$45,710,000 ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) 2014 General Obligation Refunding Bonds, Series A

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1 NEW ISSUE BOOK-ENTRY ONLY Ratings: Moody s: Aa3 Standard & Poor s: A+ (See MISCELLANEOUS Ratings herein) In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2014A Refunding Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of In the further opinion of Bond Counsel, interest on the Series 2014A Refunding Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel is also of the opinion that interest on the Series 2014 Refunding Bonds is exempt from State of California personal income taxes. Bond Counsel further observes that interest on the Series 2014B Refunding Bonds is not excluded from gross income for federal income tax purposes. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Series 2014 Refunding Bonds. See TAX MATTERS herein. $5,375,000 ANAHEIM CITY SCHOOL DISTRICT $45,710,000 ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) 2014 General Obligation Refunding Bonds, Series A (Orange County, California) 2014 General Obligation Refunding Bonds, Taxable Series B Dated: Date of Delivery Due: August 1, as shown herein This cover page is not a summary of this issue; it is only a reference to the information contained in this Official Statement. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Anaheim City School District (Orange County, California) 2014 General Obligation Refunding Bonds, Series A (the Series 2014A Refunding Bonds ) and the Anaheim City School District (Orange County, California) 2014 General Obligation Refunding Bonds, Taxable Series B (the Series 2014B Refunding Bonds and, together with the Series 2014A Refunding Bonds, the Series 2014 Refunding Bonds ) are being issued by the Anaheim City School District (the District ), located in the County of Orange (the County ), California, (i) to refund, on an advance basis, a portion of the District s outstanding Anaheim City School District (Orange County, California) 2005 General Obligation Refunding Bonds, and (ii) to pay costs of issuance of the Series 2014 Refunding Bonds. See THE SERIES 2014 REFUNDING BONDS Plan of Finance; Outstanding Bonds herein. The Series 2014 Refunding Bonds are being issued pursuant to the laws of the State of California (the State ) and the Paying Agent Agreement, dated as of March 1, 2014, by and between the District and U.S. Bank National Association, as paying agent (the Paying Agent ). See THE SERIES 2014 REFUNDING BONDS Authority for Issuance herein. The Series 2014 Refunding Bonds are payable from ad valorem taxes to be levied within the District pursuant to the California Constitution and other State law. The Board of Supervisors of the County is empowered and obligated to levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series 2014 Refunding Bonds, all as more fully described herein. See SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2014 REFUNDING BONDS herein. The Series 2014 Refunding Bonds will be issued as current interest bonds. The Series 2014 Refunding Bonds shall be issued in denominations of $5,000 principal amount and integral multiples thereof as shown on the inside cover page of this Official Statement. Interest on the Series 2014 Refunding Bonds shall be payable on February 1 and August 1 of each year, commencing on August 1, Each series of the Series 2014 Refunding 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 The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for each series of the Series 2014 Refunding Bonds. Individual purchases of Series 2014 Refunding Bonds will be made in book-entry form only. Purchasers will not receive physical delivery of the Series 2014 Refunding Bonds purchased by them. Payments of the principal of and interest on each series of the Series 2014 Refunding Bonds will be made by the Paying Agent to DTC for subsequent disbursement through DTC Participants to the beneficial owners of the Series 2014 Refunding Bonds. The Series 2014 Refunding Bonds are subject to redemption prior to maturity as described herein. See THE SERIES 2014 REFUNDING BONDS Redemption herein. Each series of the Series 2014 Refunding Bonds will be offered when, as and if issued by the District and received by the Underwriter, subject to the approval of legality by Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, and certain other conditions. Certain legal matters will be passed upon for the District by Orrick, Herrington & Sutcliffe LLP, as Disclosure Counsel to the District; and for the Underwriter by Hawkins Delafield & Wood LLP, San Francisco, California. It is anticipated that each series of the Series 2014 Refunding Bonds, in definitive form, will be available for delivery through the facilities of DTC in New York, New York, on or about March 26, Citigroup Dated: March 6, 2014.

2 MATURITY SCHEDULE BASE CUSIP 1 : 03254C Maturity (August 1) $5,375,000 ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) 2014 General Obligation Refunding Bonds, Series A Principal Amount Interest Rate Yield Price CUSIP Number $465, % 0.390% % GH , GJ , GK , GL , GM , GN , GP , GQ7 Maturity (August 1) $45,710,000 ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) 2014 General Obligation Refunding Bonds, Taxable Series B Principal Amount Interest Rate Yield Price CUSIP Number $560, % 0.496% % FX , FY ,320, FZ ,840, GA ,940, GB ,320, GC ,745, GD ,220, GE ,750, GF ,330, GG9 1 Copyright 2014, American Bankers Association. CUSIP data herein is provided by Standard & Poor s, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. CUSIP numbers are provided for convenience of reference only. Neither the District nor the Underwriter takes any responsibility for the accuracy of such CUSIP numbers.

3 ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) BOARD OF EDUCATION Dr. Jose F. Moreno, President Sandy Blumberg, Clerk Jeff Cole, Member Bob Gardner, Member James Vanderbilt, Member DISTRICT ADMINISTRATORS Dr. Linda Wagner, Superintendent Mary Grace, Ed.D., Assistant Superintendent, Educational Services Darren Dang, Assistant Superintendent, Administrative Services Luis Camarena, Assistant Superintendent, Human Resources PROFESSIONAL SERVICES Bond Counsel and Disclosure Counsel Orrick, Herrington & Sutcliffe LLP Irvine, California Financial Advisor Fieldman, Rolapp & Associates Irvine, California Paying Agent and Escrow Bank U.S. Bank National Association, Los Angeles, California Escrow Verification Causey Demgen & Moore P.C. Denver, Colorado

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5 TABLE OF CONTENTS Page INTRODUCTION...1 General...1 The District...1 THE SERIES 2014 REFUNDING BONDS...2 Authority for Issuance...2 Purpose of Issue...2 Form and Registration...2 Payment of Principal and Interest...2 Redemption...3 Plan of Finance; Outstanding Bonds...5 Debt Service Schedule...7 Aggregate Debt Service...8 Estimated Sources and Uses of Funds...9 Defeasance...9 SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2014 REFUNDING BONDS...11 General...11 Property Taxation System...11 Assessed Valuation of Property Within the District...11 Tax Rates...17 Tax Charges and Delinquencies...18 Direct and Overlapping Debt...19 TAX MATTERS...21 Series 2014A Refunding Bonds...21 Series 2014B Refunding Bonds...23 OTHER LEGAL MATTERS...27 Legal Opinion...27 Legality for Investment in California...27 Continuing Disclosure...27 No Litigation...27 ESCROW VERIFICATION...28 MISCELLANEOUS...28 Ratings...28 Professionals Involved in the Offering...28 Underwriting...29 ADDITIONAL INFORMATION i-

6 TABLE OF CONTENTS (continued) Page APPENDIX A INFORMATION RELATING TO THE DISTRICT S OPERATIONS AND BUDGET...A-1 APPENDIX B FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, B-1 APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL...C-1 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE...D-1 APPENDIX E ORANGE COUNTY EDUCATIONAL INVESTMENT POOL DISCLOSURE... E-1 APPENDIX F ORANGE COUNTY INVESTMENT POLICY STATEMENT... F-1 APPENDIX G BOOK-ENTRY ONLY SYSTEM...G-1 -ii-

7 This Official Statement does not constitute an offering of any security other than the original offering of the Series 2014 Refunding Bonds by the District. No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representations other than as contained in this Official Statement, and if given or made, such other information or representation not so authorized should not be relied upon as having been given or authorized by the District. The Series 2014 Refunding Bonds are exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 3(a)2 thereof. This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy Series 2014 Refunding Bonds in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. The information set forth herein other than that furnished by the District, although obtained from sources which are believed to be reliable, 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 Series 2014 Refunding Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as 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. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements. Such statements are generally identifiable by the terminology used, such as plan, expect, estimate, budget or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The District does not plan to issue any updates or revisions to those forward-looking statements if or when their expectations, or events, conditions or circumstances on which such statements are based, occur. The District maintains a website. However, the information presented there is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the Series 2014 Refunding Bonds. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market prices of the Series 2014 Refunding Bonds at levels 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 the Series 2014 Refunding Bonds to certain securities dealers and dealer banks and banks acting as agent at prices lower than the public offering prices stated on the inside front cover page hereof and said public offering prices may be changed from time to time by the Underwriter.

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9 $5,375,000 ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) 2014 General Obligation Refunding Bonds, Series A $45,710,000 ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) 2014 General Obligation Refunding Bonds, Taxable Series B 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 and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Series 2014 Refunding Bonds to potential investors is made only by means of the entire Official Statement. General This Official Statement, which includes the cover page and appendices hereto, is provided to furnish information in connection with the sale of (i) $5,375,000 aggregate principal amount of Anaheim City School District (Orange County, California) 2014 General Obligation Refunding Bonds, Series A (the Series 2014A Refunding Bonds ), and (ii) $45,710,000 aggregate principal amount of Anaheim City School District (Orange County, California) 2014 General Obligation Refunding Bonds, Taxable Series B (the Series 2014B Refunding Bonds ), all as indicated on the inside front cover hereof, to be issued by the Anaheim City School District (the District ). The Series 2014A Refunding Bonds and the Series 2014B Refunding Bonds are referred to collectively herein as the Series 2014 Refunding Bonds. This Official Statement speaks only as of its date, and the information contained herein is subject to change. The District has no obligation to update the information in this Official Statement, except as required by the Continuing Disclosure Certificate to be executed by the District. See OTHER LEGAL MATTERS Continuing Disclosure. The purpose of this Official Statement is to supply information to prospective buyers of the Series 2014 Refunding Bonds. Quotations from and summaries and explanations of the Series 2014 Refunding Bonds, the Paying Agent Agreement, dated as of March 1, 2014 (the Paying Agent Agreement ), by and between the District and U.S. Bank National Association, as paying agent (the Paying Agent ), providing for the issuance of the Series 2014 Refunding Bonds, and the constitutional provisions, statutes and other documents described herein, do not purport to be complete, and reference is hereby made to said documents, constitutional provisions and statutes for the complete provisions thereof. 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 Series 2014 Refunding Bonds. Copies of documents referred to herein and information concerning the Series 2014 Refunding Bonds are available from the District by contacting: Anaheim City School District, 1001 S. East Street, Anaheim, California 92805, Attention: Assistant Superintendent, Administrative Services. The District may impose a charge for copying, handling and mailing such requested documents. The District The District began operations in The District is located in the city of Anaheim, approximately 30 miles south of downtown Los Angeles and 90 miles north of San Diego, and

10 encompasses an area of approximately 22 square miles in the County of Orange (the County ). The District currently operates 24 elementary schools, three of which are on a four-track, year-round schedule. Current fiscal year enrollment is approximately 19,325. Total assessed valuation of taxable property in the District in fiscal year is approximately $20.65 billion. The District is governed by a five-member Board of Education (the Board of Education ), each member of which is elected to a four-year term. Elections for positions to the Board of Education are held every two years, alternating between two and three available positions. The management and policies of the District are administered by a Superintendent appointed by the Board of Education who is responsible for day-to-day District operations as well as the supervision of the District s other key personnel. Linda Wagner was appointed as Superintendent by the Board of Education in March RELATING TO THE DISTRICT S OPERATIONS AND BUDGET, and APPENDIX B FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, Authority for Issuance THE SERIES 2014 REFUNDING BONDS Each series of the Series 2014 Refunding Bonds are being issued pursuant to provisions of Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code and other applicable law, a resolution adopted by the Board of Education of the District on February 24, 2014, providing for the issuance of the Series 2014 Refunding Bonds, and the Paying Agent Agreement. Purpose of Issue Proceeds from the Series 2014 Refunding Bonds will be used (i) to refund on an advance basis a portion of the District s outstanding Anaheim City School District (Orange County, California) 2005 General Obligation Refunding Bonds (the Series 2005 Refunding Bonds ), and (ii) to pay costs of issuance of the Series 2014 Refunding Bonds. See Form and Registration Each series of the Series 2014 Refunding Bonds will be issued in book-entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), and will be available to purchasers of such series of Series 2014 Refunding 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 receive physical delivery of certificates from the District representing their interests in each series of the Series 2014 Refunding Bonds being purchased. Payments of the principal of, premium, if any, and interest on each series of the Series 2014 Refunding Bonds will be made by the Paying Agent to DTC, and such payments will be remitted by DTC to the participants in DTC for subsequent disbursement to the Beneficial Owners of such series of Series 2014 Refunding Bonds. See APPENDIX Payment of Principal and Interest Each series of Series 2014 Refunding Bonds shall be dated the date of their delivery, and shall bear interest at the rates set forth in the table on the inside cover page hereof, payable on February 1 and August 1 of each year, commencing on August 1, 2014 (each an Interest Payment Date ), calculated on 2

11 the basis of a 360-day year comprised of twelve 30-day months. Each series of Series 2014 Refunding Bond shall be issued in denominations of $5,000 or any integral multiples thereof, and shall bear interest from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series 2014 Refunding Bond is authenticated on or before an Interest Payment Date and after the close of business on the 15th calendar day of the month preceding such Interest Payment Date (each, a Record Date ), in which event it shall bear interest from such Interest Payment Date, or (ii) a Series 2014 Refunding Bond is authenticated on or before the first Record Date, in which event it shall bear interest from the date of delivery of the Series 2014 Refunding Bonds. Interest on each series of Series 2014 Refunding Bonds shall be paid in lawful money of the United States on each Interest Payment Date. Interest shall be paid by check of the Paying Agent mailed by first class mail, postage prepaid, on each Interest Payment Date to the registered owners thereof (the Owners ) at their respective addresses shown on the registration books (the Registration Books ) maintained by the Paying Agent as of the close of business on the preceding Record Date. The principal of each series of Series 2014 Refunding Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the principal corporate trust office of the Paying Agent in Los Angeles, California, or such other office as may be specified to the District by the Paying Agent in writing (the Office of the Paying Agent ). So long as all outstanding Series 2014 Refunding Bonds of a series are held in book-entry form and registered in the name of a securities depository or its nominee, all payments by the District or the Paying Agent with respect to principal of, premium, if any, and interest on the Series 2014 Refunding Bonds of such series and all notices with respect to such Series 2014 Refunding Bonds of such series shall be made and given, respectively, to such securities depository or its nominee and not to Beneficial Owners. So long as the Series 2014 Refunding Bonds of such series are held by Cede & Co., as nominee of DTC, payment shall Redemption Optional Redemption. The Series 2014A Refunding Bonds shall not be subject to optional redemption prior to their stated maturity dates. The Series 2014B Refunding Bonds shall be subject to optional redemption prior to their stated maturity dates at the option of the District, in whole or in part, on any date at a redemption price (the Make Whole Redemption Price ) equal to the greater of: (a) the issue price set forth on the inside cover page hereof (but not less than 100%) of such principal amount of the Series 2014B Refunding Bonds to be redeemed; or (b) the sum of the present value of the remaining scheduled payments of principal and interest to the maturity date of such Series 2014B Refunding Bonds to be redeemed, not including any portion of those payments of interest accrued and unpaid as of the date on which such Series 2014B Refunding Bonds are to be redeemed, discounted to the date on which such Series 2014B Refunding Bonds are to be redeemed on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at the Treasury Rate plus 20 basis points; plus, in each case, accrued interest on such Series 2014B Refunding Bonds to be redeemed to the redemption date. Treasury Rate means, with respect to any redemption date for a particular Series 2014B Refunding Bond, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to the redemption 3

12 date (excluding inflation indexed securities) (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to the maturity date of the Series 2014B Refunding Bond to be redeemed; provided, however, that if the period from the redemption date to such maturity date is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used. Business Day means a day which is not (a) a Saturday, Sunday or legal holiday in the State of California, (b) a day on which banking institutions in the State of California, or in any state in which the principal corporate trust office of the Paying Agent is located (or such other office as may be specified to the District by the Paying Agent in writing), are required or authorized by law (including executive order) to close, or (c) a day on which the New York Stock Exchange is closed. Selection of Bonds for Redemption. If less than all of the Series 2014 Refunding Bonds of a series are called for optional redemption, the Paying Agent shall select the Series 2014 Refunding Bonds of such series to be redeemed from all Series 2014 Refunding Bonds of such series not previously called for redemption among maturities of Series 2014 Refunding Bonds of such series as directed in a Written Request of the District. Within a maturity of Series 2014 Refunding Bonds of the same series, the Paying Agent shall select Series 2014 Refunding Bonds of such series for redemption by lot. Notice of Redemption. The Paying Agent on behalf and at the expense of the District shall mail (by first class mail) notice of any redemption to the respective Owners of any Series 2014 Refunding Bonds designated for redemption at their respective addresses appearing on the Registration Books at least 30 but not more than 60 days prior to the date fixed for redemption. Such notice shall state (i) the date of the notice, (ii) the redemption date, (iii) the redemption place, (iv) the redemption price, (v) the series of Series 2014 Refunding Bonds to be redeemed, (vi) the CUSIP numbers, if any, (vii) the Series 2014 Refunding Bond numbers, and (viii) the maturity or maturities of the Series 2014 Refunding Bonds to be redeemed (except in the event of redemption of all of the Series 2014 Refunding Bonds of such maturity or maturities in whole). The notice shall also state that on the specified redemption date there shall become due and payable upon each Series 2014 Refunding Bond to be redeemed, the redemption price of such Series 2014 Refunding Bond to be redeemed, and that interest on such Series 2014 Refunding Bond to be redeemed will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice of redemption so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of the Series 2014 Refunding Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. Conditional Notice of Redemption. With respect to any notice of any optional redemption of Series 2014 Refunding Bonds of a series, unless at the time such notice is given moneys have been set aside and held by the Paying Agent for the redemption of such Series 2014 Refunding Bonds in accordance with the Paying Agent Agreement (see Defeasance Series 2014 Refunding Bonds Deemed To Have Been Paid herein), such notice shall state that such redemption is conditional upon receipt by the Paying Agent, on or prior to the date fixed for such redemption, of moneys that, together with other available amounts held by the Paying Agent, are sufficient to pay the redemption price of, and accrued interest on, the Series 2014 Refunding Bonds to be redeemed. Such notice shall also state that if such moneys shall not have been so received said notice shall be of no force and effect and the District shall not be required to redeem such Series 2014 Refunding Bonds. In the event a notice of redemption of Series 2014 Refunding Bonds contains such a condition and such moneys are not so received, the redemption of Series 2014 Refunding Bonds as described in the conditional notice of redemption shall not be made and the Paying Agent shall, within a reasonable time after the date on which such redemption was to occur, give notice in the manner in which the notice of 4

13 redemption was given, which notice shall state that such moneys were not so received and that there shall be no redemption of Series 2014 Refunding Bonds pursuant to such notice of redemption. Effect of Notice of Redemption. When notice of redemption has been given substantially as described above, and the monies for the redemption (including the interest to the applicable date of redemption) have been set aside with the Paying Agent, the Series 2014 Refunding Bonds to be redeemed shall become due and payable on said date and, upon presentation and surrender thereof at the Office of the Paying Agent, said Series 2014 Refunding Bonds shall be paid at the redemption price thereof, together with interest accrued and unpaid to said date. If, on said date fixed for redemption, moneys for the redemption price of all the Series 2014 Refunding Bonds to be redeemed, together with interest to said date, shall be held by the Paying Agent so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Series 2014 Refunding Bonds shall cease to accrue. All moneys held by or on behalf of the Paying Agent for the redemption of Series 2014 Refunding Bonds shall be held in trust for the account of the Owners of the Series 2014 Refunding Bonds so to be redeemed without liability to such Owners for interest thereon. All Series 2014 Refunding Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions hereof shall be canceled upon surrender thereof and destroyed. Partial Redemption of Bonds. Upon surrender of any Series 2014 Refunding Bond of a series redeemed in part only, the District shall execute and the Paying Agent shall authenticate and deliver to the Owner thereof, at the expense of the District, a new Series 2014 Refunding Bond of the same series in a principal amount equal to the unredeemed portion of the Series 2014 Refunding Bond of such series surrendered. Plan of Finance; Outstanding Bonds Outstanding Bonds. In addition to each series of the Series 2014 Refunding Bonds, the District has four additional outstanding series of bonds, each of which is secured by ad valorem taxes upon all property subject to taxation by the District. The District received authorization at an election held on March 5, 2002, to issue bonds of the District in an aggregate principal amount not to exceed $111,000,000 to finance specific construction and modernization projects approved by the voters (the 2002 Authorization ). The measure required approval by at least 55% of the votes cast by eligible voters within the District, and received a vote of 63.2%. On July 9, 2002, the Anaheim City School District General Obligation Bonds, Election of 2002, Series 2002 (the Series 2002 Bonds ), in an aggregate principal amount of $32,465,000, were issued as the first series of bonds to be issued under the 2002 Authorization. On June 10, 2004, the Anaheim City School District General Obligation Bonds, Election of 2002, Series 2004 (the Series 2004 Bonds ), in an aggregate principal amount of $33,653,461.45, were issued as the second series of bonds to be issued under the 2002 Authorization. On July 21, 2005, the Series 2005 Refunding Bonds in an aggregate principal amount of $63,452,338.60, were issued to advance refund a portion of the Series 2002 Bonds and the Series 2004 Bonds and generate additional proceeds to finance capital projects. The Series 2002 Bonds not so redeemed have matured and are no longer outstanding. On February 13, 2007, the Anaheim City School District General Obligation Bonds, Election of 2002, Series 2007 (the Series 2007 Bonds ), in an aggregate initial principal amount of $44,881,415.65, were issued as the third and final series of the authorized bonds to be issued under the 2002 Authorization. At an election held on November 2, 2010, the District received authorization to issue bonds of the District in an aggregate principal amount not to exceed $169,300,000 to finance specific school facility construction, repair and improvement projects approved by the voters (the 2010 Authorization ). The measure required approval by at least 55% of the votes cast by eligible voters within the District and 5

14 received an approval vote of approximately 63.9%. On April 13, 2011, the Anaheim City School District (County of Orange, California) General Obligation Bonds, Election of 2010, Series 2011 (the Series 2011 Bonds ), in an aggregate initial principal amount of $29,998,482.10, were issued as the first series of bonds to be issued under the 2010 Authorization. On November 23, 2011, in anticipation of issuing additional bonds under the 2010 Authorization, the District issued its Anaheim City School District General Obligation Bond Anticipation Notes, Election of 2010, Series 2011A (Tax-Exempt) (the Series 2011A Notes ), in the initial principal amount of $4,997,334.40, and its Anaheim City School District General Obligation Bond Anticipation Notes, Election of 2010, Series 2011B (Qualified School Construction Bonds Federally Taxable) (the Series 2011B Notes and, together with the Series 2011A Notes, the Notes ), in the principal amount of $25,000,000. The Notes, which mature on November 1, 2016, were issued in anticipation of the sale of additional general obligation bonds of the District under the 2010 Authorization to provide a portion of the funds necessary to finance certain school facilities projects authorized to be financed with the general obligation bonds. The Notes are payable from proceeds of the sale of general obligation bonds or any bond anticipation notes issued in renewal of the Notes pursuant to Section of the California Education Code or from other funds of the District lawfully available for the purpose of repaying the Notes. The District has covenanted, as part of the issuance and sale of the Notes, to take actions, including, but not limited to, issuing and selling general obligation bonds to pay the Notes as such become due. Plan of Finance. The proceeds of the Series 2014 Refunding Bonds will be issued (i) to refund and defease the District s outstanding Series 2005 Refunding Bonds, maturing on August 1 in the years 2016 through 2023, inclusive (the Prior Bonds ), and (ii) to pay certain costs of issuance of the Series 2014 Refunding Bonds. The District and U.S. Bank National Association, as escrow bank (the Escrow Bank ) will enter into the Escrow Agreement, dated as of March 1, 2014 (the Escrow Agreement ), with respect to the Prior Bonds being refunded, pursuant to which the District will deposit a portion of the proceeds from the sale of the Series 2014 Refunding Bonds into a special fund to be held by the Escrow Bank. The amount deposited with the Escrow Bank with respect to the Prior Bonds will be used to purchase certain United States governmental obligations, the principal of and interest on which (together with any uninvested amount) will be sufficient to enable the Escrow Bank to pay the principal of and interest due on the Prior Bonds being refunded to the first optional redemption date (August 1, 2015) and to redeem such Prior Bonds at a redemption price equal to 100% of the principal amount of such Prior Bonds being refunded on the applicable redemption date in accordance with the schedule set forth in the Escrow Agreement. See ESCROW VERIFICATION herein. The Series 2014 Refunding Bonds are payable from ad valorem taxes to be levied within the District pursuant to the California Constitution and other State law. The Board of Supervisors of the County is empowered and obligated to levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series 2014 Refunding Bonds. The proceeds of the levy shall be deposited to the credit of the interest and sinking fund of the District within the County treasury (the Interest and Sinking Fund ). Such proceeds shall be applied for the payment of principal of and interest on the Series 2014 Refunding Bonds. Moneys in the Interest and Sinking Fund will be invested on behalf of the District in any one or more investments generally permitted to school districts authorized pursuant to Section et seq. or Section et seq. of the California ORANGE COUNTY INVESTMENT POLICY STATEMENT. 6

15 Debt Service Schedule The following table shows the annual debt service requirements of each series of the Series 2014 Refunding Bonds, assuming no early redemptions: ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) 2014 General Obligation Refunding Bonds Series A Taxable Series B Year Ending August 1, Principal Interest Principal Interest Total Debt Service $88, $560, $423, $1,072, , , ,217, ,156, $465, , ,320, ,213, ,252, , , ,840, ,174, ,655, , , ,940, ,122, ,851, , , ,320, ,025, ,171, , , ,745, , ,514, , , ,220, , ,860, , , ,750, , ,229, , , ,330, , ,613, Total: $5,375, $1,683, $45,710, $8,610, $61,378,

16 Aggregate Debt Service Debt service on each series of the District s outstanding bonds, including each series of the Series 2014 Refunding Bonds, assuming no early redemptions, is shown in the following table: ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) General Obligation Bonds - Aggregate Debt Service Authorization 2010 Authorization Period Ending August 1, Series 2004 Bonds Series 2005 Refunding Bonds (1) Series 2007 Bonds Series 2014A Refunding Bonds (1) Series 2014B Refunding Bonds (1) Series 2011 Bonds Aggregate Total Debt Service $4,784, $1,019, $88, $983, $3,562, $10,438, ,850, ,002, , ,902, ,539, ,549, , , ,533, ,539, ,772, $955, , , ,014, ,539, ,043, , , ,062, ,539, ,322, , , ,345, ,539, ,614, , , ,644, ,539, ,913, , , ,950, ,539, ,220, , , ,273, ,539, ,544, , ,002, ,610, ,589, ,928, ,970, ,672, ,642, ,325, ,756, ,081, ,695, ,851, ,546, ,075, ,945, ,020, ,475, ,048, ,523, ,885, ,152, ,037, ,320, ,263, ,583, ,770, ,384, ,154, ,509, ,509, ,637, ,637, ,777, ,777, ,923, ,923, ,078, ,078, ,241, ,241, ,411, ,411, ,590, ,590, ,777, ,777, Total: $955, $8,634, $99,422, $7,058, $54,320, $61,492, $231,883, (1) Reflects the planned refunding of the Prior Bonds with proceeds of the Series 2014 Refunding Bonds.

17 Estimated Sources and Uses of Funds The proceeds of each series of the Series 2014 Refunding Bonds are expected to be applied as follows: Sources of Funds: Series 2014A Refunding Bonds Series 2014B Refunding Bonds Total Principal Amount of Series 2014 Refunding Bonds $5,375, $45,710, $51,085, Plus Original Issue Premium 905, , Uses of Funds: Total Sources of Funds $6,280, $45,710, $51,990, Escrow Fund $6,247, $45,441, $51,689, Underwriter s Discount 10, , , Costs of Issuance (1) 21, , , Total Uses of Funds $6,280, $45,710, $51,990, (1) Includes bond counsel, disclosure counsel, financial advisor and other consultant fees, rating agency fees, initial paying agent fees, printing fees and other miscellaneous fees and expenses. Defeasance Discharge of Paying Agent Agreement. The Paying Agent Agreement provides that, if (i) the District shall pay or cause to be paid or there shall otherwise be paid to the Owners of all outstanding Series 2014 Refunding Bonds the principal thereof and the interest and premium, if any, thereon at the times and in the manner stipulated in the Paying Agent Agreement and the Series 2014 Refunding Bonds, and (ii) all other amounts due and payable under the Paying Agent Agreement shall have been paid, then all agreements, covenants and other obligations of the District under the Paying Agent Agreement shall thereupon cease, terminate and become void and the Paying Agent Agreement shall be discharged and satisfied. The Paying Agent Agreement provides also that when any Series 2014 Refunding Bond shall have been paid and if, at the time of such payment, the District shall have kept, performed and observed all of the covenants and promises in such Series 2014 Refunding Bond and in the Paying Agent Agreement required or contemplated to be kept, performed and observed by it or on its part on or prior to that time, then the Paying Agent Agreement shall be considered to have been discharged in respect of such Series 2014 Refunding Bond, and all agreements, covenants and other obligations of the District under the Paying Agent Agreement shall cease, terminate, become void and be completely discharged and satisfied as to such Series 2014 Refunding Bond. The Paying Agent Agreement provides that, notwithstanding the discharge and satisfaction of the Paying Agent Agreement or the discharge and satisfaction of the Paying Agent Agreement in respect of any Series 2014 Refunding Bond, those provisions of the Paying Agent Agreement relating to payment of the Series 2014 Refunding Bonds, transfer of Series 2014 Refunding Bonds, replacement of mutilated, destroyed, lost or stolen Series 2014 Refunding Bonds, the safekeeping and cancellation of Series 2014 Refunding Bonds, non-presentment of Series 2014 Refunding Bonds, and the duties of the Paying Agent in connection with all of the foregoing, shall remain in effect and shall be binding upon the Paying Agent and the Owner of such Series 2014 Refunding Bond, and the Paying Agent shall continue to be obligated to hold in trust any moneys or investments then held by the Paying Agent for the payment of the principal of and interest and premium, if any, on such Series 2014 Refunding Bonds, and to pay to the Owner of such Series 2014 Refunding Bond the funds so held by the Paying Agent as and when such payment becomes due. 9

18 Series 2014 Refunding Bonds Deemed To Have Been Paid. The Paying Agent Agreement provides that, if moneys shall have been set aside and held by the Paying Agent for the payment or redemption of any Series 2014 Refunding Bond, such Series 2014 Refunding Bond shall be deemed to have been paid within the meaning and with the effect described above under the heading entitled Discharge of Paying Agent Agreement. The Paying Agent Agreement also provides that any outstanding Series 2014 Refunding Bond shall prior to the maturity date or redemption date thereof be deemed to have been paid within the meaning of and with the effect described above under the heading entitled Discharge of Paying Agent Agreement if (i) in case any of such Series 2014 Refunding Bonds are to be redeemed on any date prior to their maturity date, the District shall have given to the Paying Agent in form satisfactory to it irrevocable instructions to mail, on a date in accordance with the provisions of the Paying Agent Agreement, a notice of redemption of such Series 2014 Refunding Bond on said redemption date, (ii) there shall have been deposited with the Paying Agent either (a) money in an amount which shall be sufficient, or (b) Defeasance Securities, the principal of and the interest on which when due, and without any reinvestment thereof, will provide moneys which shall be sufficient to pay when due the principal of and interest and premium, if any, on such Series 2014 Refunding Bond, and (iii) in the event such Series 2014 Refunding Bond is not by its terms subject to redemption within the next succeeding 60 days, the District shall have given the Paying Agent, in form satisfactory to the Paying Agent, irrevocable instructions to mail as soon as practicable, a notice to the Owners of such Series 2014 Refunding Bond that the deposit required by clause (ii) above has been made with the Paying Agent and that such Series 2014 Refunding Bond is deemed to have been paid in accordance with the Paying Agent Agreement and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of and interest and premium, if any, on such Series 2014 Refunding Bond. The term Defeasance Securities is defined in the Paying Agent Agreement to mean 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. The Paying Agent Agreement also provides that no Series 2014 Refunding Bond shall be deemed to have been paid pursuant to clause (ii) of the previous paragraph unless the District shall have caused to be delivered (a) an executed copy of a Verification Report (defined below) with respect to such deemed payment, addressed to the District and the Paying Agent, in form and in substance acceptable to the District and the Paying Agent, (b) a copy of the escrow agreement entered into in connection with the deposit pursuant to such clause (ii) resulting in such deemed payment, which escrow agreement shall provide that no substitution of Defeasance Securities shall be permitted except with other Defeasance Securities and upon delivery of a new Verification Report, and no reinvestment of Defeasance Securities shall be permitted except as contemplated by the original Verification Report or upon delivery of a new Verification Report, and (c) a copy of an opinion of counsel, dated the date of such deemed payment and addressed to the District and the Paying Agent, in form and in substance acceptable to the District and the Paying Agent, to the effect that such Series 2014 Refunding Bond has been paid within the meaning and with the effect expressed in the Paying Agent Agreement, the Paying Agent Agreement has been discharged in respect of such Series 2014 Refunding Bond and all agreements, covenants and other obligations of the District under the Paying Agent Agreement as to such Series 2014 Refunding Bond have ceased, terminated, become void and been completely discharged and satisfied. The term Verification Report is defined in the Paying Agent Agreement to mean, with respect to the deemed payment of Series 2014 Refunding Bonds pursuant to clause (ii) of the previous paragraph, a report of a nationally recognized certified public accountant, or firm of such accountants, verifying that the Defeasance Securities and cash, if any, deposited in connection with such deemed payment satisfy the requirements of clause (ii) of the previous paragraph. Unclaimed Moneys. The Paying Agent Agreement provides that any moneys held by the Paying Agent in trust for the payment and discharge of the principal of, or interest or premium on, any Series 2014 Refunding Bonds and remaining unclaimed for one year after the principal of all of the Series

19 Refunding Bonds has become due and payable (whether by maturity or upon prior redemption) shall be transferred to the Interest and Sinking Fund of the District for payment of any outstanding bonds of the District payable from such fund or, if no such bonds of the District are at such time outstanding, such moneys shall be transferred to the general fund of the District as provided and permitted by law. SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2014 REFUNDING BONDS General In order to provide sufficient funds for repayment of principal and interest when due on a school district s bonds, the board of supervisors of the county, the superintendent of schools of which has jurisdiction over such school district, is empowered and is obligated to levy ad valorem taxes upon all property subject to taxation by such school district, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates). Such taxes are in addition to other taxes levied upon property within the school district. The assessor of the county in which the district lies must annually certify to the board of supervisors the assessed value of all taxable property in the county situated in the school district. The board of supervisors must levy upon the property of the school district within its own county the rate of tax that will be sufficient to raise not less than the amount needed to pay the interest and any portion of the principal of the bonds that is to become due during the year. Accordingly, the Board of Supervisors of the County must levy upon the property of the District the rate of tax that will be sufficient to provide sufficient funds for repayment of principal and interest when due on each series of the Series 2014 Refunding Bonds. When collected, the tax revenues will be deposited in the District s Interest and Sinking Fund, which is required to be maintained by the County and to be used solely for the payment of bonds of the District. Moneys in the Interest and Sinking Fund will be invested on behalf of the District in any one or more investments generally permitted to school districts authorized pursuant to Section et seq. or Section et seq. of the California ORANGE COUNTY INVESTMENT POLICY STATEMENT. Property Taxation System Property tax revenues result from the application of the appropriate tax rate to the total assessed value of taxable property in the District. School districts receive property taxes for payment of voterapproved bonds as well as for general operating purposes. Local property taxation is the responsibility of various county officers. For each school district located in a county, the county assessor computes the value of locally assessed taxable property. Based on the assessed value of property and the scheduled debt service on outstanding bonds in each year, the county auditor-controller computes the rate of tax necessary to pay such debt service, and presents the tax rolls (including rates of tax for all taxing jurisdictions in the county) to the county board of supervisors for approval. The county treasurer-tax collector prepares and mails tax bills to taxpayers and collects the taxes. In addition, the treasurer of the county, the superintendent of schools of which has jurisdiction over the school district, holds school district funds, including taxes collected for payment of school bonds, and is charged with payment of principal and interest on the bonds when due, as ex officio treasurer of the school district. Assessed Valuation of Property Within the District Taxable property located in the District has a assessed value of $20,649,909,823. All property (real, personal and intangible) is taxable unless an exemption is granted by the California Constitution or United States law. Under the State Constitution, exempt classes of property include 11

