes Academy Aspire Rosa Parks Academy California Virtual Academy at San Joaquin Included in District Financial Statements, or Se p arate Report Included in Charter Fund Included in Charter Fund Included in Charter Fund Separate Report Separate Report Separate Report Separate Report See accompanying notes to supplementary information. 66

137 1. PURPOSE OF SCHEDULES STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO SUPPLEMENTARY INFORMATION A Schedule of Average Daily Attendance Average daily attendance is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of state funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs. Schedule of Instructional Time The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. This schedule presents information on the amount of instructional time offered by the District, and whether the District complied with the provisions of Education Code Sections through Schedule of Expenditure of Federal Awards OMB Circular A-133 requires a disclosure of the financial activities of all federally funded programs. This schedule was prepared to comply with A-133 requirements, and was prepared on the modified accrual basis of accounting. The following schedule provides a reconciliation between revenues reported on the Statement of Revenues, Expenditures and Change in Fund Balances and the related expenditures reported on the Schedule of Expenditure of Federal Awards. The reconciling amounts represent Federal funds that have been recorded as revenues that have not been expended by June 30, Description CFDA Number Amount Total Federal revenues, Statement of Revenues, Expenditures and Change in Fund Balances $ 59,117,022 Add: State Fiscal Stabilization Funds spent from prior year awards ,380,361 International Baccalaureate Funds spent from prior year awards B 13,811 Less: NSLP Funds received in excess of excess of expenditures (466,741) NSLP Funds received in excess of expenditures (2,222) Medi-Cal Billing Funds not spent ( ) Total Schedule of Expenditure of Federal Awards $ 63,

138 STOCKTON UNIFIED SCHOOL DISTRICT NOTES TO SUPPLEMENTARY INFORMATION (Continued) 1. PURPOSE OF SCHEDULES (Continued) D Reconciliation of Unaudited Actual Financial Report with Audited Financial Statements This schedule provides the information necessary to reconcile the Unaudited Actual Financial Report to the audited financial statements. E Schedule of Financial Trends and Analysis This schedule provides information on the District's financial condition over the past three years and its anticipated condition for the fiscal year, as required by the State Controller's Office. F Schedule of Charter Schools This schedule provides information for the California Department of Education to monitor financial reporting by Charter Schools. 2. EARLY RETIREMENT INCENTIVE PROGRAM Education Code Section requires certain disclosure in the financial statements of districts which adopt Early Retirement Incentive Programs pursuant to Education Code Sections and For the fiscal year ended June 30, 2010, the District did not adopt this program. 68

139 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH STATE LAWS AND REGULATIONS Board of Education Stockton Unified School District Stockton, California We have audited the compliance of Stockton Unified School District with the types of compliance requirements described in the State of California's Standards and Procedures for Audits of California K-12 Local Educational Agencies (the "Audit Guide") to the state laws and regulations listed below for the year ended June 30, Compliance with the requirements of state laws and regulations is the responsibility of Stockton Unified School District's management. Our responsibility is to express an opinion on Stockton Unified School District's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the State of California's Standards and Procedures for Audits of California K-12 Local Educational Agencies. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the state laws and regulations listed below occurred. An audit includes examining, on a test basis, evidence about Stockton Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of Stockton Unified School District's compliance with those requirements. Audit Guide Procedures Description Procedures Performed Regular and Special Day Classes 8 Yes Kindergarten Continuance 3 Yes Independent Study 23 No, see below Continuation Education 10 Yes Instructional Time: School Districts 6 Yes County Offices of Education 3 No, see below Instructional Materials: General requirements 8 Yes Ratio of Administrative Employees to Teachers 1 Yes Classroom Teacher Salaries 1 Yes Early Retirement Incentive Program 4 No, see below Gann Limit Calculation 1 Yes School Accountability Report Card 3 No, see below Public Hearing Requirements - Receipt of Funds 1 Yes Class Size Reduction Program: General requirements 7 Yes Option one classes 3 Yes Option two classes 4 No, see below Districts with only one school serving K-3 4 No, see below After School Education and Safety Program: General requirements 4 Yes After school 4 Yes Before school 5 No, see below 69

140 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH STATE LAWS AND REGULATIONS (Continued) Audit Guide Procedures Description Procedures Performed Contemporaneous Records of Attendance, for charter schools 1 Yes Mode of Instruction, for charter schools 1 Yes Nonclassroom-Based Instruction/Independent Study, for charter schools 15 Yes Determination of Funding for Nonclassroom-Based Instruction, for charter schools 3 Yes Annual Instructional Minutes - Classroom-Based, for charter schools 3 Yes We did not perform procedures related to Independent Study because the District's reported ADA was below the materiality level that requires testing. We did not perform any procedures related to Instructional Time for County Offices of Education because the District is not a County Office of Education. We did not perform any procedures related to Early Retirement Incentive Program because the District did not offer this program in the current year. The School Accountability Report Cards specified by Education Code Section are not required to be completed, nor were they completed, prior to the completion of our audit procedures for the year ended June 30, Accordingly, we could not perform the portions of audit steps (a), (b) and (c) of Section of the Audit Guide relating to the comparison of tested data from the fiscal year to the School Accountability Report Cards. We did not perform any procedures related to Class Size Reduction Program - Option Two classes and Districts with only one school serving K-3 because the District does not offer Option Two, and the District has more than one school serving K-3. We did not perform any procedures related to After School Education and Safety Program - Before School because the District does not operate a before school program. In our opinion, Stockton Unified School District complied with the state laws and regulations referred to above for the year ended June 30, 2010, except as described in the Schedule of Audit Findings and Questioned Costs section of this report. Further, based on our examination, for items not tested, nothing came to our attention to indicate that Stockton Unified School District had not complied with the state laws and regulations. Stockton Unified School District's responses to the findings identified in our audit are included in the accompanying Schedule of Audit Findings and Questioned Costs. We did not audit the District's responses and, accordingly, express no opinion on them. 70

141 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH STATE LAWS AND REGULATIONS (Continued) This report is intended solely for the information of the Board of Education, management, the State Controller's Office, the California Department of Education and the California Department of Finance, and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited. Sacramento, California December 7, 2010 Pe.ril-jnalt

142 INDEPENDENT AUDITOR'S 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 Board of Education Stockton Unified School District Stockton, California We have audited the financial statements of Stockton Unified School District as of and for the year ended June 30, 2010, and have issued our report thereon dated December 7, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Stockton Unified School District's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Stockton Unified School District's internal control over financial reporting. Accordingly, we do not express an opinion of the effectiveness of Stockton Unified School District's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether Stockton Unified School District's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Stockton Unified School District's response to the finding identified in our audit is included in the accompanying Schedule of Audit Findings and Questioned Costs. We did not audit the District's response and, accordingly, express no opinion on it. 72

143 INDEPENDENT AUDITOR'S 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 (Continued) This report is intended solely for the information of the Board of Education, management, the California Department of Education, the California State Controller's Office and federal awarding agencies and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited. Sacramento, California December 7,

144 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Board of Education Stockton Unified School District Stockton, California Compliance We have audited the compliance of Stockton Unified School District with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, Stockton Unified School District's major federal programs are identified in the summary of auditor's results section of the accompanying Schedule of Audit Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grant agreements applicable to each of its major federal programs is the responsibility of Stockton Unified School District's management. Our responsibility is to express an opinion on Stockton Unified School District's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Stockton Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Stockton Unified School District's compliance with those requirements. In our opinion, Stockton Unified School District complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, Internal Control Over Compliance The management of Stockton Unified School District is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered Stockton Unified School District's internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, 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 Stockton Unified School District's internal control over compliance. 74

145 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 (Continued) Internal Control Over Compliance (Continued) A deficiency in internal control over compliance exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information of the Board of Education, management, the California Department of Education, the California State Controller's Office and federal awarding agencies and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited. Sacramento, California December 7,

