$8,950,000 CRAWFORD AUSABLE SCHOOL DISTRICT COUNTIES OF CRAWFORD, OTSEGO AND KALKASKA STATE OF MICHIGAN

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1 NEW ISSUE Book Entry Only RATINGS *: Standard & Poor s Ratings Services: AA (stable outlook) AGM Insured In the opinion of Thrun Law Firm, P.C., Bond Counsel, under existing law (i) the Bonds and the interest thereon are exempt from all taxation in the State of Michigan, except inheritance and estate taxes and taxes on gains realized from the sale, payment or other disposition thereof, (ii) the interest on the Bonds is excluded from gross income for federal income tax purposes to the extent and subject to the conditions described therein, and (iii) interest on the Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. See TAX MATTERS herein. Dated: Date of Delivery $8,950,000 COUNTIES OF CRAWFORD, OTSEGO AND KALKASKA STATE OF MICHIGAN 2015 School Building and Site Bonds, Series A (General Obligation Unlimited Tax) Due: May 1, as shown below On August 4, 2015, the qualified electors of the Crawford AuSable School District, Counties of Crawford, Otsego and Kalkaska, State of Michigan (the School District ) approved the issuance of bonds of the School District in the amount not to exceed $14,900,000 to be issued in one or more series. Proceeds of the 2015 School Building and Site Bonds, Series A (General Obligation - Unlimited Tax) (the Bonds ) in the amount of $9,982,122.50, representing the first series of the approved bonds, will be used for school building and site purposes. The Bonds were authorized by the Board of Education of the School District by resolutions adopted on October 12, 2015, and expected to be adopted on December 14, 2015 (the Resolutions ). The Bonds will pledge the full faith and credit of the School District for payment of the principal and interest thereon and will be payable from ad valorem taxes, which may be levied on all taxable property in the School District without limitation as to rate or amount. The Bonds will be designated as qualified tax-exempt obligations for purposes of deduction of interest expense by financial institutions pursuant to Section 265(b)(3)(B) of the Code. See QUALIFIED TAX-EXEMPT OBLIGATIONS herein. The Bonds are issuable only as fully registered bonds without coupons and, when issued, will be registered in the name of Cede & Co., as Bondholder and nominee for The Depository Trust Company ( DTC ), New York, New York. DTC will act as securities depository for the Bonds. Purchases of beneficial interests in the Bonds will be made in book entry only form in the denomination of $5,000 or any integral multiple thereof. Purchasers of beneficial interests in the Bonds (the Beneficial Owners ) will not receive certificates representing their beneficial interest in Bonds purchased. So long as Cede & Co. is the Bondholder, as nominee of DTC, references herein to the Bondholders or registered owners shall mean Cede & Co., as aforesaid, and shall not mean the Beneficial Owners of the Bonds. See THE BONDS- Book Entry Only System herein. Principal of and interest on the Bonds will be paid by the corporate trust office of The Huntington National Bank, Grand Rapids, Michigan (the Paying Agent ). So long as DTC or its nominee, Cede & Co., is the Bondholder, such payments will be made directly to such Bondholder. Disbursement of such payments to the DTC Participants is the responsibility of DTC and disbursement of such payments to the Beneficial Owners is the responsibility of the DTC Participants and Indirect Participants, as more fully described herein. Interest will be payable semiannually on May 1 and November 1, commencing May 1, 2016, to the Bondholders of record as of the applicable record dates herein described. The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by ASSURED GUARANTY MUNICIPAL CORP. (Base CUSIP : ) Maturity Amount Interest Rate Price CUSIP Maturity Amount Interest Rate Price CUSIP 2020 $ 50, % % HT $ 1,100, % % HY , % HU ,125, % HZ ,025, % HV ,150, % JA ,050, % HW ,150, % JB ,075, % HX ,175, % JC4 THE BONDS MATURING ON OR AFTER MAY 1, 2026 ARE SUBJECT TO OPTIONAL REDEMPTION BEGINNING MAY 1, 2025, IN THE MANNER AND AT THE TIMES DESCRIBED HEREIN. See THE BONDS Optional Redemption Bonds herein. The Bonds will be offered when, as and if issued by the School District and accepted by the Underwriter subject to the approving legal opinion of Thrun Law Firm, P.C., East Lansing, Michigan, Bond Counsel. Certain legal matters will be passed upon for the Underwriter by Clark Hill PLC, Birmingham, Michigan. It is expected that the Bonds will be available for delivery through The Depository Trust Company on or about December 16, This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The date of this Official Statement is November 19, 2015 For an explanation of ratings, see RATINGS herein. * As of date of delivery. Copyright 2015, American Bankers Association. CUSIP data herein is provided by Standard & Poor s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The School District shall not be responsible for the selection of CUSIP numbers, nor any representation made as to their correctness on the Bonds or as indicated above.