20 household and personal effects, intangible personal property (such as bank accounts, stocks and bonds), business inventories, and property used for religious, hospital, scientific and charitable purposes. The State Legislature may create additional exemptions for personal property, but not for real property. Most taxable property is assessed by the assessor of the county in which the property is located. Some special classes of property are assessed by the State Board of Equalization. Taxes are levied for each fiscal year on taxable real and personal property assessed as of the preceding January 1, at which time the lien attaches. The assessed value is required to be adjusted during the course of the year when property changes ownership or new construction is completed. State law also affords an appeal procedure to taxpayers who disagree with the assessed value of any property. When necessitated by changes in assessed value during the course of a year, a supplemental assessment is prepared so that taxes can be levied on the new assessed value before the next regular assessment roll is completed. See Appeals of Assessed Valuation; Blanket Reductions of Assessed Values below. Under the State Constitution, the State Board of Equalization assesses property of State-regulated transportation and communications utilities, including railways, telephone and telegraph companies, and companies transmitting or selling gas or electricity. The Board of Equalization also is required to assess pipelines, flumes, canals and aqueducts lying within two or more counties. The value of property assessed by the Board of Equalization is allocated by a formula to local jurisdictions in the county, including school districts, and taxed by the local county tax officials in the same manner as for locally assessed property. Taxes on privately owned railway cars, however, are levied and collected directly by the Board of Equalization. Property used in the generation of electricity by a company that does not also transmit or sell that electricity is taxed locally instead of by the Board of Equalization. Thus, the reorganization of regulated utilities and the transfer of electricity-generating property to non-utility companies, as often occurred under electric power deregulation in California, affects how those assets are assessed, and which local agencies benefit from the property taxes derived. In general, the transfer of State-assessed property located in the District to non-utility companies will increase the assessed value of property in the District, since the property s value will no longer be divided among all taxing jurisdictions in the County. The transfer of property located and taxed in the District to a State-assessed utility will have the opposite effect: generally reducing the assessed value in the District, as the value is shared among the other jurisdictions in the County. The District is unable to predict future transfers of State-assessed property in the District and the County, the impact of such transfers on its utility property tax revenues, or whether future legislation or litigation may affect ownership of utility assets, the State s methods of assessing utility property, or the method by which tax revenues of utility property is allocated to local taxing agencies, including the District. Locally taxed 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 property and property (real or personal) for which there is a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. All other property is unsecured, and is assessed on the unsecured roll. Secured property assessed by the State Board of Equalization is commonly identified for taxation purposes as utility property. 12

21 Shown in the following table is the assessed valuation of the various classes of property in the District in fiscal years through ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) Assessed Valuations Fiscal Years through Fiscal Year Local Secured Utility Unsecured Total $13,346,536,572 $4,678,192 $1,024,421,581 $14,375,636, ,500,745,453 4,630,183 1,001,009,741 15,506,475, ,992,724,801 4,027,719 2,279,903,345 18,276,655, ,386,383, ,927 1,084,288,375 18,471,330, ,247,151,923 4,731,155 1,066,205,761 19,318,088, ,129,059,702 5,109,002 1,103,971,828 19,238,140, ,940,124,067 5,109,002 1,147,548,857 19,092,781, ,156,738,589 10,040,668 1,054,179,153 19,220,958, ,824,883, ,910 1,130,640,516 19,955,837, ,559,980, ,910 1,089,616,543 20,649,909,823 Source: California Municipal Statistics, Inc. Assessments may be adjusted during the course of the year when real property changes ownership or new construction is completed. Assessments may also be appealed by taxpayers seeking a reduction as a result of economic and other factors beyond the District s control, such as a general market decline in land values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes), or the complete or partial destruction of taxable property caused by natural or manmade disaster, such as earthquake, flood, fire, toxic dumping, etc. When necessitated by changes in assessed value in the course of a year, taxes are pro-rated for each portion of the tax year. See also Values below. Appeals of Assessed Valuation; Blanket Reductions of Assessed Values. There are two basic types of property tax assessment appeals provided for under State law. The first type of appeal, commonly referred to as a base year assessment appeal, involves a dispute on the valuation assigned by the assessor immediately subsequent to an instance of a change in ownership or completion of new construction. If the base year value assigned by the assessor is reduced, the valuation of the property cannot increase in subsequent years more than 2% annually unless and until another change in ownership and/or additional new construction activity occurs. The second type of appeal, commonly referred to as a Proposition 8 appeal (which Proposition 8 was approved by the voters in 1978), can result if factors occur causing a decline in the market value of the property to a level below the property s then current taxable value (escalated base year value). Pursuant to State law, a property owner may apply for a Proposition 8 reduction of the property tax assessment for such owner s property by filing a written application, in the form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board. A property owner desiring a Proposition 8 reduction of the assessed value of such owner s property in any one year must submit an application to the county assessment appeals board (the Appeals Board ). Following a review of the application by the county assessor s office, the county assessor may offer to the property owner the opportunity to stipulate to a reduced assessment, or may confirm the assessment. If no stipulation is agreed to, and the applicant elects to pursue the appeal, the matter is brought before the Appeals Board (or, in some cases, a hearing examiner) for a hearing and decision. The Appeals Board 13

22 generally is required to determine the outcome of appeals within two years of each appeal s filing date. Any reduction in the assessment ultimately granted applies only to the year for which application is made and during which the written application is filed. The assessed value increases to its pre-reduction level (escalated to the inflation rate of no more than 2%) following the year for which the reduction application is filed. However, the county assessor has the power to grant a reduction not only for the year for which application was originally made, but also for the then current year and any intervening years as well. In practice, such a reduced assessment may and often does remain in effect beyond the year in which it is granted. In addition, Article XIIIA of the State Constitution provides that the full cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. This measure is computed on a calendar year basis. According to representatives of the County assessor s office, the County has in the past, pursuant to Article XIIIA of the State Constitution, ordered blanket reductions of assessed property values and corresponding property tax bills on single family residential properties when the value of the property has declined below the current assessed value as calculated by the County. No assurance can be given that property tax appeals and/or blanket reductions of assessed property values will not significantly reduce the assessed valuation of property within the District in the future. See APPENDIX A INFORMATION RELATING TO THE DISTRICT S OPERATIONS AND BUDGET CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Limitations on Revenues for a discussion of other limitations on the valuation of real property with respect to ad valorem taxes. Bonding Capacity. As an elementary school district, the District may issue bonds in an amount up to 1.25% of the assessed valuation of taxable property within its boundaries. The District s fiscal year gross bonding capacity (also commonly referred to as the bonding limit or debt limit ) is approximately $258 million and its net bonding capacity is approximately $ million (taking into account current outstanding debt before issuance of the Series 2014 Refunding Bonds and the refunding of the Prior Bonds to be refunded). Refunding bonds may be issued without regard to this limitation; however, once issued, the outstanding principal of any refunding bonds is included when calculating the District s bonding capacity. 14

23 Assessed Valuation by Land Use. The following table gives a distribution of taxable property located in the District on the fiscal year tax roll by principal purpose for which the land is used, and the assessed valuation and number of parcels for each use. ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) Assessed Valuation and Parcels by Land Use Non-Residential: Assessed Valuation (1) %of Total No. of Parcels %of Total Agricultural/Rural $6,630, % % Commercial/Office/Recreational 8,262,360, , Industrial 1,932,874, Government/Social/Institutional , Miscellaneous 7,455, Subtotal Non-Residential $10,209,321, % 3, % Residential: Single Family Residence $5,907,079, % 23, % Condominium/Townhouse 1,013,261, , Mobile Home 31,145, , Residential Units 2,391,430, , Timeshare 7,741, , Subtotal Residential $9,350,658, % 39, % TOTAL $19,559,980, % 43, % (1) Local secured assessed valuation, excluding tax-exempt property. Source: California Municipal Statistics, Inc. 15

24 Assessed Valuation of Single-Family Homes. The following table shows the assessed valuation of single-family homes in the District for fiscal year ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) Per Parcel Assessed Valuation of Single Family Homes Assessed Average Assessed Median Assessed No. of Parcels Valuation Valuation Valuation Single Family Residential 23,594 $5,907,079,656 $250,364 $254, Assessed Valuation No. of Parcels (1) %of Total Cumulative %oftotal Total Valuation %of Total Cumulative %oftotal $0 - $24, % 0.216% $625, % 0.011% $25,000 - $49, ,826, $50,000 - $74,999 2, ,737, $75,000 - $99,999 1, ,427, $100,000 - $124, ,193, $125,000 - $149, ,881, $150,000 - $174, ,466, $175,000 - $199,999 1, ,656, $200,000 - $224,999 1, ,968, $225,000 - $249,999 1, ,987, $250,000 - $274,999 1, ,641, $275,000 - $299,999 1, ,843, $300,000 - $324,999 2, ,341, $325,000 - $349,999 2, ,981, $350,000 - $374,999 1, ,904, $375,000 - $399, ,085, $400,000 - $424, ,052, $425,000 - $449, ,046, $450,000 - $474, ,091, $475,000 - $499, ,096, $500,000 and greater ,223, Total 23, % $5,907,079, % (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc. 16

25 Largest Taxpayers in District. The twenty taxpayers with the greatest combined ownership of taxable property in the District on the tax roll, and the assessed valuation of all property owned by those taxpayers in all taxing jurisdictions within the District, are shown below. ANAHEIM CITY SCHOOL DISTRICT (ORANGE COUNTY, California) Largest Local Secured Taxpayers Property Owner Primary Land Use Assessed Valuation Percent of Total (1) 1. Walt Disney World Co. Commercial/Theme Park $4,408,491, % 2. Anna Claire Mauerhan LLC Commercial 254,437, HHC HA Investments II Inc. Commercial 195,644, Irvine Company LLC Apartments 155,707, Angeli LLC Commercial 88,541, Avalon Anaheim Stadium LP Apartments 73,556, UDR 1818 Platinum LLC Apartments 73,316, Anaheim Angels LP Stadium 72,508, PK II Anaheim Plaza LP Commercial 72,380, BRE Properties Inc. Apartments 72,204, First American Trust FSB Commercial 69,050, Anaheim Corporate Office Plaza LP Commercial 64,076, PC & RS Chao Family LP Commercial 59,440, & 500 North State College Blvd. Commercial 57,796, Prologis California I LLC Industrial 57,353, MEPT Arena Corporate Center LLC Commercial 56,395, KW Stadium Gateway LLC Commercial 56,000, Ace Anhm Blvd LLC Commercial 53,254, Armc Calmed Investment LP Commercial 52,411, Anaheim Capital Partners LLC Commercial 48,609, $6,041,178, % (1) local secured assessed valuation: $19,559,980,370 Source: California Municipal Statistics, Inc. The more property (by assessed value) owned by a single taxpayer, the more tax collections are exposed to weakness in the taxpayer s financial situation and ability or willingness to pay property taxes. As shown above, a single taxpayer owned more than 22% of the total taxable property in the District. Furthermore, assessments may be appealed by taxpayers seeking a reduction as a result of economic and other factors beyond the District s control. Tax Rates The State Constitution permits the levy of an ad valorem tax on taxable property not to exceed 1% of the full cash value of the property, and State law requires the full 1% tax to be levied. The levy of special ad valorem property taxes in excess of the 1% levy is permitted as necessary to provide for debt service payments on school bonds and other voter-approved indebtedness. The rate of tax necessary to pay fixed debt service on the Series 2014 Refunding Bonds in a given year depends on the assessed value of taxable property in that year. (The rate of tax imposed on unsecured property for repayment of the Series 2014 Refunding Bonds is based on the prior year s secured property tax rate.) Economic and other factors beyond the District s control, such as a general market decline in land values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes), or the complete or partial destruction of taxable 17

26 property caused by natural or manmade disaster, such as earthquake, flood, fire, toxic dumping, etc., could cause a reduction in the assessed value of taxable property within the District and necessitate a corresponding increase in the annual tax rate to be levied to pay the principal of and interest on the Series 2014 Refunding Bonds. Issuance of additional authorized bonds in the future might also cause the tax rate to increase. Typical Tax Rate Area. The following table shows ad valorem property tax rates for the last five fiscal years in a typical Tax Rate Area of the District (TRA 1-007). This Tax Rate Area comprises approximately 62.36% of the total assessed value of the District. ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) Typical Total Tax Rate per $100 of Assessed Valuation (TRA ) Fiscal Years Through General Tax Rate % % % % % Metropolitan Water District City of Anaheim Anaheim City School District Anaheim High School District North Orange County Joint Community College District Total Tax Rate % % % % % Source: California Municipal Statistics, Inc. Tax Charges and Delinquencies A school district s share of the 1% countywide tax is based on the actual allocation of property tax revenues to each taxing jurisdiction in the county in fiscal year , as adjusted according to a complicated statutory scheme enacted since that time. Revenues derived from special ad valorem taxes for voter-approved indebtedness, including the Series 2014 Refunding Bonds, are reserved to the taxing jurisdiction that approved and issued the debt, and may only be used to repay that debt. The county treasurer-tax collector prepares the property tax bills. Property taxes on the regular secured assessment roll are due in two equal installments: the first installment is due on November 1, and becomes delinquent after December 10. The second installment is due on February 1 and becomes delinquent after April 10. If taxes are not paid by the delinquent date, a 10% penalty attaches and a $23 cost is added to unpaid second installments. If taxes remain unpaid by June 30, the tax is deemed to be in default, and a $15 state redemption fee applies. Interest then begins to accrue at the rate of 1.5% per month. The property owner has the right to redeem the property by paying the taxes, accrued penalties, and costs within five years of the date the property went into default. If the property is not redeemed within five years, it is subject to sale at a public auction by the county treasurer-tax collector. Property taxes on the unsecured roll are due in one payment based on the lien date, January 1, and become delinquent after August 31. A 10% penalty attaches to delinquent taxes on assessments on the unsecured roll, and an additional penalty of 1.5% per month begins to accrue on November 1. To collect unpaid taxes, the county treasurer-tax collector records a tax lien and may seize and/or sell personal property, improvements and possessory interests of the taxpayer. The county treasurer-tax collector may also bring a civil suit against the taxpayer for payment. 18

27 The date on which taxes on supplemental assessments are due depends on when the supplemental tax bill is mailed. The following table shows a recent history of real property tax collections and delinquencies in the District. ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) Secured Tax Charges and Delinquencies Fiscal Years Through Secured Tax Charge (1) Amount Delinquent June $53,120, $1,988, % ,956, ,235, ,478, , ,743, , ,471, , (1) 1% general tax apportionment. Source: California Municipal Statistics, Inc. % Delinquent June 30 Teeter Plan. 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 Section 4701 and following of the California Revenue and Taxation Code. Under the Teeter Plan, each participating local agency levying property taxes in the County, including the District, receives the full amount of uncollected taxes credited to its fund (including delinquent taxes, if any), in the same manner as if the full amount due from taxpayers had been collected. In return, the County receives and retains delinquent payments, penalties and interest as collected, that would have been due the local agency. The County applies the Teeter Plan to taxes levied for repayment of school district bonds. The Teeter Plan is to remain in effect unless the County Board of Supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the Board of Supervisors receives a petition for its discontinuance from two-thirds of the participating revenue districts in the County. The Board of Supervisors may also, after holding a public hearing on the matter, discontinue the Teeter Plan with respect to any tax levying agency or assessment levying agency in the County if the rate of secured tax delinquency in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured roll in that agency. Direct and Overlapping Debt Set forth below is a schedule of direct and overlapping debt prepared by California Municipal Statistics Inc. effective February 1, 2014 for debt issued as of February 12, The table is included for general information purposes only. The District has not reviewed this table for completeness or accuracy and makes no representations in connection therewith. The first column in the table names each public agency which has outstanding debt as of the date of the schedule and whose territory overlaps the District in whole or in part. Column two shows the percentage of each overlapping agency s assessed value located within the boundaries of the District. This percentage, multiplied by the total outstanding debt of each overlapping agency (which is not shown in the table) produces the amount shown in column three, which is the apportionment of each overlapping agency s outstanding debt to taxable property in the District. 19

28 The schedule generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District. Such long-term 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. ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) Statement of Direct and Overlapping Bonded Debt Assessed Valuation: $20,649,909,823 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 2/1/14 Metropolitan Water District 0.944% $1,558,402 North Orange County Joint Community College District ,915,914 Anaheim Union High School District ,830,970 Anaheim City School District ,725,632 (1) City of Anaheim ,123,404 City of Anaheim Community Facilities Districts ,095,000 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $286,249,322 OVERLAPPING GENERAL FUND DEBT: Orange County General Fund Obligations 4.667% $7,941,414 Orange County Pension Obligations ,026,415 Orange County Board of Education Certificates of Participation ,986 Municipal Water District of Orange County Water Facilities Corporation ,266 North Orange County Regional Occupation Program Certificates of Participation ,233,569 Anaheim Union High School District Certificates of Participation ,215,197 City of Anaheim General Fund Obligations ,772,643 Other City General Fund Obligations Various 37,281 TOTAL GROSS OVERLAPPING GENERAL FUND DEBT $327,965,771 Less: MWDOC Water Facilities Corporation (100% self-supported) 3,266 City of Anaheim supported bonds 283,772,226 Other City supported bonds 6,944 TOTAL NET OVERLAPPING GENERAL FUND DEBT $44,183,335 OVERLAPPING TAX INCREMENT DEBT: $78,575,625 GROSS COMBINED TOTAL DEBT $692,790,718 (2) NET COMBINED TOTAL DEBT $409,008,282 (1) (2) Excludes Series 2014 Refunding Bonds described herein, but includes the Prior Bonds to be refunded. Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to Assessed Valuation: Direct Debt ($148,725,632) % Total Direct and Overlapping Tax and Assessment Debt % Gross Combined Total Debt % Net Combined Total Debt % Ratios to Redevelopment Incremental Valuation ($1,550,101,756): Total Overlapping Tax Increment Debt % Source: California Municipal Statistics, Inc. 20

29 TAX MATTERS Series 2014A Refunding Bonds In the opinion of Orrick, Herrington & Sutcliffe LLP, bond counsel to the District ( Bond Counsel ), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2014A Refunding Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the Code ) and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Series 2014A Refunding Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix C hereto. To the extent the issue price of any maturity of the Series 2014A Refunding Bonds is less than the amount to be paid at maturity of such Series 2014A Refunding Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Series 2014A Refunding Bonds), the difference constitutes original issue discount, the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Series 2014A Refunding Bonds which is excluded from gross income for federal income tax purposes and exempt from State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Series 2014A Refunding Bonds is the first price at which a substantial amount of such maturity of the Series 2014A Refunding 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 Series 2014A Refunding Bonds accrues daily over the term to maturity of such Series 2014A Refunding Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Series 2014A Refunding Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Series 2014A Refunding Bonds. Beneficial Owners of the Series 2014A Refunding Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series 2014A Refunding Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Series 2014A Refunding Bonds in the original offering to the public at the first price at which a substantial amount of such Series 2014A Refunding Bonds is sold to the public. Series 2014A Refunding Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (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 bond premium in the case of obligations, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. 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 Series 2014A Refunding Bonds. The District has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Series 2014A Refunding Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Series 2014A Refunding Bonds being included 21

30 in gross income for federal income tax purposes, possibly from the date of original issuance of the Series 2014A Refunding Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and 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), or any other matters coming to Bond Counsel s attention after the date of issuance of the Series 2014A Refunding Bonds may adversely affect the value of, or the tax status of interest on, the Series 2014A Refunding Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Although Bond Counsel is of the opinion that interest on the Series 2014A Refunding Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Series 2014A Refunding Bonds may otherwise affect a Beneficial Owner s federal, state or local tax liability. The nature and extent of these other tax consequences depends 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. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Series 2014A Refunding Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. For example, legislative proposals have been made in recent years that would limit the exclusion from gross income of interest on obligations like the Series 2014A Refunding Bonds to some extent for taxpayers who are individuals and whose income is subject to higher marginal income tax rates. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Series 2014A Refunding Bonds. Prospective purchasers of the Series 2014A Refunding Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel s judgment as to the proper treatment of the Series 2014A Refunding Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service ( IRS ) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the District or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The District has covenanted, however, to comply with the requirements of the Code. Bond Counsel s engagement with respect to the Series 2014A Refunding Bonds ends with the issuance of the Series 2014A Refunding Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the District or the Beneficial Owners regarding the tax-exempt status of the Series 2014A Refunding Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the District and its appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the District legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2014A Refunding Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Series 2014A Refunding Bonds, and may cause the District or the Beneficial Owners to incur significant expense. 22

31 Series 2014B Refunding Bonds The following discussion summarizes certain U.S. federal tax considerations generally applicable to holders of the Series 2014B Refunding Bonds that acquire their Series 2014B Refunding Bonds in the initial offering. The discussion below is based upon laws, regulations, rulings, and decisions in effect, and available on the date hereof, all of which are subject to change, possibly with retroactive effect. Prospective investors should note that no rulings have been or are expected to be sought from the IRS with respect to any of the U.S. federal income tax consequences discussed below, and no assurance can be given that the IRS will not take contrary positions. Further, the following discussion does not deal with all U.S. federal income tax considerations applicable to categories of investors some of which may be subject to special taxing rules (regardless of whether or not such persons constitute U.S. Holders), such as certain U.S. expatriates, banks, REITs, RICs, insurance companies, tax-exempt organizations, dealers or traders in securities or currencies, partnerships, S corporations, estates and trusts, investors that hold their Series 2014B Refunding Bonds as part of a hedge, straddle or an integrated or conversion transaction, or investors whose functional currency is not the U.S. dollar. Furthermore, it does not address (i) alternative minimum tax consequences or (ii) the indirect effects on persons who hold equity interests in a holder. In addition, this summary generally is limited to investors that acquire their Series 2014B Refunding Bonds pursuant to this offering for the issue price that is applicable to such Series 2014B Refunding Bonds (i.e., the price at which a substantial amount of the Series 2014B Refunding Bonds are sold to the public) and who will hold their Series 2014B Refunding Bonds as capital assets within the meaning of Section 1221 of the Code. As used herein, U.S. Holder means a beneficial owner of a Series 2014B Refunding Bond that for U.S. federal income tax purposes is an individual citizen or resident of the United States, a corporation or other entity taxable as a corporation created or organized in or under the laws of the United States or any state thereof (including the District of Columbia), an estate the income of which is subject to U.S. federal income taxation regardless of its source or a trust where a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons (as defined in the Code) have the authority to control all substantial decisions of the trust (or a trust that has made a valid election under U.S. Treasury Regulations to be treated as a domestic trust). As used herein, Non-U.S. Holder generally means a beneficial owner of a Series 2014B Refunding Bond (other than a partnership) that is not a U.S. Holder. If a partnership holds Series 2014B Refunding Bonds, the tax treatment of such partnership or a partner in such partnership generally will depend upon the status of the partner and upon the activities of the partnership. Partnerships holding Series 2014B Refunding Bonds, and partners in such partnerships, should consult their own tax advisors regarding the tax consequences of an investment in the Series 2014B Refunding Bonds (including their status as U.S. Holders or Non-U.S. Holders). U.S. Holders Interest. In the opinion of Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions and assuming compliance with certain covenants, interest on the Series 2014B Refunding Bonds is exempt from State of California personal income taxes. Interest on the Series 2014B Refunding Bonds is not excluded from gross income for federal income tax purposes under Section 103 of the Code. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or accrual or receipt of interest on, the Series 2014B Refunding Bonds. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix C hereto. Stated interest on the Series 2014B Refunding Bonds generally will be taxable to a U.S. Holder as ordinary interest income at the time such amounts are accrued or received, in accordance with the U.S. Holder s method of accounting for U.S. Federal income tax purposes. 23

32 The Series 2014B Refunding Bonds are not expected to be treated as issued with original issue discount ( OID ) for U.S. federal income tax purposes because the stated redemption price at maturity of the Series 2014B Refunding Bonds is not expected to exceed their issue price, or because any such excess is expected to only be a de minimis amount (as determined for tax purposes). Disposition of the Series 2014B Refunding Bonds. Unless a non-recognition provision of the Code applies, the sale, exchange, redemption, retirement (including pursuant to an offer by the District) or other disposition of a Series 2014B Refunding Bond will be a taxable event for U.S. federal income tax purposes. In such event, in general, a U.S. Holder of a Series 2014B Refunding Bond will recognize gain or loss equal to the difference between (i) the amount of cash plus the fair market value of property received (except to the extent attributable to accrued but unpaid interest on the Series 2014B Refunding Bonds) and (ii) the U.S. Holder s adjusted U.S. federal income tax basis in the Series 2014B Refunding Bond (generally, the purchase price paid by the Series 2014B Refunding Bond decreased by any amortized premium). Any such gain or loss generally will be capital gain or loss. In the case of a noncorporate U.S. Holder of the Series 2014B Refunding Bonds, the maximum marginal U.S. federal income tax rate applicable to any such gain will be lower than the maximum marginal U.S. federal income tax rate applicable to ordinary income if such U.S. holder s holding period for the Series 2014B Refunding Bonds exceeds one year. The deductibility of capital losses is subject to limitations. Tax on Net Investment Income. Certain non-corporate U.S. Holders of Series 2014B Refunding Bonds will be subject to a 3.8% tax on the lesser of (1) the U.S. Holder s net investment income (in the case of individuals) or undistributed net investment income (in the case of estates and certain trusts) for the relevant taxable year and (2) the excess of the U.S. Holder s modified adjusted gross income (in the case of individuals) or adjusted gross income (in the case of estates and certain trusts) for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000, depending on the individual s circumstances). A U.S. Holder s calculation of net investment income generally will include its interest income on the Series 2014B Refunding Bonds and its net gains from the disposition of the Series 2014B Refunding Bonds, unless such interest income or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If you are a U.S. Holder that is an individual, estate or trust, you are urged to consult your tax advisors regarding the applicability of this tax to your income and gains in respect of your investment in the Series 2014B Refunding Bonds Information Reporting and Backup Withholding. Payments on the Series 2014B Refunding Bonds generally will be subject to U.S. information reporting and backup withholding. Under Section 3406 of the Code and applicable U.S. Treasury Regulations issued thereunder, a non-corporate U.S. Holder of the Series 2014B Refunding Bonds may be subject to backup withholding at the current rate of 28% with respect to reportable payments, which include interest paid on the Series 2014B Refunding Bonds and the gross proceeds of a sale, exchange, redemption, retirement or other disposition of the Series 2014B Refunding Bonds. The payor will be required to deduct and withhold the prescribed amounts if (i) the payee fails to furnish a U.S. taxpayer identification number ( TIN ) to the payor in the manner required, (ii) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (iii) there has been a notified payee underreporting described in Section 3406(c) of the Code or (iv) there has been a failure of the payee to certify under penalty of perjury that the payee is not subject to withholding under Section 3406(a)(1)(C) of the Code. Amounts withheld under the backup withholding rules may be refunded or credited against the U.S. Holder s federal income tax liability, if any, provided that the required information is timely furnished to the IRS. Non-U.S. Holders Interest. Subject to the discussions below under the headings Information Reporting and Backup Withholding and FATCA, payments of principal of, and interest on, any Series 2014B 24

33 Refunding Bond to a Non-U.S. Holder, other than (1) a controlled foreign corporation, a such term is defined in the Code, which is related to the District through stock ownership and (2) a bank which acquires such Series 2014B Refunding Bond in consideration of an extension of credit made pursuant to a loan agreement entered into in the ordinary course of business, will not be subject to any U.S. withholding tax provided that the beneficial owner of the Series 2014B Refunding Bond provides a certification completed in compliance with applicable statutory and regulatory requirements, which requirements are discussed below under the heading Information Reporting and Backup Withholding, or an exemption is otherwise established. Disposition of the Series 2014B Refunding Bonds. Subject to the discussions below under the headings Information Reporting and Backup Withholding and FATCA, any gain realized by a Non- U.S. Holder upon the sale, exchange, redemption, retirement (including pursuant to an offer by the District) or other disposition of a Series 2014B Refunding Bond generally will not be subject to U.S. federal income tax, unless (i) such gain is effectively connected with the conduct by such Non-U.S. Holder of a trade or business within the United States; or (ii) in the case of any gain realized by an individual Non-U.S. Holder, such holder is present in the United States for 183 days or more in the taxable year of such sale, exchange, redemption, retirement (including pursuant to an offer by the District) or other disposition and certain other conditions are met. U.S. Federal Estate Tax. A Series 2014B Refunding Bond that is held by an individual who at the time of death is not a citizen or resident of the United States will not be subject to U.S. federal estate tax as a result of such individual s death, provided that, at the time of such individual s death, payments of interest with respect to such Series 2014B Refunding Bond would not have been effectively connected with the conduct by such individual of a trade or business within the United States. Information Reporting and Backup Withholding. Subject to the discussion below under the heading FATCA, under current U.S. Treasury Regulations, payment of principal and interest on any Series 2014B Refunding Bonds to a holder that is not a United States person will not be subject to any backup withholding tax requirements if the beneficial owner of the Series 2014B Refunding Bond or a financial institution holding the Series 2014B Refunding Bond on behalf of the beneficial owner in the ordinary course of its trade or business provides an appropriate certification to the payor and the payor does not have actual knowledge that the certification is false. If a beneficial owner provides the certification, the certification must give the name and address of such owner, state that such owner is not a United States person, or, in the case of an individual, that such owner is neither a citizen nor a resident of the United States, and the owner must sign the certificate under penalties of perjury. If a financial institution, other than a financial institution that is a qualified intermediary, provides the certification, the certification must state that the financial institution has received from the beneficial owner the certification set forth in the preceding sentence, set forth the information contained in such certification, and include a copy of such certification, and an authorized representative of the financial institution must sign the certificate under penalties of perjury. A financial institution generally will not be required to furnish to the IRS the names of the beneficial owners of the Series 2014B Refunding Bonds that are not United States persons and copies of such owners certifications where the financial institution is a qualified intermediary that has entered into a withholding agreement with the IRS pursuant to applicable U.S. Treasury Regulations. In the case of payments to a foreign partnership, foreign simple trust or foreign grantor trust, other than payments to a foreign partnership, foreign simple trust or foreign grantor trust that qualifies as a withholding foreign partnership or a withholding foreign trust within the meaning of applicable U.S. Treasury Regulations and payments to a foreign partnership, foreign simple trust or foreign grantor trust that are effectively connected with the conduct of a trade or business within the United States, the partners of the foreign partnership, the beneficiaries of the foreign simple trust or the persons treated as the owners of the foreign grantor trust, as the case may be, will be required to provide the certification discussed 25

34 above in order to establish an exemption from withholding and backup withholding tax requirements. The current backup withholding tax rate is 28%. In addition, if the foreign office of a foreign broker, as defined in applicable U.S. Treasury regulations pays the proceeds of the sale of a Series 2014B Refunding Bond to the seller of the Series 2014B Refunding Bond, backup withholding and information reporting requirements will not apply to such payments provided that such broker derives less than 50% of its gross income for certain specified periods from the conduct of a trade or business within the United States, is not a controlled foreign corporation, as such term is defined in the Code, and is not a foreign partnership (1) one or more of the partners of which, at any time during its tax year, are U.S. persons (as defined in U.S. Treasury Regulations Section (c)(2)) or (2) which, at any time during its tax year, is engaged in the conduct of a trade or business within the United States. Moreover, the payment by a foreign office of other brokers of the proceeds of the sale of a Series 2014B Refunding Bond will not be subject to backup withholding unless the payer has actual knowledge that the payee is a U.S. person. Principal and interest so paid by the U.S. office of a custodian, nominee or agent, or the payment by the U.S. Office of a broker of the proceeds of a sale of a Series 2014B Refunding Bond, is subject to backup withholding requirements unless the beneficial owner provides the nominee, custodian, agent or broker with an appropriate certification as to its non-u.s. status under penalties of perjury or otherwise establishes an exemption. FATCA. Sections 1471 through 1474 of the Code, impose a 30% withholding tax on certain types of payments made to foreign financial institutions, unless the foreign financial institution enters into an agreement with the U.S. Treasury to, among other things, undertake to identify accounts held by certain U.S. persons or U.S.-owned entities, annually report certain information about such accounts, and withhold 30% on payments to account holders whose actions prevent it from complying with these and other reporting requirements, or unless the foreign financial institution is otherwise exempt from those requirements. In addition, FATCA imposes a 30% withholding tax on the same types of payments to a non-financial foreign entity unless the entity certifies that it does not have any substantial U.S. owners or the entity furnishes identifying information regarding each substantial U.S. owner. Failure to comply with the additional certification, information reporting and other specified requirements imposed under FATCA could result in the 30% withholding tax being imposed on payments of U.S. source interest (including OID) and sales proceeds of debt obligations held by or through a foreign entity. Withholding under FATCA generally will apply to (i) payments of U.S. source interest (including OID) made after June 30, 2014, (ii) gross proceeds from the sale, exchange or retirement of debt obligations paid after December 31, 2016 and (iii) certain foreign pass-thru payments no earlier than January 1, 2017, but exempt from withholding any payments made on and proceeds realized from the disposition of obligations that are outstanding on July 1, 2014 and are not substantially modified after that date, which exemption should exclude the Series 2014B Refunding Bonds from the withholding provisions of FATCA. Prospective investors should nonetheless consult their own tax advisors regarding FATCA and its effect on them. Circular 230 Under 31 C.F.R. part 10, the regulations governing practice before the IRS (Circular 230), the District and their tax advisors are (or may be) required to inform prospective investors that: i. any advice contained herein is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer; ii. any such advice is written to support the promotion or marketing of the Series 2014B Refunding Bonds and the transactions described herein; and 26

35 iii. each taxpayer should seek advice based on the taxpayer s particular circumstances from an independent tax advisor. OTHER LEGAL MATTERS Legal Opinion The validity of each series of the Series 2014 Refunding Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District. Bond Counsel expects to deliver an opinion at the time of issuance of the Series 2014 Refunding Bonds substantially in the form set forth in Appendix C hereto. Bond Counsel, as such, undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the District by Orrick, Herrington & Sutcliffe LLP, as Disclosure Counsel to the District, and for the Underwriter by Hawkins Delafield & Wood LLP. Legality for Investment in California Under provisions of the California Financial Code, each series of the Series 2014 Refunding Bonds are legal investments for commercial banks in California to the extent that the Series 2014 Refunding Bonds, in the informed opinion of the bank, are prudent for the investment of funds of depositors, and, under provisions of the California Government Code, each series of the Series 2014 Refunding Bonds are eligible securities for deposit of public moneys in the State. Continuing Disclosure The District has covenanted for the benefit of the holders and beneficial owners of each series of the Series 2014 Refunding Bonds to provide, or to cause to be provided, to the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access system or such other electronic system designated by the Municipal Securities Rulemaking Board (the EMMA System ) certain annual financial information and operating data relating to the District (the Annual Report ) by not later than nine months following the end of the District s fiscal year (currently ending June 30), commencing with the report for the fiscal year (which is due no later than April 1, 2015) and notice of the occurrence of certain enumerated events ( Notice Events ) in a timely manner not in excess of ten business days after the occurrence of such a Notice Event. The specific nature of the information to be OF CONTINUING DISCLOSURE CERTIFICATE. These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the Rule ). In the preceding five years, the District failed to file an annual report for the fiscal year ending June 30, 2011 with respect to its undertakings with regard to said Rule relating to the Series 2011A Notes and its Series 2011B Notes. The District has since filed such reports with respect to such previous undertaking with regard to said Rule. No Litigation No litigation is pending or threatened concerning or contesting the validity of the Series 2014 Refunding Bonds or the District s ability to receive ad valorem taxes and to collect other revenues, or contesting the District s ability to issue and retire the Series 2014 Refunding Bonds. The District is not aware of any litigation pending or threatened questioning the political existence of the District or contesting the title to their offices of District officers who will execute the Series 2014 Refunding Bonds or District or County officials who will sign certifications relating to the Series 2014 Refunding Bonds, or the powers of those offices. A certificate (or certificates) to that effect will be furnished to the Underwriter at the time of the original delivery of the Series 2014 Refunding Bonds. 27

36 The District is routinely subject to lawsuits and claims. In the opinion of the District, the aggregate amount of the uninsured liabilities of the District under these lawsuits and claims will not materially affect the financial position or operations of the District. ESCROW VERIFICATION The arithmetical accuracy of certain computations included in the schedules provided by the Underwriter relating to the computation of the projected payments of principal and interest to retire the Prior Bonds to be refunded will be verified by Causey Demgen & Moore P.C., Denver, Colorado (the Verification Agent ). Such computations will be based solely on assumptions and information supplied by the District and the Underwriter. The Verification Agent will restrict its procedures to verifying the arithmetical accuracy of certain computations and will not make any study to evaluate the assumptions and information on which the computations are based, and will express no opinion on the data used, the reasonableness of the assumptions or the achievability of the projected outcome. Ratings MISCELLANEOUS Moody s Investors Service and Standard & Poor s have assigned their respective ratings of Aa3 and A+ to the Series 2014 Refunding Bonds. Rating agencies generally base their ratings on their own investigations, studies and assumptions. The ratings reflect only the view of the rating agency furnishing the same, and any explanation of the significance of such ratings should be obtained only from the rating agency providing the same. Such ratings are not a recommendation to buy, sell or hold the Series 2014 Refunding Bonds. There is no assurance that any ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by the rating agency providing the same, if, in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of a rating may have an adverse effect on the market price of the Series 2014 Refunding Bonds. Neither the Underwriter nor the District has undertaken any responsibility after the offering of the Series 2014 Refunding Bonds to assure the maintenance of the ratings or to oppose any such revision or withdrawal. Professionals Involved in the Offering Orrick, Herrington & Sutcliffe LLP is acting as Bond Counsel and Disclosure Counsel with respect to the Series 2014 Refunding Bonds, and will receive compensation from the District contingent upon the sale and delivery of the Series 2014 Refunding Bonds. Hawkins Delafield & Wood LLP, San Francisco, California, is acting as Underwriter s Counsel with respect to the Series 2014 Refunding Bonds. Fieldman, Rolapp & Associates is acting as the District s Financial Advisor with respect to the Series 2014 Refunding Bonds. Payment of the fees and expenses of Underwriter s Counsel and the Financial Advisor are also contingent upon the sale and delivery of the Series 2014 Refunding Bonds. From time to time, Bond Counsel represents the Underwriter on matters unrelated to the Series 2014 Refunding Bonds. 28