146 FINDINGS AND RECOMMENDATIONS

147 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS Year Ended June 30, 2010 SECTION I - SUMMARY OF AUDITOR'S RESULTS FINANCIAL STATEMENTS Type of auditors report issued: Internal control over financial reporting: Material weakness(es) identified? Significant deficiency(ies) identified not considered to be material weakness(es)? Noncompliance material to financial statements noted? FEDERAL AWARDS Unqualified Yes Yes Yes X No X None reported X No Internal control over major programs: Material weakness(es) identified? Significant deficiency(ies) identified not considered to be material weakness(es)? Type of auditors report issued on compliance for major programs: Yes X No Yes X None reported Unqualified Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section.510(a)? Yes X No Identification of major programs: CFDA Number(s) Name of Federal Pro g ram or Cluster , , A, , A , NCLB: Title I Cluster Special Education, Cluster Twenty First Century Learning Centers NCLB: Title II Part A Improving Teacher Quality ARRA State Fiscal Stabilization Funds Dollar threshold used to distinguish between Type A and Type B programs: $ 1,915,569 Auditee qualified as low-risk auditee? X Yes No STATE AWARDS Internal control over state programs: Material weakness(es) identified? Yes X No Significant deficiency(ies) identified not considered to be material weaknesses? Yes X None reported Type of auditor's report issued on compliance for state programs: Qualified 76

148 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued) Year Ended June 30, 2010 SECTION II - FINANCIAL STATEMENT FINDINGS 1. INTERNAL CONTROLS - STUDENT BODY (30000) Criteria Internal Controls - Safeguarding of Assets Conditions At various school sites selected for testing of the Associated Student Body financial activity, we noted the following: Deposits are not performed on a timely basis. Documentation is not maintained to reconcile individual cash receipt transactions to deposit batch. No cash receipts are issued or recorded when money is received. Money is maintained by teachers instead of being turned in to ASB Advisor immediately after an event. No tally sheet was used which details the number of items sold and unit price per item. A ledger to record cash receipts as they are received was not used. No log was maintained for the issuance of sub-receipt books to the student clubs. The financial reports for club activity are not distributed on a monthly basis; they are distributed semi-annually. In addition, there is no evidence of the Principal's review. An ASB account was briefly overdrawn to a credit balance. Effect ASB funds could potentially be misappropriated. Cause Adequate internal control procedures have not been implemented and enforced. Fiscal Impact No determinable. Recommendation District should enforce a policy to have deposits made on a timely basis (at least bi-weekly). Schedules should be used and maintained to reconcile individual cash receipts to deposit slips. Receipts should be issued to issued immediately upon exchange of cash. 77

149 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued) Year Ended June 30, 2010 SECTION II - FINANCIAL STATEMENT FINDINGS (Continued) 1. INTERNAL CONTROLS - STUDENT BODY (30000) (Continued) Recommendation (Continued) All cash from activities should be turned in to the ASB Advisor in a timely manner. Detailed schedules to show the unit price per items and number of items sold should accompany each cash receipt transaction. All sites with ASB activity should maintain a ledger to record cash receipts. Receipt books used by clubs should be tracked using a receipt book log. Financial Activity reports should be prepared, distributed and reviewed on a monthly basis. ASB balance should be continuously reviewed to ensure there is adequate funds before a disbursement is made. Corrective Action Plan The District's internal audit staff will review the conditions and recommendations with the applicable sites. Follow-up visits will be made to determine that the recommendations have been implemented. Training will be provided to all sites to remind them of stated District procedures pertaining to cash handling and maintaining adequate support for funds collected. 78

150 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued) Year Ended June 30, 2010 SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported. 79

151 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued) Year Ended June 30, 2010 SECTION IV - STATE AWARD FINDINGS AND QUESTIONED COSTS 2. STATE COMPLIANCE - NONCLASSROOM BASED INSTRUCTION FOR CHARTER SCHOOLS (10000) Criteria A school district or county office of education shall not be eligible to receive apportionments for independent study by pupils, regardless of age, unless it has adopted written policies, and has implemented those policies, pursuant to rules and regulations adopted by the Superintendent of Public Instruction, that include, but are not limited to, all of the following: (c) A requirement that a current written agreement for each independent study pupil shall be maintained on file including, but not limited to, all of the following: (5) The duration of the independent study agreement, including the beginning and ending dates for the pupil's participation in independent study under the agreement. No independent study agreement shall be valid for any period longer than one semester, or one-half year for a school on a year-round calendar. (6) A statement of the number of course credits or, for the elementary grades, other measures of academic accomplishment appropriate to the agreement, to be earned by the pupil upon completion. (8) Each written agreement shall be signed, prior to the commencement of independent study, by the pupil, the pupil's parent, legal guardian, or caregiver, if the pupil is less than 18 years of age, the certificated employee who has been designated as having responsibility for the general supervision of independent study, and all persons who have direct responsibility for providing assistance to the pupil. For purposes of this paragraph "caregiver" means a person who has met the requirements of Part 1.5 (commencing with Section 6550) of the Family Code. Conditions For the Nonclassroom Based Instruction testing at Stockton Alternative High School we noted the following conditions: Contracts were not signed by the student and parent/guardian until after the entry date. Contracts were for the entire school year and not for each semester. Contracts did not include all the required data elements, which include the number of course credits to be earned upon completion. Effect ADA is overstated by ADA; District is not in compliance with State requirements for the year ending June 30,

152 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued) Year Ended June 30, 2010 SECTION IV - STATE AWARD FINDINGS AND QUESTIONED COSTS (Continued) 2. STATE COMPLIANCE - NONCLASSROOM BASED INSTRUCTION FOR CHARTER SCHOOLS (10000) (Continued) Cause The site changed from a Continuation High School to an Independent High School in September At the point of the change, the site had the students' sign the independent study contracts and the site went back in the attendance system and changed the attendance to be independent study attendance from the first day of class on July 29, Additionally, the school is not on a semester schedule. The students take one class at a time and complete it at their on pace. When they complete the class they are allowed to enroll in a new class. However, we noted the Independent Study agreements were for the entire school year and not for individual classes. When the agreements were initially completed the counselor would indicate the first class the student would be taking and as the student completed that class and started a new one the secretary would update the contract with the information for the new class. Fiscal Impact The fiscal impact of the finding is $662,837. Recommendation We recommend the District revise and resubmit the second period apportionment report. In addition, we recommend all contracts be signed by the student, parent/guardian, counselor, and program administrator prior to the commencement of the semester. All contracts should include documentation on the number or course credits that may be earned upon completion of the courses. Corrective Action Plan The District has revised the Second Period Report of Attendance. The revised totals are presented in the Schedule of Daily Attendance section of this report. The District has also revised the Independent Study Contract and met with school staff to revise procedures in order to minimize a reoccurrence of this finding. 3. STATE COMPLIANCE -ATTENDANCE (10000) Criteria Attendance Accounting and Reporting in California Public Schools, Title 5, CCR, Sections 401 and 421 (b), and Education Code Section Each LEA must develop and maintain accurate and adequate records to support the attendance reported to the State. 81

153 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued) Year Ended June 30, 2010 SECTION IV - STATE AWARD FINDINGS AND QUESTIONED COSTS (Continued) 3. STATE COMPLIANCE - ATTENDANCE (10000) (Continued) Conditions At Jane Frederick Continuation High School, one student was marked absent on the instructor's attendance reporting scantron but the system generated report "Hourly Attendance Report" indicated the student was present. Effect The extrapolated error is an overstatement of 0.49 ADA. Cause The scantron attendance report is not consistent with the system generated reports. Fiscal Impact The extrapolated ADA impact is below 0.50 ADA, therefore District is not required to revise P2 for the Continuation Education finding. In addition, it is expected that there is no fiscal impact as the District is in "declining enrollment" status. Recommendation We recommend the site ensure the teacher scantrons agree to the attendance recorded in the system after each reporting period. Corrective Action Plan The District internal audit department will meet with school site staff to review procedures and the need for scantron forms to agree with the attendance recorded in the District attendance system. 4. STATE COMPLIANCE -ATTENDANCE (10000) Criteria Attendance Accounting and Reporting in California Public Schools, Title 5, CCR, Sections 401 and 421 (b), and Education Code Section Each LEA must develop and maintain accurate and adequate records to support the attendance reported to the State. Conditions At Stockton Early College Academy, four students were improperly claimed for apportionment for a total of 7 days. 82