2 No dealer, broker, salesperson or other person has been authorized to give any information or to make any representation other than as contained in this Official Statement in connection with the offer made hereby and, if given or made, such other information or representation must not be relied upon as having been authorized by the School District or the Underwriter. This Official Statement and the information contained herein are subject to completion and amendment. These securities may not be sold nor may an offer to buy these securities be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds, in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. Information herein has been obtained from the School District, The Depository Trust Company, and other sources believed to be reliable. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, their responsibility 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 (except for information under the section captioned "UNDERWRITING" which was obtained from the Underwriter). Upon issuance, the Bonds will not be registered under the Securities Act of 1933, as amended, or any state securities law and will not be listed on any stock or other securities exchange. Neither the Securities and Exchange Commission nor any other federal, state, municipal or other governmental entity or agency will have passed upon the adequacy of this Official Statement, or, except for the School District, approved the Bonds for sale. IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE INFORMATION PRESENTED IN THIS OFFICIAL STATEMENT CONCERNING THE SCHOOL DISTRICT AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Assured Guaranty Municipal Corp. ( AGM ) makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading Bond Insurance and Appendix F - Specimen Municipal Bond Insurance Policy.

3 1135 North Old U.S. 27 Grayling, MI (989) (989) (FAX) BOARD OF EDUCATION Richard Febey, President Wendy Kucharek, Vice President Carol Ramaswamy, Secretary David Malm, Treasurer William Dean, Trustee James Hulbert, Trustee Lewis Madill, Trustee ADMINISTRATIVE STAFF Joseph P. Powers, Superintendent of Schools Kim Schmidt, Business Manager BOND COUNSEL Thrun Law Firm, P.C. East Lansing, Michigan FINANCIAL ADVISOR Public Financial Management, Inc. Ann Arbor, Michigan PAYING AGENT The Huntington National Bank Grand Rapids, Michigan i

4 TABLE OF CONTENTS Page INTRODUCTION... 1 PURPOSE AND SECURITY... 1 BOND INSURANCE... 1 QUALIFIED TAX-EXEMPT OBLIGATIONS... 4 ESTIMATED SOURCES AND USES OF FUNDS... 4 THE BONDS... 4 Description and Form of the Bonds... 4 Book-Entry-Only System... 4 Transfer Outside Book-Entry-Only System... 6 Optional Redemption... 7 Notice of Redemption and Manner of Selection... 7 TAX PROCEDURES... 7 LEVY AND COLLECTION OF TAXES FOR PAYMENT OF THE BONDS AND BONDHOLDERS' REMEDIES... 8 SOURCES OF SCHOOL OPERATING REVENUE... 8 MICHIGAN PROPERTY TAX REFORM LITIGATION TAX MATTERS State Federal Original Issue Premium Future Developments APPROVAL OF LEGAL PROCEEDINGS APPROVAL BY MICHIGAN DEPARTMENT OF TREASURY RATINGS UNDERWRITING FINANCIAL ADVISOR'S OBLIGATION CONTINUING DISCLOSURE OTHER MATTERS APPENDIX A: APPENDIX B: APPENDIX C: APPENDIX D: APPENDIX E: APPENDIX F: General Financial, Economic and School Information General Fund Budget Summary Audited Financial Statements and Notes to Financial Statements of the School District for the Year Ended June 30, 2015 Draft Legal Opinion of Bond Counsel Form of Continuing Disclosure Agreement Specimen Municipal Bond Insurance Policy ii