37 Underwriting The Series 2014 Refunding Bonds are being purchased for reoffering to the public by Citigroup Global Markets Inc. (the Underwriter ), pursuant to the terms of a bond purchase contract executed on March 6, 2014, by and between the Underwriter and the District (the Purchase Contract ). The Underwriter has agreed to purchase the Series 2014A Refunding Bonds at a price of $6,269, and to purchase the Series 2014B Refunding Bonds at a price of $45,618, The Purchase Contract provides that the Underwriter will purchase all of the Series 2014 Refunding Bonds, subject to certain terms and conditions set forth in the Purchase Contract, including the approval of certain legal matters by counsel. The Underwriter and its affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. The Underwriter and its affiliates have, from time to time, performed, and may in the future perform, various investment banking services for the District for which they received or will receive customary fees and expenses. In the ordinary course of their various business activities, the Underwriter and its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the District. The Underwriter may offer and sell the Series 2014 Refunding Bonds to certain dealers and others at prices lower than the public offering prices shown on the inside front cover page of this Official Statement. The offering prices may be changed from time to time by the Underwriter. The Underwriter has provided the following language for inclusion in this Official Statement: Citigroup Global Markets Inc., the Underwriter of the Series 2014 Refunding Bonds, has entered into a retail distribution agreement with each of TMC Bonds L.L.C. ("TMC") and UBS Financial Services Inc. ("UBSFS"). Under these distribution agreements, Citigroup Global Markets Inc. may distribute municipal securities to retail investors through the financial advisor network of UBSFS and the electronic primary offering platform of TMC. As part of this arrangement, Citigroup Global Markets Inc. may compensate TMC (and TMC may compensate its electronic platform member firms) and UBSFS for their selling efforts with respect to the Series 2014 Refunding Bonds. 29

38 ADDITIONAL INFORMATION The purpose of this Official Statement is to supply information to purchasers of the Series 2014 Refunding Bonds. Quotations from and summaries and explanations of the Series 2014 Refunding Bonds and of the statutes and documents contained herein do not purport to be complete, and reference is made to such documents and statutes for full and complete statements of their provisions. 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 Series 2014 Refunding Bonds. The District has duly authorized the delivery of this Official Statement. ANAHEIM CITY SCHOOL DISTRICT By: /s/ Linda Wagner, Ed.D. Superintendent 30

39 APPENDIX A INFORMATION RELATING TO THE DISTRICT S OPERATIONS AND BUDGET The information in this appendix concerning the operations of the Anaheim City School District (the District ), the District s finances, and State of California (the State ) funding of education, 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 Series 2014 Refunding Bonds is payable from the general fund of the District or from State revenues. The Series 2014 Refunding Bonds are payable from the proceeds of an ad valorem tax approved by the voters of the District pursuant to all applicable laws and State Constitutional requirements, and required to be levied by Orange County on property within the District in an amount sufficient for the timely payment of principal of and interest on the Series 2014 Refunding Bonds. See SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2014 REFUNDING BONDS in the front portion of this Official Statement. Introduction THE DISTRICT The District began operations in The District is located in the city of Anaheim, approximately 30 miles south of downtown Los Angeles and 90 miles north of San Diego, and encompasses an area of approximately 22 square miles in Orange County (the County ). The District currently operates 24 elementary schools, three of which are on a four-track, year-round schedule. Current fiscal year enrollment is approximately 19,325. The District is governed by a five-member Board of Education (the Board of Education ), each member of which is elected to a four-year term. Elections for positions to the Board of Education are held every two years, alternating between two and three available positions. The management and policies of the District are administered by a Superintendent appointed by the Board of Education who is responsible for day-to-day District operations as well as the supervision of the District s other key personnel. Linda Wagner was appointed as Superintendent by the Board of Education in March Board of Education below: Current members of the Board, together with their office and the date their term expires, are listed ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) Board of Education Name Office Term Expires Dr. Jose F. Moreno President December 2014 Sandy Blumberg Clerk December 2014 Jeff Cole Member December 2014 Bob Gardner Member December 2016 James Vanderbilt Member December 2016 A-1

40 Superintendent and Financial and Fiscal Administrative Personnel The Superintendent of the District is appointed by the Board of Education and reports to the Board of Education. The Superintendent is responsible for management of the District s day-to-day operations and supervises the work of other key District administrators. Information concerning the Superintendent and certain other key administrative personnel is set forth below. Dr. Linda Wagner, Superintendent. At its March 11, 2013 meeting, the Board voted unanimously to appoint Dr. Linda Wagner as the District s new Superintendent, beginning in April. Dr. Wagner has 27 years of experience in the field of education and previously served as Superintendent in the Monrovia Unified School District since She received her Bachelor s, Master s and Doctorate degrees at University of La Verne. As Superintendent of the Monrovia Unified School District, she led comprehensive improvement efforts for diverse student populations and improvement of instructional practices at the classroom level. She also implemented a number of progressive research-based educational models including a successful dual-immersion program. Prior to her work in Monrovia, Dr. Wagner served as Superintendent in the Keppel Union School District and the Acton-Agua Dulce Unified School Districts. This followed her work as Assistant Superintendent in the Acton-Agua Dulce Unified School District and as founding principal of a K-8 dual-immersion magnet school and bilingual coordinate in Palmdale. Her teaching experience includes grades 1-8, primarily in bilingual settings. Mary Grace, Ed.D., Assistant Superintendent, Educational Services. Dr.MaryGraceisthe Assistant Superintendent of Educational Services for the District, a position she has held since July Dr. Grace oversees the following departments: Curriculum & Instruction, Early Childhood Education, Program Evaluations, Pupil Services, Special Services, and aspects of Technology & Information Services. Dr. Grace brings 16 years of educational experience to the position of assistant superintendent. Dr. Grace previously served as the Director of Curriculum and Instruction for the District since As Director of Curriculum and Instruction, Dr. Grace led the development of district-wide standards, focused classroom instruction, and aligned professional development. Prior to joining the Education Services Department, Dr. Grace served as the principal of Horace Mann School and vice principal at Thomas Edison and Horace Mann Schools. As a school site administrator, Dr. Grace organized and implemented research-based staff development as well as increased parent engagement at the school. Dr. Grace earned her Doctorate of Education in K-12 Leadership in Urban School Settings from the University of Southern California, her Masters of Science in Educational Administration from California State University Fullerton, and her Bachelor of Arts in Elementary Education from Eastern Washington University. She currently serves as Secretary for the Anaheim City School District Foundation and is a member of the Association of California School Administrators. Darren Dang, Assistant Superintendent, Administrative Services. Mr. Dang has held the position of Assistant Superintendent, Administrative Services since December 10, He oversees Facilities & Planning, Fiscal Services, Maintenance and Operations, Payroll, Purchasing, Technology and Information Services, and Transportation. Prior to the District, Mr. Dang served for over 5 years as the Director of External Business Services at the Orange County Department of Education ( OCDE ), where he and his team were responsible for providing fiscal oversight, financial, budgetary, and accounting support to the 27 school districts and 3 ROPs that serve approximately 500,000 students in the County. Prior to OCDE, Mr. Dang was Vice President for a management consulting firm specializing in preschool systems design and planning, where he led a team to develop and start LA Universal Preschool, an independent public benefit corporation funded by First 5 LA to make voluntary, high-quality preschool available to every 4-year-old in Los Angeles County. Mr. Dang has also held various management positions at Acer Inc. and Texas Instruments ranging from business management, product development, to customer service. Mr. Dang has over 15 years of management experience in both the public and private sector. A-2

41 Mr. Dang holds a Masters in Business Administration from the Anderson School of Management at UCLA, a Masters in Engineering from MIT, and a Bachelors in Engineering and Applied Science from Caltech. Luis, Camarena, Assistant Superintendent, Human Resources. Mr. Camarena has held the position of Assistant Superintendent, Human Resources since July 1, He oversees the District s personnel system, including classified and certificated employees and programs, administers the District s health and welfare programs and worker s compensation, assures compliance with applicable District rules and policies, as well as state and federal laws, codes and regulations, and supervises and evaluates the performance of assigned personnel. Prior to serving in his current position, Mr. Camarena served as Assistant Superintendent, Human Resources for the Lennox School District, where his duties were similar to those in his current position, including duties as the lead negotiator and with labor relations. He has also served as a director with the Los Angeles Unified School District, providing support for 28 schools and supervising principals and school district staff. Mr. Camarena has over 15 years of school management experience, from site administrator to school district cabinet positions. Mr. Camarena holds a Masters in Educational Administration from California State University Dominguez Hills, where he also obtained his teaching and administrative services credentials. He received his Bachelor of Arts, Business Administration, from Whittier College. DISTRICT FINANCIAL MATTERS State Funding of Education; State Budget Process General. As is true for all school districts in California, the District s operating income consists primarily of two components: a State portion funded from the State s general fund and a local portion derived from the District s share of the 1% local ad valorem tax authorized by the State Constitution. In addition, school districts may be eligible for other special categorical funding from State and federal government programs. The District receives approximately 56.3% of its general fund revenues from State funds (not including the local portion derived from the District s share of the local ad valorem tax), projected at approximately $92.5 million in fiscal year As a result, decreases or deferrals in State revenues, or in State legislative appropriations made to fund education, may significantly affect the District s revenues and operations. Under Proposition 98, a constitutional and statutory amendment adopted by the State s voters in 1988 and amended by Proposition 111 in 1990 (now found at Article XVI, Sections 8 and 8.5 of the Constitution), a minimum level of funding is guaranteed to school districts, community college districts, and other State agencies that provide direct elementary and secondary instructional programs. Recent years have seen frequent disruptions in State personal income taxes, sales and use taxes, and corporate taxes, making it increasingly difficult for the State to meet its Proposition 98 funding mandate, which normally commands about 45% of all State general fund revenues, while providing for other fixed State costs and priority programs and services. Because education funding constitutes such a large part of the State s general fund expenditures, it is generally at the center of annual budget negotiations and adjustments. State Budget Process. According to the State Constitution, the Governor must propose a budget to the State Legislature no later than January 10 of each year, and a final budget must be adopted no later than June 15. Historically, the budget required a two-thirds vote of each house of the State Legislature for passage. However, on November 2, 2010, the State s voters approved Proposition 25, which amended the State Constitution to lower the vote requirement necessary for each house of the State Legislature to pass a budget bill and send it to the Governor. Specifically, the vote requirement was lowered from two thirds A-3

42 to a simple majority (50% plus one) of each house of the State Legislature. The lower vote requirement also would apply to trailer bills that appropriate funds and are identified by the State Legislature as related to the budget in the budget bill. The budget becomes law upon the signature of the Governor, who may veto specific items of expenditure. Under Proposition 25, a two thirds vote of the State Legislature is still required to override any veto by the Governor. School district budgets must generally be adopted by July 1, and revised by the school 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. The Governor signed the fiscal year State budget on June 27, When the State budget is not adopted on time, basic appropriations and the categorical funding portion of each school district s State funding are affected differently. Under the rule of White v. Davis (alsoreferredtoasjarvis v. Connell), a State Court of Appeal decision reached in 2002, there is no constitutional mandate for appropriations to school districts without an adopted budget or emergency appropriation, and funds for State programs cannot be disbursed by the State Controller until that time, unless the expenditure is (i) authorized by a continuing appropriation found in statute, (ii) mandated by the Constitution (such as appropriations for salaries of elected State officers), or (iii) mandated by federal law (such as payments to State workers at no more than minimum wage). The State Controller has consistently stated that basic State funding for schools is continuously appropriated by statute, but that special and categorical funds may not be appropriated without an adopted budget. Should the State Legislature fail to pass a budget or emergency appropriation before the start of any fiscal year, the District might experience delays in receiving certain expected revenues. The District is authorized to borrow temporary funds to cover its annual cash flow deficits, and as a result of the White v. Davis decision, the District might find it necessary to increase the size or frequency of its cash flow borrowings, or to borrow earlier in the fiscal year. The District does not expect the White v. Davis decision to have any long-term effect on its operating budgets. Aggregate State Education Funding. The Proposition 98 guaranteed amount for education is based on prior-year funding, as adjusted through various formulas and tests that take into account State proceeds of taxes, local property tax proceeds, school enrollment, per-capita personal income, and other factors. The State s share of the guaranteed amount is based on State general fund tax proceeds and is not based on the general fund in total or on the State budget. The local share of the guaranteed amount is funded from local property taxes. The total guaranteed amount varies from year to year and throughout the stages of any given fiscal year s budget, from the Governor s initial budget proposal to actual expenditures to post-year-end revisions, as better information regarding the various factors becomes available. Over the long run, 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. The Proposition 98 guaranteed amount is reduced in years when general fund revenue growth lags personal income growth, and may be suspended for one year at a time by enactment of an urgency statute. In either case, in subsequent years when State general fund revenues grow faster than personal income (or sooner, as the Legislature may determine), the funding level must be restored to the guaranteed amount, the obligation to do so being referred to as maintenance factor. In recent years, the State s response to fiscal difficulties has had a significant impact on Proposition 98 funding and settle-up treatment. The State has sought to avoid or delay paying settle-up amounts when funding has lagged the guaranteed amount. In response, teachers unions, the State Superintendent and others sued the State or Governor in 1995, 2005, 2009 and 2011 to force them to fund A-4

43 schools in the full amount required. The settlement of the 1995 and 2005 lawsuits has so far resulted in over $4 billion in accrued State settle-up obligations. However, legislation enacted to pay down the obligations through additional education funding over time, including the Quality Education Investment Act of 2006, have also become part of annual budget negotiations, resulting in repeated adjustments and deferrals of the settle-up amounts. The State has also sought to preserve general fund cash while avoiding increases in the base guaranteed amount through various mechanisms: by treating any excess appropriations as advances against subsequent years Proposition 98 minimum funding levels rather than current year increases; by temporarily deferring apportionments of Proposition 98 funds from one fiscal year to the next; by permanently deferring apportionments of Proposition 98 funds from one fiscal year to the next; by suspending Proposition 98, as the State did in fiscal year , fiscal year , fiscal year and fiscal year ; and by proposing to amend the State Constitution s definition of the guaranteed amount and settle-up requirement under certain circumstances. The District cannot predict how State income or State education funding will vary over the term to maturity of the Series 2014 Bonds, and the District takes no responsibility for informing owners of the Series 2014 Bonds as to actions the State Legislature or Governor may take affecting the current year s budget after its adoption. Information about the State budget and State spending for education is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the Department of Finance, under the heading California Budget. An impartial analysis of the budget is posted by the Office of the Legislative Analyst 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, Theinformationreferredtoispreparedbythe respective State agency 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 State Budget. The Governor signed the fiscal year State budget (the State Budget ) on June 27, The State Budget represents a multiyear plan that maintains a $1.1 billion reserve and pays down certain budgetary debt. The State Budget provides for $97.1 billion in revenues and transfers for fiscal year (down slightly from the $98.2 billion estimated for fiscal year ), and $96.3 billion in total expenditures for fiscal year (up slightly from the $95.7 billion estimates for fiscal year ). However, unlike recent years, the State enters fiscal year with a positive prior year general fund balance, approximately $872 million, as compared to a negative general fund balance of $1.7 billion at the start of fiscal year The State Budget, accordingly, is able to set aside a $1.1 billion reserve in a special fund for economic uncertainties. The State Budget projects that budgetary debt, which was approximately $35 billion at the end of fiscal year and $27 billion at the end of fiscal year , will be reduced to less than $5 billion by the end of fiscal year Although the State Budget is a balanced budget, the State Budget notes that substantial risks, uncertainties and liabilities remain, including the pace of the economic recovery, the State s needs to address its other significant liabilities and the federal budget for federal fiscal year With the passage of The Schools and Local Public Safety Protection Act (the Temporary Tax Measure ) at the November 6, 2012 election, the State Budget reinvests in, rather than cuts, education funding. The Temporary Tax Measure increased the personal income tax rates on the State s A-5

44 highest income taxpayers by up to 3% for a period of seven years beginning with the 2012 tax year, and increased the sales tax by one-quarter percent for a period of four years beginning on January 1, For kindergarten through twelfth grade ( K-12 ) education, the State Budget provides $55.3 billion (or $8,220 per student) in Proposition 98 funding in fiscal year , which is slightly lower than the $56.5 billion estimated in fiscal year but an increase of more than $8 billion (or $1,045 per student) from fiscal year levels. The State Budget projects $67.1 billion (or $10,010 per student) in Proposition 98 funding in fiscal year Total funding under the State Budget for all K-12 education in fiscal year is approximately $70 billion. The State Budget also contains a new formula for funding the school finance system (the Local Control Funding Formula or LCFF ). The LCFF is designed to increase local control and flexibility, reduce State bureaucracy and better allocate resources based on student needs. The LCFF replaces the existing revenue limit funding system and most categorical programs. See Allocation of State Funding to School Districts; Local Control Funding Formula herein for more information. Certain budget adjustments for K-12 programs include the following: Local Control Funding Formula. An increase of $2.1 billion in Proposition 98 general funds for school districts and charter schools, and $32 million in Proposition 98 general funds for county offices of education, to support first-year funding provided through the LCFF. Common Core Implementation. An increase of $1.25 billion in one-time Proposition 98 general funds to support the implementation of the Common Core, which are new standards for evaluating student achievement in English-language arts and mathematics. Such funding will be distributed to local education agencies on the basis of enrollment to support necessary investments in professional development, instructional materials and technology. Local education agencies will be required to develop a plan to spend this money over the next two years and to hold a public hearing on such plan. Career Technical Education Pathways Grant Program. An increase of $250 million in Proposition 98 general funds for one-time competitive capacity-building grants for K-12 school districts and community colleges to support programs focused on work-based learning. K-12 schools and community colleges must obtain funding commitments from program partners to support ongoing program costs. K-12 Mandates Block Grant. An increase of $50 million in Proposition 98 general funds to reflect the inclusion of the Graduation Requirements mandate within the block grant program. This increase will be distributed to school districts, county offices of education and charter schools with enrollment in grades K-12 Deferrals. An increase of $1.6 billion in Proposition 98 general funds in fiscal year and an increase of $242.3 million in Proposition 98 general funds in fiscal year for the repayment of inter-year budgetary deferrals. When combined, total funding over such two-year period will reduce K-12 inter-year deferrals to $5.6 billion by the end of fiscal year Special Education Funding Reform. The State Budget includes several consolidations for various special education programs in an effort to simplify special education finance and provide Special Education Local Plan Areas with additional funding flexibility. A-6

45 With respect to the implementation of Proposition 39 (The California Clean Energy Jobs Act), which was also approved at the November 6, 2012 election, the State Budget allocates $381 million in Proposition 98 general funds to K-12 local education agencies to support energy efficiency projects approved by the California Energy Commission. Of this amount, 85% will be distributed based on average daily attendance ( A.D.A. ) and 15% will be distributed based on free and reduced-price meal eligibility. The State Budget establishes minimum grant levels of $15,000 and $50,000 for small and exceptionally small local education agencies and allows these agencies to receive an advance on a future grant allocation. Other local education agencies would receive the greater of $100,000 or their weighted distribution amount. The State Budget also provides $28 million for interest-free revolving loans to assist eligible energy projects at schools and community colleges. The complete State Budget is available from the California Department of Finance website at The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference. Prohibitions on Diverting Local Revenues for State Purposes. Beginning in , the State satisfied a portion of its Proposition 98 obligations by shifting part of the property tax revenues otherwise belonging to cities, counties, special districts, and redevelopment agencies, to school and college districts through a local Educational Revenue Augmentation Fund (ERAF) in each county. Local agencies, objecting to invasions of their local revenues by the State, sponsored a statewide ballot initiative intended to eliminate the practice. In response, the State Legislature proposed an amendment to the State Constitution, which the State s voters approved as Proposition 1A at the November 2004 election. That measure was generally superseded by the passage of a new initiative constitutional amendment at the November 2010 election, known as Proposition 22. The effect of Proposition 22 is to prohibit the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation, redevelopment, or local government projects and services. It prevents the State from redirecting redevelopment agency property tax increment to any other local government, including school districts, or from temporarily shifting property taxes from cities, counties and special districts to schools, as in the ERAF program. This is intended to, among other things, stabilize local government revenue sources by restricting the State s control over local property taxes. One effect of this amendment will be to deprive the State of fuel tax revenues to pay debt service on most State bonds for transportation projects, reducing the amount of State general fund resources available for other purposes, including education. Prior to the passage of Proposition 22, the State invoked Proposition 1A to divert $1.935 billion in local property tax revenues in from cities, counties, and special districts to the State to offset State general fund spending for education and other programs, and included another diversion in the adopted State budget of $1.7 billion in local property tax revenues from local redevelopment Dissolution of Redevelopment Agencies below). Redevelopment agencies had sued the State over this latter diversion. However, the lawsuit was decided against the California Redevelopment Association on May 1, Because Proposition 22 reduces the State s authority to use or shift certain revenue sources, fees and taxes for State general fund purposes, the State will have to take other actions to balance its budget in some years such as reducing State spending or increasing State taxes, and school and community college districts that receive Proposition 98 or other funding from the State will be more directly dependent upon the State s general fund. Dissolution of Redevelopment Agencies. The adopted State budget for fiscal , as signed by the Governor of the State on June 30, 2011, included as trailer bills Assembly Bill No. 26 (First A-7

46 Extraordinary Session) ( AB1X 26 ) and Assembly Bill No. 27 (First Extraordinary Session) ( AB1X 27 ), which the Governor signed on June 29, AB1X 26 suspended most redevelopment agency activities and prohibited redevelopment agencies from incurring indebtedness, making loans or grants, or entering into contracts after June 29, AB1X 26 dissolved all redevelopment agencies in existence and designated successor agencies and oversight boards to satisfy enforceable obligations of the former redevelopment agencies and administer dissolution and wind down of the former redevelopment agencies. Certain provisions of AB1X 26 are described further below. In July of 2011, various parties filed an action before the Supreme Court of the State of California (the Court ) challenging the validity of AB1X 26 and AB1X 27 on various grounds (California Redevelopment Association v. Matosantos). On December 29, 2011, the Court rendered its decision in Matosantos upholding virtually all of AB1X 26 and invalidating AB1X 27. In its decision, the Court also modified various deadlines for the implementation of AB1X 26. The deadlines for implementation of AB1X 26 below take into account the modifications made by the Court in Matosantos. On February 1, 2012, and pursuant to Matosantos, AB1X 26 dissolved all redevelopment agencies in existence and designated successor agencies and oversight boards to satisfy enforceable obligations of the former redevelopment agencies and administer dissolution and wind down of the former redevelopment agencies. With limited exceptions, all assets, properties, contracts, leases, records, buildings and equipment, including cash and cash equivalents of a former redevelopment agency will be transferred to the control of its successor agency and, unless otherwise required pursuant to the terms of an enforceable obligation, distributed to various related taxing agencies pursuant to AB1X 26. AB1X 26 requires redevelopment agencies to continue to make scheduled payments on and perform obligations required under its enforceable obligations. For this purpose, AB1X 26 defines enforceable obligations to include bonds, including the required debt service, reserve set-asides, and any other payments required under the indenture or similar documents governing the issuance of outstanding bonds of the former redevelopment agency and any legally binding and enforceable agreement or contract that is not otherwise void as violating the debt limit or public policy. AB1X 26 specifies that only payments included on an enforceable obligation payment schedule adopted by a redevelopment agency shall be made by a redevelopment agency until its dissolution. However, until a successor agency adopts a recognized obligation payment schedule the only payments permitted to be made are payments on enforceable obligations included on an enforceable obligation payment schedule. A successor agency may amend the enforceable obligation payment schedule at any public meeting, subject to the approval of its oversight board. Under AB1X 26, commencing February 1, 2012, property taxes that would have been allocated to each redevelopment agency if the agencies had not been dissolved will instead be deposited in a redevelopment property tax trust fund created for each former redevelopment agency by the related county auditor-controller and held and administered by the related county auditor-controller as provided in AB1X 26. AB1X 26 generally requires each county auditor-controller, on May 16, 2012 and June 1, 2012 and each January 16 and June 1 (now each January 2 and June 1 pursuant to AB 1484, as described below) thereafter, to apply amounts in a related redevelopment property tax trust fund, after deduction of the county auditor-controller s administrative costs, in the following order of priority: To pay pass-through payments to affected taxing entities in the amounts that would have been owed had the former redevelopment agency not been dissolved; provided, however, that if a successor agency determines that insufficient funds will be available to make payments on the recognized obligation payment schedule and the county auditorcontroller and State Controller verify such determination, pass-through payments that had previously been subordinated to debt service may be reduced; A-8

47 To the former redevelopment agency s successor agency for payments listed on the successor agency s recognized obligation payment schedule for the ensuing six-month period; To the former redevelopment agency s successor agency for payment of administrative costs; and Any remaining balance to school entities and local taxing agencies. It is possible that there will be additional legislation proposed and/or enacted to clean up various inconsistencies contained in AB1X 26 and there may be additional legislation proposed and/or enacted in the future affecting the current scheme of dissolution and winding up of redevelopment agencies currently contemplated by AB1X 26. For example, AB 1484 was signed by the Governor on June 27, 2012, to clarify and amend certain aspects of AB1X 26. AB 1484, among other things, attempts to clarify the role and requirements of successor agencies, provides successor agencies with more control over agency bond proceeds and properties previously owned by redevelopment agencies and adds other new and modified requirements and deadlines. AB 1484 also provides for a tax claw back provision, wherein the State is authorized to withhold sales and use tax revenue allocations to local successor agencies to offset payment of property taxes owed and not paid by such local successor agencies to other local taxing agencies. This tax claw back provision has been challenged in court by certain cities and successor agencies. The District cannot predict the outcome of such litigation and what effect, if any, it will have on the District. Additionally, no assurances can be given as to the effect of any such future proposed and/or enacted legislation on the District. Proposed State Budget. The Governor released his proposed fiscal year State budget (the Proposed State Budget ) on January 10, The Proposed State Budget proposes a multiyear plan that is balanced, while paying off budgetary debt from past years and setting aside reserves. The Proposed State Budget projects general fund revenues in the amount of $100.1 billion in fiscal year and $106.1 billion in fiscal year , which is an additional $3 billion and $1.6 billion in revenues in fiscal years and , respectively, as compared to projections from the State Budget. According to the Proposed State Budget, the primary reason for such additional revenues is the increased level of capital gains realizations for 2013 and 2014 and, accordingly, higher forecasts for personal income tax. Of the total State general fund revenues for fiscal year , personal income taxes are expected to contribute $69.8 billion (65.8%), sales and use taxes are expected to contribute $24.1 billion (22.7%) and corporation taxes are expected to contribute $8.7 billion (8.2%). Under the Proposed State Budget, general fund expenditures for fiscal year are $106.8 billion (an increase of $8.3 billion from fiscal year general fund expenditures), of which $45.3 billion (42.4%) is allocated to K-12 education. The Proposed State Budget proposes to reduce budgetary debt (totaling $24.9 billion at the end of fiscal year ) by more than $11 billion in fiscal year (which includes the payment of more than $6 billion to eliminate the remaining deferred payments to school districts and community college districts), and to fully eliminate all budgetary debt by fiscal year Additionally, the Proposed State Budget sets aside $2.3 billion in reserves, consisting of $1.6 billion in a rainy day fund (the Rainy Day Fund ) and $693 million in the general fund traditional reserve. Such amount is $700 million below the revised reserve level at the end of fiscal year The Proposed State Budget also proposes to the voters certain constitutional amendments relating to the Rainy Day Fund, which amendments are intended to increase the size of the Rainy Day Fund, base deposits on capital gains revenues, create a Proposition 98 reserve and require certain deposits therein, limit withdrawals and allow amounts otherwise required to be transferred to the Rainy Day Fund to be applied to pay down various budgetary liabilities. Despite the recent budgetary improvements as A-9

48 compared to recent years, the Proposed State Budget acknowledges that the additional tax revenues from capital gains are temporary in nature and that the additional revenues from Proposition 30 will expire in 2016 and Further, the Proposed State Budget observes several risks that the State should plan for, including: the inevitable occurrence of another recession, ongoing fiscal challenges of the federal government, the budget s heavy dependency on the performance of the stock market in fiscal year , the high levels of State debts and liabilities, including unfunded retirement liabilities, and ongoing court involvement relating to the State s prisons and dissolved redevelopment agencies. With respect to CalSTRS, the Proposed State Budget notes that there is an increasing unfunded liability of approximately $80.4 billion and, absent any changes, CalSTRS is expected to exhaust its assets in approximately 30 years. As contributions to the CalSTRS pension fund were established in statute and can only be changed by the Legislature, the Proposed State Budget acknowledges that the Governor s administration will need to begin working with the State Legislature, school districts, teachers and the pension system on a sustainable funding plan, which is expected to be adopted as part of the fiscal year budget. As it relates to K-12 education, the Proposed State Budget provides Proposition 98 funding of $61.6 billion for fiscal year , as well as an additional $1.5 billion and $1.8 billion for fiscal years and , respectively. This translates to K-12 Proposition 98 per-pupil expenditures of $8,469 in fiscal year and $9,194 in fiscal year Such amounts are significant increases when compared to recent years, such as the $7,006 provided in fiscal year Total per-pupil expenditures from all sources are projected to be $11,985 in fiscal year and $12,833 in fiscal year , including funds provided for prior year settle-up obligations. The Proposed State Budget notes that attendance in public schools began to decline in fiscal year For fiscal year , K-12 A.D.A. is estimated to be 5,963,132, a slight increase of 702 from fiscal year K-12 A.D.A. is estimated to drop by 7,002 in fiscal year to 5,956,130. The Proposed State Budget provides a second-year investment of $4.5 billion in the LCFF, which is expected to eliminate more than 28% of the remaining funding gap between actual funding and the target level of funding (see Allocation of State Funding to School Districts; Local Control Funding Formula herein). With respect to K-12 school facilities, the Proposed State Budget acknowledges the ongoing discussion of the State s role, if any, in future school facilities funding and notes several problems with the current program that should be addressed in any future plan. While such discussion is ongoing, the Proposed State Budget transfers $211 million of remaining bond authority from the specialized programs to the core new construction and modernization programs to continue construction of new classrooms and modernization of existing classrooms, and dedicates $188 million of one-time Proposition 98 general funds to an emergency repair program to provide funds to local educational agencies for costs of repairing or replacing building systems that post a health and safety threat. The Proposed State Budget also includes reforms and investments relating to adult education, the implementation of Common Core standards, and energy efficiency (Proposition 39). Certain workload adjustments for K-12 programs included in the Proposed State Budget include the following: K-12 Deferrals. An increase of more than $2.2 billion in Proposition 98 general funds in fiscal year which, when combined with the $3.3 billion in Proposition 98 general funds provided from fiscal years and , will be applied to eliminate all remaining outstanding deferral debt for K12 education. A-10

49 School District Local Control Funding Formula. Additional growth of approximately $4.5 billion in Proposition 98 general funds for school districts and charter schools in fiscal year Charter Schools. An increase of $74.3 million in Proposition 98 general funds to support projected charter school A.D.A. growth. Special Education. A decrease of $16.2 million in Proposition 98 general funds to reflect a decline in Special Education A.D.A. Cost-of-Living Adjustment Increases. $33.3 million to support a 0.86% costofliving adjustment ( C.O.L.A. ) for categorical programs that remain outside of the LCFF. C.O.L.A. for school districts and county offices of education are provided within the increases for school district and county office of education under the LCFF. Emergency Repair Program. An increase of $188.1 million in onetime Proposition 98 general fund resources for the emergency repair program, as described above. Local Property Tax Adjustments. An increase of $287.1 million in Proposition 98 general funds for school districts and county offices of education under the LCFF in fiscal year as a result of lower offsetting property tax revenues. A decrease of $529.7 million in Proposition 98 general funds for school districts and county offices of education in fiscal year as a result of increased offsetting local property tax revenues. A.D.A. A decrease of $214.5 million in fiscal year for school districts and county offices of education under the LCFF as a result of a decrease in projected A.D.A. from the State Budget. A decrease of $42.9 million in fiscal year for school districts and county offices of education as a result of projected decline in A.D.A. for fiscal year The complete Proposed State Budget is available from the California Department of Finance website at The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference. LAO Overview of Proposed State Budget. The Legislative Analyst s Office ( LAO ), a nonpartisan State office which provides fiscal and policy information and advice to the State Legislature, released its report on the Proposed State Budget entitled The Budget: Overview of the Governor s Budget on January 14, 2014 (the Proposed Budget Overview ), in which the LAO acknowledges that the State has made substantial progress in recent years in addressing its prior budgetary problems. The LAO notes that such progress has been facilitated by the recovering economy, the stock market, increased revenues from temporary taxes of Proposition 30, and the State Legislature s recent decisions to make few new non-proposition 98 spending commitments. Further, the LAO commends the Proposed State Budget s emphasis on debt repayment, which the LAO expects to place the State on even stronger fiscal footing. Nonetheless, the LAO is not without any suggestions. For example, although the LAO agrees that the State will need to work with school districts and teachers to reach an agreement on a long-term CalSTRS funding plan, the LAO suggests that the State set aside money during fiscal year in anticipation of the adoption of a long term CalSTRS funding plan. A-11

50 With respect to the Proposition 98 budget plan in the Proposed State Budget, the LAO states that the Proposition 98 budget plan provides a reasonable mix of programmatic funding increases and pay downs of outstanding obligations. The LAO commends the proposal to eliminate K-14 budgetary deferrals, and recognizes that the use of new funding for one-time purposes helps the State minimize any future disruption in school funding as a result of revenue volatility or an economic slowdown. The LAO, however, observes that the Proposition 98 minimum guarantee in fiscal year will be highly sensitive to changes in general fund revenues and could experience large swings over the coming months. The LAO also expresses concern with the Governor s proposal to set in statute the specific share of Proposition 98 funding that would be dedicated to the implementation of the LCFF each year moving forward, commenting that doing so would remove the State Legislature s discretion to appropriate funding and make key budget decisions. The Budget Overview is available on the LAO website at The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference. Changes in State Budget. The final fiscal year State budget, which requires approval by a majority vote of each house of the State Legislature, may differ substantially from the Governor s budget proposal. Accordingly, the District cannot predict the impact that the final fiscal year State Budget, or subsequent budgets, will have on its finances and operations. The final fiscal year State budget may be affected by national and State economic conditions and other factors which the District cannot predict. Future Budgets and Budgetary Actions. The District cannot predict what actions will be taken in the future by the State Legislature and the Governor to address changing State revenues and expenditures or the impact such actions will have on State revenues available in the current or future years for K-12 education. The State budget will be affected by national and State economic conditions and other factors over which the District cannot predict and 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 during fiscal year and in future fiscal years. Certain factors, like an economic recession, could result in State budget shortfalls in any fiscal year and could have a material adverse financial impact on the District. Allocation of State Funding to School Districts; Local Control Funding Formula Prior to the implementation of the Local Control Funding Formula in fiscal year , under California Education Code Section and following, each school district was determined to have a target funding level: a base revenue limit per student multiplied by the district s student enrollment measured in units of average daily attendance. The base revenue limit was calculated from the district s prior-year funding level, as adjusted for a number of factors, such as inflation, special or increased instructional needs and costs, employee retirement costs, especially low enrollment, increased pupil transportation costs, etc. Generally, the amount of State funding allocated to each school district was the amount needed to reach that district s base revenue limit after taking into account certain other revenues, in particular, locally generated property taxes. This is referred to as State equalization aid. To the extent local tax revenues increased due to growth in local property assessed valuation, the additional revenue was offset by a decline in the State s contribution; ultimately, a school district whose local property tax revenues exceeded its base revenue limit was entitled to receive no State equalization aid, and received only its special categorical aid, which is deemed to include the basic aid of $120 per student per year guaranteed by Article IX, Section 6 of the Constitution. Such districts were known as basic aid districts. Districts that received some equalization aid were commonly referred to as revenue limit districts. The District would be a revenue limit district. A-12

51 Beginning in fiscal year , the LCFF replaced the revenue limit funding system and most categorical programs, and distributes combined resources to school districts through a base revenue limit funding grant ( Base Grant ) per unit of A.D.A. with additional supplemental funding allocated to local educational agencies based on their proportion of English language learners, students from low-income families and foster youth. The LCFF has an eight year implementation program to incrementally close the gap between actual funding and the target level of funding, as described below. The LCFF includes the following components: A Base Grant for each local education agency, equivalent to $7,643 per unit of A.D.A. in fiscal year Such Base Grant per unit of A.D.A., adjusted by grade span variation and to be adjusted annually for cost-of-living, is as follows: $6,845 for grades K-3, $6,947 for grades 4-6, $7,154 for grades 7-8 and $8,289 for grades This amount includes an adjustment of 10.4% to the Base Grant to support lowering class sizes in grades K-3, and an adjustment of 2.6% to reflect the cost of operating career technical education programs in grades A 20% supplemental grant for the unduplicated number of English language learners, students from low-income families and foster youth to reflect increased costs associated with educating those students. An additional concentration grant of up to 22.5% of a local education agency s Base Grant, based on the number of English language learners, students from low-income families and foster youth served by the local education agency that comprise more than 55% of enrollment. An Economic Recovery Target (the ERT ) that is intended to ensure that almost every local education agency receives at least their pre-recession funding level (i.e., the fiscal year revenue limit per unit of A.D.A.), adjusted for inflation, at full implementation of the LCFF. Upon full implementation, local education agencies would receive the greater of the Base Grant or the ERT. Of the projected $25 billion in new funding to be invested through the LCFF over the next eight years, the vast majority of new funding will be provided for Base Grants. Specifically, of every dollar invested through the LCFF, 84 cents will go to Base Grants, 10 cents will go to supplemental grants and 6 cents will go to concentration grants. Under the new formula, for basic aid districts (as described below), local property tax revenues would be used to offset up to the entire allocation under the new formula. However, basic aid districts would continue to receive the same level of State aid as allocated in fiscal year All school districts, county offices of education and charter schools are required to develop and adopt local control and accountability plans, which will identify local goals in areas that are priorities for the State, including pupil achievement, parent engagement and school climate. Such local control and accountability plans are to be developed in accordance with a template to be provided by the State Board of Education. County superintendents will review and provide support to the school districts under their jurisdiction, while the Superintendent of Public Instruction will perform a corresponding role for county offices of education. The State Budget created the California Collaborate for Education Excellence (the Collaborative ) to advise and assist local education agencies in achieving the goals identified in their plans. For local education agencies that continue to struggle in meeting their goals, and when the Collaborative indicates that additional intervention is needed, the Superintendent of Public Instruction would have authority to make changes to a local education agency s plan. A-13