154 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued) Year Ended June 30, 2010 SECTION IV - STATE AWARD FINDINGS AND QUESTIONED COSTS (Continued) 4. STATE COMPLIANCE - ATTENDANCE (10000) (Continued) Effect The extrapolated error is an overstatement of 0.56 ADA. Cause The errors were the result of clerical errors in accounting for attendance Fiscal Impact Because the District is in declining enrollment and prior year ADA is used for the revenue limit calculation, there is no current year fiscal impact. Recommendation The District should revise the Second Period Report of Attendance removing the disallowed ADA. Also, reports at the school sites should be reviewed to ensure the attendance report is accurate. Corrective Action Plan The District has revised the Second Period Report of Attendance. The revised totals are presented in the Schedule of Daily Attendance section of this report. The District's internal auditing department will meet with school site personnel to review the need to maintain accurate attendance accounting records. 5. STATE COMPLIANCE - KINDERGARTEN CONTINUATION (40000) Criteria California Department of Education Code section (g) requires kindergarten students who have been retained in kindergarten to have a signed agreement approved in form and content by the State Department of Education. Conditions The agreement forms for students retained in kindergarten were not properly completed for 5 individuals. Effect District is out of compliance with Education Code section 46300, thus resulting in an overstatement of 2.21 ADA. 83

155 STOCKTON UNIFIED SCHOOL DISTRICT SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued) Year Ended June 30, 2010 SECTION IV - STATE AWARD FINDINGS AND QUESTIONED COSTS (Continued) 5. STATE COMPLIANCE - KINDERGARTEN CONTINUATION (40000) (Continued) Cause The errors were the result of agreement forms not being properly completed for students retained in kindergarten for a second year. Fiscal Impact Because the District is in declining enrollment and prior year ADA is used for the revenue limit calculation, there is no current year fiscal impact. Recommendation The District should enforce controls to ensure all forms are completed and maintained for students retained in Kindergarten for a second year. In addition, the District should perform a cursory review of the continuation forms, to ensure all of the required elements are included in form and content, before preparing Period Two and Annual Reports of Attendance. Lastly, the District should revise and re-submit the Period Two Report of Attendance, reflecting the removal of the disallowed ADA. Corrective Action Plan The District has revised the Second Period Report of Attendance. The revised totals are presented in the Schedule of Daily Attendance section of this report. The District's internal audit department will work with the educational services department and the various sites to ensure agreement forms are properly completed and maintained. 84

156 STATUS OF PRIOR YEAR FINDINGS AND RECOMMENDATIONS

157 STOCKTON UNIFIED SCHOOL DISTRICT STATUS OF PRIOR YEAR FINDINGS AND RECOMMENDATIONS Year Ended June 30, Finding/Recommendation At various school sites selected for testing of Associated Student Body financial activity, common items were noted: Cash receipts schedules showing the number of items sold, price per item and the cash collected are not prepared. Logs are not used to track the issuance of sub-receipt books. Cash count forms are not used to support deposits. Deposits are not made on a timely basis. Profit and loss statements are not prepared for the student store. We recommend: ASB Advisor should collect supporting schedule from the Activities Coordinator which should support the funds collected. Receipt books used by staff should be tracked using a receipt book log. Cash count forms should be used to reconcile all pre-numbered receipts to deposits. District should enforce a policy to have deposits made on a timely basis (at least bi-weekly). Monthly profit and loss statements for student store should be prepared and reviewed by an independent individual At Grant Elementary School, one student was improperly claimed for apportionment for one day. At San Joaquin Elementary School, one student was improperly claimed for apportionment for one day. Current Status Partially implemented. Partially implemented. District Explanation If Not Implemented See current year finding #2. See current year finding #4. 85

158 STOCKTON UNIFIED SCHOOL DISTRICT STATUS OF PRIOR YEAR FINDINGS AND RECOMMENDATIONS (Continued) Year Ended June 30, 2010 Finding/Recommendation District Explanation Current Status If Not Implemented (Continued) We recommend: The District should revise the Second Period Report of Attendance removing the disallowed ADA. Also, reports at the school sites should be reviewed to ensure the attendance reported is accurate. 86

159 APPENDIX C GENERAL INFORMATION ABOUT THE COUNTY OF SAN JOAQUIN AND THE CITY OF STOCKTON The following information concerning the County and the City of Stockton (the City ) are included only for the purpose of supplying general information regarding the community in and around the District. The Bonds are not a debt of the County, the City, the State or any of its political subdivisions, and neither the County, the City, the State nor any of its political subdivisions (other than the District) is liable therefor. The City of Stockton, whose boundaries encompass 55.1 square miles, is located in California s San Joaquin Valley, 78 miles east of the San Francisco Bay area, 345 miles north of Los Angeles and 45 miles south of Sacramento. The Stockton Metropolitan Statistical Area, which encompasses the entire County, covers approximately 1,400 square miles. The City is a municipal corporation and a charter city, duly organized and existing under the constitution and laws of the State. Population The historic population estimates of the City and the County as of January 1 of the past five years are shown in the following table. Transportation Calendar City of County Year Stockton San Joaquin , , , , , , , , (1) 292, ,293 (1) Estimate Source: California State Department of Finance, Demographic Research Unit. Stockton is located on Interstate 5, the West Coast s major route from Canada to Mexico. The City s Crosstown Freeway connects Interstate 5 with State Route 99, the State s other principal northsouth freeway. Other freeway connections provide convenient access to the San Francisco Bay area and Reno. Thirty-five major transcontinental truck lines and nearly 200 contract carriers serve the City. The City is also served by Greyhound and the San Joaquin Regional Transit District. The Port of Stockton, the largest inland deep water seaport in the State, is served by numerous international shipping companies through the Stockton Channel to the San Francisco Bay. The modem port facility handles dry and liquid bulk commodities and general cargo. The Stockton Metropolitan Airport serves the San Joaquin Valley with passenger and air freight facilities. Railroad service is provided to the City by Burlington Northern, Santa Fe and the Union Pacific railroads. Daily passenger service by Amtrak is available to San Francisco, Los Angeles and Sacramento. C-1

160 Employment and Industry Approximately 3,000 acres in the City are zoned for light and heavy industry. Included in this acreage are 15 industrial parks with all on-site improvements. Six industrial parks are served by rail. The largest manufacturing and non-manufacturing employers as of 2010 in the City and in the County are shown below. CITY OF STOCKTON Major Employers Fiscal Year Ending June 30, 2010 Employer Number of Employees Percent of Total City Employment San Joaquin County 5, % Stockton Unified School District 4, St. Joseph s Medical Center 2, O-G Packing Company 2, Division of Juvenile Justice 1, Diamond Walnut 1, City of Stockton 1, Dameron Hospital 1, North California Youth Center 1, University of the Pacific Total 21, % Note: Principal employers are based on best available information. Source: City of Stockton, Comprehensive Annual Financial Report for the Fiscal Year ended June 30, 2010 C-2