5 OFFICIAL STATEMENT relating to $8,950,000 COUNTIES OF CRAWFORD, OTSEGO AND KALKASKA STATE OF MICHIGAN 2015 SCHOOL BUILDING AND SITE BONDS, SERIES A (General Obligation Unlimited Tax) INTRODUCTION The purpose of this Official Statement, which includes the cover page and Appendices, is to furnish information in connection with the issuance and sale by Crawford AuSable School District, Counties of Crawford, Otsego and Kalkaska, State of Michigan (the "School District") of its 2015 School Building and Site Bonds, Series A (General Obligation - Unlimited Tax) (the "Bonds") in the amount of $8,950,000. PURPOSE AND SECURITY On August 4, 2015, the qualified electors of the School District approved the issuance of bonds of the School District in the amount not to exceed $14,900,000 to be issued in one or more series. The Bonds in the amount of $8,950,000, representing the first series of the approved bonds, are being issued for the purpose of partially remodeling, furnishing and refurnishing, equipping and re-equipping school facilities; constructing and equipping an enclosure to the courtyard at Grayling Elementary School for an instructional area; acquiring, installing and equipping instructional technology for school facilities; erecting and equipping a bus storage building and purchasing school buses; and developing and improving play areas and sites; and paying the costs of issuing the Bonds. The Bonds will be issued by the School District pursuant to the provisions of Act 34, Public Acts of Michigan, 2001, as amended, and Act 451, Public Acts of Michigan, 1976, as amended. The Bonds, as authorized for issuance by resolutions of the Board of Education adopted on October 12, 2015 and expected to be adopted on December 14, 2015 (the "Resolutions"), are a full faith and credit unlimited tax general obligation of the School District. The principal of and interest on the Bonds are payable from the proceeds of ad valorem taxes levied on all taxable property in the School District which may be levied without limitation as to rate or amount as provided by Article IX, Section 6, of the Michigan Constitution of 1963, as amended. Bond Insurance Policy BOND INSURANCE Concurrently with the issuance of the Bonds, Assured Guaranty Municipal Corp. ("AGM") will issue its Municipal Bond Insurance Policy for the Bonds (the "Policy"). The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. 1