52 The following table sets forth (i) the District s actual A.D.A., enrollment and base revenue limit per unit of A.D.A. for fiscal years through , and (ii) the District s budgeted A.D.A., enrollment and Base Grant per unit of A.D.A. for fiscal year , for grades kindergarten through grade 6 ( K-6 ), including special education. ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) Average Daily Attendance, Enrollment and Base Revenue Limit/Base Grant Fiscal Years through Fiscal Year Average Daily Attendance (1) Enrollment Base Revenue Limit/Base Grant Per Unit of Average Daily Attendance (2) 18,611 19,314 $6, (3) 18,450 19,095 6, (4) 18,751 19,265 6, (5) 18,490 19,158 6, (6) 18,632 (7)(8) 19,325 (8) varies (9) (1) A.D.A. for the second period of attendance, typically in mid-april of each school year. (2) The District had a % base revenue limit deficit factor and a 4.25% cost of living adjustment in fiscal year , which resulted in net funding of a negative 7.75% and a funded base revenue limit of $4,741.82, which includes a one-time base revenue limit reduction of $ (3) The District had a % base revenue limit deficit factor and a negative 0.39% cost of living adjustment in fiscal year , which resulted in a funded base revenue limit of $ (4) The District had a % base revenue limit deficit factor and a 2.24% cost of living adjustment in fiscal year , which resulted in a funded base revenue limit of $4, (5) The District had a % base revenue limit deficit factor and a 3.243% cost of living adjustment in fiscal year , which resulted in a funded base revenue limit of $4, (6) Figures are projections. Fiscal year figures are based on the LCFF and are not completely comparable to prior fiscal years. (7) A.D.A. by grade span variation is as follows: 10,624 for grades K-3; and 7,438 for grades 4-6. Such amounts by grade span variation do not include 570 A.D.A. for special education which is included in the total projected A.D.A. figure. (8) The Board of Education is currently considering a petition for a charter school. If approved, the charter school is expected to begin operations in fiscal year , initially enrolling approximately 125 students and growing to approximately 275 students by fiscal year Some of the enrollment for such charter school may come from students currently enrolled at the District s schools. The District cannot predict whether the petition will be approved and, if approved, how many students from the District s schools would enroll at the charter school. (9) Base Grant per unit of A.D.A. by grade span variation is as follows: $7,675 for grades K-3; and $7,056 for grades 4-6. Such amounts represent the targeted amount of Base Grant per unit of A.D.A., and do not include any supplemental and concentration grants under the LCFF. Such amounts are not expected to be fully funded in fiscal year , and are estimated in the aggregate to be approximately $6,591 per unit of A.D.A. Source: Anaheim City School District. In its first interim report for fiscal year , the District projects that it will receive approximately $ million in aggregate revenues allocated under the LCFF in fiscal year , or approximately 74.6% of its general fund revenues. Such amount includes the supplemental and concentration grants, estimated to be $9.1 million and $9.0 million, respectively, in fiscal year The District expects that it will receive approximately $9 million in additional revenues under the LCFF than it would have received under the prior revenue limit funding system. The District also expects to receive a small portion of its budget from State lottery funds, which may not be used for non-instructional purposes, such as the acquisition of real property, the construction of facilities, or the financing of research. School districts receive lottery funds proportional to their total A.D.A. The District s State lottery revenue is currently projected at $3.53 million for fiscal year A-14

53 Local Sources of Education Funding The principal component of local revenues is a school district s property tax revenues, i.e., each district s share of the local 1% property tax, received pursuant to Sections 75 and following and Sections 95 and following of the California Revenue and Taxation Code. California Education Code Section 42238(h) itemizes the local revenues that are counted towards the amount allocated under the LCFF (and formerly, the base revenue limit) before calculating how much the State must provide in State aid. The more local property taxes a district receives, the less State aid it is entitled to. Prior to the implementation of the LCFF, a school district whose local property tax revenues exceeded its base revenue limit was entitled to receive no State aid, and received only its special categorical aid which is deemed to include the basic aid of $120 per student per year guaranteed by Article IX, Section 6 of the Constitution. Such districts were known as basic aid districts. Districts that received some State aid were commonly referred to as revenue limit districts. Under the LCFF, local property tax revenues are used to offset up to the entire State aid collection under the new formula; however, basic aid districts would continue to receive the same level of State aid as allotted in fiscal year See Control Funding Formula herein for more information about the LCFF. The District is not a basic aid district. Local property tax revenues account for approximately 44.1% of the District s aggregate revenues allocated under the LCFF, and are projected to be $54.2 million, or 33.0% of total general fund revenues in fiscal year For a discussion of legal limitations on the ability of the District to raise revenues through local property taxes, see CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS below. Significant Accounting Policies and Audited Financial Reports The State Department of Education imposes by law uniform financial reporting and budgeting requirements for K- 12 school districts. Financial transactions are accounted for in accordance with the Department of Education s California School Accounting Manual. This manual, according to Section of the Education Code, is to be followed by all California school districts, including the District. Significant accounting policies followed by the District are explained in Note 1 to the District s audited financial statements for the fiscal year ended June 30, 2013, which are included as Appendix B. Independently audited financial reports are prepared annually in conformity with generally accepted accounting principles for educational institutions. The annual audit report is generally available about six months after the June 30 close of each fiscal year. The following tables contain data abstracted from financial statements prepared by the District s former independent auditor Nigro Nigro & White, A Professional Accountancy Corporation, Murrieta, California for fiscal year , and the District s current independent auditor, Christy White Accountancy Corporation, San Diego, California, for fiscal years through The District s auditors have not been requested to consent to the use or to the inclusion of their respective reports in this Official Statement, and they have not audited or reviewed this Official Statement. The District is required by law to adopt its audited financial statements after a public meeting to be conducted no later than January 31 following the close of each fiscal year. A-15

54 The following table shows the statement of revenues, expenditures and changes in fund balances for the District s general fund for the fiscal years through ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) Statement of General Fund Revenues, Expenditures and Changes in Fund Balance Fiscal Years through Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year REVENUES Revenue Limit Sources: State Aid $44,924,106 $32,004,502 $39,723,212 $45,279,309 $36,012,181 Local Sources 56,467,197 56,568,784 53,704,196 49,618,120 59,363,684 Transfers/Miscellaneous , ,251 - Federal Sources 26,648,003 22,566,293 16,193,246 23,501,880 14,890,360 Other State Sources 38,666,698 38,806,025 40,244,232 41,217,291 42,215,284 Other Local Sources 2,363,660 2,870,400 2,202,233 2,170,790 2,342,238 Total Revenues 169,069, ,816, ,379, ,062, ,823,747 EXPENDITURES Current: Instruction 103,635,478 96,455,537 91,037,753 98,621,448 94,549,779 Instruction-Related Services: Supervision of instruction and 10,163,303 8,779,878 6,847,459 7,555,312 7,059,678 administration Instructional library, media and technology 2,515,040 2,288,547 1,592,808 1,524,199 1,722,626 School site administration 12,829,168 12,239,172 10,522,210 11,640,350 11,271,703 Pupil Support Services: Home-to-school transportation 6,048,193 5,708,911 4,938,939 5,193,514 3,751,519 All other pupil services 11,459,892 11,963,965 10,012,870 10,787,822 12,279,950 General Administration Services: Data processing services 1,660,354 1,593,733 1,608,885 1,686,700 1,555,689 Other general administration 6,577,520 6,716,716 7,031,240 7,569,074 6,979,982 Plant services 12,983,255 12,519,202 10,536,308 11,708,117 11,459,592 Facility acquisition and construction 18, , Other outgo: Transfers between agencies 6,616,211 6,011,756 6,416,501 7,028,995 7,374,383 Total Expenditures 174,506, ,277, ,928, ,315, ,004,901 Excess (Deficiency) Of Revenues Over Expenditures (5,437,275) (11,461,413) 1,450,981 (1,252,890) (3,181,154) Other Financing Sources (Uses) Interfund transfers in 676,541 2,000,000 2,715,345 2,000,000 - Interfund transfers out - (718,074) Other financing sources - - (715,345) - - Net Financing Sources and Uses 676,541 1,281,926 2,000,000 2,000,000 - NET CHANGE IN FUND BALANCE (4,760,734) (10,179,487) 3,450, ,110 (3,181,154) Fund Balance, July 1, as originally stated 32,707,583 27,946,849 17,767,362 23,282,663 21,990,983 Adjustments for restatement - - 2,064,320 (1) (2,038,790) (2) - Fund Balances, July 1 32,707,583 27,946,849 19,831,682 21,243,873 21,990,983 Fund Balances, June 30 $27,946,849 $17,767,362 $23,282,663 $21,990,983 $18,809,829 (1) The District implemented GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, during fiscal year , the effect of which was to reclassify and restate certain funds as general fund activities. (2) At the time of implementation of GASB Statement No. 54 in fiscal year , the District did not elect to commit the fund balance of the Deferred Maintenance Fund. During fiscal year , the District elected to commit the fund balance of the Deferred Maintenance Fund, the effect of which was to reclassify and restate such noted amount. Source: Anaheim City School District Audited Financial Reports for fiscal years through A-16

55 The following table shows the general fund balance sheet of the District for fiscal years through ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) Summary of General Fund Balance Sheet Fiscal Years Through Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year ASSETS Cash $16,767,766 $12,026,082 $12,876,109 $5,398,427 $26,046,767 Accounts receivable 25,057,163 17,668,463 21,593,247 34,870,448 14,262,084 Due from other funds 843, , , ,316 93,672 Stores/Inventories 174, ,333 85, , ,060 Other current assets ,319,111 (1) - - Total Assets $42,843,364 $30,040,603 $51,165,584 $40,543,791 $40,531,583 LIABILITIES Accounts payable and accrued $9,439,148 $8,409,441 $6,201,323 $10,741,950 $5,738,613 liabilities Due to other funds 2,161,652 1,933, ,829 5,381,976 1,193,068 Current loans ,000,000 2,373,185 14,700,000 Deferred revenue 3,295,715 1,929,932 4,726,769 55,697 90,073 Total Liabilities 14,896,515 12,273,241 27,882,921 18,552,808 21,721,754 FUND BALANCES (2) Nonspendable , , ,060 Restricted - - 3,189,327 3,381,599 3,702,155 Committed Assigned - - 2,038, Unassigned ,893,716 18,401,784 14,903,614 Reserved 9,428,435 3,681, Unreserved 18,518,414 14,086, Total Fund Balances 27,946,849 17,767,362 23,282,663 21,990,983 18,809,829 Total Liabilities and Fund $42,843,364 $30,040,603 $51,165,584 $40,543,791 $40,531,583 Balances (1) Represents an amount set aside by the District to repay certain tax and revenue anticipation notes due in (2) GASB 54, which became effective for fiscal year , caused the District to change its Fund Balance classifications from Reserved and Unreserved to Nonspendable, Restricted, Committed, Assigned and Unassigned. Had the classifications under GASB 54 been effective in previous fiscal years, the unaudited fund balances would have been as follows: for fiscal year : Nonspendable $249,927, Restricted $9,178,508, Committed $0, Assigned $7,610,829 and Unassigned $10,907,585; and for fiscal year : Nonspendable $195,333, Restricted $3,485,950, Committed $0, Assigned $1,500,000 and Unassigned $12,586,079. Source: Anaheim City School District Audited Financial Reports for fiscal years through A-17

56 District Budget Process and County Review State law requires school districts to adopt a balanced budget in each fiscal year. The State Department of Education imposes a uniform budgeting and accounting format for school districts. Under current law, a school district governing board must adopt and file with the county superintendent of schools a tentative budget by July 1 in each fiscal year. The District is under the jurisdiction of the Orange County Superintendent of Schools. The county superintendent must review and approve, conditionally approve or disapprove the budget no later than August 15. The county superintendent is required to 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 with the established standards. If the budget is disapproved, it is returned to the District with recommendations for revision. The District is then required to revise the budget, hold a public hearing thereon, adopt the revised budget, and file it with the county superintendent no later than September 8. 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. After approval of an adopted budget, the school district s administration may submit budget revisions for governing board approval. Subsequent to approval, the county superintendent will monitor each district under its jurisdiction throughout the fiscal year pursuant to its adopted budget to determine on an ongoing basis if the district can meet its current or subsequent year financial obligations. If the county superintendent determines that a district cannot meet its current or subsequent year s obligations, the county superintendent will notify the district s governing board of the determination and may then 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 governing 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 a collective bargaining agreement that was entered into prior to the date upon which the county superintendent assumed authority. A State law adopted in 1991 (known as A.B ) imposed additional financial reporting requirements on school districts, and established guidelines for emergency State aid apportionments. Under the provisions of A.B. 1200, each school district is required to file interim certifications with the county superintendent (on December 15, for the period ended October 31, and by mid-march for the period ended January 31) as to its ability to meet its financial obligations for the remainder of the thencurrent fiscal year and, based on current forecasts, for the subsequent fiscal year. The county superintendent reviews the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that is deemed unable to meet its financial obligations for the remainder of the fiscal year or the subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations for the current fiscal year or two subsequent fiscal years. A school district that receives a qualified or negative certification may not issue tax and revenue anticipation notes or certificates of participation without approval by the county superintendent. A-18

57 In the last five fiscal years, the District s first and second interim financial reports for fiscal years , , and received qualified certifications. The District has never received a negative certification in connection with its interim financial reports. The following table summarizes the District s adopted general fund budgets for fiscal years through , unaudited actuals for fiscal years and , and first interim report for fiscal year ANAHEIM CITY SCHOOL DISTRICT (Orange County, California) General Fund Budgets for Fiscal Years Through , Unaudited Actuals for Fiscal Years and and First Interim Report for Fiscal Year Original Adopted Budget Unaudited Actuals Original Adopted Budget Unaudited Actuals Original Adopted Budget (1) First Interim Report (1) REVENUES Revenue Limit Sources $92,578, $95,172, $86,672, $95,375, $94,371, (3) $122,556, (3) Federal Revenue 22,449, ,501, ,234, ,890, ,526, ,295, Other State Revenue 35,975, ,899, ,768, ,376, ,115, (3) 24,177, (3) Other Local Revenue 1,988, ,170, ,078, ,342, ,621, ,219, TOTAL REVENUES 152,991, ,745, (2) 141,752, ,984, (2) 148,635, ,249, EXPENDITURES Certificated Salaries 73,848, ,710, ,029, ,058, ,427, ,898, Classified Salaries 22,408, ,065, ,984, ,492, ,223, ,904, Employee Benefits 31,294, ,795, ,831, ,349, ,440, ,877, Books and Supplies 10,773, ,090, ,312, ,284, ,739, ,117, Services, Other Operating Expenses 10,812, ,427, ,074, ,736, ,560, ,914, Capital Outlay , Other Outgo (excluding Direct 6,684, ,028, ,909, ,374, ,109, ,109, Support/Indirect Costs) Other Outgo - Transfers of Indirect (118,603.00) (120,757.02) (165,297.00) (155,060.41) (159,407.00) (173,514.00) Costs TOTAL EXPENDITURES 155,702, ,997, (2) 157,977, ,166, (2) 160,342, ,650, EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (2,710,609.00) (1,252,891.34) (16,225,236.00) (3,181,153.56) (11,706,814.00) (1,400,989.00) OTHER FINANCING SOURCES (USES) Inter-fund Transfers In 2,000, ,000, Inter-fund Transfers Out 965, TOTAL, OTHER FINANCING 1,034, ,000, SOURCES (USES) NET INCREASE (DECREASE) IN FUND BALANCE (1,675,954.00) 747, (16,225,236.00) (3,181,153.56) (11,706,814.00) (1,400,989.00) FUND BALANCE, as of July 1 20,570, ,243, ,960, ,990, ,149, ,152, FUND BALANCE, as of June 30 $18,894, $21,990, $4,735, $18,809, $5,442, $16,751, Figures are projections. (2) Total revenues and total expenditures do not match the District s audited financial statements because the District does not include contributions of 4.267% of teacher payroll to the State Teachers Retirement System made by the State on behalf of the District in its internal financial reports, amounting to $3,317,578 and $3,838,829 in fiscal years and , respectively. (3) Figures are based on the LCFF and are not completely comparable to prior fiscal years. Source: Anaheim City School District Adopted general fund Budgets for fiscal years , and ; unaudited actuals for fiscal years and ; and first interim report for fiscal year A-19

58 District Debt Structure Long-Term Debt Summary. A schedule of the District s long-term obligations for the year ended June 30, 2013, consisted of the following: Long-Term Debt Beginning Balance July 1, 2012 Additions Deletions Balance June 30, 2013 Due Within One Year General obligation bonds (1) $172,933,886 $3,422,353 $5,310,000 $171,046,239 $3,985,173 Unamortized premium 7,789, ,942 7,112, ,942 Unamortized discount (101,241) - (22,498) (78,743) (22,498) Total general obligation bonds 180,622,019 3,422,353 5,964, ,079,928 4,639,617 Capital leases 113, , Early retirement incentive 1,827,269 1,155, ,907 2,252, ,906 Compensated absences 729,308 75, ,734 - Net OPEB obligation 9,097,932 2,708,790-11,806,722 - Total $192,389,728 $7,362,314 $6,808,551 $192,943,491 $5,616,523 (1) Includes the portion of Series 2005 Refunding Bonds (defined below) to be refunded with proceeds of the Series 2014 Refunding Bonds, and does not include the Series 2014 Refunding Bonds. See THE SERIES 2014 REFUNDING BONDS Plan of Finance; Outstanding Bonds in the front portion of this Official Statement. Source: Anaheim City School District Audited Financial Report for fiscal year General Obligation Bonds; General Obligation Bond Anticipation Notes. Without regard to the issuance of the Series 2014 Refunding Bonds, the District has four additional outstanding series of bonds, each of which is secured by ad valorem taxes upon all property subject to taxation by the District. The District received authorization at an election held on March 5, 2002, to issue bonds of the District in an aggregate principal amount not to exceed $111,000,000 to finance specific construction and modernization projects approved by the voters (the 2002 Authorization ). The measure required approval by at least 55% of the votes cast by eligible voters within the District, and received a vote of 63.2%. On July 9, 2002, the Anaheim City School District General Obligation Bonds, Election of 2002, Series 2002 (the Series 2002 Bonds ), in an aggregate principal amount of $32,465,000, were issued as the first series of bonds to be issued under the 2002 Authorization. On June 10, 2004, the Anaheim City School District General Obligation Bonds, Election of 2002, Series 2004 (the Series 2004 Bonds ), in an aggregate principal amount of $33,653,461.45, were issued as the second series of bonds to be issued under the 2002 Authorization. On July 21, 2005, the Series 2005 Refunding Bonds in an aggregate principal amount of $63,452,338.60, were issued to advance refund a portion of the Series 2002 Bonds and the Series 2004 Bonds and generate additional proceeds to finance capital projects. The Series 2002 Bonds not so redeemed have matured and are no longer outstanding. On February 13, 2007, the Anaheim City School District General Obligation Bonds, Election of 2002, Series 2007 (the Series 2007 Bonds ), in an aggregate initial principal amount of $44,881,415.65, were issued as the third and final series of the authorized bonds to be issued under the 2002 Authorization. At an election held on November 2, 2010, the District received authorization to issue bonds of the District in an aggregate principal amount not to exceed $169,300,000 to finance specific school facility construction, repair and improvement projects approved by the voters (the 2010 Authorization ). The measure required approval by at least 55% of the votes cast by eligible voters within the District and received an approval vote of approximately 63.9%. On April 13, 2011, the Anaheim City School District (County of Orange, California) General Obligation Bonds, Election of 2010, Series 2011 (the Series 2011 Bonds ), in an aggregate initial principal amount of $29,998,482.10, were issued as the first series of bonds to be issued under the 2010 Authorization. A-20

59 On November 23, 2011, in anticipation of issuing additional bonds under the 2010 Authorization, the District issued its Anaheim City School District General Obligation Bond Anticipation Notes, Election of 2010, Series 2011A (Tax-Exempt) (the Series 2011A Notes ), in the initial principal amount of $4,997,334.40, and its Anaheim City School District General Obligation Bond Anticipation Notes, Election of 2010, Series 2011B (Qualified School Construction Bonds Federally Taxable) (the Series 2011B Notes and, together with the Series 2011A Notes, the Notes ), in the principal amount of $25,000,000. The Notes, which mature on November 1, 2016, were issued in anticipation of the sale of additional general obligation bonds of the District under the 2010 Authorization to provide a portion of the funds necessary to finance certain school facilities projects authorized to be financed with the general obligation bonds. The Notes are payable from proceeds of the sale of general obligation bonds or any bond anticipation notes issued in renewal of the Notes pursuant to Section of the California Education Code or from other funds of the District lawfully available for the purpose of repaying the Notes. The District has covenanted, as part of the issuance and sale of the Notes, to take actions, including, but not limited to, issuing and selling general obligation bonds to pay the Notes as such become due. The following table summarizes the District s general obligation bonds and general obligation bond anticipation notes that were outstanding as of June 30, 2013: Bond Date of Issue Interest Rate Maturity Date Amount of Original Issue Outstanding July 1, 2012 Additions Deletions Outstanding June 30, 2013 Series 2004 Bonds 6/1/ % 8/1/2017 $33,653,461 $1,477,290 $59,859 $335,000 $1,202,149 Series /23/ % 8/1/ ,452,339 58,969,619 1,009,666 2,720,000 57,259,285 Refunding Bonds (1) Series 2007 Bonds 1/23/ % 8/1/ ,881,416 52,269,872 2,138, ,000 53,673,292 Series 2011 Bonds 3/30/ % 8/1/ ,998,482 30,097,929 7,071 1,520,000 28,585,000 Series 2011A Notes 11/9/ % 11/1/2016 4,997,334 5,119, ,337-5,326,513 Series 2011B Notes 11/9/ % 11/1/ ,000,000 25,000, ,000,000 $172,933,886 $3,422,353 $5,310,000 $171,046,239 (1) A portion of the Series 2005 Refunding Bonds are to be refunded with proceeds of the Series 2014 Refunding Bonds. See THE SERIES 2014 REFUNDING BONDS Plan of Finance; Outstanding Bonds in the front portion of this Official Statement. Source: Anaheim City School District Audited Financial Reports for fiscal year See also THE SERIES 2014 REFUNDING BONDS Aggregate Debt Service in the front portion of this Official Statement for the annual debt service requirements for these bonds. Capital Leases. The District financed the purchase of portable classrooms through the California Department of Education ( CDE ). The agreement with CDE includes a 0% interest rate for the portable classrooms. During the term of the repayment, the title to the facilities shall be in the name of the State of California. Title shall pass to the District after repayment of all funds. The District bears all the responsibility of maintaining the facilities and keeping the facilities free and clear of any levies, liens and encumbrances. The lease matured in 2013 with no further obligation. A-21

60 Early Retirement Incentive. The District provided an early retirement incentive to 32 certificated employees in fiscal year and financed the incentive through the purchase of annuity contracts. The District provided an additional early retirement incentive to employees in fiscal year financing the incentive through the purchase of annuity contracts. The outstanding principal balance of the financed contracts as of June 30, 2013 was $2,252,107 to be repaid according to the following schedule: Year Ending (June 30) Total 2014 $976, , , , ,249 Total $2,252,107 Compensated Absences. Total unpaid employee compensated absences as of June 30, 2013 amounted to $804,734. This amount is included as part of long-term liabilities in the government-wide financial statements. Other Post-Employment Benefits (OPEBs). In addition to the retirement plan benefits with CalSTRS (defined below) and CalPERS (defined below), the District provides certain post retirement healthcare benefits, in accordance with District employment contracts. For a description of the District s program, which is a single-employer defined benefit healthcare plan that provides medical, dental and vision insurance benefits, see Note 12 to the District s financial statements attached hereto as APPENDIX The Governmental Accounting Standards Board ( GASB ) released its Statement Number 45 ( Statement Number 45 ), which requires municipalities to account for other post-employment benefits (meaning other than pension benefits) ( OPEB ) liabilities much like municipalities are required to account for pension benefits. The expense is generally accrued over the working career of employees, rather than on a pay-as-you-go basis, which has been the practice for most municipalities and public sector organizations. OPEBs generally include post-employment health benefits (medical, dental, vision, prescription drug and mental health), life insurance, disability benefits and long term care benefits. Statement Number 45 was phased in over a three-year period based upon the entity s revenues. Statement Number 45 became effective for the District beginning in the fiscal year ended June 30, The contribution requirement of plan members and the District are established under a funding policy approved by the District s Board of Education, and may be amended by the District from time to time. The District s current funding policy is to contribute an amount sufficient to pay the current year s retiree claim costs and plan expenses, with additional amounts to prefund benefits as determined annually by the District s Board of Education. The District contributions for these benefits for fiscal years , , and were $1,618,534, $2,015,073, $1,562,493 and $1,513,629, respectively. For fiscal year , the District projects contributions for these benefits in the amount of $1,436,729. The District has not established an irrevocable trust to prefund its OPEB liability, and no prefunding of benefits has been made by the District. Demsey Filliger & Associates, Chatsworth, California, has prepared an actuarial valuation covering the District s retiree health benefits, dated as of July 1, Pursuant to such report, there were 134 retirees and beneficiaries who were receiving benefits, and there were 1,356 active plan members who may become eligible to receive benefits in the future. Based on the valuation, the District had an A-22

61 accrued unfunded liability of $36,996,374 as of July 1, The valuation determined that for fiscal year , the District s annual required contribution would be $4,291,768 and the District s annual OPEB cost would be $4,091,884. STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2013 includes more information about the District s OPEB obligations based, however, on an actuarial valuation prepared in There are several changes in assumptions from the 2011 actuarial valuation to the 2013 actuarial valuation, including changes in the initial healthcare trend rate (from 6% to 8%) and in the discount rate (from 5% to 4%). A copy of the latest actuarial valuation may be obtained from the District. Tax and Revenue Anticipation Notes; Bridge Financing. On July 2, 2012, the District issued $13,300,000 of Tax and Revenue Anticipation Notes ( 2012 TRANS ) through the California School Cash Reserve Program Authority with a yield of 0.48%. The 2012 TRANS matured on April 26, Tax and Revenues Anticipation Notes ( TRANS ), such as the 2012 TRANS, are general obligations of the District and are payable from revenues and cash receipts to be generated by the District. TRANS are sold by the District to supplement the District s cash flow. On September 3, 2013, the District borrowed $12,000,000 from the Orange County Department of Education s Bridge Financing Program, to supplement cash flow. The temporary borrowing was repaid to the County Treasurer by December 31, The District does not expect to issue TRANS or borrow funds to supplement the District s cash flow in fiscal year The District may issue TRANS or borrow funds in future fiscal years if necessary to supplement cash flow. Labor Relations As of June 30, 2013, the District employed 1,473 employees, consisting of 850 non-management certificated employees, 85 certificated management employees, 494 classified non-management employees, and 44 classified management employees. For the year ended June 30, 2013, the total certificated and classified payrolls were approximately $76.2 million and $23.2 million, respectively. The District projects total certificated and classified payrolls to be approximately $80.9 million and $24.9 million in fiscal year District employees are represented by employee bargaining units as follows: Number of Employees Represented Current Contract Expiration Date Name of Bargaining Unit Anaheim City School District Educators Association 850 June 30, 2015 Classified Schools Employees Association 494 June 30, 2013 (1) (1) The District has reached a tentative agreement for a new contract with the CSEA bargaining unit. Source: Anaheim City School District. Retirement Benefits The District participates in retirement plans with the State Teachers Retirement System ( CalSTRS ), which covers all full-time certificated District employees, and the State Public Employees Retirement System ( CalPERS ), which covers certain classified employees. Classified school personnel who are employed four or more hours per day may participate in CalPERS. A-23

62 CalSTRS. Contributions to CalSTRS are fixed in statute. Teachers contribute 8% of salary to CalSTRS, while school districts contribute 8.25%. In addition to the teacher and school contributions, the State contributes 4.517% of teacher payroll to CalSTRS (calculated on payroll data from two fiscal years ago). Unlike typical defined benefit programs, however, neither the CalSTRS employer nor the State contribution rate varies annually to make up funding shortfalls or assess credits for actuarial surpluses. The State does pay a surcharge when the teacher and school district contributions are not sufficient to fully fund the basic defined benefit pension (generally consisting of 2% of salary for each year of service at age 60 referred to herein as pre-enhancement benefits ) within a 30-year period. However, this surcharge does not apply to systemwide unfunded liability resulting from recent benefit enhancements. Because of the downturn in the stock market, an actuarial valuation as of June 30, 2003 showed a $118 million shortfall in the baseline benefits one-tenth of 1% of accrued liability. Consequently, the surcharge kicked in for the first time in the fiscal year at 0.524% for three quarterly payments, which amounted to an additional $92 million from the State s general fund in fiscal year However, in addition to the small shortfall in pre-enhancement benefits (triggering the surcharge), the June 30, 2003, valuation also showed a substantial $23 billion unfunded liability for the entire system, including enhanced benefits. As indicated above, there is no required contribution from teachers, school districts or the State to fund this unfunded liability. As of June 30, 2012, an actuarial valuation for the entire system, including enhanced benefits, showed an estimated unfunded actuarial liability of $71.0 billion, an increase of $6.5 billion from the June 30, 2011 valuation. The funded ratio of the actuarial value of valuation assets over the actuarial accrued liabilities as of June 30, 2012, June 30, 2011 and June 30, 2010, based on the actuarial assumptions, was approximately 67%, 69% and 71%, respectively. Future estimates of the actuarial unfunded liability may change due to market performance, legislative actions and other experience that may differ from the actuarial assumptions. CalSTRS has developed options to address the shortfall but most would require legislative action. In addition, in the Governor s proposed State budget and the May revise of the proposed State budget, the Governor previously proposed increasing the fixed contribution rate from 8.25% to 10.25% for school districts. Subsequently, the final State budget was adopted with a contribution rate of 8.25%. In addition to such prior proposal by the Governor to increase the fixed contribution rate for school districts, other proposals have been previously suggested that would modify the District s obligation to make contributions to CalSTRS to closely parallel the full cost of the retirement benefits provided by CalSTRS, which proposals would include components for unfunded liability. If such proposals were adopted, the District s annual obligations to CalSTRS would likely increase substantially. Governor Brown, however, in August 2012, signed a pension reform measure that is expected to reduce future pension obligations of public employers like the District with respect to employees hired on or after January 1, See below. The District s employer contributions to CalSTRS for fiscal years , , and were $6,694,976, $6,119,267, $6,480,596 and $6,259,060, respectively, and were equal to 100% of the required contributions for each year. The District projects employer contributions to CalSTRS of $6,675,223 for fiscal year CalSTRS produces a comprehensive annual financial report and actuarial valuations which include financial statements and required supplementary information. Copies of the CalSTRS comprehensive annual financial report and actuarial valuations may be obtained from CalSTRS. The information presented in these reports is not incorporated by reference in this Official Statement. A-24

63 CalPERS. All qualifying classified employees of K-12 school districts in the State are members in CalPERS, and all of such districts participate in the same plan. As such, all such districts share the same contribution rate in each year. However, unlike school districts participating in CalSTRS, the school districts contributions to CalPERS fluctuate each year and include a normal cost component and a component equal to an amortized amount of the unfunded liability. According to the CalPERS State and Schools Actuarial Valuation as of June 30, 2012, the CalPERs Schools plan had a funded ratio of 75.5% on a market value of assets basis. The funded ratio as of June 30, 2011, June 30, 2010, June 30, 2009 and June 30, 2008 was 78.7%, 69.5%, 65.0% and 93.8%, respectively. According to the actuarial valuation as of June 30, 2012, the latest decline in the funded ratio was because the investment return experienced by CalPERS in fiscal year was less than the assumed 7.5%. In June 2009, the CalPERS Board of Administration adopted a new employer rate smoothing methodology for local governments and school employer rates. It was designed to ease the impact of the investment losses which were then expected in fiscal year on affiliated public employers while strengthening the long-term financial health of the pension fund. Under such methodology, certain investment losses are amortized and paid off over a fixed and declining 30-year period instead of a rolling 30-year amortization period. In March, 2012, the CalPERS Board of Administration adopted new economic actuarial assumptions to be used with the June 30, 2011 actuarial valuation; in particular, lowering the price inflation assumption from 3.00% to 2.75%. Lowering the price inflation assumption resulted in a reduced discount rate, which is the fund s assumed rate of return calculated based on expected price inflation and the expected real rate of return, from 7.75% to 7.5%. According to CalPERS, this reduction in the discount rate is anticipated to increase State and school district employer contributions for each fiscal year beginning in fiscal year by 1.2% to 1.6% for miscellaneous plans (which includes general office and others) and by 2.2% to 2.4% for safety plans beginning in fiscal year In April, 2013, the CalPERS Board of Administration approved changes to the CalPERS amortization and smoothing policy intended to reduce volatility in employer contribution rates. Beginning with the June 30, 2013 actuarial valuation, CalPERS will employ a new amortization and smoothing policy that will pay for all gains and losses over a fixed 30-year period with the increases or decreases in the rate spread directly over a 5-year period (as compared to the current policy of spreading investment returns over a 15-year period with experience gains and losses paid for over a rolling 30-year period). Such changes, the implementation of which are delayed until fiscal year for the State, schools and all public agencies, are expected to increase contribution rates in the near term but lower contribution rates in the long term. The District s employer contributions to CalPERS for fiscal years , , and were $2,593,268, $2,416,508, $2,590,922 and $2,653,928, respectively, and were equal to 100% of the required contributions for each year. The District projects employer contributions to CalPERS of $2,931,785 for fiscal year CalPERS produces a comprehensive annual financial report and actuarial valuations that include financial statements and required supplementary information. Copies of the CalPERS comprehensive annual financial report and actuarial valuations may be obtained from CalPERS Financial Services Division. The information presented in these reports is not incorporated by reference in this Official Statement. Governor s Pension Reform. On August 28, 2012, Governor Brown and the State Legislature reached agreement on a new law that reforms pensions for State and local government employees. AB 340, which was signed into law on September 12, 2012, established the California Public Employees Pension Reform Act of 2012 ( PEPRA ) which governs pensions for public employers and public A-25

64 pension plans on and after January 1, For new employees, PEPRA, among other things, caps pensionable salaries at the Social Security contribution and wage base, which is $110,100 for 2012, or 120% of that amount for employees not covered by Social Security, increases the retirement age by two years or more for all new public employees while adjusting the retirement formulas, requires state employees to pay at least half of their pension costs, and also requires the calculation of benefits on regular, recurring pay to stop income spiking. For all employees, changes required by PEPRA include the prohibition of retroactive pension increases, pension holidays and purchases of service credit. PEPRA applies to all State and local public retirement systems, including county and district retirement systems. PEPRA only exempts the University of California system and charter cities and counties whose pension plans are not governed by State law. Although the District anticipates that PEPRA would not increase the District s future pension obligations, the District is unable to determine the extent of any impact PEPRA would have on the District s pension obligations at this time. Additionally, the District cannot predict if PEPRA will be challenged in court and, if so, whether any challenge would be successful. The District is unable to predict what the amount of State pension liabilities will be in the future, or the amount of the contributions which the District may be required to make. CalSTRS and CalPERS THE FISCAL YEAR ENDED JUNE 30, 2013, Note 13. GASB 67 and 68. In June 2012, the Governmental Accounting Standards Board approved a pair of related statements, Statement Number 67, Financial Reporting for Pension Plans ( Statement Number 67 ), which addresses financial reporting for pension plans, and Statement Number 68, Accounting and Financial Reporting for Pensions ( Statement Number 68 ), which establishes new accounting and financial reporting requirements for governments that provide their employees with pensions. The guidance contained in these statements will change how governments calculate and report the costs and obligations associated with pensions. Statement Number 67 replaces the current requirements of Statement Number 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, for most public employee pension plans, and Statement Number 27 replaces the current requirements of Statement Number 27, Accounting for Pensions by State and Local Governmental Employers, for most government employers. The new statements also replace the requirements of Statement Number 50, Pension Disclosures, for those governments and pension plans. Certain of the major changes include: (i) the inclusion of unfunded pension liabilities on the government s balance sheet (such unfunded liabilities are currently typically included as notes to the government s financial statements); (ii) full pension costs would be shown as expenses regardless of actual contribution levels; (iii) lower actuarial discount rates would be required to be used for most plans for certain purposes of the financial statements, resulting in increased liabilities and pension expenses; and (iv) shorter amortization periods for unfunded liabilities would be required to be used for certain purposes of the financial statements, which generally would increase pension expenses. Statement Number 67 will take effect in fiscal years beginning after June 15, 2013, and Statement Number 68 will take effect in fiscal years beginning after June 15, Insurance, Risk Pooling and Joint Powers Agreements and Joint Ventures The District participates in two joint ventures under joint powers agreements ( JPA s ): The Northern Orange County Self-Funded Workers Compensation Insurance Agency, whose purpose is to jointly provide for the establishment, operation and maintenance of self-insurance programs for claims against member districts including, but not limited to, workers compensation claims and the Northern Orange County Liability and Property Self-Insurance Authority providing liability and property insurance coverage to member districts. The relationship between the District and the JPA are such that neither JPA is a component unit of the District for financial reporting purposes. A-26