161 COUNTY OF SAN JOAQUIN Major Employers Employer Name Employees Industry San Joaquin County 6,500 Government State of California 4,200 Government Stockton Unified Schools 3,893 Education Lodi Unified Schools 3,313 Education St. Joseph s Medical Center 2,500 Health Care Manteca Unified Schools 2,146 Education M&R Company 50 2,000 (1) Produce Packers San Joaquin General Hospital 1,780 Health Care City of Stockton 1,683 Government Tracy Unified Schools 1,628 Education Defense Distribution Center San Joaquin 1,504 Military Safeway Distribution Center 1,500 Grocery Distribution Pacific Gas & Electric Company 1,100 Utilities Kaiser Permanente 1,065 Health Care San Joaquin Delta College 1,000 Education University of the Pacific 1,000 Education Pacific Coast Producers 300 1,000 (1) Food Processors Unilever Best Foods North America 100 1,100 (1) Food Processors Eckert Cold Storage/Frozen Foods (1) Food Processors Diamond of California (1) Food Processors TeleTech 600 Customer Service AT&T 500 Telecommunications General Mills 450 Food Processors Owens Brockway, Inc. 450 Glass Bank of Stockton 440 Financial Army & Air Force Exchange Service 438 Military Distribution Simpson Strong-Tie 350 Shearwalls Delicato Family Vineyards 255 Winery Franzia Winery (the Wine Group) 250 Winery (1) Includes seasonal employees. Source: San Joaquin Partnership (Demographics, September 2010). C-3

162 The following table summarizes employment and unemployment rates in San Joaquin County and historical numbers of workers in San Joaquin County by industry. COUNTY OF SAN JOAQUIN Civilian Labor Force, Employment and Unemployment, Unemployment by Industry (Annual Averages) Civilian Labor Force (1) 285, , , , ,400 Employment 264, , , , ,000 Unemployment 21,200 23,400 30,500 46,200 52,400 Unemployment Rate 7.4% 8.1% 10.3% 15.4% 17.3% Wage and Salary Employment: (2) Agriculture 15,200 14,300 14,500 14,900 15,500 Mining and Logging Construction 16,700 15,900 13,800 11,400 8,400 Manufacturing 20,900 21,700 21,900 21,200 18,900 Wholesale Trade 9,100 9,800 10,500 10,400 9,900 Retail Trade 26,900 27,200 26,900 25,600 23,600 Transportation, Warehousing & Utilities 13,000 13,500 13,900 14,100 13,800 Information 2,600 2,500 2,500 2,400 2,200 Finance and Insurance 9,800 9,900 9,900 9,400 9,100 Professional and Business Services 18,100 18,500 18,300 17,600 15,900 Educational and Health Services 25,600 26,100 27,700 28,400 28,100 Leisure and Hospitality 17,100 17,300 17,800 17,500 16,500 Other Services 6,400 6,800 7,700 7,400 7,000 Federal Government 4,000 3,900 3,900 3,900 4,100 State Government 4,300 4,200 4,300 4,300 4,100 Local Government 31,300 31,600 32,100 32,100 32,000 Total All Industries 221, , , , ,200 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. Source: State of California Employment Development Department; March 2009 Benchmark. C-4

163 Commercial Activity A summary of historic taxable sales within the City is shown below. Annual figures for 2010 are not yet available. CITY OF STOCKTON Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands) Retail Stores Total All Outlets Number of Permits Taxable Transactions Number of Permits Taxable Transactions ,878 $2,829,122 5,213 $3,466, ,882 3,048,005 5,177 3,740, ,828 3,040,512 5,156 3,776, ,751 2,862,587 5,245 3,663, ,926 2,541,847 5,318 3,366, ,351 2,209,264 4,874 2,844,988 Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). A summary of historic taxable sales within the County is shown below. Annual figures for 2010 are not yet available. COUNTY OF SAN JOAQUIN Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands) Retail Stores Total All Outlets Number of Permits Taxable Transactions Number of Permits Taxable Transactions ,613 $6,107,311 13,597 $8,703, ,843 6,757,763 13,653 9,612, ,643 6,738,173 13,290 9,528, ,435 6,461,257 13,300 9,326, ,824 5,834,396 13,419 8,696, ,203 4,974,437 12,297 7,260,073 Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). C-5

164 Construction Activity Building activity for the past five years for which data is available in the City and the County are shown in the following table. CITY OF STOCKTON Total Building Permit Valuations (Valuations in Thousands) Permit Valuation New Single-family $233,156.2 $151,268.0 $43,049.2 $42,530.6 $2, New Multi-family 9, , , Res. Alterations/Additions 18, , , , Total Residential $261,254.9 $177,379.9 $57,530.1 $52,800.6 $4, New Commercial 94, , , , New Industrial 27, , , New Other 27, , , , , Com. Alterations/Additions 49, , , , , Total Nonresidential $199,325.1 $356,530.8 $266,710.6 $54,458.0 $ New Dwelling Units Single Family Multiple Family TOTAL 1, Source: Construction Industry Research Board, Building Permit Summary. COUNTY OF SAN JOAQUIN Total Building Permit Valuations (Valuations in Thousands) Permit Valuation New Single-family $801,687 $496,495 $171,391 $160,432 $166,223 New Multi-family 19,728 41,330 4, ,427 Res. Alterations/Additions 55,817 49,875 34,291 25,996 28,058 Total Residential $877,232 $587,700 $210,399 $186,428 $209,708 New Commercial 178, , ,151 18,405 31,522 New Industrial 36, ,741 38,173 3,103 1,333 New Other 105, ,437 40,026 35,572 40,130 Com. Alterations/Additions 114, , ,515 96, ,108 Total Nonresidential $435,913 $614,978 $530,865 $153,615 $173,093 New Dwelling Units Single Family 3,440 2, Multiple Family TOTAL 3,650 2, Source: Construction Industry Research Board, Building Permit Summary. C-6

165 Income Total personal income in the County increased by 61.44% between 1999 and 2008, representing an average annual compound growth rate of 5.5%. Per capita personal income in the County grew by 33.36% between 1999 and 2008, representing an average annual compound growth of 3.3%. (1) COUNTY OF SAN JOAQUIN Personal Income (1) (in thousands) Year County of San Joaquin Annual % Change ,068, ,280, % ,997, ,672, ,587, ,635, ,300, ,475, ,634, ,097, Latest data available Source: U.S. Department of Commerce, Bureau of Economic Analysis. (1) COUNTY OF SAN JOAQUIN Per Capita Personal Income (1) (in thousands) Year County of San Joaquin Annual % Change , , % , , , , , , , , Latest data available Source: U.S. Department of Commerce, Bureau of Economic Analysis. C-7

166 APPENDIX D FORMS OF OPINIONS OF BOND COUNSEL 2011 GENERAL OBLIGATION REFUNDING BONDS Governing Board Stockton Unified School District 701 North Madison Street Stockton, CA June 2, 2011 Re: Stockton Unified School District San Joaquin County, California 2011 General Obligation Refunding Bonds Final Bond Counsel Opinion Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance by the Stockton Unified School District (the District ) of $14,175,000 principal amount of Stockton Unified School District, San Joaquin County, California, 2011 General Obligation Refunding Bonds (the Bonds ). In such capacity, we have examined such law and such certified proceedings, certifications, and other documents as we have deemed necessary to render this opinion. Regarding questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion that, under existing law: 1. The Bonds have been duly authorized and executed by the District and are valid and binding general obligations of the District. 2. All taxable property in the territory of the District is subject to ad valorem taxation without limitation regarding rate or amount (except certain personal property that is taxable at limited rates) to pay the Bonds. The County of San Joaquin is required by law to include in its annual tax levy the principal and interest coming due on the Bonds to the extent that necessary funds are not provided from other sources. 3. Interest on the Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. The opinion set forth in the preceding sentence is subject to the condition that the District comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The District has covenanted to comply with all such requirements. Failure to comply with certain of such requirements may cause interest on the Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. D-1