6 Assured Guaranty Municipal Corp. AGM is a New York domiciled financial guaranty insurance company and an indirect subsidiary of Assured Guaranty Ltd. ( AGL ), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol AGO. AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, infrastructure and structured finance markets. Neither AGL nor any of its shareholders or affiliates, other than AGM, is obligated to pay any debts of AGM or any claims under any insurance policy issued by AGM. AGM s financial strength is rated AA (stable outlook) by Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ), AA+ (stable outlook) by Kroll Bond Rating Agency, Inc. ( KBRA ) and A2 (stable outlook) by Moody s Investors Service, Inc. ( Moody s ). Each rating of AGM should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies, including withdrawal initiated at the request of AGM in its sole discretion. In addition, the rating agencies may at any time change AGM s long-term rating outlooks or place such ratings on a watch list for possible downgrade in the near term. Any downward revision or withdrawal of any of the above ratings, the assignment of a negative outlook to such ratings or the placement of such ratings on a negative watch list may have an adverse effect on the market price of any security guaranteed by AGM. AGM only guarantees scheduled principal and scheduled interest payments payable by the issuer of bonds insured by AGM on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the relevant insurance policy), and does not guarantee the market price or liquidity of the securities it insures, nor does it guarantee that the ratings on such securities will not be revised or withdrawn. Current Financial Strength Ratings On June 29, 2015, S&P issued a credit rating report in which it affirmed AGM s financial strength rating of AA (stable outlook). AGM can give no assurance as to any further ratings action that S&P may take. On November 13, 2014, KBRA assigned an insurance financial strength rating of AA+ (stable outlook) to AGM. AGM can give no assurance as to any further ratings action that KBRA may take. On July 2, 2014, Moody s issued a rating action report stating that it had affirmed AGM s insurance financial strength rating of A2 (stable outlook). On February 18, 2015, Moody s published a credit opinion under its new financial guarantor ratings methodology maintaining its existing rating and outlook on AGM. AGM can give no assurance as to any further ratings action that Moody s may take. For more information regarding AGM s financial strength ratings and the risks relating thereto, see AGL s Annual Report on Form 10-K for the fiscal year ended December 31, Capitalization of AGM At September 30, 2015, AGM s policyholders surplus and contingency reserve were approximately $3,769 million and its net unearned premium reserve was approximately $1,603 million. Such amounts represent the combined surplus, contingency reserve and net unearned premium reserve of AGM, AGM s wholly owned subsidiary Assured Guaranty (Europe) Ltd. and 60.7% of AGM s indirect subsidiary Municipal Assurance Corp.; each amount of surplus, contingency reserve and net unearned premium reserve for each company was determined in accordance with statutory accounting principles. 2

7 Incorporation of Certain Documents by Reference Portions of the following documents filed by AGL with the Securities and Exchange Commission (the SEC ) that relate to AGM are incorporated by reference into this Official Statement and shall be deemed to be a part hereof: (i) the Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (filed by AGL with the SEC on February 26, 2015); (ii) the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 (filed by AGL with the SEC on May 8, 2015); (iii) the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 (filed by AGL with the SEC on August 6, 2015); and (iv) the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 (filed by AGL with the SEC on November 6, 2015). All consolidated financial statements of AGM and all other information relating to AGM included in, or as exhibits to, documents filed by AGL with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, excluding Current Reports or portions thereof furnished under Item 2.02 or Item 7.01 of Form 8-K, after the filing of the last document referred to above and before the termination of the offering of the Bonds shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Copies of materials incorporated by reference are available over the internet at the SEC s website at at AGL s website at or will be provided upon request to Assured Guaranty Municipal Corp.: 31 West 52 nd Street, New York, New York 10019, Attention: Communications Department (telephone (212) ). Except for the information referred to above, no information available on or through AGL s website shall be deemed to be part of or incorporated in this Official Statement. Any information regarding AGM included herein under the caption BOND INSURANCE Assured Guaranty Municipal Corp. or included in a document incorporated by reference herein (collectively, the AGM Information ) shall be modified or superseded to the extent that any subsequently included AGM Information (either directly or through incorporation by reference) modifies or supersedes such previously included AGM Information. Any AGM Information so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded. Miscellaneous Matters AGM makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading BOND INSURANCE. 3