65 These entities have budgeting and financial reporting requirements independent of member units and their financial statements are not presented in the District s financial statements attached hereto. See APPENDIX B FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2013, NOTE 15. Capital Projects As of June 30, 2013, the District has approximately $35 million in construction commitments with respect to unfinished capital projects. The modernization of James Madison School was in the final phase of construction and was completed in time for the school year beginning in August The expansion of the Thomas Edison School was also in the final phase and was completed in December The new construction for the John Marshall School is a two year project and is scheduled for completion in December Other projects, such as the Juarez and Revere Seismic Mitigation project, are in preliminary planning stages. Limitations on Revenues CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS On June 6, 1978, California voters approved Proposition 13 ( Proposition 13 ), which added Article XIIIA to the State Constitution ( Article XIIIA ). Article XIIIA limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on (i) indebtedness approved by the voters prior to July 1, 1978, (ii) bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-thirds of the voters on such indebtedness, and (iii) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures are included in the proposition. 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 have occurred after the 1975 assessment. This full cash value may be increased at a rate not to exceed 2% per year to account for inflation. Article XIIIA has subsequently been amended to permit reduction of the full cash value base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the full cash value base in the event of reconstruction of property damaged or destroyed in a disaster and in other minor or technical ways. County of Orange v. Orange County Assessment Appeals Board No. 3. Section 51 of the Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property as a result of natural disasters, economic downturns or other factors, to subsequently recapture such value (up to the pre-decline value of the property) at an annual rate higher than 2%, depending on the assessor s measure of the restoration of value of the damaged property. The constitutionality of this procedure was challenged in a lawsuit brought in 2001 in the Orange County Superior Court, and in similar lawsuits brought in other counties, on the basis that the decrease in assessed value creates a new base year value for purposes of Proposition 13 and that subsequent increases in the assessed value of a property by more than 2% in a single year violate Article XIIIA. On appeal, the California Court of Appeal upheld the recapture practice in 2004, and the State Supreme Court declined to review the ruling, leaving the recapture law in place. A-27

66 Legislation Implementing Article XIIIA. 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 the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the taxing area based upon their respective situs. Any such allocation made to a local agency continues as part of its allocation in future years. Beginning in the fiscal year, assessors in the State no longer record property values on tax rolls at the assessed value of 25% of market value which was expressed as $4 per $100 assessed value. All taxable property is now shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100% of market value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value. Article XIIIB of the California Constitution An initiative to amend the State Constitution entitled Limitation of Government Appropriations was approved on September 6, 1979, thereby adding Article XIIIB to the State Constitution ( Article XIIIB ). Under Article XIIIB state and local governmental entities have an annual appropriations limit and are not permitted to spend certain moneys which are called appropriations subject to limitation (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the appropriations limit. Article XIIIB does not affect the appropriation of moneys which are excluded from the definition of appropriations subject to limitation, including debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the appropriations limit is to be based on certain expenditures, and is to be adjusted annually to reflect changes in consumer prices, populations, and services provided by these entities. Among other provisions of Article XIIIB, if these entities revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. The District s budgeted appropriations from proceeds of taxes (sometimes referred to as the Gann limit ) for the fiscal year are equal to the allowable limit of $114,342,267 and estimates an appropriations limit for the fiscal year of $120,581,220. Any proceeds of taxes received by the District in excess of the allowable limit are absorbed into the State s allowable limit. Article XIIIC and Article XIIID of the California Constitution On November 5, 1996, the voters of the State of California approved Proposition 218, popularly known as the Right to Vote on Taxes Act. Proposition 218 added to the California Constitution Articles XIIIC and XIIID ( Article XIIIC and Article XIIID, respectively), which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing and future taxes, assessments, fees and charges. According to the Title and Summary of Proposition 218 prepared by the California Attorney General, Proposition 218 limits the authority of local governments to impose taxes and property-related 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 A-28

67 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; and also provides that the initiative power will not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. Article XIIIC furtherprovidesthatnotaxmaybeassessedonpropertyotherthanad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the California Constitution and special taxes approved by a two-thirds vote under Article XIIIA, Section 4. Article XIIID deals with assessments and property-related fees and charges, and explicitly provides that nothing in Article XIIIC or XIIID will be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development. The District does not impose any taxes, assessments, or property-related fees or charges which are subject to the provisions of Proposition 218. It does, however, receive a portion of the basic 1% ad valorem property tax levied and collected by the County pursuant to Article XIIIA of the California Constitution. The provisions of Proposition 218 may have an indirect effect on the District, such as by limiting or reducing the revenues otherwise available to other local governments whose boundaries encompass property located within the District thereby causing such local governments to reduce service levels and possibly adversely affecting the value of property within the District. Statutory Limitations On November 4, 1986, State voters approved Proposition 62, an initiative statute limiting the imposition of new or higher taxes by local agencies. The statute (a) requires new or higher general taxes to be approved by two-thirds of the local agency s governing body and a majority of its voters; (b) requires the inclusion of specific information in all local ordinances or resolutions proposing new or higher general or special taxes; (c) penalizes local agencies that fail to comply with the foregoing; and (d) required local agencies to stop collecting any new or higher general tax adopted after July 31, 1985, unless a majority of the voters approved the tax by November 1, Appellate court decisions following the approval of Proposition 62 determined that certain provisions of Proposition 62 were unconstitutional. However, the California Supreme Court upheld Proposition 62 in its decision on September 28, 1995 in Santa Clara County Transportation Authority v. Guardino. This decision reaffirmed the constitutionality of Proposition 62. Certain matters regarding Proposition 62 were not addressed in the Supreme Court s decision, such as whether the decision applies retroactively, what remedies exist for taxpayers subject to a tax not in compliance with Proposition 62, and whether the decision applies to charter cities. Proposition 98 and Proposition 111 On November 8, 1988, voters approved Proposition 98, a combined initiative constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act (the Accountability Act ). The Accountability Act changed State funding of public education below the university level, and the operation of the State s Appropriations Limit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (collectively, K-14 districts ) at a level equal to the greater of (a) the same percentage of general fund revenues as the percentage appropriated to such districts in , which percentage is equal to 40.9%, or (b) the amount actually appropriated to such districts from the general fund in the previous fiscal year, adjusted for growth in enrollment and inflation. Since the Accountability Act is unclear in some details, there can be no assurance that the Legislature or a court might not interpret the Accountability Act to require a different percentage of general fund revenues to be allocated to K-14 districts than the 40.9% percentage, or to apply the relevant A-29

68 percentage to the State s budgets in a different way than is proposed in the Governor s Budget. In any event, the Governor and other fiscal observers expect the Accountability Act to place increasing pressure on the State s budget over future years, potentially reducing resources available for other State programs, especially to the extent the Article XIIIB spending limit would restrain the State s ability to fund such other programs by raising taxes. The Accountability Act also changes how tax revenues in excess of the State Appropriations Limit are distributed. Any excess State tax revenues up to a specified amount would, instead of being returned to taxpayers, be transferred to K-14 districts. Such transfer would be excluded from the Appropriations Limit for K-14 districts and the K-14 school Appropriations Limits for the next year would automatically be increased by the amount of such transfer. These additional moneys would enter the base funding calculation for K-14 districts for subsequent years, creating further pressure on other portions of the State budget, particularly if revenues decline in a year following an Article XIIIB surplus. The maximum amount of excess tax revenues which could be transferred to schools is 4% of the minimum State spending for education mandated by the Accountability Act, as described above. On June 5, 1990, California voters approved Proposition 111 (Senate Constitutional Amendment 1), which further modified the Constitution to alter the spending limit and education funding provisions of Proposition 98. Most significantly, Proposition 111 (1) liberalized the annual adjustments to the spending limit by measuring the change in the cost of living by the change in State per capita personal income rather than the Consumer Price Index, and specified that a portion of the State s spending limit would be adjusted to reflect changes in school attendance; (2) provided that 50% of the excess tax revenues, determined based on a two-year cycle, would be transferred to K-14 school districts with the balance returned to taxpayers (rather than the previous 100% but only up to a cap of 4% of the districts minimum funding level), and that any such transfer to K-14 school districts would not be built into the school districts base expenditures for calculating their entitlement for State aid in the following year and would not increase the State s appropriations limit; (3) excluded from the calculation of appropriations that are subject to the limit appropriations for certain qualified capital outlay projects and certain increases in gasoline taxes, sales and use taxes, and receipts from vehicle weight fees; (4) provided that the Appropriations Limit for each unit of government, including the State, would be recalculated beginning in the fiscal year, based on the actual limit for fiscal year , adjusted forward to as if Senate Constitutional Amendment 1 had been in effect; and (5) adjusted the Proposition 98 formula that guarantees K-14 school districts a certain amount of general fund revenues, as described below. Under prior law, K-14 school districts were guaranteed the greater of (a) 40.9% of general fund revenues (the first test ) or (b) the amount appropriated in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to per capita personal income) and enrollment (the second test ). Under Proposition 111, school districts would receive the greater of (a) the first test, (b) the second test or (c) a third test, which would replace the second test in any year when growth in per capita general fund revenues from the prior year was less than the annual growth in State per capita personal income. Under the third test, school districts would receive the amount appropriated in the prior year adjusted for change in enrollment and per capita general fund revenues, plus an additional small adjustment factor. If the third test were used in any year, the difference between the third test and the second test would become a credit to be paid in future years when general fund revenue growth exceeds personal income growth. Applications of Constitutional and Statutory Provisions The application of Proposition 98 and other statutory regulations has become increasingly difficult to predict accurately in recent years. For a discussion of how the provisions of Proposition 98 A-30

69 have been applied to school funding see DISTRICT FINANCIAL MATTERS State Funding of Education; State Budget Process. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC, Article XIIID, as well as Propositions 62, 98, 111 and 218 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 District revenues or the District s ability to expend revenues. A-31

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71 APPENDIX B FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2013

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73 ANAHEIMCITYSCHOOLDISTRICT AUDITREPORT JUNE30,2013

74 ANAHEIMCITYSCHOOLDISTRICT OFORANGECOUNTY ANAHEIM,CALIFORNIA JUNE30,2013 TheAnaheimCitySchoolDistrictbeganoperationsin1867,andencompassesanareaofapproximatelytwentytwo squaremileslocatedinorangecounty.thedistrictiscurrentlyoperatingtwentyfourelementaryschools. GOVERNINGBOARD Member Office TermExpires JeffCole President November2014 Dr.JoseF.Moreno Clerk November2014 SandyBlumberg Member November2014 BobGardner Member November2016 JamesVanderbilt Member November2016 DISTRICTADMINISTRATORS ChristopherKing,Ed.D. InterimSuperintendent(contractthroughFebruary28,2013) LindaWagner,Ed.D. Superintendent(afterFebruary28,2013) MaryO.Grace,Ed.D. AssistantSuperintendent,EducationalServices DarrenDang AssistantSuperintendent,AdministrativeServices CharlesLewis,Ed.D. InterimAssistantSuperintendent,HumanResources

75 ANAHEIMCITYSCHOOLDISTRICT TABLEOFCONTENTS FORTHEYEARENDEDJUNE30,2013 FINANCIALSECTION IndependentAuditors Report...1 Management sdiscussionandanalysis...4 BasicFinancialStatements GovernmentwideFinancialStatements StatementofNetPosition...11 StatementofActivities...12 FundFinancialStatements GovernmentalFunds BalanceSheet...13 ReconciliationoftheGovernmentalFundsBalanceSheettotheStatementofNetPosition...14 GovernmentalFunds StatementofRevenues,Expenditures,andChangesinFundBalances...15 ReconciliationoftheGovernmentalFundsStatementofRevenues,Expenditures,andChangesinFund BalancestotheStatementofActivities...16 ProprietaryFunds StatementofNetPosition...18 ProprietaryFunds StatementofRevenues,Expenses,andChangesinNetPosition...19 ProprietaryFunds StatementofCashFlows...20 FiduciaryFunds StatementofNetPosition...21 NotestoFinancialStatements...22 REQUIREDSUPPLEMENTARYINFORMATION GeneralFund BudgetaryComparisonSchedule...51 ScheduleofFundingProgress...52 NotestoRequiredSupplementaryInformation...53 SUPPLEMENTARYINFORMATION ScheduleofExpendituresofFederalAwards...54 ScheduleofAverageDailyAttendance(ADA)...55 ScheduleofInstructionalTime...56 ScheduleofFinancialTrendsandAnalysis...57 ReconciliationofAnnualFinancialandBudgetReportwithAuditedFinancialStatements...58 CombiningStatements NonMajorGovernmentalFunds CombiningBalanceSheet...59 CombiningStatementofRevenues,Expenditures,andChangesinFundBalances...60 NotestoSupplementaryInformation...61

76 ANAHEIMCITYSCHOOLDISTRICT TABLEOFCONTENTS FORTHEYEARENDEDJUNE30,2013 OTHERINDEPENDENTAUDITORS REPORTS ReportonInternalControlOverFinancialReportingandonComplianceandOtherMattersBasedon anauditoffinancialstatementsperformedinaccordancewithgovernmentauditingstandards...63 ReportonComplianceForEachMajorFederalProgram;andReportonInternalControlOverCompliance RequiredbyOMBCircularA ReportonStateCompliance...67 SCHEDULEOFFINDINGSANDQUESTIONEDCOSTS SummaryofAuditors Results...70 FinancialStatementFindings...71 FederalAwardFindingsandQuestionedCosts...72 StateAwardFindingsandQuestionedCosts...73 SummaryScheduleofPriorAuditFindings...74

77 FINANCIALSECTION

78 Christy White, CPA John Dominguez, CPA, CFE Tanya M. Rogers, CPA, CFE Michael Ash, CPA Heather Daud SAN DIEGO LOS ANGELES SAN FRANCISCO/BAY AREA Corporate Office: 2727 Camino Del Rio South Suite 219 San Diego, CA toll-free: tel: fax: INDEPENDENTAUDITORS REPORT GoverningBoard AnaheimCitySchoolDistrict Anaheim,California ReportontheFinancialStatements Wehaveauditedtheaccompanyingfinancialstatementsofthegovernmentalactivities,each major fund, and the aggregate remaining fund information of the Anaheim City School District,asofandfortheyearendedJune30,2013,andtherelatednotestothefinancial statements, which collectively comprise the Anaheim City School District s basic financial statementsaslistedinthetableofcontents. Management sresponsibilityforthefinancialstatements Management is responsible for the preparation and fair presentation of these financial statementsinaccordancewithaccountingprinciplesgenerallyacceptedintheunitedstates ofamerica;thisincludesthedesign,implementation,andmaintenanceofinternalcontrol relevanttothepreparationandfairpresentationoffinancialstatementsthatarefreefrom materialmisstatement,whetherduetofraudorerror. Auditor sresponsibility Ourresponsibilityistoexpressopinionsonthesefinancialstatementsbasedonouraudit. 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. Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassurance aboutwhetherthefinancialstatementsarefreefrommaterialmisstatement. Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsand disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessofthe entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentationofthefinancialstatements. 1

79 Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouraudit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financialpositionofthegovernmentalactivities,eachmajorfund,andtheaggregateremainingfundinformationof Anaheim City School District, as of June 30, 2013, and the respective changes in financial position and, where applicable,cashflowsthereoffortheyearthenendedinaccordancewithaccountingprinciplesgenerallyaccepted intheunitedstatesofamerica. OtherMatters RequiredSupplementaryInformation AccountingprinciplesgenerallyacceptedintheUnitedStatesofAmericarequirethattherequiredsupplementary information, such as management s discussion and analysis on pages 4 through 10, the budgetary comparison informationonpage51,andthescheduleoffundingprogressonpage52bepresentedtosupplementthebasic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placingthebasicfinancialstatementsinappropriateoperational,economic,orhistoricalcontext.wehaveapplied certain limited procedures to the required supplementary information in accordance with auditing standards generallyacceptedintheunitedstatesofamerica,whichconsistedofinquiriesofmanagementaboutthemethods ofpreparingtheinformationandcomparingtheinformationforconsistencywithmanagement sresponsestoour inquiries,thebasicfinancialstatements,andotherknowledgeweobtainedduringourauditofthebasicfinancial statements. We do not express an opinion or provide any assurance on the information because the limited proceduresdonotprovideuswithsufficientevidencetoexpressanopinionorprovideanyassurance. SupplementaryInformation Ourauditwasconductedforthepurposeofformingopinionsonthefinancialstatementsthatcollectivelycomprise theanaheimcityschooldistrict sbasicfinancialstatements.thesupplementaryinformationlistedinthetableof contents, including the schedule of expenditures of Federal awards, which is required by the U.S. Office of Management and Budget Circular A133, Audits of State, Local Governments, and NonProfit Organizations, is presentedforpurposesofadditionalanalysisandisnotarequiredpartofthebasicfinancialstatements. Thesupplementaryinformationlistedinthetableofcontentsistheresponsibilityofmanagementandwasderived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generallyacceptedintheunitedstatesofamerica.inouropinion,thesupplementaryinformationisfairlystated, inallmaterialrespects,inrelationtothebasicfinancialstatementsasawhole. 2

80 OtherReportingRequiredbyGovernmentAuditingStandards InaccordancewithGovernmentAuditingStandards,wehavealsoissuedourreportdatedDecember9,2013onour consideration of Anaheim City School Districts internal control over financial reporting and on our tests of its compliancewithcertainprovisionsoflaws,regulations,contracts,andgrantagreementsandothermatters. 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 internal control over financial reportingoroncompliance.thatreportisanintegralpartofanauditperformedinaccordancewithgovernment Auditing Standards in considering Anaheim City School District s internal control over financial reporting and compliance. SanDiego,California December9,2013 3

81 ANAHEIMCITYSCHOOLDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS INTRODUCTION Our discussion and analysis of Anaheim City School District s (District) financial performance provides an overviewofthedistrict sfinancialactivitiesforthefiscalyearendedjune30,2013.itshouldbereadinconjunction withthedistrict sfinancialstatements,whichfollowthissection. FINANCIALHIGHLIGHTS Totalnetpositionwas$166,109,428atJune30,2013.Thiswasadecreaseof$6,000,343fromtheprioryear. Overallrevenueswere$180,601,422whichwaslessthanexpensesof$186,601,765. OVERVIEWOFFINANCIALSTATEMENTS ComponentsoftheFinancialsSection Management's Discussion & Analysis Basic Financial Statements Required Supplementary Information Government-Wide Financial Statements Fund Financial Statements Notes to the Financial Statements Summary Detail 4

82 ANAHEIMCITYSCHOOLDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS,continued FORTHEYEARENDEDJUNE30,2013 Thisannualreportconsistsofthreeparts Management sdiscussionandanalysis(thissection),thebasicfinancial statements, and required supplementary information. The three sections together provide a comprehensive overview of the District. The basic financial statements are comprised of two kinds of statements that present financialinformationfromdifferentperspectives: Governmentwidefinancialstatements,whichcomprisethefirsttwostatements,providebothshortterm andlongterminformationabouttheentity soverallfinancialposition. FundfinancialstatementsfocusonreportingtheindividualpartsofDistrictoperationsinmoredetail.The fundfinancialstatementscomprisetheremainingstatements. GovernmentalFundsprovideadetailedshorttermviewthathelpsyoudeterminewhetherthere aremoreorfewerfinancialresourcesthatcanbespentinthenearfuturetofinancethedistrict s programs. Proprietary Funds report services for which the District charges customers a fee. Like the governmentwidestatements,theyprovidebothlongandshorttermfinancialinformation. FiduciaryFundsreportbalancesforwhichtheDistrictisacustodianortrusteeofthefunds,suchas AssociatedStudentBodiesandpensionfunds. The financial statements also include notes that explain some of the information in the statements and provide moredetaileddata.thebasicfinancialstatementsarefollowedbyasectionofrequiredandothersupplementary informationthatfurtherexplainandsupportthefinancialstatements. GovernmentWideStatements The governmentwide statements report information about the District as a whole using accounting methods similartothoseusedbyprivatesectorcompanies.thestatementofnetpositionincludesallofthegovernment s assetsandliabilities.allofthecurrentyear srevenuesandexpensesareaccountedforinthestatementofactivities, regardlessofwhencashisreceivedorpaid. ThetwogovernmentwidestatementsreporttheDistrict snetpositionandithaschanged.netpositionisoneway tomeasurethedistrict sfinancialhealthorposition.overtime,increasesordecreasesinthedistrict snetposition areanindicatorofwhetheritsfinancialhealthisimprovingordeteriorating,respectively. ThegovernmentwidefinancialstatementsoftheDistrictincludegovernmentalactivities.AlloftheDistrict sbasic services are included here, such as regular education, food service, maintenance and general administration. Revenuelimitfundingandfederalandstategrantsfinancemostoftheseactivities. 5

83 ANAHEIMCITYSCHOOLDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS,continued FORTHEYEARENDEDJUNE30,2013 FINANCIALANALYSISOFTHEENTITYASAWHOLE NetPosition The District s combined net position was $166,109,428 at June 30, 2013, as reflected in Table A1 below. Of this amount, ($14,194,884) was unrestricted. Restricted net position is reported separately to show legal constraints fromdebtcovenantsandenablinglegislationthatlimitthegoverningboard sabilitytousethatnetpositionfor daytodayoperations. TableA1 GovernmentalActivities NetChange ASSETS Currentandotherassets $108,789,415 $ 132,034,292 $(23,244,877) Capitalassets 276,341, ,289,376 23,051,949 TotalAssets 385,130, ,323,668 (192,928) LIABILITIES Currentliabilities 31,694,344 20,824,169 10,870,175 Longtermliabilities 187,326, ,389,728 (5,062,760) TotalLiabilities 219,021, ,213,897 5,807,415 NETPOSITION Netinvestmentincapitalassets 155,513, ,819, ,321 Restricted 24,790,316 20,429,941 4,360,375 Unrestricted (14,194,884) (3,139,845) (11,055,039) TotalNetPosition $166,109,428 $ 172,109,771 $(6,000,343) 6

84 ANAHEIMCITYSCHOOLDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS,continued FORTHEYEARENDEDJUNE30,2013 FINANCIALANALYSISOFTHEENTITYASAWHOLE(continued) ChangesinNetPosition Theresultsofthisyear soperationsforthedistrictasawholearereportedinthestatementofactivities.tablea2 takestheinformationfromthestatement,roundsoffthenumbers,andrearrangesthemslightly,soyoucanseeour totalrevenues,expenses,andspecialitemsfortheyear. TableA2 GovernmentalActivities NetChange REVENUES Programrevenues Chargesforservices $982,860 $302,261 $680,599 Operatinggrantsandcontributions 43,256,041 52,507,409 (9,251,368) Capitalgrantsandcontributions 7,420,047 3,384,492 4,035,555 Generalrevenues Propertytaxes 71,109,022 59,936,571 11,172,451 Unrestrictedfederalandstateaid 56,558,836 64,428,090 (7,869,254) Other 1,274,616 1,260,077 14,539 TotalRevenues 180,601, ,818,900 (1,217,478) EXPENSES Instruction 105,619, ,479,107 (2,860,053) Instructionrelatedservices 22,737,882 23,257,863 (519,981) Pupilservices 17,630,557 17,535,883 94,674 Generaladministration 12,876,875 10,203,904 2,672,971 Plantservices 12,748,413 9,376,560 3,371,853 Debtservice 7,789,156 10,614,925 (2,825,769) OtherOutgo 7,199,828 7,028, ,833 TotalExpenses 186,601, ,497, ,528 Changeinnetposition (6,000,343) (4,678,337) (1,322,006) NetPositionBeginning 172,109, ,788,108 (4,678,337) NetPositionEnding $166,109,428 $ 172,109,771 $(6,000,343) 7

85 ANAHEIMCITYSCHOOLDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS,continued FORTHEYEARENDEDJUNE30,2013 FINANCIALANALYSISOFTHEENTITYASAWHOLE(continued) ChangesinNetPosition(continued) Thetotalcostofallourgovernmentalactivitiesthisyearwas$186,601,765,whilethenetcostoftheseactivitieswas $134,942,817(refertoTableA3).Theamountthatourtaxpayersultimatelyfinancedfortheseactivitiesthrough taxes was only $71,109,022 because the cost was paid by other governments and organizations who subsidized certainprogramswithgrantsandcontributions($107,234,924). TableA3 CostsofServices Totalcostofservices Netcostofservices Instruction $105,619,054 $74,861,522 Instructionrelatedservices 22,737,882 15,947,979 Pupilservices 17,630,557 12,270,086 Generaladministration 12,876,875 10,960,957 Plantservices 12,748,413 12,594,021 Debtservice 7,789,156 7,789,156 Transferstootheragencies 7,199, ,096 TotalExpenses $186,601,765 $134,942,817 FINANCIALANALYSISOFTHEDISTRICT SMAJORFUNDS ThefinancialperformanceoftheDistrictasawholeisreflectedinitsgovernmentalfundsaswell.AstheDistrict completedthisyear,itsgovernmentalfundsreportedacombinedfundbalanceof$79,902,303,whichislessthan last year s ending fund balance of $108,582,296. The District s General Fund had $3,181,154 less in operating revenuesthanexpendituresfortheyearendedjune30,2013.thedistrict sbuildingfundreported$32,642,400in expendituresfortheyearendedjune30,2013. CURRENTYEARBUDGET Duringthefiscalyear,budgetrevisionsandappropriationtransfersarepresentedtotheBoardfortheirapproval onamonthlybasistoreflectchangestobothrevenuesandexpendituresthatbecomeknownduringtheyear.in addition,theboardofeducationapprovesfinancialprojectionsincludedwiththeadoptedbudget,firstinterim, andsecondinterimfinancialreports.theunauditedactualsreflectthedistrict sfinancialprojectionsandcurrent budgetbasedonstateandlocalfinancialinformation. 8

86 ANAHEIMCITYSCHOOLDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS,continued FORTHEYEARENDEDJUNE30,2013 CAPITALASSETANDDEBTADMINISTRATION CapitalAssets Bytheendof201213theDistricthadinvested$276,341,325incapitalassets,netofaccumulateddepreciation. TableA4 GovernmentalActivities NetChange CAPITALASSETS Land $47,070,352 $47,070,352 $ Constructioninprogress 29,212,126 36,361,614 (7,149,488) Landimprovements 10,571,323 10,850,312 (278,989) Buildings&improvements 306,535, ,364,270 35,170,982 Furniture&equipment 15,045,384 14,947,217 98,167 Accumulateddepreciation (132,093,112) (127,304,389) (4,788,723) TotalCapitalAssets $276,341,325 $253,289,376 $23,051,949 LongTermDebt Atyearend,theDistricthad$192,943,491inlongtermdebt,anincreaseof0.3%fromlastyear asshownintable A5. (More detailed information about the District s longterm debt is presented in footnotes to the financial statements.) TableA5 GovernmentalActivities NetChange LONGTERMLIABILITIES Totalgeneralobligationbonds $178,079,928 $ 180,622,019 $(2,542,091) Capitalleases 113,200 (113,200) Earlyretirementincentive 2,252,107 1,827, ,838 Compensatedabsences 804, ,308 75,426 NetOPEBobligation 11,806,722 9,097,932 2,708,790 TotalLongtermLiabilities $192,943,491 $192,389,728 $553,763 9

87 ANAHEIMCITYSCHOOLDISTRICT MANAGEMENT SDISCUSSIONANDANALYSIS,continued FORTHEYEARENDEDJUNE30,2013 ECONOMICFACTORSANDNEXTYEAR SBUDGETANDRATES Atthetimethesefinancialstatementswerepreparedandaudited,theDistrictwasawareofseveralcircumstances thatcouldaffectitsfuturefinancialhealth. AssemblyBill97(Chapter47,Statutesof2013),asamendedbySenateBills91and97,enactedlandmarklegislation reform in California school district finance by creating the new Local Control Funding Formula (LCFF). The District is analyzing the impact of the LCFF on funding for our program offerings and services. The LCFF is designed to provide a flexible funding mechanism that links student achievement to state funding levels. The LCFF provides a per pupil base grant amount, by grade span, that is augmented by supplemental funding for targetedstudentgroupsinlowincomebrackets,thosethatareenglishlanguagelearnersandfosteryouth.the Stateanticipatesallschooldistrictstoreachthestatewidetargetedbasefundinglevelsby FactorsrelatedtoLCFFthattheDistrictisintheprocessofevaluatingincludeestimatesofnewfundinginthenext budgetyearandbeyond;creationofthelocalcontrolandaccountabilityplan(lcap)forfiscalyear201415that aims to link student accountability measurements to funding allocations; ensuring the integrity of reporting studentdatathroughthecalifornialongitudinalpupilachievementdatasystem(calpads);and,meetingnew complianceandauditrequirements. TheState seconomy mirrorstheslowgrowthofthenation,thisisaccordingtotheuclanewsroomreporting on the September 2013 Anderson Economic Forecast. While the economy is returning to normal, it is still operatingwellbelowwhatwouldhavebeenexpectedpriortotherecession. TheabilityoftheStatetofundthe newlcffislargelydependentonthestrengthofthestate seconomyandremainsuncertain. Enrollment can fluctuate due to factors such as population growth, competition from private, parochial, inter district transfers in or out, economic conditions and housing values. Losses in enrollment will cause a school district to lose operating revenues without necessarily permitting the district to make adjustments in fixed operatingcosts. AllofthesefactorswereconsideredinpreparingtheDistrict sbudgetforthe201314fiscalyear. CONTACTINGTHEDISTRICT SFINANCIALMANAGEMENT Thisfinancialreportisdesignedtoprovideourcitizens,taxpayers,students,andinvestorsandcreditorswitha generaloverviewofthedistrict sfinancesandtoshowthedistrict saccountabilityforthemoneyitreceives.if youhavequestionsaboutthisreportorneedanyadditionalfinancialinformation,contactthedistrict sbusiness Office,AnaheimCitySchoolDistrict,1001S.EastStreet;Anaheim;California

88 ANAHEIMCITYSCHOOLDISTRICT STATEMENTOFNETPOSITION JUNE30,2013 Governmental Activities ASSETS Cashandcashequivalents $91,298,798 Accountsreceivable 15,241,122 Inventory 129,060 Deferredcharges 2,120,435 Capitalassets,notdepreciated 76,282,478 Capitalassets,netofaccumulateddepreciation 200,058,847 TotalAssets 385,130,740 LIABILITIES Accruedliabilities 11,287,748 Currentloans 14,700,000 Unearnedrevenue 90,073 Longtermliabilities,currentportion 5,616,523 Longtermliabilities,noncurrentportion 187,326,968 TotalLiabilities 219,021,312 NETPOSITION Netinvestmentincapitalassets 155,513,996 Restricted: Capitalprojects 11,991,553 Debtservice 8,981,573 Educationalprograms 3,817,190 Unrestricted (14,194,884) TotalNetPosition $166,109,428 Theaccompanyingnotesareanintegralpartofthesefinancialstatements. 11

89 ANAHEIMCITYSCHOOLDISTRICT STATEMENTOFACTIVITIES FORTHEYEARENDEDJUNE30,2013 Net(Expenses) Revenuesand Changesin ProgramRevenues NetPosition Operating Capital Chargesfor Grantsand Grantsand Governmental Function/Programs Expenses Services Contributions Contributions Activities GOVERNMENTALACTIVITIES Instruction $105,619,054 $712,701 $22,624,784 $ 7,420,047 $(74,861,522) Instructionrelatedservices Instructionalsupervisionandadministration 8,672,122 32,628 6,297,178 Instructionallibrary,media,andtechnology 1,894, ,985 Schoolsiteadministration 12,171, ,482 Pupilservices Hometoschooltransportation 4,093,937 Foodservices 424,582 1,207, ,042 Allotherpupilservices 13,112,038 37,982 3,693,087 Generaladministration Centralizeddataprocessing 1,675,083 Allothergeneraladministration 11,201,792 15,494 1,900,424 Plantservices 12,748,413 Interestonlongtermdebt 7,789, ,392 OtherOutgo 7,199, ,425 6,497,307 (2,342,316) (1,452,141) (12,153,522) (2,886,577) (2,540) (9,380,969) (1,675,083) (9,285,874) (12,594,021) (7,789,156) (519,096) TotalGovernmentalActivities $186,601,765 $982,860 $43,256,041 $ 7,420,047 (134,942,817) Generalrevenues Taxesandsubventions Propertytaxes,leviedforgeneralpurposes 58,666,593 Propertytaxes,leviedfordebtservice 10,883,739 Propertytaxes,leviedforotherspecificpurposes 1,558,690 Federalandstateaidnotrestrictedforspecificpurposes 56,558,836 Interestandinvestmentearnings 228,103 Miscellaneous 1,046,513 Subtotal,GeneralRevenue 128,942,474 CHANGEINNETPOSITION (6,000,343) NetPositionBeginning 172,109,771 NetPositionEnding $166,109,428 Theaccompanyingnotesareanintegralpartofthesefinancialstatements. 12

90 ANAHEIMCITYSCHOOLDISTRICT GOVERNMENTALFUNDS BALANCESHEET JUNE30,2013 GeneralFund BuildingFund NonMajor Governmental Funds Total Governmental Funds ASSETS Cashandcashequivalents $26,046,767 $41,691,141 $22,415,200 $90,153,108 Accountsreceivable 14,262,084 55, ,030 15,107,598 Duefromotherfunds 93, , ,816 Storesinventory 129, ,060 TotalAssets $40,531,583 $41,746,835 $23,212,164 $105,490,582 LIABILITIES Accruedliabilities $ 5,738,613 $2,822,564 $659,678 $9,220,855 Duetootherfunds 1,193,068 7, ,177 1,577,351 Currentloans 14,700,000 Unearnedrevenue 90,073 14,700,000 90,073 TotalLiabilities 21,721,754 2,829,670 1,036,855 25,588,279 FUNDBALANCES Nonspendable 204, ,060 Restricted 3,702,155 38,917,165 21,088,161 63,707,481 Committed Unassigned 14,903,614 1,087,148 1,087,148 14,903,614 TotalFundBalances 18,809,829 38,917,165 22,175,309 79,902,303 TotalLiabilitiesandFundBalances $40,531,583 $41,746,835 $23,212,164 $105,490,582 Theaccompanyingnotesareanintegralpartofthesefinancialstatements. 13

91 ANAHEIMCITYSCHOOLDISTRICT RECONCILIATIONOFTHEGOVERNMENTALFUNDSBALANCESHEETTOTHESTATEMENT OFNETPOSITION JUNE30,2013 TotalFundBalanceGovernmentalFunds $79,902,303 Amountsreportedforassetsandliabilitiesforgovernmentalactivitiesinthe statementofnetpositionaredifferentfromamountsreportedingovernmental fundsbecause: Capitalassets: Ingovernmentalfunds,onlycurrentassetsarereported.Inthestatementof netposition,allassetsarereported,includingcapitalassetsand accumulateddepreciation: Capitalassets $408,434,437 Accumulateddepreciation (132,093,112) 276,341,325 Unamortizedcosts: Ingovernmentalfunds,debtissuecostsarerecognizedasexpendituresin theperiodtheyareincurred.inthegovernmentwidestatements,debt issuecostsareamortizedoverthelifeofthedebt.unamortizeddebtissue costsincludedinnetlongtermdebtonthestatementofnetpositionare: 2,120,435 Unmaturedinterestonlongtermdebt: Ingovernmentalfunds,interestonlongtermdebtisnotrecognizeduntil theperiodinwhichitmaturesandispaid.inthegovernmentwide statementofactivities,itisrecognizedintheperiodthatitisincurred.the additionalliabilityforunmaturedinterestowingattheendoftheperiod was: (1,946,557) Longtermliabilities: Ingovernmentalfunds,onlycurrentliabilitiesarereported.Inthe statementofnetposition,allliabilities,includinglongtermliabilities,are reported.longtermliabilitiesrelatingtogovernmentalactivitiesconsist Totalgeneralobligationbonds $178,079,928 Earlyretirementincentive 2,252,107 Compensatedabsences 804,734 (181,136,769) Internalservicefunds: Internalservicefundsareusedtoconductcertainactivitiesforwhichcosts arechargedtootherfundsonafullcostrecoverybasis.becauseinternal servicefundsarepresumedtooperateforthebenefitofgovernmental activities,assetsandliabilitiesofinternalservicefundsarereportedwith governmentalactivitiesinthestatementofnetposition.netpositionfor internalservicefundsis: (9,171,309) TotalNetPositionGovernmentalActivities $166,109,428 Theaccompanyingnotesareanintegralpartofthesefinancialstatements. 14

92 ANAHEIMCITYSCHOOLDISTRICT GOVERNMENTALFUNDS STATEMENTOFREVENUES,EXPENDITURES,ANDCHANGESINFUNDBALANCES FORTHEYEARENDEDJUNE30,2013 GeneralFund REVENUES Revenuelimitsources $95,375,865 Federalsources 14,890,360 Otherstatesources 42,215,284 BuildingFund $ NonMajor Governmental Funds Total Governmental Funds $ $95,375,865 2,514,051 17,404,411 9,891,072 52,106,356 Otherlocalsources 2,342, ,304 13,241,519 15,709,061 TotalRevenues 154,823, ,304 25,646, ,595,693 EXPENDITURES Current Instruction 94,549,779 Instructionrelatedservices Instructionalsupervisionandadministration 7,059,678 Instructionallibrary,media,andtechnology 1,722,626 Schoolsiteadministration 11,271,703 Pupilservices Hometoschooltransportation 3,751,519 Foodservices Allotherpupilservices 12,279,950 Generaladministration Centralizeddataprocessing 1,555,689 Allothergeneraladministration 6,979,982 Plantservices 11,459,592 Facilitiesacquisitionandmaintenance Transferstootheragencies 7,374,383 Debtservice Principal Interestandother 3,157,858 97,707,637 1,079,972 8,139,650 39,891 1,762,517 11,271,703 3,751, , ,582 44,422 12,324,372 1,555, ,060 7,135, ,341 11,606,933 32,642,400 3,456,498 36,098, ,430 7,667,813 4,502,000 4,502,000 5,327,331 5,327,331 TotalExpenditures 158,004,901 32,642,400 18,628, ,275,686 Excess(Deficiency)ofRevenues OverExpenditures (3,181,154) (32,517,096) 7,018,257 (28,679,993) OtherFinancingSources(Uses) Transfersin Transfersout NetFinancingSources(Uses) 5,003,024 5,003,024 (5,003,024) (5,003,024) 5,003,024 (5,003,024) NETCHANGEINFUNDBALANCE (3,181,154) (27,514,072) 2,015,233 (28,679,993) FundBalanceBeginning 21,990,983 66,431,237 20,160, ,582,296 FundBalanceEnding $ 18,809,829 $ 38,917,165 $ 22,175,309 $79,902,303 Theaccompanyingnotesareanintegralpartofthesefinancialstatements. 15