167 4. Interest on the Bonds is exempt from State of California personal income taxation. The rights of the owners of the Bonds and the enforceability thereof are limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditors rights generally, and by equitable principles, whether considered at law or in equity. We express no opinion regarding the accuracy, adequacy, or completeness of the Official Statement or other offering material relating to the Bonds. Further, we express no opinion regarding tax consequences arising with respect to the Bonds other than as expressly set forth herein. 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. Very truly yours, KRONICK, MOSKOVITZ, TIEDEMANN & GIRARD A Professional Corporation D-2

168 GENERAL OBLIGATION BONDS, ELECTION OF 2008, SERIES D Governing Board Stockton Unified School District 701 North Madison Street Stockton, CA June 2, 2011 Re: Stockton Unified School District San Joaquin County, California General Obligation Bonds Election of 2008, Series D Final Bond Counsel Opinion Members of the Governing Board: We have acted as bond counsel to the Stockton Unified School District (the District ) in connection with the issuance by the District of its Stockton Unified School District, San Joaquin County, California, General Obligation Bonds, Election of 2008, Series D, in the aggregate principal amount of $56,146, (the Bonds ), under a resolution of the Governing Board of the District (the Board ) adopted on March 22, 2011 (the Resolution ) and an indenture dated as of June 1, 2011 (the Indenture ) between the District and Wells Fargo Bank, National Association, as paying agent. We have examined the law and such certified proceedings and other papers as we have deemed necessary to render this opinion. Regarding questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion that, under existing law: 1. The Bonds have been duly authorized and executed by the District and are valid and binding general obligations of the District. 2. All taxable property in the territory of the District is subject to ad valorem taxation without limitation regarding rate or amount (except certain personal property that is taxable at limited rates) to pay the Bonds. The County of San Joaquin is required by law to include in its annual tax levy the principal and interest coming due on the Bonds to the extent that necessary funds are not provided from other sources. 3. Interest on the Bonds is excludable from gross income for federal tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. The opinions set forth in the preceding sentence are subject to the condition that the District comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The District has covenanted to comply with all such requirements. Failure to comply with certain of such requirements may cause interest on the Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. D-3

169 4. Interest on the Bonds is exempt from State of California personal income taxation. The rights of the owners of the Bonds and the enforceability thereof are limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditors rights generally, and by equitable principles, whether considered at law or in equity. We express no opinion regarding the accuracy, adequacy, or completeness of the Official Statement or other offering material relating to the Bonds. Further, we express no opinion regarding tax consequences arising with respect to the Bonds other than as expressly set forth herein. 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. Very truly yours, KRONICK, MOSKOVITZ, TIEDEMANN & GIRARD, A Professional Corporation D-4

170 APPENDIX E FORMS OF CONTINUING DISCLOSURE CERTIFICATES $14,175,000 STOCKTON UNIFIED SCHOOL DISTRICT SAN JOAQUIN COUNTY, CALIFORNIA 2011 GENERAL OBLIGATION REFUNDING BONDS This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the Stockton Unified School District (the District ) in connection with the issuance of $14,175,000 aggregate principal amount of the Stockton Unified School District, San Joaquin County, California, 2011 General Obligation Refunding Bonds (the Bonds ) pursuant to a paying agent agreement dated June 1, 2011 (the Paying Agent Agreement ), between the District and Wells Fargo Bank, National Association (the Paying Agent ). The District covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being delivered by the District for the benefit of the Bondholders and Beneficial Owners of the Bonds and to assist the Participating Underwriters in complying with S.E.C. Rule 15c2-12(b)(5). Section 2. Definitions. Unless the context otherwise requires, the definitions set forth in the Paying Agent Agreement apply to this Disclosure Certificate. The following additional capitalized terms shall have the following meanings: Annual Report means any Annual Report provided by the District pursuant to, and as described in, Sections 3 (Provision of Annual Reports) and 4 (Content of Annual Reports) of this Disclosure Certificate. Beneficial Owner means any person that (a) has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. Bondholders mean either the registered owners of the Bonds, or, if the Bonds are registered in the name of The Depository Trust Company or another recognized depository, any Beneficial Owner or applicable participant in its depository system. Dissemination Agent means the District, or any successor Dissemination Agent designated in writing by the District and that has filed with the District a written acceptance of such designation. MSRB means the Municipal Securities Rulemaking Board. Official Statement means the final Official Statement dated May 18, 2011 relating to the Bonds. Opinion of Counsel means a written opinion of a law firm or attorney experienced in matters relating to interpretation of the Rule. Participating Underwriter means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. Repository shall mean MSRB or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Rule means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. E-1

171 Significant Event means any of the events listed in subsection (a) of Section 5 (Reporting of Significant Events) of this Disclosure Certificate. Section 3. Provision of Annual Reports. a. Delivery of Annual Report to Repository. The District shall, or shall cause the Dissemination Agent to, not later than 290 days after the end of the District s fiscal year (which currently ends on June 30), commencing with the report for the fiscal year, provide to the Repository an Annual Report that is consistent with the requirements of Section 4 (Content of Annual Reports) of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 (Content of Annual Reports) of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. b. Change of Fiscal Year. If the District s fiscal year changes, it shall give notice of such change in the same manner as for a Significant Event under Section 5(d) (Notice of Significant Events). c. Delivery of Annual Report to Dissemination Agent. Not later than fifteen (15) Business Days prior to the date specified in subsection (a) (Delivery of Annual Report to Repository) for providing the Annual Report to the Repository, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the District. d. Report of Non-Compliance. If the District is unable to provide an Annual Report to the Repository by the date required in subsection (a) (Delivery of Annual Report to Repository), the Dissemination Agent shall send a notice to the Repository in substantially the form attached as Exhibit A. e. Annual Compliance Certification. The Dissemination Agent shall if the Dissemination Agent is other than the District, file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided. Section 4. Content of Annual Reports. The District s Annual Report shall contain or include by reference the following: a. Financial Statements. The audited financial statements of the District for the prior fiscal year, prepared in accordance with generally accepted accounting principles. If the District s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a) (Delivery of Annual Report to Repository), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available; and b. Annual Budget. The District s approved annual budget for the then-current fiscal year; c. Interim Financial Report. The most recent Interim Financial Report submitted to the District s governing board in accordance with Education Code section (or its successor statutory provision) together with any supporting materials submitted to the governing board. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities that have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The District shall clearly identify each such other document so included by reference. E-2

172 Section 5. Reporting of Significant Events. a. Significant Events. Pursuant to the provisions of this Section, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) the issuance by the Internal Revenue Service of proposed or final determinations of taxability, or Notices of Proposed Issue (IRS Form 5701-TEB); (7) unless described in Section 3(a)(6) above, adverse tax opinions, material notices or determinations with respect to the tax status of the security, or other material events affecting the tax-exempt status of the security; (8) modifications to rights of security holders, if material; (9) optional, contingent or unscheduled bond calls, if material; (10) tender offers; (11) defeasances; (12) release, substitution, or sale of property securing repayment of the securities, if material; (13) rating changes; (14) bankruptcy, insolvency, receivership or similar event of the obligated person; (15) the consummation of a merger, consolidation or acquisition involving an obligated person or the sale of all or substantially all of the assets of the 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 relating to any such actions, other than pursuant to its terms, if material; and (16) appointment of a successor or additional trustee or paying agent, or the change of name of a trustee or paying agent, if material. b. Notice of Significant Events. Whenever the District obtains knowledge of the occurrence of a Significant Event, and, if the Significant Event is described in subsections (a)(2), (a)(7), (a)(8), (a)(9), (a)(12), (a)(15) or (a)(16) above, and the District determines that knowledge of the occurrence of a Significant Event would be material under applicable Federal securities law, the District shall, or shall cause the Dissemination Agent (if not the District) to file a notice of such occurrence with the Repository, in an electronic format as prescribed by the Repository, in a timely manner not in excess of 10 business E-3

173 days after the occurrence of the Significant Event. Notwithstanding the foregoing, notice of Significant Events described in subsection (a)(9) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds under the governing legal documents. Section 6. Filings with the Repository. All documents provided to the Repository under this Disclosure Certificate shall be filed in a readable PDF or other electronic format as prescribed by the Repository and shall be accompanied by identifying information as prescribed by the Repository. Section 7. Termination of Reporting Obligation. The District s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds or upon the delivery to the District of an Opinion of Counsel to the effect that continuing disclosure is no longer required by the Rule. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Significant Event under Section 5(b) (Notice of Significant Events). Section 8. Dissemination Agent. a. Appointment of Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such agent, with or without appointing a successor Dissemination Agent. If the Dissemination Agent is not the District, the Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be the District. b. Compensation of Dissemination Agent. The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as agreed to between the Dissemination Agent and the District from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the District, Bondholders or Beneficial Owners, or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any direction from the District or an Opinion of Counsel. The Dissemination Agent may at any time resign by giving written notice of such resignation to the District. Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate (and the Dissemination Agent shall agree to any amendment so requested by the District that does not impose any greater duties or risk of liability on the Dissemination Agent), and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: a. Change in Circumstances. If the amendment or waiver relates to the provisions of Sections 3(a) (Delivery of Annual Report to Repository), 4 (Content of Annual Reports), or 5(a) (Significant Events), it may only be 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 an obligated person with respect to the Bonds, or the type of business conducted; b. Compliance as of Issue Date. The undertaking, as amended or taking into account such waiver, would, based upon an Opinion of Counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and c. Consent of Bondholders; Non-impairment Opinion. The amendment or waiver either (i) is approved by the Bondholders in the same manner as provided in the Paying Agent Agreement for amendments to the Paying Agent Agreement with the consent of Bondholders, or (ii) does not, based on an Opinion of Counsel, materially impair the interests of the Bondholders or Beneficial Owners. E-4

174 If this Disclosure Certificate is amended or any provision of this Disclosure Certificate is waived, the District shall describe such amendment or waiver in the next following Annual Report and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Significant Event under Section 5(b) (Notice of Significant Events), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Significant Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Significant Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Significant Event. Section 11. Default. If the District fails to comply with any provision of this Disclosure Certificate, any Bondholder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Paying Agent Agreement, and the sole remedy under this Disclosure Certificate if the District fails to comply with this Disclosure Certificate shall be an action to compel performance. Section 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including reasonable attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the District, the Bondholders or Beneficial Owners, or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any direction from the District or an Opinion of Counsel. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Certificate. Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriters, and Bondholders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. IN WITNESS WHEREOF, the District has caused this Continuing Disclosure Certificate to be signed by its authorized officer on the date written below. Dated: June 2, 2011 STOCKTON UNIFIED SCHOOL DISTRICT By: Carl Toliver, Superintendent E-5

175 EXHIBIT A FORM OF NOTICE TO REPOSITORY OF FAILURE TO FILE ANNUAL REPORT Name of District: Name of Bonds: Stockton Unified School District Stockton Unified School District San Joaquin County, California 2011 General Obligation Refunding Bonds Date of Delivery: June 2, 2011 NOTICE IS HEREBY GIVEN that the Stockton Unified School District (the District ) has not provided an Annual Report with respect to the above-named Bonds for the fiscal year ended June 30, 20, as required by a Continuing Disclosure Certificate executed on June 2, 2011, with respect to the above-captioned securities. The District anticipates that the Annual Report will be filed by. Dated: STOCKTON UNIFIED SCHOOL DISTRICT [SAMPLE ONLY] E-6

176 $56,146, STOCKTON UNIFIED SCHOOL DISTRICT SAN JOAQUIN COUNTY, CALIFORNIA GENERAL OBLIGATION BONDS ELECTION OF 2008, SERIES D This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the Stockton Unified School District (the District ) in connection with the issuance of $56,146, aggregate principal amount of Stockton Unified School District, San Joaquin County, California, General Obligation Bonds, Election of 2008, Series D (the Bonds ) pursuant to an indenture dated June 1, 2011 (the Indenture ), between the District and Wells Fargo Bank, National Association (the Paying Agent ). The District covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being delivered by the District for the benefit of the Bondholders and Beneficial Owners of the Bonds and to assist the Participating Underwriters in complying with S.E.C. Rule 15c2-12(b)(5). Section 2. Definitions. Unless the context otherwise requires, the definitions set forth in the Indenture apply to this Disclosure Certificate. The following additional capitalized terms shall have the following meanings: Annual Report means any Annual Report provided by the District pursuant to, and as described in, Sections 3 (Provision of Annual Reports) and 4 (Content of Annual Reports) of this Disclosure Certificate. Beneficial Owner means any person that (a) has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. Bondholders mean either the registered owners of the Bonds, or, if the Bonds are registered in the name of The Depository Trust Company or another recognized depository, any Beneficial Owner or applicable participant in its depository system. Dissemination Agent means the District, or any successor Dissemination Agent designated in writing by the District and that has filed with the District a written acceptance of such designation. MSRB means the Municipal Securities Rulemaking Board. Official Statement means the final Official Statement dated May 18, 2011 relating to the Bonds. Opinion of Counsel means a written opinion of a law firm or attorney experienced in matters relating to interpretation of the Rule. Participating Underwriter means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. Repository shall mean MSRB or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Rule means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. Significant Event means any of the events listed in subsection (a) of Section 5 (Reporting of Significant Events) of this Disclosure Certificate. Section 3. Provision of Annual Reports. a. Delivery of Annual Report to Repository. The District shall, or shall cause the Dissemination Agent to, not later than 290 days after the end of the District s fiscal year (which currently E-7

177 ends on June 30), commencing with the report for the fiscal year, provide to the Repository an Annual Report that is consistent with the requirements of Section 4 (Content of Annual Reports) of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 (Content of Annual Reports) of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. b. Change of Fiscal Year. If the District s fiscal year changes, it shall give notice of such change in the same manner as for a Significant Event under Section 5(d) (Notice of Significant Events). c. Delivery of Annual Report to Dissemination Agent. Not later than fifteen (15) Business Days prior to the date specified in subsection (a) (Delivery of Annual Report to Repository) for providing the Annual Report to the Repository, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the District. d. Report of Non-Compliance. If the District is unable to provide an Annual Report to the Repository by the date required in subsection (a) (Delivery of Annual Report to Repository), the Dissemination Agent shall send a notice to the Repository in substantially the form attached as Exhibit A. e. Annual Compliance Certification. The Dissemination Agent shall, if the Dissemination Agent is other than the District, file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Certificate and stating the date it was provided. Section 4. Content of Annual Reports. The District s Annual Report shall contain or include by reference the following: a. Financial Statements. The audited financial statements of the District for the prior fiscal year, prepared in accordance with generally accepted accounting principles. If the District s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a) (Delivery of Annual Report to Repository), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available; and b. Annual Budget. The District s approved annual budget for the then-current fiscal year; c. Interim Financial Report. The most recent Interim Financial Report submitted to the District s governing board in accordance with Education Code section (or its successor statutory provision) together with any supporting materials submitted to the governing board. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities that have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The District shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. a. Significant Events. Pursuant to the provisions of this Section, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; E-8