93 ANAHEIMCITYSCHOOLDISTRICT RECONCILIATIONOFTHEGOVERNMENTALFUNDSSTATEMENTOFREVENUES, EXPENDITURES,ANDCHANGESINFUNDBALANCESTOTHESTATEMENTOFACTIVITIES FORTHEYEARENDEDJUNE30,2013 NetChangeinFundBalancesGovernmentalFunds $(28,679,993) Amountsreportedforgovernmentalactivitiesinthestatementofactivitiesare differentfromamountsreportedingovernmentalfundsbecause: Capitaloutlay: Ingovernmentalfunds,thecostsofcapitalassetsarereportedas expendituresintheperiodwhentheassetsareacquired.inthestatement ofactivities,costsofcapitalassetsareallocatedovertheirestimateduseful livesasdepreciationexpense.thedifferencebetweencapitaloutlay expendituresanddepreciationexpensefortheperiodis: Expendituresforcapitaloutlay: $35,756,069 Depreciationexpense: (9,224,769) 26,531,300 Debtservice: Ingovernmentalfunds,repaymentsoflongtermdebtarereportedas expenditures.inthegovernmentwidestatements,repaymentsoflong termdebtarereportedasreductionsofliabilities.expendituresfor repaymentoftheprincipalportionoflongtermdebtwere: 5,423,200 Debtissuancecosts: Ingovernmentalfunds,debtissuancecostsarerecognizedasexpenditures intheperiodtheyareincurred.inthegovernmentwidestatements, issuancecostsareamortizedoverthelifeofthedebt.thedifference betweendebtissuancecostsrecognizedinthecurrentperiodandissue costsamortizedfortheperiodis: Issuancecostsincurredduringtheperiod: $ Issuancecostsamortizedfortheperiod: (186,459) (186,459) Gainorlossfromthedisposalofcapitalassets: Ingovernmentalfunds,theentireproceedsfromdisposalofcapitalassets arereportedasrevenue.inthestatementofactivities,onlytheresulting gainorlossisreported.thedifferencebetweentheproceedsfromdisposal ofcapitalassetsandtheresultinggainorlossis: (116,575) Unmaturedinterestonlongtermdebt: Ingovernmentalfunds,interestonlongtermdebtisrecognizedinthe periodthatitbecomesdue.inthegovernmentwidestatementofactivities, itisrecognizedintheperioditisincurred.unmaturedinterestowingat theendoftheperiod,lessmaturedinterestpaidduringtheperiodbut owingfromthepriorperiod,was: 39,328 Theaccompanyingnotesareanintegralpartofthesefinancialstatements. 16

94 ANAHEIMCITYSCHOOLDISTRICT RECONCILIATIONOFTHEGOVERNMENTALFUNDSSTATEMENTOFREVENUES, EXPENDITURES,ANDCHANGESINFUNDBALANCETOTHESTATEMENTOF ACTIVITIES,continued FORTHEYEARENDEDJUNE30,2013 Accretedinterestonlongtermdebt: Ingovernmentalfunds,accretedinterestoncapitalappreciationbondsis notrecordedasanexpenditurefromcurrentsources.inthegovernment widestatementofactivities,however,thisisrecordedasinterestexpense fortheperiod. (3,422,353) Compensatedabsences: Ingovernmentalfunds,compensatedabsencesaremeasuredbythe amountspaidduringtheperiod.inthestatementofactivities, compensatedabsencesaremeasuredbytheamountearned.thedifference betweencompensatedabsencespaidandcompensatedabsencesearned, was: (75,426) Otherliabilitiesnotnormallyliquidatedwithcurrentfinancialresources: Inthegovernmentwidestatements,expensesmustbeaccruedin connectionwithanyliabilitiesincurredduringtheperiodthatarenot expectedtobeliquidatedwithcurrentfinancialresources.examples includespecialterminationbenefitssuchasretirementincentivesfinanced overtime,andstructuredlegalsettlements.thisyear,expensesincurred forsuchobligationswere: (424,838) Costwriteoffforcanceledcapitalprojects: Ifaplannedcapitalprojectiscanceledandwillnotbecompleted,costs previouslycapitalizedasworkinprogressmustbewrittenofftoexpense. Costswrittenoffforcanceledprojectswere: (3,362,776) Amortizationofdebtissuancepremiumordiscount: Ingovernmentalfunds,ifdebtisissuedatapremiumoratadiscount,the premiumordiscountisrecognizedasanotherfinancingsourceoran OtherFinancingUseintheperioditisincurred.Inthegovernmentwide statements,thepremiumordiscountisamortizedoverthelifeofthedebt. Amortizationofpremiumordiscountfortheperiodis: 654,444 InternalServiceFunds: Internalservicefundsareusedtoconductcertainactivitiesforwhichcosts arechargedtootherfundsonafullcostrecoverybasis.becauseinternal servicefundsarepresumedtobenefitgovernmentalactivities,internal serviceactivitiesarereportedasgovernmentalinthestatementof activities.thenetincreaseordecreaseininternalservicefundswas: (2,380,195) ChangeinNetPositionofGovernmentalActivities $(6,000,343) Theaccompanyingnotesareanintegralpartofthesefinancialstatements. 17

95 ANAHEIMCITYSCHOOLDISTRICT PROPRIETARYFUNDS STATEMENTOFNETPOSITION JUNE30,2013 Governmental Activities InternalService Fund ASSETS Currentassets Cashandcashequivalents $1,145,690 Accountsreceivable 133,524 Duefromotherfunds 1,476,535 TotalAssets 2,755,749 LIABILITIES Currentliabilities Accruedliabilities 120,336 Totalcurrentliabilities 120,336 Noncurrentliabilities 11,806,722 TotalLiabilities 11,927,058 NETPOSITION Unrestricted (9,171,309) TotalNetPosition $(9,171,309) Theaccompanyingnotesareanintegralpartofthesefinancialstatements. 18

96 ANAHEIMCITYSCHOOLDISTRICT PROPRIETARYFUNDS STATEMENTOFREVENUES,EXPENSES,ANDCHANGESINNETPOSITION FORTHEYEARENDEDJUNE30,2013 Governmental Activities InternalService Fund OPERATINGREVENUE Chargesforservices $18,471,826 Totaloperatingrevenues 18,471,826 OPERATINGEXPENSE Salariesandbenefits 20,855,753 Professionalservices 1,997 Totaloperatingexpenses 20,857,750 Operatingincome/(loss) (2,385,924) NONOPERATINGREVENUES/(EXPENSES) Interestincome 5,729 Totalnonoperatingrevenues/(expenses) 5,729 CHANGEINNETPOSITION (2,380,195) NetPositionBeginning (6,791,114) NetPositionEnding $(9,171,309) Theaccompanyingnotesareanintegralpartofthesefinancialstatements. 19

97 ANAHEIMCITYSCHOOLDISTRICT PROPRIETARYFUNDS STATEMENTOFCASHFLOWS FORTHEYEARENDEDJUNE30,2013 Governmental Activities InternalServiceFund Cashflowsfromoperatingactivities Cashreceivedfromusercharges $18,363,591 Cashpaidfromassessmentsmadeto otherfunds (18,251,473) Netcashprovidedbyoperatingactivities 112,118 Cashflowsfrominvestingactivities Interestreceived 5,729 Netcashprovidedbyinvestingactivities 5,729 NETINCREASEINCASHANDCASHEQUIVALENTS 117,847 CASHANDCASHEQUIVALENTS Beginningofyear 1,027,843 Endofyear $ 1,145,690 Reconciliationofoperatinglosstocash providedbyoperatingactivities Operatingloss $(2,385,924) Changesinassetsandliabilities: Decreaseinaccountsreceivable 378,180 Increaseinduefromotherfunds (486,415) Decreaseinaccountspayable (102,513) Increaseinnoncurrentliabilities 2,708,790 Netcashprovidedbyoperatingactivities $112,118 Theaccompanyingnotesareanintegralpartofthesefinancialstatements. 20

98 ANAHEIMCITYSCHOOLDISTRICT FIDUCIARYFUNDS STATEMENTOFNETPOSITION JUNE30,2013 AgencyFunds StudentBody Fund ASSETS Cashandcashequivalents $219,278 TotalAssets $219,278 LIABILITIES Duetostudentgroups $219,278 TotalLiabilities $219,278 Theaccompanyingnotesareanintegralpartofthesefinancialstatements. 21

99 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS JUNE30,2013 NOTE1 SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES A. FinancialReportingEntity TheAnaheimCitySchoolDistrict(the District )accountsforitsfinancialtransactionsinaccordancewiththe policiesandproceduresofthedepartmentofeducationscaliforniaschoolaccountingmanual.theaccounting policiesofthedistrictconformtogenerallyacceptedaccountingprinciplesasprescribedbythegovernmental AccountingStandardsBoard(GASB)andtheAmericanInstituteofCertifiedPublicAccountants(AICPA). TheDistrictoperatesunderalocallyelectedBoardformofgovernmentandprovideseducationalservicesto gradesk6asmandatedbythestate.areportingentityiscomprisedoftheprimarygovernment,component units, and other organizations that are included to ensure the financial statements are not misleading. The primarygovernmentofthedistrictconsistsofallfunds,departmentsandagenciesthatarenotlegallyseparate fromthedistrict.forthedistrict,thisincludesgeneraloperationsandstudentrelatedactivities. B. ComponentUnits Component units are legally separate organizations for which the District is financially accountable. ComponentunitsmayalsoincludeorganizationsthatarefiscallydependentontheDistrictinthattheDistrict approvestheirbudget,theissuanceoftheirdebtorthelevyingoftheirtaxes.inaddition,componentunitsare other legally separate organizations for which the District is not financially accountable but the nature and significanceoftheorganization srelationshipwiththedistrictissuchthatexclusionwouldcausethedistrict s financialstatementstobemisleadingorincomplete.thedistricthasnosuchcomponentunits. C. BasisofPresentation GovernmentWide Statements. The statement of net position and the statement of activities display informationabouttheprimarygovernment(thedistrict).thesestatementsincludethefinancialactivitiesof theoverallgovernment,exceptforfiduciaryactivities.eliminationshavebeenmadetominimizethedouble counting of internal activities. Governmental activities generally are financed through taxes, intergovernmentalrevenue,andothernonexchangetransactions. The statement of activities presents a comparison between direct expenses and program revenue for each functionofthedistrict sgovernmentalactivities.directexpensesarethosethatarespecificallyassociatedwith a program or function and, therefore, are clearly identifiable to a particular function. Indirect expense allocations that have been made in the funds have been reserved for the statement of activities. Program revenuesincludechargespaidbytherecipientsofthegoodsorservicesofferedbytheprogramsandgrants andcontributionsthatarerestrictedtomeetingofoperationalorcapitalrequirementsofaparticularprogram. Revenuesthatarenotclassifiedasprogramrevenuesarepresentedasgeneralrevenues.Thecomparisonof program revenues and expenses identifies the extent to which each program or business segment is self financingordrawsfromthegeneralrevenuesofthedistrict. 22

100 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE1 SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued) C. BasisofPresentation(continued) Fund Financial Statements. The fund financial statements provide information about the District s funds, including its proprietary and fiduciary funds. Separate statements for each fund category governmental, proprietaryandfiduciary arepresented.theemphasisoffundfinancialstatementsisonmajorgovernmental funds,eachdisplayedinaseparatecolumn.allremaininggovernmentalfundsareaggregatedandreportedas nonmajorfunds. Governmentalfundsareusedtoaccountforactivitiesthataregovernmentalinnature.Governmentalactivities aretypicallytaxsupportedandincludeeducationofpupils,operationoffoodserviceandchilddevelopment programs,constructionandmaintenanceofschoolfacilities,andrepaymentoflongtermdebt. Proprietaryfundsareusedtoaccountforactivitiesthataremorebusinesslikethangovernmentlikeinnature. Businesstype activities include those for which a fee is charged to external users or to other organizational unitsofthedistrict,normallyonafullcostrecoverybasis.proprietaryfundsaregenerallyintendedtobeself supporting. FiduciaryfundsareusedtoaccountforassetsheldbytheDistrictinatrusteeoragencycapacityforothersthat cannotbeusedtosupportthedistrictsownprograms. MajorGovernmentalFunds General Fund: The General Fund is the main operating fund of the District. It is used to account for all activities except those that are required to be accounted for in another fund. In keeping with the minimum number of funds principle, all of the Districts activities are reported in the General Fund unless there is a compellingreasontoaccountforanactivityinanotherfund.adistrictmayhaveonlyonegeneralfund. BuildingFund:Thisfundexistsprimarilytoaccountseparatelyforproceedsfromthesaleofbonds(Education CodeSection15146)andmaynotbeusedforanypurposesotherthanthoseforwhichthebondswereissued. OtherauthorizedrevenuestotheBuildingFundareproceedsfromthesaleorleasewithoptiontopurchaseof realproperty(educationcodesection17462)andrevenuefromrentalsandleasesofrealpropertyspecifically authorizedfordepositintothefundbythegoverningboard(educationcodesection41003). 23

101 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE1 SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued) C. BasisofPresentation(continued) NonMajorGovernmentalFunds Special Revenue Funds: Special revenue funds are used to account for and report the proceeds of specific revenuesourcesthatarerestrictedorcommittedtoexpendituresforspecifiedpurposesotherthandebtservice orcapitalprojects.thedistrictmaintainsthefollowingspecialrevenuefunds: ChildDevelopmentFund:Thisfundisusedtoaccountseparatelyforfederal,state,andlocalrevenuesto operatechilddevelopmentprograms.allmoneysreceivedbythedistrictfor,orfromtheoperationof, childdevelopmentservicescoveredunderthechildcareanddevelopmentservicesact(educationcode Section8200etseq.)shallbedepositedintothisfund.Themoneysmaybeusedonlyforexpendituresfor theoperationofchilddevelopmentprograms.thecostsincurredinthemaintenanceandoperationofchild development services shall be paid from this fund, with accounting to reflect specific funding sources (EducationCodeSection8328). Deferred Maintenance Fund: This fund is used to account separately for state apportionments and the Districts contributions for deferred maintenance purposes (Education Code Sections ). In addition, whenever the state funds provided pursuant to Education Code Sections and (apportionmentsfromthestateallocationboard)areinsufficienttofullymatchthelocalfundsdeposited inthisfund,thegoverningboardofaschooldistrictmaytransfertheexcesslocalfundsdepositedinthis fundtoanyotherexpenditureclassificationsinotherfundsofthedistrict(educationcodesections17582 and17583). CapitalProjectFunds:Capitalprojectfundsareestablishedtoaccountforfinancialresourcestobeusedforthe acquisitionorconstructionofmajorcapitalfacilities(otherthanthosefinancedbyproprietaryfundsandtrust funds). CapitalFacilitiesFund:Thisfundisusedprimarilytoaccountseparatelyformoneysreceivedfromfees leviedondevelopersorotheragenciesasaconditionofapprovingadevelopment(educationcodesections ). The authority for these levies may be county/city ordinances (Government Code Sections )orprivateagreementsbetweentheDistrictandthedeveloper.InterestearnedintheCapital FacilitiesFundisrestrictedtothatfund(GovernmentCodeSection66006). County School Facilities Fund: This fund is established pursuant to Education Code Section to receiveapportionmentsfromthe1998stateschoolfacilitiesfund(proposition1a),the2002stateschool FacilitiesFund(Proposition47),orthe2004StateSchoolFacilitiesFund(Proposition55)authorizedbythe StateAllocationBoardfornewschoolfacilityconstruction,modernizationprojects,andfacilityhardship grants, as provided in the Leroy F. Greene School Facilities Act of 1998 (Education Code Section et seq.). Special Reserve Fund for Capital Outlay Projects: This fund exists primarily to provide for the accumulationofgeneralfundmoneysforcapitaloutlaypurposes(educationcodesection42840). 24

102 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE1 SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued) C. BasisofPresentation(continued) NonMajorGovernmentalFunds(continued) DebtServiceFunds:Debtservicefundsareestablishedtoaccountfortheaccumulationofresourcesforand thepaymentofprincipalandinterestongenerallongtermdebt. BondInterestandRedemptionFund:ThisfundisusedfortherepaymentofbondsissuedfortheDistrict (Education Code Sections ). The board of supervisors of the county issues the bonds. The proceeds from the sale of the bonds are deposited in the county treasury to the Building Fund of the District.Anypremiumsoraccruedinterestreceivedfromthesaleofthebondsmustbedepositedinthe Bond Interest and Redemption Fund of the District. The county auditor maintains control over the DistrictsBondInterestandRedemptionFund.Theprincipalandinterestonthebondsmustbepaidbythe countytreasurerfromtaxesleviedbythecountyauditorcontroller. ProprietaryFunds InternalServiceFunds:Internalservicefundsarecreatedprincipallytorenderservicestootherorganizational unitsofthedistrictonacostreimbursementbasis.thesefundsaredesignedtobeselfsupportingwiththe intent of full recovery of costs, including some measure of the cost of capital assets, through user fees and charges. SelfInsurance Fund: Selfinsurance funds are used to separate moneys received for selfinsurance activities from other operating funds of the District. Separate funds may be established foreach type of selfinsurance activity, such as workerscompensation, health and welfare,and deductibleproperty loss (EducationCodeSection17566). FiduciaryFunds TrustandAgencyFunds:Trustandagencyfundsareusedtoaccountforassetsheldinatrusteeoragent capacityforothersthatcannotbeusedtosupportthedistrictsownprograms.thekeydistinctionbetween trust and agency funds is that trust funds are subject to a trust agreement that affects the degree of managementinvolvementandthelengthoftimethattheresourcesareheld. StudentBodyFund:TheStudentBodyFundisanagencyfundand,therefore,consistsonlyofaccounts such as cash and balancing liability accounts, such as due to student groups. The student body itself maintainsitsowngeneralfund,whichaccountsforthetransactionsofthatentityinraisingandexpending moneytopromotethegeneralwelfare,morale,andeducationalexperiencesofthestudentbody(education CodeSections ). 25

103 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE1 SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued) D. BasisofAccounting MeasurementFocus GovernmentWide,Proprietary,andFiduciaryFinancialStatements Thegovernmentwide,proprietary,andfiduciaryfund financialstatementsarereportedusingtheeconomic resourcesmeasurementfocus.thegovernmentwide,proprietary,andfiduciaryfundfinancialstatementsare reportedusingtheaccrualbasisofaccounting.revenuesarerecordedwhenearnedandexpensesarerecorded atthetimeliabilitiesareincurred,regardlessofwhentherelatedcashflowstakeplace. Net Position equals assets and deferred outflows of resources minus liabilities and deferred inflows of resources.netinvestmentincapitalassetsconsistsofcapitalassets,netofaccumulateddepreciation,reduced bytheoutstandingbalancesofanyborrowingsusedfortheacquisition,constructionorimprovementofthose assets.thenetpositionshouldbereportedasrestrictedwhenconstraintsplacedonitsuseareeitherexternally imposedbycreditors(suchasthroughdebtcovenants),grantors,contributors,orlawsorregulationsofother governments or imposed by law through constitutional provisions or enabling legislation. The net position restrictedforotheractivitiesresultsfromspecialrevenuefundsandtherestrictionsontheiruse. Proprietaryfundsdistinguishoperatingrevenuesandexpensesfromnonoperatingitems.Operatingrevenues andexpensesgenerallyresultfromprovidingservicesandproducinganddeliveringgoodsinconnectionwith a proprietary fund s principal ongoing operations. The principal operating revenues of the internal service fundarechargestootherfundsforselfinsurancecosts.operatingexpensesforinternalservicefundsinclude thecostsofinsurancepremiumsandclaimsrelatedtoselfinsurance. GovernmentalFunds Basisofaccountingreferstowhenrevenuesandexpendituresarerecognizedintheaccountsandreportedin thefinancialstatements.governmentalfundsusethemodifiedaccrualbasisofaccounting. Revenues ExchangeandNonExchangeTransactions Revenueresultingfromexchangetransactions,inwhicheachpartygivesandreceivesessentiallyequalvalue, is recorded under the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recordedinthefiscalyearinwhichtheresourcesaremeasurableandbecomeavailable. Available meansthe resourceswillbecollectedwithinthecurrentfiscalyearorareexpectedtobecollectedsoonenoughthereafter tobeusedtopayliabilitiesofthecurrentfiscalyear.generally, available meanscollectiblewithinthecurrent period or within 60 days after yearend. However, to achieve comparability of reporting among California schooldistrictsandsoasnottodistortnormalrevenuepatterns,withspecificrespecttoreimbursementsgrants andcorrectionstostateaidapportionments,thecaliforniadepartmentofeducationhasdefinedavailablefor schooldistrictsascollectiblewithinoneyear. Nonexchangetransactions,inwhichtheDistrictreceivesvaluewithoutdirectlygivingequalvalueinreturn, include property taxes, grants, and entitlements. Under the accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from the grants and entitlements is recognizedinthefiscalyearinwhichalleligibilityrequirementshavebeensatisfied. 26

104 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE1 SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued) D. BasisofAccounting MeasurementFocus(continued) Revenues ExchangeandNonExchangeTransactions(continued) Eligibilityrequirementsincludetimingrequirements,whichspecifytheyearwhentheresourcesaretobeused orthefiscalyearwhenuseisfirstpermitted;matchingrequirements,inwhichthedistrictmustprovidelocal resourcestobeusedforaspecificpurpose;andexpenditurerequirements,inwhichtheresourcesareprovided to the District on a reimbursement basis. Under the modified accrual basis, revenue from nonexchange transactionsmustalsobeavailablebeforeitcanberecognized. UnearnedRevenue Unearnedrevenueariseswhenpotentialrevenuedoesnotmeetboththemeasurableandavailablecriteria forrecognitioninthecurrentperiodorwhenresourcesarereceivedbythedistrictpriortotheincurrenceof qualifyingexpenditures.insubsequentperiods,whenbothrevenuerecognitioncriteriaaremet,orwhenthe Districthasalegalclaimtotheresources,theliabilityforunearnedrevenueisremovedfromthebalancesheet andrevenueisrecognized. Certaingrantsreceivedthathavenotmeteligibilityrequirementsarerecordedasunearnedrevenue.Onthe governmentalfundfinancialstatements,receivablesthatwillnotbecollectedwithintheavailableperiodare alsorecordedasunearnedrevenue. Expenses/Expenditures Ontheaccrualbasisofaccounting,expensesarerecognizedatthetimealiabilityisincurred.Onthemodified accrual basis of accounting, expenditures are generally recognized in the accounting period in which the related fund liability is incurred, as under the accrual basis of accounting. However, under the modified accrualbasisofaccounting,debtserviceexpenditures,aswellasexpendituresrelatedtocompensatedabsences andclaimsandjudgments,arerecordedonlywhenpaymentisdue.allocationsofcost,suchasdepreciation and amortization, are not recognized in the governmental funds. When both restricted and unrestricted resources are available for use, it is the District s policy to use restricted resources first, then unrestricted resourcesastheyareneeded. E. Assets,Liabilities,FundBalanceandNetPosition CashandCashEquivalents TheDistrict scashandcashequivalentsconsistofcashonhand,demanddepositsandshortterminvestments withoriginalmaturitiesofthreemonthsorlessfromthedateofacquisition.cashheldinthecountytreasury isrecordedatcost,whichapproximatesfairvalue. Inventories Inventoriesarerecordedusingthepurchasesmethodinthatthecostisrecordedasanexpenditureatthetime the individual inventory items are requisitioned. Inventories are valued at historical cost and consist of expendablesuppliesheldforconsumption. 27

105 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE1 SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued) E. Assets,Liabilities,FundBalanceandNetPosition(continued) CapitalAssets Theaccountingandreportingtreatmentappliedtothecapitalassetsassociatedwithafundisdeterminedby itsmeasurementfocus.capitalassetsarereportedinthegovernmentalactivitiescolumnofthegovernment widestatementofnetposition,butarenotreportedinthefundfinancialstatements. Capitalassetsarecapitalizedatcost(orestimatedhistoricalcost)andupdatedforadditionsandretirements during the year. Donated fixed assets are recorded at their fair market valuesas of the date received. The Districtmaintainsacapitalizationthresholdof$5,000.TheDistrictdoesnotownanyinfrastructureasdefined ingasbstatementno.34.improvementsarecapitalized;thecostsofnormalmaintenanceandrepairsthatdo not add to the value of the asset or materiallyextend an asset s lifeare not capitalized. All reported capital assets,exceptforlandandconstructioninprogress,aredepreciated.improvementsaredepreciatedoverthe remainingusefullivesoftherelatedcapitalassets.depreciationiscomputedusingthestraightlinemethod overthefollowingestimatedusefullives: AssetClass EstimatedUsefulLife BuildingsandImprovements 2550years FurnitureandEquipment Vehicles 1520years 8years InterfundBalances Onfundfinancialstatements,receivablesandpayablesresultingfromshortterminterfundloansareclassified asduefromotherfunds/duetootherfunds. Theseamountsareeliminatedinthegovernmentalactivities columnsofthestatementofnetposition. CompensatedAbsences Accumulatedunpaidemployeevacationbenefitsareaccruedasaliabilityasthebenefitsareearned.Theentire compensated absence liability is reported on the governmentwide financial statements. For governmental funds, the current portion of unpaid compensated absences is recognized upon the occurrence of relevant eventssuchasemployeeresignationsandretirementsthatoccurpriortoyearendthathavenotyetbeenpaid with expendable available financial resource. These amounts are recorded in the fund from which the employeeswhohaveaccumulatedleavearepaid. AccumulatedsickleavebenefitsarenotrecognizedasliabilitiesoftheDistrict.TheDistrictspolicyistorecord sick leave as an operating expense in the period taken because such benefits do not vest, nor is payment probable; however, unused sick leave is added to the creditable service period for calculation of retirement benefitswhentheemployeeretires. 28

106 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE1 SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued) E. Assets,Liabilities,FundBalanceandNetPosition(continued) AccruedLiabilitiesandLongTermObligations All payables, accrued liabilities, and longterm obligations are reported in the governmentwide and proprietary fund financial statements. In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources are reported as obligationsofthefunds. DeferredIssuanceCosts,Premiums,andDiscounts In the governmentwide and proprietary fund financial statements, longterm obligations are reported as liabilities in the applicable governmental activities or proprietary fund statement of net position. Bond premiumsanddiscounts,aswellasissuancecosts,aredeferredandamortizedoverthelifeofthebondsusing thestraightlinemethod. FundBalance FundbalanceisdividedintofiveclassificationsbasedprimarilyontheextenttowhichtheDistrictisboundto observeconstraintsimposedupontheuseoftheresourcesinthegovernmentalfunds.theclassificationsare asfollows: NonspendableThenonspendablefundbalanceclassificationreflectsamountsthatarenotinspendableform. Examplesincludeinventory,prepaiditems,thelongtermportionofloansreceivable,andnonfinancialassets held for resale. This classification also reflects amounts that are in spendable form but that are legally or contractuallyrequiredtoremainintact,suchastheprincipalofapermanentendowment. RestrictedTherestrictedfundbalanceclassificationreflectsamountssubjecttoexternallyimposedandlegally enforceable constraints. Such constraints may be imposed by creditors, grantors, contributors, or laws or regulations of other governments, or may be imposed by law through constitutional provisions or enabling legislation. Committed The committed fund balance classification reflects amounts subject to internal constraints self imposedbyformalactionofthegoverningboard.theconstraintsgivingrisetocommittedfundbalancemust beimposednolaterthantheendofthereportingperiod.theactualamountsmaybedeterminedsubsequent to that date but prior to the issuance of the financial statements. In contrast to restricted fund balance, committed fund balance may be redirected by the government to other purposes as long as the original constraints are removed or modified in the same manner in which they were imposed, that is, by the same formalactionofthegoverningboard. 29

107 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE1 SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued) E. Assets,Liabilities,FundBalanceandNetPosition(continued) FundBalance(continued) AssignedTheassignedfundbalanceclassificationreflectsamountsthatthegovernmentintendstobeusedfor specific purposes. Assignments may be established either by the Governing Board or by a designee of the governingbody,andaresubjecttoneithertherestrictednorcommittedlevelsofconstraint.incontrasttothe constraints giving rise to committed fund balance, constraints giving rise to assigned fund balance are not requiredtobeimposed,modified,orremovedbyformalactionofthegoverningboard.theactiondoesnot require the same level of formality and may be delegated to another body or official. Additionally, the assignmentneednotbemadebeforetheendofthereportingperiod,butrathermaybemadeanytimepriorto theissuanceofthefinancialstatements. UnassignedIntheGeneralFundonly,theunassignedfundbalanceclassificationreflectstheresidualbalance thathasnotbeenassignedtootherfundsandthatisnotrestricted,committed,orassignedtospecificpurposes. However, deficits in any fund, including the General Fund that cannot be eliminated by reducing or eliminatingamountsassignedtootherpurposesarereportedasnegativeunassignedfundbalance. The District applies restricted resources first when expenditures are incurred for purposes for which either restricted or unrestricted (committed, assigned and unassigned) amounts are available. Similarly, within unrestricted fund balance, committed amounts are reduced first followed by assigned, and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balanceclassificationscouldbeused. F. InterfundActivity Exchange transactions between funds are reported as revenues in the seller funds and as expenditures/expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financingsources/usesingovernmentalfundsandafternonoperatingrevenues/expensesinproprietaryfunds. Repayments from funds responsible for particular expenditures/expenses to the funds that initially paid for them are not presented in the financial statements. Interfund transfers are eliminated in the governmental activitiescolumnsofthestatementofactivities. G. Estimates Thepreparationofthefinancialstatementsinconformitywithaccountingprinciplesgenerallyacceptedinthe United States of America requires management to make estimates and assumptions that affect the amounts reportedinthefinancialstatementsandaccompanyingnotes.actualresultsmaydifferfromthoseestimates. 30

108 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE1 SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued) H. BudgetaryData ThebudgetaryprocessisprescribedbyprovisionsoftheCaliforniaEducationCodeandrequiresthegoverning boardtoholdapublichearingandadoptanoperatingbudgetnolaterthanjuly1ofeachyear.thedistrict governing board satisfied these requirements. The adopted budget is subject to amendment throughout the year to give consideration to unanticipated revenue and expenditures primarily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriationsbymajorobjectaccount. Theamountsreportedastheoriginalbudgetedamountsinthebudgetarystatementsreflecttheamountswhen the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetarystatementsreflecttheamountsafterallbudgetamendmentshavebeenaccountedfor.forpurposes of the budget, onbehalf payments have not been included as revenue and expenditures as required under generallyacceptedaccountingprinciples. I. PropertyTax Secured property taxes attach asan enforceable lienon property as of January 1. Taxesare payable intwo installments on November 1 and February 1 and become delinquent on December 10 and April 10, respectively.unsecuredpropertytaxesarepayableinoneinstallmentonorbeforeaugust31.thecounty AuditorController bills and collects the taxes on behalf of the District. Local property tax revenues are recordedwhenreceived. J. NewAccountingPronouncements GASBStatementNo.61 InNovember2010,GASBissuedStatementNo.61,TheFinancialReportingEntity: Omnibus an amendment of GASB Statement No.14 and No. 34. The objective of this Statement is to improve financialreportingforagovernmentalfinancialreportingentityandmodifiescertainrequirementsforinclusion ofcomponentunitsinthefinancialreportingentity.thestatementiseffectiveforperiodsbeginningafterjune 15,2012.TheDistricthasimplementedGASBStatementNo.61fortheyearendedJune30,2013. GASBStatementNo.62 InDecember2010,GASBissuedStatementNo.62,CodificationsofAccountingand FinancialReportingGuidanceContainedinPreNovember30,1989FASBandAICPAPronouncements.Theobjective ofthisstatementistoincorporateintogasb sauthoritativeliteraturecertainaccountingandfinancialreporting guidancethatisincludedinthefinancialaccountingstandardsboard(fasb)statementsandinterpretations, AccountingPrinciplesBoardOpinionsandAccountingResearchBulletinsoftheAmericanInstituteofCertified PublicAccountants (AICPA)CommitteeonAccountingProceduresthatwereissuedonorbeforeNovember 30, 1989, which does not conflict with or contradict GASB pronouncements. The Statement is effective for periodsbeginningafterdecember15,2011.thedistricthasimplementedgasbstatementno.62fortheyear endedjune30,

109 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE1 SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued) J. NewAccountingPronouncements(continued) GASBStatementNo.63InJune2011,GASBissuedStatementNo.63,FinancialReportingofDeferredOutflowsof Resources,DeferredInflowsofResources,andNetPosition.ThisStatementprovidesfinancialreportingguidancefor deferred inflows of resources and amends the net asset reporting requirements in Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, and other pronouncements by incorporating deferred outflows of resources and deferred inflows of resources into the definitionoftherequiredcomponentsoftheresidualmeasureandbyrenamingthatmeasureasnetposition, ratherthannetassets.thestatementiseffectiveforperiodsbeginningafterdecember15,2011.thedistricthas implementedgasbstatementno.63fortheyearendedjune30,2013. GASBStatementNo.65 InMarch2012,GASBissuedStatementNo.65,ItemsPreviouslyReportedasAssetsand Liabilities. This Statement establishes accounting and financial reporting standards that reclassify, as deferred outflowsofresourcesordeferredinflowsofresources,certainitemsthatwerepreviouslyreportedasassetsand liabilitiesandrecognizes,asoutflowsofresourcesorinflowsofresources,certainitemsthatwerepreviously reportedasassetsandliabilities.thestatementiseffectiveforperiodsbeginningafterdecember15,2012.the Districthasnotyetdeterminedtheimpactonthefinancialstatements. GASBStatementNo.68 InJune2012,GASBissuedStatementNo.68,AccountingandFinancialReportingfor Pensions an amendment of GASB Statement No. 27. The primary objective of this Statement is to improve accountingandfinancialreportingbystateandlocalgovernmentsforpensions.italsoimprovesinformation providedbystateandlocalgovernmentalemployersaboutfinancialsupportforpensionsthatisprovidedby otherentities.thisstatementresultsfromacomprehensivereviewoftheeffectivenessofexistingstandardsof accounting and financial reporting for pensions with regard to providing decisionuseful information, supporting assessments of accountability and interperiod equity, and creating additional transparency. The StatementiseffectiveforperiodsbeginningafterJune15,2014.TheDistricthasnotyetdeterminedtheimpact onthefinancialstatements. 32

110 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE2 CASHANDINVESTMENTS A. SummaryofCashandInvestments Total Governmental InternalService Governmental Fiduciary Funds Funds Activities Funds Cashincounty $90,046,953 $ 1,145,690 $91,192,643 Cashonhandandinbanks 31,155 Cashinrevolvingfund 75,000 $ 31, ,278 75,000 Totalcashandcashequivalents $90,153,108 $1,145,690 $91,298,798 $219,278 B. PoliciesandPractices The District is authorized under California Government Code to make direct investments in local agency bonds, notes, or warrants within the state; U.S. Treasury instruments; registered state warrants or treasury notes;securitiesoftheu.s.government,oritsagencies;bankersacceptances;commercialpaper;certificatesof depositplacedwithcommercialbanksand/orsavingsandloancompanies;repurchaseorreverserepurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companies, certificates of participation, obligations with first priority security; collateralized mortgage obligations;andthecountyinvestmentpool. InvestmentinCountyTreasury TheDistrictmaintainssubstantiallyallofitscashintheCountyTreasuryin accordancewitheducationcodesection41001.theorangecountytreasurer spooledinvestmentsaremanaged bythecountytreasurerwhoreportsonamonthlybasistotheboardofsupervisors.inaddition,thefunction ofthecountytreasuryoversightcommitteeistoreviewandmonitorthecounty sinvestmentpolicy.the committeemembershipincludesthetreasurerandtaxcollector,theauditorcontroller,chiefadministrative Officer, Superintendent of Schools Representative, and a public member. The fair value of the Districts investment in the pool is based upon the Districts prorata share of the fair value provided by the County Treasurerfortheentireportfolio(inrelationtotheamortizedcostofthatportfolio).Thebalanceavailablefor withdrawalisbasedontheaccountingrecordsmaintainedbythecountytreasurer,whichisrecordedonthe amortizedcostbasis. 33