178 (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) the issuance by the Internal Revenue Service of proposed or final determinations of taxability, or Notices of Proposed Issue (IRS Form 5701-TEB); (7) unless described in Section 3(a)(6) above, adverse tax opinions, material notices or determinations with respect to the tax status of the security, or other material events affecting the tax-exempt status of the security; (8) modifications to rights of security holders, if material; (9) optional, contingent or unscheduled bond calls, if material; (10) tender offers; (11) defeasances; (12) release, substitution, or sale of property securing repayment of the securities, if material; (13) rating changes; (14) bankruptcy, insolvency, receivership or similar event of the obligated person; (15) the consummation of a merger, consolidation or acquisition involving an obligated person or the sale of all or substantially all of the assets of the 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 relating to any such actions, other than pursuant to its terms, if material; and (16) appointment of a successor or additional trustee or paying agent, or the change of name of a trustee or paying agent, if material. b. Notice of Significant Events. Whenever the District obtains knowledge of the occurrence of a Significant Event, and, if the Significant Event is described in subsections (a)(2), (a)(7), (a)(8), (a)(9), (a)(12), (a)(15) or (a)(16) above, and the District determines that knowledge of the occurrence of a Significant Event would be material under applicable Federal securities law, the District shall, or shall cause the Dissemination Agent (if not the District) to file a notice of such occurrence with the Repository, in an electronic format as prescribed by the Repository, in a timely manner not in excess of 10 business days after the occurrence of the Significant Event. Notwithstanding the foregoing, notice of Significant Events described in subsection (a)(9) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds under the governing legal documents. Section 6. Filings with the Repository. All documents provided to the Repository under this Disclosure Certificate shall be filed in a readable PDF or other electronic format as prescribed by the Repository and shall be accompanied by identifying information as prescribed by the Repository. E-9

179 Section 7. Termination of Reporting Obligation. The District s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds or upon the delivery to the District of an Opinion of Counsel to the effect that continuing disclosure is no longer required by the Rule. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Significant Event under Section 5(b) (Notice of Significant Events). Section 8. Dissemination Agent. a. Appointment of Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such agent, with or without appointing a successor Dissemination Agent. If the Dissemination Agent is not the District, the Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be the District. b. Compensation of Dissemination Agent. The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as agreed to between the Dissemination Agent and the District from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the District, Bondholders or Beneficial Owners, or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any direction from the District or an Opinion of Counsel. The Dissemination Agent may at any time resign by giving written notice of such resignation to the District. Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate (and the Dissemination Agent shall agree to any amendment so requested by the District that does not impose any greater duties or risk of liability on the Dissemination Agent), and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: a. Change in Circumstances. If the amendment or waiver relates to the provisions of Sections 3(a) (Delivery of Annual Report to Repository), 4 (Content of Annual Reports), or 5(a) (Significant Events), it may only be 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 an obligated person with respect to the Bonds, or the type of business conducted; b. Compliance as of Issue Date. The undertaking, as amended or taking into account such waiver, would, based upon an Opinion of Counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and c. Consent of Bondholders; Non-impairment Opinion. The amendment or waiver either (i) is approved by the Bondholders in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Bondholders, or (ii) does not, based on an Opinion of Counsel, materially impair the interests of the Bondholders or Beneficial Owners. If this Disclosure Certificate is amended or any provision of this Disclosure Certificate is waived, the District shall describe such amendment or waiver in the next following Annual Report and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Significant Event under Section 5(b) (Notice of Significant Events), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form E-10

180 and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Significant Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Significant Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Significant Event. Section 11. Default. If the District fails to comply with any provision of this Disclosure Certificate, any Bondholder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Certificate if the District fails to comply with this Disclosure Certificate shall be an action to compel performance. Section 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including reasonable attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the District, the Bondholders or Beneficial Owners, or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any direction from the District or an Opinion of Counsel. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Certificate. Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriters and Bondholders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. IN WITNESS WHEREOF, the District has caused this Continuing Disclosure Certificate to be signed by its authorized officer on the date written below. Dated: June 2, 2011 STOCKTON UNIFIED SCHOOL DISTRICT By: Carl Toliver, Superintendent E-11

181 EXHIBIT A FORM OF NOTICE TO REPOSITORY OF FAILURE TO FILE ANNUAL REPORT Name of District: Name of Bonds: Stockton Unified School District Stockton Unified School District San Joaquin County, California General Obligation Bonds, Election of 2008, Series D Date of Delivery: June 2, 2011 NOTICE IS HEREBY GIVEN that the Stockton Unified School District (the District ) has not provided an Annual Report with respect to the above-named Bonds for the fiscal year ended June 30, 20, as required by a Continuing Disclosure Certificate executed on June 2, 2011, with respect to the above-captioned securities. The District anticipates that the Annual Report will be filed by. Dated: STOCKTON UNIFIED SCHOOL DISTRICT [SAMPLE ONLY] E-12

182 APPENDIX F BOOK-ENTRY ONLY SYSTEM The following description of the Depository Trust Company ( DTC ), the procedures and record keeping with respect to beneficial ownership interests in the Refunding Bonds, payment of principal, interest and other payments on the Refunding Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Refunding Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Neither the District nor the Paying Agent take any responsibility for the information contained in this Appendix. When used in this Appendix, the term Bonds will mean the Refunding Bonds. No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) Bonds representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current Rules applicable to DTC are on file with the Securities and Exchange Commission and the current Procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for the Bonds, in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount of such issue. DTC, the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity, 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 the Bonds. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s highest rating: AAA. The F-1

183 DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive Bonds representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices will be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts, upon DTC s receipt of funds and corresponding detail information from District or Paying Agent on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, Paying Agent, or District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of District or Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. F-2

184 DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to District or Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered. The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered to DTC. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that District believes to be reliable, but District takes no responsibility for the accuracy thereof. F-3

185 APPENDIX G CAPITAL APPRECIATION BOND TABLE OF ACCRETED VALUES G-1

186 BOND ACCRETED VALUE TABLE Stockton Unified School District Estimated Election of 2008, Series D General Obligation Bonds CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond 08/01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/2028 Date 5.04% 5.34% 5.62% 5.89% 6.16% 6.43% 6.66% 6.76% 6.85% 06/02/2011 3, , , , , , , , , /01/2011 3, , , , , , , , , /01/2012 3, , , , , , , , , /01/2012 3, , , , , , , , , /01/2013 3, , , , , , , , , /01/2013 3, , , , , , , , , /01/2014 3, , , , , , , , , /01/2014 3, , , , , , , , , /01/2015 3, , , , , , , , , /01/2015 3, , , , , , , , , /01/2016 3, , , , , , , , , /01/2016 4, , , , , , , , , /01/2017 4, , , , , , , , , /01/2017 4, , , , , , , , , /01/2018 4, , , , , , , , , /01/2018 4, , , , , , , , , /01/2019 4, , , , , , , , , /01/2019 4, , , , , , , , , /01/2020 4, , , , , , , , , /01/2020 5, , , , , , , , , /01/2021 4, , , , , , , , /01/2021 5, , , , , , , , /01/2022 4, , , , , , , /01/2022 5, , , , , , , /01/2023 4, , , , , , /01/2023 5, , , , , , /01/2024 4, , , , , /01/2024 5, , , , , /01/2025 4, , , , /01/2025 5, , , , /01/2026 4, , , /01/2026 5, , , /01/2027 4, , /01/2027 5, , /01/2028 4, /01/2028 5,000.00

187 BOND ACCRETED VALUE TABLE Stockton Unified School District Estimated Election of 2008, Series D General Obligation Bonds CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond 08/01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/2037 Date 6.94% 7.03% 7.12% 7.21% 7.25% 7.33% 7.4% 7.45% 7.47% 06/02/2011 1, , , , , /01/2011 1, , , , , /01/2012 1, , , , , /01/2012 1, , , , , , /01/2013 1, , , , , , /01/2013 1, , , , , , , /01/2014 1, , , , , , , /01/2014 1, , , , , , , , /01/2015 1, , , , , , , , /01/2015 1, , , , , , , , /01/2016 1, , , , , , , , , /01/2016 2, , , , , , , , , /01/2017 2, , , , , , , , , /01/2017 2, , , , , , , , , /01/2018 2, , , , , , , , , /01/2018 2, , , , , , , , , /01/2019 2, , , , , , , , , /01/2019 2, , , , , , , , , /01/2020 2, , , , , , , , , /01/2020 2, , , , , , , , , /01/2021 2, , , , , , , , , /01/2021 2, , , , , , , , , /01/2022 2, , , , , , , , , /01/2022 3, , , , , , , , , /01/2023 3, , , , , , , , , /01/2023 3, , , , , , , , , /01/2024 3, , , , , , , , , /01/2024 3, , , , , , , , , /01/2025 3, , , , , , , , , /01/2025 3, , , , , , , , , /01/2026 3, , , , , , , , , /01/2026 4, , , , , , , , , /01/2027 4, , , , , , , , , /01/2027 4, , , , , , , , , /01/2028 4, , , , , , , , , /01/2028 4, , , , , , , , ,584.10

188 BOND ACCRETED VALUE TABLE Stockton Unified School District Estimated Election of 2008, Series D General Obligation Bonds CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond 08/01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/2037 Date 6.94% 7.03% 7.12% 7.21% 7.25% 7.33% 7.4% 7.45% 7.47% 02/01/2029 4, , , , , , , , , /01/2029 5, , , , , , , , , /01/2030 4, , , , , , , , /01/2030 5, , , , , , , , /01/2031 4, , , , , , , /01/2031 5, , , , , , , /01/2032 4, , , , , , /01/2032 5, , , , , , /01/2033 4, , , , , /01/2033 5, , , , , /01/2034 4, , , , /01/2034 5, , , , /01/2035 4, , , /01/2035 5, , , /01/2036 4, , /01/2036 5, , /01/2037 4, /01/2037 5, /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/2046

189 BOND ACCRETED VALUE TABLE Stockton Unified School District Estimated Election of 2008, Series D General Obligation Bonds CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond 08/01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/2046 Date 7.48% 7.49% 7.5% 7.51% 7.54% 7.57% 7.6% 7.63% 7.66% 06/02/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/2017 1, /01/2017 1, /01/2018 1, , /01/2018 1, , /01/2019 1, , , /01/2019 1, , , /01/2020 1, , , , /01/2020 1, , , , /01/2021 1, , , , , /01/2021 1, , , , , /01/2022 1, , , , , , /01/2022 1, , , , , , /01/2023 1, , , , , , , /01/2023 1, , , , , , , /01/2024 1, , , , , , , /01/2024 1, , , , , , , , /01/2025 1, , , , , , , , /01/2025 1, , , , , , , , , /01/2026 1, , , , , , , , , /01/2026 2, , , , , , , , , /01/2027 2, , , , , , , , , /01/2027 2, , , , , , , , , /01/2028 2, , , , , , , , , /01/2028 2, , , , , , , , ,292.25

190 BOND ACCRETED VALUE TABLE Stockton Unified School District Estimated Election of 2008, Series D General Obligation Bonds CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond CAB Bond 08/01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/2046 Date 7.48% 7.49% 7.5% 7.51% 7.54% 7.57% 7.6% 7.63% 7.66% 02/01/2029 2, , , , , , , , , /01/2029 2, , , , , , , , , /01/2030 2, , , , , , , , , /01/2030 2, , , , , , , , , /01/2031 2, , , , , , , , , /01/2031 2, , , , , , , , , /01/2032 3, , , , , , , , , /01/2032 3, , , , , , , , , /01/2033 3, , , , , , , , , /01/2033 3, , , , , , , , , /01/2034 3, , , , , , , , , /01/2034 3, , , , , , , , , /01/2035 3, , , , , , , , , /01/2035 4, , , , , , , , , /01/2036 4, , , , , , , , , /01/2036 4, , , , , , , , , /01/2037 4, , , , , , , , , /01/2037 4, , , , , , , , , /01/2038 4, , , , , , , , , /01/2038 5, , , , , , , , , /01/2039 4, , , , , , , , /01/2039 5, , , , , , , , /01/2040 4, , , , , , , /01/2040 5, , , , , , , /01/2041 4, , , , , , /01/2041 5, , , , , , /01/2042 4, , , , , /01/2042 5, , , , , /01/2043 4, , , , /01/2043 5, , , , /01/2044 4, , , /01/2044 5, , , /01/2045 4, , /01/2045 5, , /01/2046 4, /01/2046 5,000.00

191 BOND ACCRETED VALUE TABLE Stockton Unified School District Estimated Election of 2008, Series D General Obligation Bonds CAB Bond CAB Bond CAB Bond 08/01/ /01/ /01/2049 Date 7.69% 7.72% 7.75% 06/02/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/2026 1, /01/2027 1, /01/2027 1, , /01/2028 1, , /01/2028 1, , ,012.75

192 BOND ACCRETED VALUE TABLE Stockton Unified School District Estimated Election of 2008, Series D General Obligation Bonds CAB Bond CAB Bond CAB Bond 08/01/ /01/ /01/2049 Date 7.69% 7.72% 7.75% 02/01/2029 1, , , /01/2029 1, , , /01/2030 1, , , /01/2030 1, , , /01/2031 1, , , /01/2031 1, , , /01/2032 1, , , /01/2032 1, , , /01/2033 1, , , /01/2033 1, , , /01/2034 1, , , /01/2034 1, , , /01/2035 1, , , /01/2035 2, , , /01/2036 2, , , /01/2036 2, , , /01/2037 2, , , /01/2037 2, , , /01/2038 2, , , /01/2038 2, , , /01/2039 2, , , /01/2039 2, , , /01/2040 2, , , /01/2040 2, , , /01/2041 3, , , /01/2041 3, , , /01/2042 3, , , /01/2042 3, , , /01/2043 3, , , /01/2043 3, , , /01/2044 3, , , /01/2044 3, , , /01/2045 4, , , /01/2045 4, , , /01/2046 4, , , /01/2046 4, , ,980.15

193 BOND ACCRETED VALUE TABLE Stockton Unified School District Estimated Election of 2008, Series D General Obligation Bonds CAB Bond CAB Bond CAB Bond 08/01/ /01/ /01/2049 Date 7.69% 7.72% 7.75% 02/01/2047 4, , , /01/2047 5, , , /01/2048 4, , /01/2048 5, , /01/2049 4, /01/2049 5,000.00

194 APPENDIX H CONVERTIBLE CAPITAL APPRECIATION BOND TABLE OF ACCRETED VALUES H-1

195 BOND ACCRETED VALUE TABLE Stockton Unified School District Estimated Election of 2008, Series D General Obligation Bonds Convertible CAB Term Bond 08/01/2047 Date 7.4% 06/02/2011 1, /01/2011 1, /01/2012 1, /01/2012 1, /01/2013 1, /01/2013 1, /01/2014 1, /01/2014 1, /01/2015 2, /01/2015 2, /01/2016 2, /01/2016 2, /01/2017 2, /01/2017 2, /01/2018 2, /01/2018 2, /01/2019 2, /01/2019 2, /01/2020 2, /01/2020 3, /01/2021 3, /01/2021 3, /01/2022 3, /01/2022 3, /01/2023 3, /01/2023 3, /01/2024 3, /01/2024 4, /01/2025 4, /01/2025 4, /01/2026 4, /01/2026 4, /01/2027 4, /01/2027 5,000.00

196 BOND ACCRETED VALUE TABLE Stockton Unified School District Estimated Election of 2008, Series D General Obligation Bonds Convertible CAB Term Bond 08/01/2050 Date 7.5% 06/02/2011 1, /01/2011 1, /01/2012 1, /01/2012 1, /01/2013 1, /01/2013 1, /01/2014 1, /01/2014 1, /01/2015 1, /01/2015 2, /01/2016 2, /01/2016 2, /01/2017 2, /01/2017 2, /01/2018 2, /01/2018 2, /01/2019 2, /01/2019 2, /01/2020 2, /01/2020 2, /01/2021 3, /01/2021 3, /01/2022 3, /01/2022 3, /01/2023 3, /01/2023 3, /01/2024 3, /01/2024 4, /01/2025 4, /01/2025 4, /01/2026 4, /01/2026 4, /01/2027 4, /01/2027 5,000.00

197 APPENDIX I SPECIMEN MUNICIPAL BOND INSURANCE POLICY I-1

198

199