111 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE2 CASHANDINVESTMENTS(continued) C. GeneralAuthorizations Exceptforinvestmentsbytrusteesofdebtproceeds,theauthoritytoinvestDistrictfundsdepositedwiththe county treasury is delegated to the County Treasurer and Tax Collector. Additional information about the investment policy of the County Treasurer and Tax Collector may be obtained from its website. The table belowidentifiestheinvestmenttypespermittedbycaliforniagovernmentcode. Maximum Remaining Maturity Maximum Percentageof Portfolio Maximum Investmentin OneIssuer AuthorizedInvestmentType LocalAgencyBonds,Notes,Warrants 5years None None RegisteredStateBonds,Notes,Warrants 5years None None U.S.TreasuryObligations 5years None None U.S.AgencySecurities 5years None None Banker sacceptance 180days 40% 30% CommercialPaper 270days 25% 10% NegotiableCertificatesofDeposit 5years 30% None RepurchaseAgreements 1year None None ReverseRepurchaseAgreements 92days 20%ofbase None MediumTermCorporateNotes 5years 30% None MutualFunds N/A 20% 10% MoneyMarketMutualFunds N/A 20% 10% MortgagePassThroughSecurities 5years 20% None CountyPooledInvestmentFunds N/A None None LocalAgencyInvestmentFund(LAIF) N/A None None JointPowersAuthorityPools N/A None None D. InterestRateRisk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment.generally,thelongerthematurityofaninvestment,thegreaterthesensitivityofitsfairvalueto changes in market interest rates. The District manages its exposure to interest rate risk by investing in the County Treasury. The District maintains a pooled investment with the County Treasury with average weightedmaturityforthispoolof300days.thedistrictadjuststheirpooledinvestmenttofairmarketvalue. 34

112 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE2 CASHANDINVESTMENTS(continued) E. CreditRisk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization.theinvestmentsinthecountytreasuryarenotrequiredtoberated.asofjune30,2013,the pooledinvestmentsinthecountytreasurywereratedaaam. F. CustodialCreditRisk Deposits Thisistheriskthatintheeventofabankfailure,theDistrictsdepositsmaynotbereturnedtoit.TheDistrict does not have a policy for custodial credit risk for deposits. However, the California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securitiesinanundividedcollateralpoolheldbyadepositoryregulatedunderstatelaw.themarketvalueof thepledgedsecuritiesinthecollateralpoolmustequalatleast110percentofthetotalamountdepositedbythe public agencies. California law also allows financial institutions to secure public deposits by pledging first trustdeedmortgagenoteshavingavalueof150percentofthesecuredpublicdepositsandlettersofcredit issuedbythefederalhomeloanbankofsanfranciscohavingavalueof105percentofthesecureddeposits. AsofJune30,2013,theDistrictsbankbalancewasnotexposedtocustodialcreditrisk. NOTE3 ACCOUNTSRECEIVABLE AccountsreceivableatJune30,2013consistedofthefollowing: GeneralFund FederalGovernment Categoricalaid $ 3,237,648 StateGovernment Apportionment 2,770,265 Categoricalaid 5,839,735 Lottery 1,076,534 LocalGovernment BuildingFund NonMajor Governmental Funds $ $273,918 72,856 InternalService Funds Total Governmental Activities $ $3,511,566 2,770,265 5,912,591 1,076,534 Otherlocalsources 1,337,902 55, , ,524 1,970,166 Total $14,262,084 $55,484 $790,030 $133,524 $15,241,122 35

113 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE4 CAPITALASSETS CapitalassetactivityfortheyearendedJune30,2013wasasfollows: Balance Balance July01,2012 Additions Deletions June30,2013 GovernmentalActivities Capitalassetsnotbeingdepreciated Land $47,070,352 $ $ $47,070,352 Constructioninprogress 36,361,614 35,664,303 42,813,791 29,212,126 TotalCapitalAssetsnotBeingDepreciated 83,431,966 35,664,303 42,813,791 76,282,478 Capitalassetsbeingdepreciated Landimprovements 10,850, ,989 10,571,323 Buildings&improvements 271,364,270 39,423,316 4,252, ,535,252 Furniture&equipment 14,947, ,465 21,298 15,045,384 TotalCapitalAssetsBeingDepreciated 297,161,799 39,542,781 4,552, ,151,959 LessAccumulatedDepreciation Landimprovements 5,636, , ,565 5,782,978 Buildings&improvements 110,921,923 8,083,748 4,206, ,799,488 Furniture&equipment 10,745, ,352 21,298 11,510,646 TotalAccumulatedDepreciation 127,304,389 9,224,769 4,436, ,093,112 GovernmentalActivities CapitalAssets,net $ 253,289,376 $ 65,982,315 $ 42,930,366 $ 276,341,325 Depreciationexpensewaschargedasadirectexpensetogovernmentalfunctionsasfollows: GovernmentalActivities Instruction $ 5,936,139 Instructionalsupervisonandadministration 426,184 Instructionallibrary,media,andtechnology 87,635 Schoolsiteadministration 659,571 Hometoschooltransportation 299,805 Allotherpupilservices 608,835 Centralizeddataprocessing 96,860 Allothergeneraladministration 434,487 Plantservices 675,253 Totaldepreciationexpense $ 9,224,769 36

114 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE5 INTERFUNDTRANSACTIONS A. InterfundReceivables/Payables(DueFrom/DueTo) IndividualinterfundreceivableandpayablebalancesatJune30,2013wereasfollows: DueFromOtherFunds GeneralFund DueToOtherFunds GeneralFund BuildingFund NonMajor Governmental Funds SelfInsurance Total $ $ $ 6,934 $ 1,186,134 $ 1,193,068 BuildingFund 7,106 NonMajorGovernmentalFunds 86, , , ,177 TotalDueFromOtherFunds $93,672 $210 $ 6,934 $ 1,476,535 $ 1,577,351 TheNonMajorChildDevelopmentFundowedtheGeneralFundforstatutorybenefitscosts,maintenanceexpensesanduseallowance. $86,100 TheBuildingFundowedtheGeneralFundforprojectorpurchases. 7,106 TheNonMajorCapitalFacilitiesFundowedtheGeneralFundforstatutorybenefitscosts. 466 TheGeneralFundowedtheNonMajorChildDevelopmentFundforsalaryandsupplyexpenses. 6,934 TheNonMajorCountySchoolFacilitiesFundowedtheBuildingFundforinterestincome. 210 TheGeneralFundowedtheSelfInsuranceFundforOtherPostemploymentBenefitsandhealthandwelfarecosts. 1,186,134 TheNonMajorChildDevelopmentFundowedtheSelfInsuranceFundforhealthandwelfarecosts. 290,401 Total $ 1,577,351 B. OperatingTransfers InterfundtransfersfortheyearendedJune30,2013consistedofthefollowing: InterfundTransfersIn InterfundTransfersOut BuildingFund Total NonMajorGovernmentalFunds $ 5,003,024 $5,003,024 TotalInterfundTransfers $5,003,024 $5,003,024 TheNonMajorCountySchoolFacilitiesFundtransferredtothe BuildingFundtoreimburseprioryearexpenditures. $5,003,024 Total $5,003,024 37

115 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE6 ACCRUEDLIABILITIES AccruedliabilitiesatJune30,2013consistedofthefollowing: GeneralFund Payroll $ 3,680,364 Construction Vendorspayable 2,058,249 Unmaturedinterest NonMajor Governmental BuildingFund Funds $ $217,395 2,822, ,778 InternalService Funds $ 105, ,336 Total Governmental DistrictWide Activities $ $ 3,897,759 3,159,342 2,284,090 1,946,557 1,946,557 Total $ 5,738,613 $ 2,822,564 $659,678 $120,336 $ 1,946,557 $11,287,748 NOTE7 UNEARNEDREVENUE UnearnedrevenueatJune30,2013,consistedof$90,073relatedtofederalsources. NOTE8 TAXANDREVENUEANTICIPATIONNOTES(TRANS) OnJuly2,2012,theDistrictissued$13,300,000ofTaxandRevenueAnticipationNotesbearinginterestat2.000%. Thenoteswereissuedtosupplementcashflows.InterestandprincipalweredueandpayableonApril26,2013. ByApril2013,theDistricthadpaidoffthenotes. NOTE9 BRIDGEFINANCING Duringthe201213fiscalyear,theDistrictparticipatedintheOrangeCountyDepartmentofEducation sbridge Financing program to supplement cash flows. At June30,2013currentloans outstandingwere$14,700,000; the balancewasduebyaugust31,

116 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE10 LONGTERMDEBT AscheduleofchangesinlongtermdebtfortheyearendedJune30,2013consistedofthefollowing: Balance Balance BalanceDue July01,2012 Additions Deductions June30,2013 InOneYear GovernmentalActivities Generalobligationbonds $172,933,886 $3,422,353 $5,310,000 $171,046,239 $3,985,173 Unamortizedpremium 7,789,374 Unamortizeddiscount (101,241) 676,942 7,112, ,942 (22,498) (78,743) (22,498) Totalgeneralobligationbonds 180,622,019 3,422,353 5,964, ,079,928 4,639,617 Capitalleases 113, , Earlyretirementincentive 1,827,269 1,155, ,907 2,252, ,906 Compensatedabsences 729,308 75,426 NetOPEBobligation 9,097,932 2,708, ,734 11,806,722 Total $192,389,728 $7,362,314 $6,808,551 $192,943,491 $5,616,523 A. GeneralObligationBonds Theoutstandinggeneralobligationbondeddebt,including$18,335,434inaccretedinterest,oftheDistrictasof June30,2013isasfollows: Bonds Bonds Issue Maturity Interest Original Outstanding Outstanding Series Date Date Rate Issue July01,2012 Additions Deductions June30,2013 Election2002,Series2004 6/1/2004 8/1/ %5.220% $33,653,461 $1,477,290 $59,859 $335,000 $1,202, Refunding 6/23/2005 8/1/ %5.000% 63,452,339 58,969,619 1,009,666 2,720,000 57,259,285 Election2002,Series2007 1/23/2007 8/1/ %5.350% 44,881,416 52,269,872 2,138, ,000 53,673,292 Election2010,Series2011 3/30/2011 8/1/ %6.250% 29,998,482 30,097,929 7,071 1,520,000 28,585,000 Election2010,Series2011A 11/9/ /1/ % 4,997,334 5,119, ,337 Election2010,Series2011B 11/9/ /1/ % 25,000,000 25,000,000 5,326,513 25,000,000 $172,933,886 $3,422,353 $ 5,310,000 $171,046,239 Election2002 In an election held on March 5, 2002, the voters authorized the District to issue and sale $111,000,000 of principal amount of general obligation bonds. These bonds were issued for the purpose of financing the renovation,construction,acquisitionandimprovementoflocalschoolfacilitiesandland,includingreplacing outdatedwiring,lighting,plumbingandsewersystems,andbuildingpermanentclassroomsandnewschools. Therewerethreeissuancesunderthiselection: Series2004,whichwasissuedonJune1,2004for$33,653,461withinterestratesrangingfrom4.000%to 5.220%.Theoriginalissuanceconsistedof$32,295,000ofcurrentinterestserialbonds,$16,770,000of currentinteresttermbonds,and$1,358,461ofcapitalappreciationserialbonds.interestonthecurrent interest bonds is payable each February 1 and August 1 to maturity, commencing February 1, PrincipalofthecurrentinterestbondsispayableonAugust1ineachoftheyearsaspertherepayment schedule,commencingaugust1,2005.thecapitalappreciationbondswillnotbearcurrentinterest, butwillincreaseinvaluebytheaccumulationofearnedinterestfromtheirdenominationalamounts onthedateofdeliverytotheirrespectivematurityvaluesatmaturity.in2005,thedistrictissuedthe 2005 General Obligation Refunding Bonds to advance refund a portion of the outstanding principal balance.theprincipalbalanceoutstandingatjune30,2013amountedto$1,202,149.

117 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE10 LONGTERMDEBT(continued) A. GeneralObligationBonds(continued) Election2002(continued) Series 2007, which was issued on January 23, 2007 for $44,881,416 with interest rates ranging from 3.750% to 5.350%. The original issuance consisted of $9,710,000 of current interest serial bonds and $35,171,416ofcapitalappreciationserialbonds.Interestonthecurrentinterestbondsispayableeach February1andAugust1tomaturity,commencingFebruary1,2008.Principalofthecurrentinterest bondsispayableonaugust1ineachoftheyearsaspertherepaymentschedule,commencingaugust 1,2008.Thecapitalappreciationbondswillnotbearcurrentinterest,butwillincreaseinvaluebythe accumulation of earned interest from their denominational amounts on the date of delivery to their respectivematurityvaluesatmaturity.theprincipalbalanceoutstandingatjune30,2013amounted to$57,259, GeneralObligationRefundingBonds On June 23, 2005, the District issued $63,452,339 of general obligation refunding bonds. The bonds were issued to advance refundall ora portion of the outstanding principalamount of the District s General Obligation Bonds, Election of2002,series2002and thedistrict s General Obligation Bonds, Electionof2002,Series2004.Theoriginalissuancehadinterestratesrangingfrom3.000%to3.850% andconsistedof$59,300,000ofcurrentinterestserialbondsand$4,152,339ofcapitalappreciationserial bonds.interestonthecurrentinterestbondsaccruesfromthedateofissuanceandispayablesemi annually on February 1 and August 1 of each year, commencing August 1, Principal of the current interest bonds is payable on August 1 in each of the years as per the repayment schedule, commencingaugust1,2005.thecapitalappreciationbondsaccreteinterestfromthedateofissuance, compoundedsemiannuallyonfebruary1andaugust1ofeachyear,commencing,august1,2005. TheprincipalbalanceoutstandingatJune30,2013amountedto$53,673,292. Election2010 InanelectionheldonNovember2,2010,thevotersauthorizedtheDistricttoissueandsale$169,300,000of principalamountofgeneralobligationbonds.thesebondswereissuedforthepurposeoffinancingspecific schoolfacilityconstruction,repairandimprovementprojects.therewerethreeissuancesunderthiselection: Series 2011, which was issued on March 30, 2011 for $29,998,482 with interest rates ranging from 3.000% to 6.250%. The original issuance consisted of $5,030,000 of current interest serial bonds, $24,090,000ofcurrentinteresttermbonds,and$878,482ofcapitalappreciationserialbonds.Interest on the current interest bonds is payable each February 1 and August 1 to maturity, commencing August1,2011.PrincipalofthecurrentinterestbondsispayableonAugust1ineachoftheyearsas pertherepaymentschedule,commencingaugust1,

118 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE10 LONGTERMDEBT(continued) A. GeneralObligationBonds(continued) Election2010(continued) Series2011(continued) The capital appreciation bonds will not pay interest on a current, periodic basis but will accrete in value to their maturity value payable only at maturity on August 1 in each of the years and in the amounts set forth on the payment schedule. Interest on the capital appreciation bonds will be compoundedoneachfebruary1andaugust1tomaturity,commencingaugust1,2011.theprincipal balanceoutstandingatjune30,2013amountedto$28,585,000. Series2011Abondanticipationnotes,whichwasissuedonNovember9,2011for$4,997,334withan interestrateof4.010%.theoriginalissuanceconsistedentirelyofcapitalappreciationserialnotes.the noteswillnotpayinterestonacurrent,periodicbasisbutwillaccreteinvaluetotheirmaturityvalue payableonlyatmaturity.interestonthenoteswillbecompoundedsemiannuallyoneachmay1and November 1, from and including May 1, The principal balance outstanding at June 30, 2013 amountedto$5,326,513. Series2011Bbondanticipationnotes,whichwasissuedonNovember9,2011for$25,000,000withan interestrateof3.128%.theoriginalissuanceconsistedentirelyofcurrentinterestserialnotes.interest on the notes is payable on each May 1 and November 1 to maturity, commencing on May 1, PrincipalofthenotesispayableNovember1,2016.TheprincipalbalanceoutstandingatJune30,2013 amountedto$25,000,000. Thebondsmaturethrough2041asfollows: YearEndedJune30, Principal Interest Total 2014 $ 3,985,173 $ 7,014,564 $10,999, ,985,172 7,313,665 11,298, ,001,541 7,566,496 9,568, ,942,334 5,469,053 40,411, ,985,169 4,236,018 9,221, ,154,558 15,048,626 50,203, ,772,509 32,489,794 60,262, ,649,349 39,019,557 59,668, ,695,000 4,660,781 14,355, ,540, ,625 10,480,625 Accretion 18,335,434 (18,335,434) Total $171,046,239 $105,423,745 $276,469,984 41

119 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE10 LONGTERMDEBT(continued) B. CapitalLeases The District financed the purchase of portable classrooms through the California Department of Education. The agreement with CDE includes a 0% interest rate for the portable classrooms. During the term of the repayment,thetitletothefacilitiesshallbeinthenameofthestateofcalifornia.titleshallpasstothedistrict afterrepaymentofallfunds.thedistrictbearsalltheresponsibilityofmaintainingthefacilitiesandkeeping thefacilitiesfreeandclearofanylevies,liensandencumbrances. Theleasematuredin2013withnofurtherobligation. C. EarlyRetirementIncentive TheDistrictprovidedanearlyretirementincentivetothirtytwocertificatedemployeesin200910financingthe incentive through the purchase of annuity contracts. The District provided an additional early retirement incentive to employees in financing the incentive through the purchase of annuity contracts. The outstanding principal balance of the financed contracts as of June 30, 2013 was $2,252,107 to be repaid accordingtothefollowingschedule: YearEndedJune30, Amount 2014 $976, , , , ,249 Total $2,252,107 D. CompensatedAbsences Total unpaid employee compensated absences as of June 30, 2013 amounted to $804,734. This amount is includedaspartoflongtermliabilitiesinthegovernmentwidefinancialstatements. E. OtherPostemploymentBenefits TheDistrictfollowsGASBStatementNo.45,AccountingandFinancialReportingbyEmployersforPostemployment BenefitsOtherThanPensions.TheDistrict sannualrequiredcontributionfortheyearendedjune30,2013,was $4,360,080withnetinterestandotheradjustmentsof($137,661)foranetannualOPEBcostof$4,222,419and contributionsmadebythedistrictduringtheyearwere$1,513,629,whichresultedinanincreasetonetopeb obligationof$2,708,790.theendingopebbalanceatjune30,2013was$11,806,722.seenote12foradditional informationregardingtheopebobligationandthepostemploymentbenefitplan. 42

120 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE11 FUNDBALANCES FundbalanceswerecomposedofthefollowingelementsatJune30,2013: GeneralFund Nonspendable Revolvingcash $75,000 Storesinventory 129,060 Totalnonspendable 204,060 Restricted Educationalprograms 3,702,155 Capitalprojects Debtservice BuildingFund $ NonMajor Governmental Funds Total Governmental Funds $ $75, , , ,035 3,817,190 38,917,165 11,991,553 50,908,718 8,981,573 8,981,573 Totalrestricted 3,702,155 38,917,165 21,088,161 63,707,481 Committed Othercommitments Totalcommitted Unassigned Reserveforeconomicuncertainties 4,624,982 Remainingunassigned 10,278,632 Totalunassigned 14,903,614 1,087,148 1,087,148 1,087,148 1,087,148 4,624,982 10,278,632 14,903,614 Total $18,809,829 $38,917,165 $22,175,309 $79,902,303 TheDistrictiscommittedtomaintainingaprudentleveloffinancialresourcestoprotectagainsttheneedtoreduce servicelevelsbecauseoftemporaryrevenueshortfallsorunpredictedexpenditures.thedistrict sminimumfund BalancePolicyrequiresaReserveforEconomicUncertainties,consistingofunassignedamounts,equaltonoless thanthreepercentofgeneralfundexpendituresandotherfinancinguses. 43

121 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE12 POSTEMPLOYMENTBENEFITSOTHERTHANPENSIONS(OPEB) A. PlanDescriptionandContributionInformation TheDistrictadministersasingleemployerdefinedbenefitotherpostemploymentplan(OPEB)thatprovides medical, dental and vision insurance benefits to eligible retirees. The District implemented Governmental AccountingStandardsBoardStatement#45,AccountingandFinancialReportingbyEmployersforPostemployment BenefitPlansOtherThanPensionPlans,in Membershipoftheplanconsistedofthefollowing: Retireesandbeneficiariesreceivingbenefits 176 Activeplanmembers 1,394 Total 1,570 Numberofparticipatingemployers 1 Certificated,classifiedandmanagementemployeesbecomeeligibletoretirewithDistrictpaidmedical,dental andvisionbenefitsafterthelaterofage55andcompletionofatleast10yearsofdistrictservice,oruponearlier qualificationsfordisabilityretirement.benefitsarepaiduntilage65.retireeshavetheoptiontoenrolltheir dependentsunderthedistrictplans,butthecostofthedependentcoverageistheresponsibilityoftheretiree. B. FundingPolicy TheDistrict sfundingpolicyisbasedontheprojectedpayasyougofinancingrequirements,withadditional amountstoprefundbenefitsasdeterminedannuallybythegoverningboard.forfiscalyear ,the Districtcontributed$1,513,629. AsofJune30,2013,theDistricthasnotestablishedaplanorequivalentthatcontainsanirrevocabletransferof assetsdedicatedtoprovidingbenefitstoretireesinaccordancewiththetermsoftheplanandthatarelegally protectedfromcreditors. 44

122 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE12 POSTEMPLOYMENTBENEFITSOTHERTHANPENSIONS(OPEB)(continued) C. AnnualOPEBCostandNetOPEBObligation The District s annual OPEB cost (expense) is calculated based on the annual required contribution of the employer(arc),anamountactuariallydeterminedinaccordancewiththeparametersofgasbstatementno. 45.TheARCrepresentsaleveloffundingthat,ifpaidonanongoingbasis,isprojectedtocovernormalcost eachyearandamortizeanyunfundedactuarialaccruedliabilities(uaal)(orfundingexcess)overaperiod nottoexceedthirtyyears.thefollowingtableshowsthecomponentsofthedistrict sannualopebcostforthe year,theamountactuallycontributedtotheplan,andchangesinthedistrict snetopebobligationtotheplan: Annualrequiredcontribution $ 4,360,080 InterestonnetOPEBobligation 457,304 Adjustmenttoannualrequiredcontribution (594,965) AnnualOPEBcost(expense) 4,222,419 Contributionsmade (1,513,629) Increase(decrease)innetOPEBobligation 2,708,790 NetOPEBobligation,beginningoftheyear 9,097,932 NetOPEBobligation,endoftheyear $11,806,722 The annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligationfortheyearendedjune30,2013andtheprecedingtwoyearswereasfollows: Annual OPEB Percentage NetOPEB YearEndedJune30, Cost Contributed Obligation 2013 $ 4,222,419 36% $11,806, $ 4,263,801 37% $ 9,097, $ 3,886,437 52% $ 6,396,624 D. FundedStatusandFundingProgress Thefundedstatusoftheplanasofthemostrecentactuarialevaluationconsistsofthefollowing: Actuarial Actuarial Accrued Unfunded UAALasa Valuation ActuarialValuation Liability AAL Covered Percentageof Date ofassets (AAL) (UAAL) FundedRatio Payroll CoveredPayroll July1,2011 $ $35,107,723 $35,107,723 0% $105,808,546 33% 45

123 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE12 POSTEMPLOYMENTBENEFITSOTHERTHANPENSIONS(OPEB)(continued) D. FundedStatusandFundingProgress(continued) Actuarialvaluationsofanongoingplaninvolveestimatesofthevalueofreportedamountsandassumptions abouttheprobabilityofoccurrenceofeventsfarintothefuture.examplesincludeassumptionsaboutfuture employment,investmentreturns,mortality,andthehealthcarecosttrend.amountsdeterminedregardingthe funded status of the Plan and the annual required contributions of the employer are subject to continual revisionasactualresultsarecomparedwithpastexpectationsandnewestimatesaremadeaboutthefuture. The schedule of funding progress, presented as required supplementary information following the notes to financialstatements,presentsmultiyeartrendinformationaboutwhethertheactuarialvalueofplanassetsis increasingordecreasingovertimerelativetotheactuarialaccruedliabilitiesforbenefits. E. ActuarialMethodsandAssumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understoodbytheemployerandtheplanmembers)andincludethetypesofbenefitsprovidedatthetimeof eachvaluationandthehistoricalpatternofsharingofbenefitcostsbetweentheemployerandplanmembersto thatpoint.theactuarialmethodsandassumptionsusedincludetechniquesthataredesignedtoreducethe effectsofshorttermvolatilityinactuarialaccruedliabilitiesandtheactuarialvalueofassets,consistentwith thelongtermperspectiveofthecalculations. Additionalinformationasofthelatestactuarialvaluationfollows: ValuationDate 7/1/2011 ActuarialCostMethod ProjectedUnitCredit AmortizationMethod LevelDollar RemainingAmortizationPeriod 30 AssetValuation $ ActuarialAssumptions: Investmentrateofreturn 5.0% Discountrate 5.0% Healthcaretrendrate 8.0% Inflationrate 5.0% 46

124 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE13 EMPLOYEERETIREMENTSYSTEMS QualifiedemployeesarecoveredundermultipleemployerretirementplansmaintainedbyagenciesoftheStateof California.CertificatedemployeesaremembersoftheCaliforniaStateTeachersRetirementSystem(CalSTRS),and classifiedemployeesaremembersofthecaliforniapublicemployeesretirementsystem(calpers). CaliforniaStateTeachers RetirementSystem(CalSTRS) PlanDescription The District contributes to the California State Teachers Retirement System (CalSTRS); a costsharing multiple employer public employee retirement system defined benefit pension plan administered by CalSTRS. The plan providesretirementanddisabilitybenefitsandsurvivorbenefitstobeneficiaries.benefitprovisionsareestablished bystatestatutes,aslegislativelyamended,withinthestateteachersretirementlaw.calstrsissuesaseparate comprehensiveannualfinancialreportthatincludesfinancialstatementsandrequiredsupplementaryinformation. CopiesoftheCalSTRSannualfinancialreportmaybeobtainedfromCalSTRS,7919FolsomBlvd.;Sacramento,CA FundingPolicy Activeplanmembersarerequiredtocontribute8.0%oftheirsalaryandtheDistrictisrequiredtocontributean actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adoptedbycalstrsteachersretirementboard.therequiredemployercontributionrateforfiscalyear2013was 8.25%ofannualpayroll.Thecontributionrequirementsoftheplanmembersareestablishedbystatestatute.The District scontributionstocalstrsforthelastthreefiscalyearswereasfollows: Contribution PercentofRequired Contribution $6,259, % $6,480, % $6,119, % OnBehalfPayments TheDistrictwastherecipientofonbehalfpaymentsmadebytheStateofCaliforniatoCalSTRSforK12education. These payments consist of state general fund contributions of approximately $3,838,829 to CalSTRS (5.176% of creditablecompensationsubjecttoCalSTRS). 47

125 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE13 EMPLOYEERETIREMENTSYSTEMS(continued) CaliforniaPublicEmployees RetirementSystem(CalPERS) PlanDescription TheDistrictcontributestotheSchoolEmployerPool underthecaliforniapublicemployeesretirementsystem (CalPERS); a costsharing multipleemployer public employee retirement system defined benefit pension plan administeredbycalpers.theplanprovidesretirementanddisabilitybenefits,annualcostoflivingadjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by state statutes, as legislativelyamended,withinthepublicemployeesretirementlaws.calpersissuesaseparatecomprehensive annualfinancialreportthatincludesfinancialstatementsandrequiredsupplementaryinformation.copiesofthe CalPERSannualfinancialreportmaybeobtainedfromtheCalPERSExecutiveOffice,400PStreet;Sacramento,CA FundingPolicy Activeplanmembersarerequiredtocontribute7.0%oftheirsalary,andtheDistrictisrequiredtocontributean actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adoptedbythecalpersboardofadministration.therequiredemployercontributionrateforfiscalyear2013was %ofannualpayroll.Thecontributionrequirementsoftheplanmembersareestablishedbystatestatute.The District scontributionstocalpersforthelastthreefiscalyearswereasfollows: PercentofRequired Contribution Contribution $2,653, % $2,590, % $2,416, % 48

126 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE14 COMMITMENTSANDCONTINGENCIES A. Grants The District received financial assistance from federal and state agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditionsspecifiedinthegrantagreementsandaresubjecttoauditbythegrantoragencies.anydisallowed claims resulting from such audits could become a liability of the General Fund or other applicable funds. However,intheopinionofmanagement,anysuchdisallowedclaimswillnothaveamaterialadverseeffecton theoverallfinancialpositionofthedistrictatjune30,2013. B. Litigation The District is involved in various litigation arising from the normal course of business. In the opinion of management and legal counsel, the disposition of all litigation pending is not expected to have a material adverseeffectontheoverallfinancialpositionofthedistrictatjune30,2013. C. ConstructionCommitments AsofJune30,2013,theDistricthadthefollowingcommitmentswithrespecttounfinishedcapitalprojects: Remaining Construction Commitment CapitalProjects GauerModernization $ 120,007 JuarezSeismicWork 143,197 LincolnReconstruction 217,470 MadisonModernization 1,413,465 RevereSeismicWork 95,350 Ponderosa 68,769 StoddardModernization 420,160 MadisonShadeShelter 129,774 EdisonExpansion 5,477,113 MarshallReconstruction 26,880,921 Total $34,966,226 49

127 ANAHEIMCITYSCHOOLDISTRICT NOTESTOFINANCIALSTATEMENTS,continued JUNE30,2013 NOTE15 PARTICIPATIONINJOINTPOWERSAUTHORITIES TheDistrictparticipatesintwojointpowersagreement(JPA)entities,theNorthernOrangeCountySelfFunded Workers CompensationInsuranceAgency,whosepurposeistojointlyprovidefortheestablishment,operation and maintenance of selfinsurance programs for claims against member districts including, but not limited to, workers compensationclaimsandthenorthernorangecountyliabilityandpropertyselfinsuranceauthority providingliabilityandpropertyinsurancecoveragetomemberdistricts. EachJPAisgovernedbyaboardconsistingofarepresentativefromeachmemberdistrict.Eachgoverningboard controlstheoperationsofitsjpaindependentofanyinfluencebytheanaheimcityschooldistrictbeyondthe District srepresentationonthegoverningboards. EachJPAisindependentlyaccountableforitsfiscalmatters.Budgetsarenotsubjecttoanyapprovalotherthan that of the respective governing boards. Member districts share surpluses and deficits proportionately to their participationinthejpa. TherelationshipbetweentheAnaheimCitySchoolDistrictandtheJPAsaresuchthatneitherJPAisacomponent unitofthedistrictforfinancialreportingpurposes.theauditedfinancialstatementsaregenerallyavailablefrom therespectiveentities. NOTE16 SUBSEQUENTEVENTS BridgeFinancing On September 3, 2013, the District borrowed $12,000,000 from the Orange County Department of Education s Bridge Financing Program, to supplement cash flow. The temporary borrowing is to be repaid to the County TreasureronorbeforeDecember31,

128 REQUIREDSUPPLEMENTARY INFORMATION

129 ANAHEIMCITYSCHOOLDISTRICT GENERALFUND BUDGETARYCOMPARISONSCHEDULE FORTHEYEARENDEDJUNE30,2013 BudgetedAmounts Actual* Variances Original Final (BudgetaryBasis) FinaltoActual REVENUES Revenuelimitsources $86,672,003 $94,883,038 $95,375,865 $492,827 Federalsources 16,234,144 16,048,530 14,890,360 (1,158,170) Otherstatesources 36,768,095 38,531,571 38,376,455 (155,116) Otherlocalsources 2,078,130 2,170,371 2,342, ,867 TotalRevenues 141,752, ,633, ,984,918 (648,592) EXPENDITURES Certificatedsalaries 79,029,803 77,104,444 76,058,952 1,045,492 Classifiedsalaries 22,984,415 23,287,349 23,492,349 (205,000) Employeebenefits 32,831,209 33,327,340 33,349,221 (21,881) Booksandsupplies 6,312,587 6,745,082 4,284,440 2,460,642 Servicesandotheroperatingexpenditures 10,074,893 11,103,449 9,736,385 1,367,064 Capitaloutlay 60,828 25,402 35,426 Otheroutgo Excludingtransfersofindirectcosts 6,909,998 6,984,878 7,374,383 (389,505) Transfersofindirectcosts (165,297) (151,685) (155,060) 3,375 TotalExpenditures 157,977, ,461, ,166,072 4,295,613 NETCHANGEINFUNDBALANCE (16,225,236) (6,828,175) (3,181,154) 3,647,021 FundBalanceBeginning 21,990,983 21,990,983 21,990,983 FundBalanceEnding $5,765,747 $15,162,808 $18,809,829 $3,647,021 * The actual amounts reported on this schedule do not agree with the amounts reported on the Statement of Revenues,Expenditures,andChangesinFundBalanceforthefollowingreason: Onbehalfpaymentsof$3,838,829arenotincludedintheactualrevenuesandexpendituresreportedinthis schedule. Seeaccompanyingnotetorequiredsupplementaryinformation. 51

130 ANAHEIMCITYSCHOOLDISTRICT SCHEDULEOFFUNDINGPROGRESS FORTHEYEARENDEDJUNE30,2013 Actuarial Actuarial Accrued Unfunded UAALasa Valuation ActuarialValuation Liability AAL Covered Percentageof Date ofassets (AAL) (UAAL) FundedRatio Payroll CoveredPayroll July1,2011 $ $35,107,723 $35,107,723 0% $105,808,546 33% July1,2009 $ $29,398,045 $29,398,045 0% $112,511,602 26% June27,2008 $ $28,757,015 $28,757,015 0% $114,627,473 25% Seeaccompanyingnotetorequiredsupplementaryinformation. 52

131 ANAHEIMCITYSCHOOLDISTRICT NOTESTOREQUIREDSUPPLEMENTARYINFORMATION FORTHEYEARENDEDJUNE30,2013 NOTE1 PURPOSEOFSCHEDULES BudgetaryComparisonSchedule ThisscheduleisrequiredbyGASBStatementNo.34asrequiredsupplementaryinformation(RSI)fortheGeneral Fund and for each major special revenue fund that has a legally adopted annual budget. The budgetary comparisonschedulepresentsboth(a)theoriginaland(b)thefinalappropriatedbudgetsforthereportingperiod aswellas(c)actualinflows,outflows,andbalances,statedonthedistrict sbudgetarybasis.aseparatecolumnto reportthevariancebetweenthefinalbudgetandactualamountsisalsopresented,althoughnotrequired. ScheduleofFundingProgress This schedule is required by GASB Statement No. 45 for all sole and agent employers that provide other postemployment benefits (OPEB). The schedule presents, for the most recent actuarial valuation and the two preceding valuations, information about the funding progress of the plan, including, for each valuation, the actuarialvaluationdate,theactuarialvalueofassets,theactuarialaccruedliability,thetotalunfundedactuarial liability(orfundingexcess),theactuarialvalueofassetsasapercentageoftheactuarialaccruedliability(funded ratio), the annual covered payroll, and the ratio of the total unfunded actuarial liability (or funding excess) to annualcoveredpayroll. NOTE2 EXCESSOFEXPENDITURESOVERAPPROPRIATIONS FortheyearendedJune30,2013,theDistrictincurredanexcessofexpendituresoverappropriationsinindividual majorfundspresentedinthebudgetarycomparisonschedulebymajorobjectcodeasfollows: ExpendituresandOtherUses Budget Actual Excess GeneralFund Classifiedsalaries $23,287,349 $23,492,349 $205,000 Employeebenefits $33,327,340 $33,349,221 $21,881 Otheroutgo Excludingtransfersofindirectcosts $6,984,878 $ 7,374,383 $389,505 53

132 SUPPLEMENTARY INFORMATION

133 ANAHEIMCITYSCHOOLDISTRICT SCHEDULEOFEXPENDITURESOFFEDERALAWARDS FORTHEYEARENDEDJUNE30,2013 FederalGrantor/PassThroughGrantor/ProgramorCluster CFDA Number PassThroughEntity IdentifyingNumber Federal Expenditures U.S.DEPARTMENTOFEDUCATION: ElementaryandSecondarySchoolCounselingDemonstrationProgram E * $ 407,943 CarolM.WhitePhysicalEducationProgram F * 540,898 PassedthroughCaliforniaDepartmentofEducation: TitleI,PartA,BasicGrantsLowIncomeandNeglected ,933,368 TitleII,PartA,TeacherQuality A ,677,094 TitleII,PartD,EnhancingEducationThroughTechnology,FormulaGrants ,084 TitleIII,LimitedEnglishProficient(LEP)StudentProgram ,069,124 SpecialEducationCluster IDEABasicLocalAssistanceEntitlement,PartB,Sec ,355,576 IDEAMentalHealthAllocationPlan,PartB,Sec ,266 PartB,PreschoolGrants ,222 IDEALocalAssistance,PartB,Sec611,PrivateSchoolISPs ,000 IDEAPreschoolLocalEntitlement,PartB,Sec A ,793 PreschoolStaffDevelopment A ,888 SubtotalSpecialEducationCluster 3,928,745 IDEAEarlyInterventionGrants ,195 TitleX,McKinneyVentoHomelessAssistance ,868 TotalU.S.DepartmentofEducation 13,770,319 U.S.DEPARTMENTOFAGRICULTURE: PassedthroughCaliforniaDepartmentofEducation: CACFPClaimsCentersandFamilyDayCare ,974 PassedthroughCaliforniaDepartmentofPublicHealth SupplementalNutritionalAssistanceProgramNetworkforaHealthyCalifornia * 289,471 TotalU.S.DepartmentofAgriculture 686,445 U.S.DEPARTMENTOFHEALTHANDHUMANSERVICES: PassedthroughCaliforniaDepartmentofHealthServices: MedicaidCluster MediCalBillingOption ,651 MediCalAdministrativeActivities ,377 SubtotalMedicaidCluster 1,144,028 HeadStart ,117,077 TotalU.S.DepartmentofHealth&HumanServices 3,261,105 TotalFederalExpenditures $17,717,869 *Passthroughentityidentifyingnumbernotapplicableornotavailable. Seeaccompanyingnotetosupplementaryinformation. 54

134 ANAHEIMCITYSCHOOLDISTRICT SCHEDULEOFAVERAGEDAILYATTENDANCE(ADA) FORTHEYEARENDEDJUNE30,2013 Second Period Annual Report Report ELEMENTARY Kindergarten 2,578 2,588 Firstthroughthird 7,726 7,704 Fourththroughsixth 7,609 7,584 Homeandhospital 5 4 Specialeducation AverageDailyAttendanceTotal 18,513 18,480 Seeaccompanyingnotetosupplementaryinformation. 55

135 ANAHEIMCITYSCHOOLDISTRICT SCHEDULEOFINSTRUCTIONALTIME FORTHEYEARENDEDJUNE30, Actual Minutes Actual Minutes Minutes Requirement Actual Number GradeLevel Minutes Reduced Requirement Reduced Minutes ofdays Status Kindergarten 31,500 30,625 36,000 35,000 36, Complied Grade1 48,124 46,787 50,400 49,000 50, Complied Grade2 48,124 46,787 50,400 49,000 50, Complied Grade3 48,124 46,787 50,400 49,000 50, Complied Grade4 54,254 52,747 54,000 52,500 55, Complied Grade5 54,254 52,747 54,000 52,500 55, Complied Grade6 54,254 52,747 54,000 52,500 55, Complied Seeaccompanyingnotetosupplementaryinformation. 56

136 ANAHEIMCITYSCHOOLDISTRICT SCHEDULEOFFINANCIALTRENDSANDANALYSIS FORTHEYEARENDEDJUNE30, (Budget) GeneralFundBudgetaryBasis** RevenuesAndOtherFinancingSources $148,635,478 $ 150,984,918 $ 164,062,641 $154,379,593 ExpendituresAndOtherFinancingUses 160,342, ,166, ,315, ,643,957 NetchangeinFundBalance $ (11,706,814) $(3,181,154) $747,110 $ 2,735,636 EndingFundBalance $7,103,015 $18,809,829 $21,990,983 $23,282,663 AvailableReserves* $4,767,192 $14,903,614 $18,401,784 $17,893,716 AvailableReservesAsA PercentageOfOutgo 2.97% 9.67% 11.27% 11.80% LongtermDebt $187,326,968 $192,943,491 $192,389,728 $159,825,569 AverageDaily AttendanceAtP2 18,572 18,513 18,751 18,450 The GeneralFund balance has decreased by $4,472,834 over the past two years. The fiscalyear budget projectsafurtherdecreaseof$11,706,814.foradistrictthissize,thestaterecommendsavailablereservesofat least3%ofgeneralfundexpenditures,transfersout,andotheruses(totaloutgo). TheDistricthasincurredoperatingsurplusesintwoofthepastthreeyearsbutanticipatesincurringanoperating deficitduringthe201314fiscalyear.totallongtermobligationshaveincreasedby$33,117,920overthepasttwo years. Average daily attendance has increased by 63 ADA over the past two years. Additional increase of 59 ADA is anticipatedduringthe201314fiscalyear. *AvailablereservesconsistofallunassignedfundbalancewithintheGeneralFund. Seeaccompanyingnotetosupplementaryinformation. 57

137 ANAHEIMCITYSCHOOLDISTRICT RECONCILIATIONOFANNUALFINANCIALANDBUDGETREPORTWITHAUDITED FINANCIALSTATEMENTS FORTHEYEARENDEDJUNE30,2013 TherewerenoadjustmentstotheUnauditedActualFinancialReport,whichrequiredreconciliationtotheaudited financialstatementsatjune30,2013. Seeaccompanyingnotetosupplementaryinformation. 58

138 ANAHEIMCITYSCHOOLDISTRICT COMBININGBALANCESHEET JUNE30,2013 Child Development Fund Deferred Maintenance Fund CapitalFacilities Fund CountySchool FacilitiesFund SpecialReserve FundforCapital OutlayProjects BondInterest& RedemptionFund NonMajor Governmental Funds ASSETS Cashandcashequivalents $434,274 $ 1,101,952 $ 8,877,901 $3,123 $ 3,016,377 $ 8,981,573 $22,415,200 Accountsreceivable 346, ,147 Duefromotherfunds 6, ,030 6,934 TotalAssets $788,090 $ 1,102,234 $ 9,320,048 $3,123 $ 3,017,096 $ 8,981,573 $23,212,164 LIABILITIES Accruedliabilities $296,554 $15,086 $347,841 Duetootherfunds 376, $ $197 TotalLiabilities 673,055 15, , FUNDBALANCES Restricted 115,035 Committed 1,087,148 $ $659, ,177 1,036,855 8,971,741 2,913 3,016,899 8,981,573 21,088,161 1,087,148 TotalFundBalances 115,035 1,087,148 8,971,741 2,913 3,016,899 8,981,573 22,175,309 TotalLiabilitiesandFundBalance $788,090 $ 1,102,234 $ 9,320,048 $3,123 $ 3,017,096 $ 8,981,573 $23,212,164 Seeaccompanyingnotetosupplementaryinformation. 59

139 ANAHEIMCITYSCHOOLDISTRICT COMBININGSTATEMENTOFREVENUES,EXPENDITURES,ANDCHANGESINFUNDBALANCES FORTHEYEARENDEDJUNE30,2013 Child Development Fund REVENUES Federalsources $ 2,514,051 Otherstatesources 2,410,069 Deferred Maintenance Fund $ CapitalFacilities Fund $ CountySchool FacilitiesFund $ 7,418,176 SpecialReserve FundforCapital OutlayProjects $ BondInterest& RedemptionFund NonMajor Governmental Funds $ $2,514,051 62,827 9,891,072 Otherlocalsources 86,943 2,077 2,309,187 1,872 5,167 10,836,273 13,241,519 TotalRevenues 5,011,063 2,077 2,309,187 7,420,048 5,167 10,899,100 25,646,642 EXPENDITURES Current Instruction 3,157,858 Instructionrelatedservices Instructionalsupervisionandadministration 1,079,972 Instructionallibrary,media,andtechnology 39,891 Pupilservices Foodservices 424,582 Allotherpupilservices 44,422 Generaladministration Allothergeneraladministration 155,060 Plantservices 137,477 9,864 Facilitiesacquisitionandmaintenance 16,205 30, ,660 2,417, ,689 Transferstootheragencies Debtservice Principal Interestandother 293, ,200 3,157,858 1,079,972 39, ,582 44, , ,341 3,456, ,430 4,388,800 4,502,000 5,327,331 5,327,331 TotalExpenditures 5,055,467 40,778 1,280,290 2,417, ,689 9,716,131 18,628,385 Excess(Deficiency)ofRevenues OverExpenditures (44,404) (38,701) 1,028,897 5,003,018 (113,522) 1,182,969 7,018,257 OtherFinancingSources(Uses) Transfersout NetFinancingSources(Uses) (5,003,024) (5,003,024) (5,003,024) (5,003,024) NETCHANGEINFUNDBALANCE (44,404) (38,701) 1,028,897 (6) (113,522) 1,182,969 2,015,233 FundBalanceBeginning 159,439 1,125,849 7,942,844 2,919 3,130,421 7,798,604 20,160,076 FundBalanceEnding $115,035 $ 1,087,148 $ 8,971,741 $ 2,913 $ 3,016,899 $ 8,981,573 $22,175,309 Seeaccompanyingnotetosupplementaryinformation. 60

140 ANAHEIMCITYSCHOOLDISTRICT NOTESTOSUPPLEMENTARYINFORMATION JUNE30,2013 NOTE1 PURPOSEOFSCHEDULES ScheduleofExpendituresofFederalAwards TheaccompanyingScheduleofExpendituresofFederalAwardsincludestheFederalgrantactivityoftheDistrict and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordancewiththerequirementsoftheunitedstatesofficeofmanagementandbudgetcirculara133,auditsof States, LocalGovernments,andNonProfit Organizations. Therefore, some amounts presented in this schedule may differfromamountspresentedin,orusedinthepreparationof,thefinancialstatements. The following schedule provides reconciliation between revenues reported on the Statement of Revenue, Expenditures, and Changes in Fund Balance, and the related expenditures reported on the Schedule of Expenditures of Federal Awards. The reconciling amounts represent Federal funds that have been recorded as revenuesinaprioryearthathavebeenexpendedbyjune30,2013orfederalfundsthathavebeenrecordedas revenuesinthecurrentyearandwerenotexpendedbyjune30,2013. CFDA Number Amount TotalFederalRevenuesreportedinthe StatementofRevenues,Expenditures,and ChangesinFundBalance $17,404,411 MediCalBillingOption ,458 TotalExpendituresreportedintheScheduleof ExpendituresofFederalAwards $17,717,869 ScheduleofAverageDailyAttendance(ADA) Averagedailyattendance(ADA)isameasurementofthenumberofpupilsattendingclassesoftheDistrict.The purposeofattendanceaccountingfromafiscalstandpointistoprovidethebasisonwhichapportionmentsofstate funds are made to school districts. This schedule provides information regarding the attendance of students at variousgradelevelsandindifferentprograms. ScheduleofInstructionalTime The District has received incentive funding for increasing instructional time as provided by the Incentives for LongerInstructionalDay.Thisschedulepresentsinformationontheamountofinstructionaltimeofferedbythe DistrictandwhethertheDistrictcompliedwiththeprovisionsofEducationCodeSections46200through Districtsmustmaintaintheirinstructionalminutesateitherthe198283actualminutesorthe198687requirements, whichever is greater, as required by Education Code Section Through , the instructional day and minuterequirementshavebeenreducedpursuanttoeducationcodesection ScheduleofFinancialTrendsandAnalysis ThisscheduledisclosestheDistrictsfinancialtrendsbydisplayingpastyearsdataalongwithcurrentyearbudget information. These financial trend disclosures are used to evaluate the Districts ability to continue as a going concernforareasonableperiodoftime. 61

141 ANAHEIMCITYSCHOOLDISTRICT NOTESTOSUPPLEMENTARYINFORMATION,continued JUNE30,2013 NOTE1 PURPOSEOFSCHEDULES(continued) ReconciliationofAnnualFinancialandBudgetReportwithAuditedFinancialStatements ThisscheduleprovidestheinformationnecessarytoreconcilethefundbalanceofallfundsreportedontheAnnual FinancialandBudgetReportUnauditedActualstotheauditedfinancialstatements. CombiningStatements NonMajorFunds ThesestatementsprovideinformationontheDistrict snonmajorfunds. LocalEducationAgencyOrganizationStructure This schedule provides information about the Districts boundaries and schools operated, members of the governingboard,andmembersoftheadministration.(locatedinthefrontoftheauditreport) 62

142 OTHERINDEPENDENT AUDITORS REPORTS

143 Christy White, CPA John Dominguez, CPA, CFE Tanya M. Rogers, CPA, CFE Michael Ash, CPA Heather Daud SAN DIEGO LOS ANGELES SAN FRANCISCO/BAY AREA Corporate Office: 2727 Camino Del Rio South Suite 219 San Diego, CA toll-free: tel: fax: REPORTONINTERNALCONTROLOVERFINANCIALREPORTINGANDON COMPLIANCEANDOTHERMATTERSBASEDONANAUDITOFFINANCIAL STATEMENTSPERFORMEDINACCORDANCEWITH GOVERNMENTAUDITINGSTANDARDS IndependentAuditors Report GoverningBoard AnaheimCitySchoolDistrict Anaheim,California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in GovernmentAuditingStandardsissuedbytheComptrollerGeneraloftheUnitedStates,the financial statements of the governmental activities, each major fund, and the aggregate remainingfundinformationofanaheimcityschooldistrict,asofandfortheyearended June30,2013,andtherelatednotestothefinancialstatements,whichcollectivelycomprise the Anaheim City School District s basic financial statements, and have issued our report thereondateddecember9,2013. InternalControloverFinancialReporting Inplanningandperformingourauditofthefinancialstatements,weconsideredAnaheim CitySchoolDistrict sinternalcontroloverfinancialreporting(internalcontrol)todetermine theauditproceduresthatareappropriateinthecircumstancesforthepurposeofexpressing ouropinionsonthefinancialstatements,butnotforthepurposeofexpressinganopinionon theeffectivenessofanaheimcityschooldistrict sinternalcontrol.accordingly,wedonot expressanopinionontheeffectivenessofanaheimcityschooldistrict sinternalcontrol. Adeficiencyininternalcontrolexistswhenthedesignoroperationofacontroldoesnotallow managementoremployees,inthenormalcourseofperformingtheirassignedfunctions,to prevent, or detect and correct, misstatements on a timely basis. A material weaknessisa deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a materialmisstatement of the entitys financialstatements will not be prevented, or detected and corrected on a timely basis. A significant deficiencyisa deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. 63

144 Ourconsiderationofinternalcontrolwasforthelimitedpurposedescribedinthefirstparagraphofthissection andwasnotdesignedtoidentifyalldeficienciesininternalcontrolthatmightbematerialweaknessesorsignificant deficiencies.giventheselimitations,duringourauditwedidnotidentifyanydeficienciesininternalcontrolthat weconsidertobematerialweaknesses.however,materialweaknessesmayexistthathavenotbeenidentified. ComplianceandOtherMatters AspartofobtainingreasonableassuranceaboutwhetherAnaheimCitySchoolDistrictsfinancialstatementsare freeofmaterialmisstatement,weperformedtestsofitscompliancewithcertainprovisionsoflaws,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 provisionswasnotanobjectiveofouraudit,andaccordingly,wedonotexpresssuchanopinion.theresultsof our tests disclosed no instances of noncompliance or other matters that are required to be reported under GovernmentAuditingStandards. PurposeofthisReport Thepurposeofthisreportissolelytodescribethescopeofourtestingofinternalcontrolandcomplianceandthe results of that testing, and not to provide an opinion on the effectiveness of the entitys internal control or on compliance.thisreportisanintegralpartofanauditperformedinaccordancewithgovernmentauditingstandards inconsideringtheentitysinternalcontrolandcompliance.accordingly,thiscommunicationisnotsuitableforany otherpurpose. SanDiego,California December9,

145 Christy White, CPA John Dominguez, CPA, CFE Tanya M. Rogers, CPA, CFE Michael Ash, CPA Heather Daud SAN DIEGO LOS ANGELES SAN FRANCISCO/BAY AREA Corporate Office: 2727 Camino Del Rio South Suite 219 San Diego, CA toll-free: tel: fax: REPORTONCOMPLIANCEFOREACHMAJORFEDERALPROGRAM;ANDREPORT ONINTERNALCONTROLOVERCOMPLIANCEREQUIREDBY OMBCIRCULARA133 IndependentAuditors Report GoverningBoard AnaheimCitySchoolDistrict Anaheim,California ReportonComplianceforEachMajorFederalProgram WehaveauditedAnaheimCitySchoolDistrict scompliancewiththetypesofcompliance requirementsdescribedintheombcirculara133compliancesupplementthatcouldhavea directandmaterialeffectoneachofanaheimcityschooldistrict smajorfederalprograms fortheyearendedjune30,2013.anaheimcityschooldistrictsmajorfederalprogramsare identified in the summary of auditors results section of the accompanying schedule of findingsandquestionedcosts. Management sresponsibility Management is responsible for compliance with the requirements of laws, regulations, contracts,andgrantsapplicabletoitsfederalprograms. Auditor sresponsibility OurresponsibilityistoexpressanopiniononcomplianceforeachofAnaheimCitySchool Districts major federal programs based on our audit of the types of compliance requirementsreferredtoabove.weconductedourauditofcomplianceinaccordancewith 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 A133, Audits of States, Local Governments,andNonProfitOrganizations.ThosestandardsandOMBCircularA133require that we plan and perform the audit to obtain reasonable assurance about whether noncompliancewiththetypesofcompliancerequirementsreferredtoabovethatcouldhave a direct and material effect on a major federal program occurred. An audit includes examining,onatestbasis,evidenceaboutanaheimcityschooldistrictscompliancewith thoserequirementsandperformingsuchotherproceduresasweconsiderednecessaryinthe circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for eachmajorfederalprogram.however,ourauditdoesnotprovidealegaldeterminationof AnaheimCitySchoolDistrictscompliance. 65

146 OpiniononEachMajorFederalProgram In our opinion, Anaheim City School District complied, in all material respects, with the types of compliance requirementsreferredtoabovethatcouldhaveadirectandmaterialeffectoneachofitsmajorfederalprograms fortheyearendedjune30,2013. ReportonInternalControlOverCompliance Management of Anaheim City School District is responsible for establishing and maintaining effective internal controlovercompliancewiththetypesofcompliancerequirementsreferredtoabove.inplanningandperforming ourauditofcompliance,weconsideredanaheimcityschooldistrict sinternalcontrolovercompliancewiththe typesofrequirementsthatcouldhaveadirectandmaterialeffectoneachmajorfederalprogramtodeterminethe auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A133, but not for the purpose of expressing an opinion on the effectiveness of internalcontrolovercompliance.accordingly,wedonotexpressanopinionontheeffectivenessofanaheimcity SchoolDistrict sinternalcontrolovercompliance. Adeficiencyininternalcontrolovercomplianceexistswhenthedesignoroperationofacontrolovercompliancedoes notallowmanagementoremployees,inthenormalcourseofperformingtheirassignedfunctions,toprevent,or detectandcorrect,noncompliancewithatypeofcompliancerequirementofafederalprogramonatimelybasis.a materialweaknessininternalcontrolovercomplianceisadeficiency,orcombinationofdeficiencies,ininternalcontrol overcompliance,suchthatthereisareasonablepossibilitythatmaterialnoncompliancewithatypeofcompliance requirementofafederalprogramwillnotbeprevented,ordetectedandcorrected,onatimelybasis.asignificant deficiencyininternalcontrolovercomplianceisadeficiency,oracombinationofdeficiencies,ininternalcontrolover compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Ourconsiderationofinternalcontrolovercompliancewasforthelimitedpurposedescribedinthefirstparagraph ofthissectionandwasnotdesignedtoidentifyalldeficienciesininternalcontrolovercompliancethatmightbe material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not beenidentified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internalcontrolovercomplianceandtheresultsofthattestingbasedontherequirementsofombcirculara133. Accordingly,thisreportisnotsuitableforanyotherpurpose. SanDiego,California December9,

147 Christy White, CPA John Dominguez, CPA, CFE Tanya M. Rogers, CPA, CFE Michael Ash, CPA Heather Daud SAN DIEGO LOS ANGELES SAN FRANCISCO/BAY AREA Corporate Office: 2727 Camino Del Rio South Suite 219 San Diego, CA toll-free: tel: fax: REPORTONSTATECOMPLIANCE IndependentAuditors Report GoverningBoard AnaheimCitySchoolDistrict Anaheim,California ReportonStateCompliance WehaveauditedAnaheimCitySchoolDistrict scompliancewiththetypesofcompliance requirements described in the Standards and Procedures for Audits of California K 12 Local Education Agencies , issued by the California Education Audit Appeals Panel that could have a direct and material effect on each of Anaheim City School District s state programsforthefiscalyearendedjune30,2013,asidentifiedbelow. Management sresponsibility Management is responsible for compliance with the requirements of laws, regulations, contracts,andgrantsapplicabletoitsstateprograms. Auditor sresponsibility OurresponsibilityistoexpressanopiniononcomplianceforeachofAnaheimCitySchool Districts state programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller GeneraloftheUnitedStates;andtheStandardsandProceduresforAuditsofCaliforniaK 12 LocalEducationAgencies201213,issuedbytheCaliforniaEducationAuditAppealsPanelas regulations. Those standards 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 the state programs noted below occurred. An audit includes examining, on a test basis, evidence aboutanaheimcityschooldistrictscompliancewiththoserequirementsandperforming suchotherproceduresasweconsiderednecessaryinthecircumstances. Webelievethatourauditprovidesareasonablebasisforouropiniononcompliancewith the requirements referred to above. However, our audit does not provide a legal determinationofanaheimcityschooldistrictscompliancewiththoserequirements. 67

148 OpiniononStateCompliance In our opinion, Anaheim City School District complied, in all material respects, with the types of compliance requirementsreferredtoabovethatareapplicabletothestateprogramsnotedinthetablebelowfortheyearended June30,2013. ProceduresPerformed Inconnectionwiththeauditreferredtoabove,weselectedandtestedtransactionsandrecordstodetermine AnaheimCitySchoolDistrictscompliancewiththestatelawsandregulationsapplicabletothefollowingitems: PROCEDURESIN PROCEDURES PROGRAMNAME AUDITGUIDE PERFORMED AttendanceReporting 6 Yes TeacherCertificationandMisassignments 3 Yes KindergartenContinuance 3 Yes IndependentStudy 23 NotApplicable ContinuationEducation 10 NotApplicable InstructionalTimefor: SchoolDistricts 6 Yes CountyOfficesofEducation 3 NotApplicable InstructionalMaterials,generalrequirements 8 Yes RatiosofAdministrativeEmployeestoTeachers 1 Yes ClassroomTeacherSalaries 1 Yes EarlyRetirementIncentive 4 NotApplicable GannLimitCalculation 1 Yes SchoolAccountabilityReportCard 3 Yes JuvenileCourtSchools 8 NotApplicable ClassSizeReduction(includingincharterschools): Generalrequirements 7 Yes OptionOne 3 Yes OptionTwo 4 NotApplicable Districtsorcharterschoolswithonlyone schoolservingk3 4 NotApplicable (Continuedonthenextpage) 68

149 ProceduresPerformed(continued) PROCEDURESIN PROCEDURES PROGRAMNAME AUDITGUIDE PERFORMED AfterSchoolEducationandSafetyProgram: Generalrequirements 4 Yes Afterschool 5 Yes Beforeschool 6 NotApplicable ContemporaneousRecordsofAttendance;forcharter schools 1 NotApplicable ModeofInstruction;forcharterschools 1 NotApplicable NonclassroomBasedInstruction/IndependentStudy; forcharterschools 15 NotApplicable DeterminationofFundingforNonclassroomBased Instruction;forcharterschools 3 NotApplicable AnnualInstructionalMinutes ClassroomBased;for charterschools 4 NotApplicable SanDiego,California December9,

150 SCHEDULEOFFINDINGS ANDQUESTIONEDCOSTS

151 ANAHEIMCITYSCHOOLDISTRICT 70 SUMMARYOFAUDITORS RESULTS FORTHEYEARENDEDJUNE30,2013 FINANCIALSTATEMENTS Typeofauditorsreportissued: Unmodified Internalcontroloverfinancialreporting: Materialweakness(es)identified? No Significantdeficiency(ies)identified? NoneReported Noncompliancematerialtofinancialstatementsnoted? No FEDERALAWARDS Internalcontrolovermajorprogram: Materialweakness(es)identified? No Significantdeficiency(ies)identified? NoneReported Typeofauditorsreportissued: Unmodified Anyauditfindingsdisclosedthatarerequiredtobereportedinaccordance withsection.510(a)ofombcirculara133? No Identificationofmajorprograms: CFDANumber(s) NameofFederalProgramofCluster F CarolM.WhitePhysicalEducation Program TitleI,PartA,BasicGrantsLow IncomeandNeglected HeadStart DollarthresholdusedtodistinguishbetweenTypeAandTypeBprograms: 531,536 $ Auditeequalifiedaslowriskauditee? Yes STATEAWARDS Internalcontroloverstateprograms: Materialweakness(es)identified? No Significantdeficiency(ies)identified? NoneReported Typeofauditorsreportissuedoncomplianceforstateprograms: Unmodified

152 ANAHEIMCITYSCHOOLDISTRICT FINANCIALSTATEMENTFINDINGS FORTHEYEARENDEDJUNE30,2013 FIVEDIGITCODE AB3627FINDINGTYPE InventoryofEquipment InternalControl TherewerenofinancialstatementfindingsfortheyearendedJune30,

153 ANAHEIMCITYSCHOOLDISTRICT FEDERALAWARDFINDINGSANDQUESTIONEDCOSTS FORTHEYEARENDEDJUNE30,2013 FIVEDIGITCODE AB3627FINDINGTYPE FederalCompliance TherewerenofederalawardfindingsorquestionedcostsfortheyearendedJune30,

154 ANAHEIMCITYSCHOOLDISTRICT STATEAWARDFINDINGSANDQUESTIONEDCOSTS FORTHEYEARENDEDJUNE30,2013 FIVEDIGITCODE AB3627FINDINGTYPE Attendance StateCompliance CalSTRS Miscellaneous ClassroomTeacherSalaries InstructionalMaterials TeacherMisassignments SchoolAccountabilityReportCard TherewerestateawardfindingsorquestionedcostsfortheyearendedJune30,

155 ANAHEIMCITYSCHOOLDISTRICT SUMMARYSCHEDULEOFPRIORAUDITFINDINGS FORTHEYEARENDEDJUNE30,2013 Therewerenoauditfindingsorquestionedcostsin

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157 APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL Upon issuance and delivery of the Series 2014 Refunding Bonds, Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, proposes to render its final approving opinion with respect to the Series 2014 Refunding Bonds in substantially the following form: [Closing Date] Anaheim City School District Anaheim, California Ladies and Gentlemen: Anaheim City School District (Orange County, California) 2014 General Obligation Refunding Bonds, Series A Anaheim City School District (Orange County, California) 2014 General Obligation Refunding Bonds, Taxable Series B (Final Opinion) We have acted as bond counsel to the Anaheim City School District (the District ), which is located in the Orange County (the County ), in connection with the issuance by the District of $5,375,000 aggregate principal amount of Anaheim City School District (Orange County, California) 2014 General Obligation Refunding Bonds, Series A (the Series 2014A Refunding Bonds ) and $45,710,000 aggregate principal amount of Anaheim City School District (Orange County, California) 2014 General Obligation Refunding Bonds, Taxable Series B (the Series 2014B Refunding Bonds and together with the Series 2014A Refunding Bonds, the Series 2014 Refunding Bonds ), pursuant to the Paying Agent Agreement, dated as of March 1, 2014 (the Paying Agent Agreement ), by and between the District and U.S. Bank National Association, as paying agent (the Paying Agent ). Capitalized undefined terms used herein have the meanings ascribed thereto in the Paying Agent Agreement. In such connection, we have reviewed the Paying Agent Agreement, the Tax Certificate of the District, dated the date hereof, relating to the Series 2014A Refunding Bonds (the Tax Certificate ), certificates of the District, the Paying Agent, the County and others, and such other documents and matters to the extent we deemed necessary to render the opinions set forth herein. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this letter is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Series 2014 Refunding Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery C-1

158 thereof by, and validity against, any parties other than the District. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Paying Agent Agreement and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to ensure that future actions, omissions or events will not cause interest on the Series 2014A Refunding Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Series 2014 Refunding Bonds, the Paying Agent Agreement and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against school districts or counties in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement, dated March 6, 2014, or other offering material relating to the Series 2014 Refunding Bonds and express no opinion with respect thereto. Based on and subject to the foregoing and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The Series 2014 Refunding Bonds constitute valid and binding obligations of the District. 2. The Paying Agent Agreement has been duly authorized, executed and delivered by, and constitutes a valid and binding obligation of, the District. 3. The Board of Supervisors of the County has power and is obligated to levy ad valorem taxes without limitation as to rate or amount upon all property within the District s boundaries subject to taxation by the District (except certain personal property which is taxable at limited rates) for the payment of the Series 2014 Refunding Bonds and the interest thereon. 4. Interest on the Series 2014A Refunding Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of Interest on the Series 2014A Refunding Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Interest on the Series 2014 Refunding Bonds is exempt from State of California personal income taxes. We express no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Series 2014 Refunding Bonds. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP C-2

159 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE THIS CONTINUING DISCLOSURE CERTIFICATE (this Disclosure Certificate ) is executed and delivered by the Anaheim City School District (the District ) in connection with the issuance of $5,375,000 aggregate principal amount of Anaheim City School District (Orange County, California) 2014 General Obligation Refunding Bonds, Series A (the Series A Refunding Bonds ), and $45,710,000 aggregate principal amount of Anaheim City School District (Orange County, California) 2014 General Obligation Refunding Bonds, Taxable Series B (the Series B Refunding Bonds and, together with the Series A Refunding Bonds, the Bonds ). The Bonds are being issued pursuant to the Paying Agent Agreement, dated as of March 1, 2014, by and between the District and U.S. Bank National Association, as paying agent, as originally executed and as it may be amended or supplemented from time to time (the Paying Agent Agreement ). The District covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth in the Paying Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 hereof. Beneficial Owner shall mean any person which 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). Dissemination Agent shall mean the District, or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation. Holder shall mean the person in whose name any Bond shall be registered. Listed Events shall mean any of the events listed in Section 5(a) or (b) hereof. MSRB shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at Official Statement shall mean the Official Statement, dated March 6, 2014 (including all exhibits or appendices thereto), relating to the offer and sale of Bonds. Participating Underwriter shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. D-1

160 Rule shall mean 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. Section 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than nine months after the end of the District s fiscal year (which due date shall be April 1 of each year, so long as the fiscal year ends on June 30), commencing with the report for the Fiscal Year (which is due not later than April 1, 2015), provide to the MSRB an Annual Report which is consistent with the requirements of Section 4 hereof. The Annual Report must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB, and may cross-reference other information as provided in Section 4 hereof; provided, however, 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. If the District s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(e) hereof. The Annual Report shall be submitted on a standard form in use by industry participants or other appropriate form and shall identify the Bonds by name and CUSIP number. (b) Not later than 15 business days prior to the date specified in subsection (a), the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If the District is unable to provide to the MSRB an Annual Report by the date required in subsection (a), the District shall, in a timely manner, send or cause to be sent a notice to the MSRB, in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall: (i) (if the Dissemination Agent is other than the District), provide any Annual Report received by it to the MSRB as provided herein; and (ii) (if the Dissemination Agent is other than the District), file a report with the District certifying that the Annual Report has been provided to the MSRB pursuant to this Disclosure Certificate, stating the date it was provided to the MSRB. Section 4. Content of Annual Reports. The District s Annual Report shall contain or include by reference the following: (a) Audited financial statements of the District for the preceding fiscal year, prepared in accordance with the laws of the State of California and including all statements and information prescribed for inclusion therein by the Controller of the State of California. If the District s audited financial statements are not available by the time the Annual Report is required to be provided to the MSRB pursuant to Section 3(a) hereof, 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 provided to the MSRB in the same manner as the Annual Report when they become available. (b) To the extent not included in the audited financial statements of the District, the Annual Report shall also include the following: (i) (ii) The adopted budget of the District for the then current fiscal year. The District s average daily attendance. D-2

161 (iii) The District s outstanding debt. (iv) Information regarding total assessed valuation of taxable properties within the District, if and to the extent provided to the District by the County of Orange (the County ). (v) Information regarding twenty taxpayers with the greatest combined ownership of taxable property in the District, if and to the extent provided to the District by the County. (vi) Information regarding total secured tax charges and delinquencies on taxable properties within the District, if and to the extent provided to the District by the County. (c) In addition to any of the information expressly required to be provided under subsections (a) and (b), the District shall provide such further information, if any, as may be necessary to make the specifically required statements, in light of the circumstances under which they are made, not misleading. Any or all of the items listed above may be set forth in one or a set of documents or may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been made available to the public on the MSRB s website. The District shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. (a) The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds not later than ten business days after the occurrence of the event: (i) principal and interest payment delinquencies; (ii) unscheduled draws on debt service reserves reflecting financial difficulties; (iii) unscheduled draws on credit enhancements reflecting financial difficulties; (iv) substitution of credit or liquidity providers or their failure to perform; (v) adverse tax opinions or issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB); (vi) (vii) (viii) (ix) person. tender offers; defeasances; rating changes; or bankruptcy, insolvency, receivership or similar event of the obligated D-3

162 For the purposes of the event identified in subparagraph (ix), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, not later than ten business days after the occurrence of the event: (i) unless described in paragraph 5(a)(v) hereof, other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; Bonds; (ii) (iii) (iv) (v) modifications to rights of Bond Holders; optional, unscheduled or contingent Bond calls; release, substitution, or sale of property securing repayment of the non-payment related defaults; (vi) 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; or (vii) appointment of a successor or additional paying agent or the change of name of a paying agent. (c) The District shall give, or cause to be given, in a timely manner, notice of a failure to provide the annual financial information on or before the date specified in Section 4 hereof, as provided in Section 4(b) hereof. (d) Whenever the District obtains knowledge of the occurrence of a Listed Event described in Section 5(b) hereof, the District shall determine if such event would be material under applicable federal securities laws. (e) If the District learns of the occurrence of a Listed Event described in Section 5(a) hereof, or determines that knowledge of a Listed Event described in Section 5(b) hereof would be material under applicable federal securities laws, the District shall within ten business days of occurrence file a notice of such occurrence with the MSRB in electronic format, accompanied by such identifying information as is prescribed by the MSRB. Notwithstanding the foregoing, notice of the Listed Event described in subsections (a)(vii) or (b)(iii) 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 pursuant to the Paying Agent Agreement. D-4

163 Section 6. 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. 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 Listed Event under Section 5(e) hereof. Section 7. 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 Dissemination Agent, with or without appointing a successor Dissemination Agent. 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. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Section 3(a) hereof, Section 4 hereof, or Section 5(a) or (b) hereof, 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) the undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond 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) the proposed amendment or waiver either (i) is approved by the Holders in the same manner as provided in the Paying Agent Agreement for amendments to the Paying Agent Agreement with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the District shall describe such amendment in the next 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 Listed Event under Section 5(e) hereof, 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 9. 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 Listed 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 Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. D-5

164 Section 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate, any Holder 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; provided, that any such action may be instituted only in Superior Court of the State of California in and for the County of Orange or in U.S. District Court in or nearest to the County of Orange. 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 in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance. Section 11. 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 (if the Dissemination Agent is other than the District), 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 attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Dated: March 26, 2014 ANAHEIM CITY SCHOOL DISTRICT By: D-6

165 EXHIBIT A NOTICE TO THE MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Name of Issue: ANAHEIM CITY SCHOOL DISTRICT Anaheim City School District (Orange County, California) 2014 General Obligation Refunding Bonds, Series A Date of Issuance: March 26, 2014 Anaheim City School District (Orange County, California) 2014 General Obligation Refunding Bonds, Taxable Series B NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by Section 4 of the Continuing Disclosure Certificate of the District, dated March 26, [The District anticipates that the Annual Report will be filed by.] Dated: ANAHEIM CITY SCHOOL DISTRICT D-7

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167 APPENDIX E ORANGE COUNTY EDUCATIONAL INVESTMENT POOL DISCLOSURE The information in this section has been provided by the County Treasurer. Neither the District nor the Underwriter has independently verified this information and neither guarantees the completeness or accuracy thereof. The County Board of Supervisors (the Board ) approved the current County Investment Policy Statement (the Investment Policy ) on February 4, 2014 (see APPENDIX F ORANGE COUNTY INVESTMENT POLICY STATEMENT or ocgov.com/ocinvestments). (This reference is for convenience of reference only and not considered to be incorporated as part of this Official Statement.) The Investment Policy applies to all funds managed by the Treasurer as delegated by the Board including, the Orange County Investment Pool, the Orange County Educational Investment Pool, the John Wayne Airport Investment Pool and various other small non-pooled investment funds. The primary goal is to invest public funds in a manner which will provide the maximum security of principal invested with secondary emphasis on providing adequate liquidity to Pool Participants and lastly to achieve a market rate of return within the parameters of prudent risk management while conforming to all applicable statutes and resolutions governing the investment of public funds. The main investing objectives, in order of priority are: Safety, Liquidity and Yield. Oversight of the investments is conducted in several ways. First, the Board established the County Treasury Oversight Committee (the Committee ) on December 19, 1995, pursuant to California Government Code Section et. seq. The Committee s primary responsibilities are as follows: to review and monitor the annual investment policy; cause an annual audit to be conducted on the Investment Policy; and to investigate any and all irregularities in the treasury operation that are reported. The County Treasurer nominates and the Board confirms the members of the Committee, which is comprised of the County Executive Officer, the County Auditor-Controller, the County Superintendent of Schools, and two public members. Next, the Auditor-Controller s Internal Audit Division audits the portfolio on a quarterly and annual basis pursuant to California Government Code Sections and Finally, an independent audit is also conducted annually as required by Sections through of California Government Code and the Investment Policy. All audit reports and the monthly Treasurer s Investment Report are available on-line at ocgov.com/ocinvestments. (This reference is for convenience of reference only and not considered to be incorporated as part of this Official Statement.) The District s funds held by the County Treasurer are invested in the Orange County Educational Investment Pool (the Pool ) which pools all of the school district s funds. As of December 31, 2013, the balance in the District s funds was $79,998, The pool is invested 99% in securities rated in the two highest rating categories. As of December 31, 2013, the Pool has a weighted average maturity of 342 days and the year-to-date net yield is 0.21%. The following represents the composition of the Pool as of December 31, 2013: Type of Investment Market Value (In thousands) % of Pool U.S. Government Agencies $2,804, % U.S. Treasuries 472, Certificates of Deposit 141, Medium-Term Notes 255, Money Market Mutual Funds 316, Total $3,991, % E-1

168 Neither the District nor the Underwriter has made an independent investigation of the investments in the Pools and has made no assessment of the current Investment Policy. The value of the various investments in the Pools will fluctuate on a daily basis as a result of a multitude of factors, including generally prevailing interest rates and other economic conditions. Additionally, the Treasurer, with the consent of the Treasury Oversight Committee and the County Board of Supervisors, may change the Investment Policy at any time. Therefore, there can be no assurance that the values of the various investments in the Pools will not vary significantly from the values described herein. E-2

169 APPENDIX F ORANGE COUNTY INVESTMENT POLICY STATEMENT

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171 Orange County Treasurer Investment Policy Statement (APPROVED BY B.O.S. 02/04/2014) 1