8 QUALIFIED TAX-EXEMPT OBLIGATIONS THE BONDS WILL BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" UNDER SECTION 265(b)(3)(B) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. ESTIMATED SOURCES AND USES OF FUNDS SOURCES Par Amount of Bonds $8,950, Original Issue Premium 1,032, Total Sources $9,982, USES Deposit to Capital Project Fund $9,726, Deposit to Capitalized Interest (CIF) Fund 133, AGM Insurance Premium 33, Underwriter s Discount 27, Costs of Issuance 61, Total Uses $9,982, Description and Form of the Bonds THE BONDS The Bonds will be issued in book-entry-only form as one fully registered Bond per maturity, without coupons, in the aggregate principal amount for each maturity set forth on the cover page hereof and may be purchased in denominations of $5,000 or any integral multiple thereof. The Bonds will be dated as of and bear interest from the date of issuance. Interest on the Bonds shall be payable semiannually each May 1 and November 1 to maturity or early redemption, commencing May 1, Interest on the Bonds shall be computed using a 360-day year with twelve 30-day months, and the Bonds will mature on the dates and in the principal amounts and will bear interest at the rates as set forth on the cover of this Official Statement. The corporate trust office of The Huntington National Bank, Grand Rapids, Michigan or its successor will serve as the paying agent (the "Paying Agent") and also as bond registrar and transfer agent if the Bonds cease to be held in book-entry-only form. For a description of payment of principal and interest, transfers and exchanges and notice of redemption on the Bonds, which are held in the bookentry-only system, see "Book-Entry-Only System" below. In the event the Bonds cease to be held in the book-entry-only system, then interest on the Bonds shall be payable when due by check or draft to the person or entity who or which is, as of the fifteenth (15th) day of the month preceding each interest payment date (the "Record Date"), the registered owner of record, at the owner's registered address. See "Transfer Outside Book-Entry-Only System" below. Book-Entry-Only System The information in this section has been furnished by The Depository Trust Company, New York, New York ("DTC"). No representation is made by the School District, the Paying Agent or the Underwriter as to the completeness or accuracy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. No attempt has been made by the School District, the Paying Agent or the Underwriter to determine whether DTC is or will be financially or otherwise capable of fulfilling its obligations. Neither the School District nor the Paying Agent will have any responsibility or obligation to DTC Participants, Indirect Participants (both as defined below) or the persons for which they act as nominees with respect to the Bonds, or for any principal, premium, if any, or interest payment thereof. 4

9 DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, 5

10 Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the School District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments of principal and interest amounts, if any, on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the School District or the Paying Agent, on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC (nor its nominee), Paying Agent, or School District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payments of principal, interest and redemption amounts, if any, to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) are the responsibility of the School District or Paying Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the School District or Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The School District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC. Transfer Outside Book-Entry-Only System In the event that the book-entry-only system is discontinued, the following provisions would apply to the Bonds. The Paying Agent shall keep the registration books for the Bonds (the "Bond Register") at its corporate trust office. Subject to the further conditions contained in the Resolutions, the Bonds may be transferred or exchanged for one or more Bonds in different authorized denominations upon surrender thereof at the corporate trust office of the Paying Agent by the registered owners or their duly authorized attorneys; upon surrender of any Bonds to be transferred or exchanged, the Paying Agent shall record the transfer or exchange in the Bond Register and shall authenticate replacement bonds in authorized denominations; during the fifteen (15) days immediately preceding the date of mailing of any notice of redemption or any time following the mailing of any notice of redemption, the Paying Agent shall not be required to effect or register any transfer or exchange of any Bond which has been selected for such redemption, except the Bonds properly surrendered for partial redemption may be exchanged for new Bonds in authorized denominations equal in the aggregate to the unredeemed portion; the School District and the Paying Agent shall be entitled to treat the registered owners of the Bonds, as their names 6

11 appear in the Bond Register as of the appropriate dates, as the owners of such Bonds for all purposes under the Resolutions. No transfer or exchange made other than as described above and in the Resolutions shall be valid or effective for any purposes under the Resolutions. Optional Redemption The Bonds or portions of the Bonds in multiples of $5,000, maturing on or after May 1, 2026, are subject to redemption prior to maturity at the option of the School District in such order as the School District may determine and by lot within any maturity, on any date occurring on or after May 1, 2025, at par and accrued interest to the date fixed for redemption. Notice of Redemption and Manner of Selection Notice of redemption of any Bond shall be given not less than thirty (30) days and not more than sixty (60) days prior to the date fixed for redemption by mail to the registered owner at the registered address shown on the registration books kept by the Paying Agent. The Bonds shall be called for redemption in multiples of $5,000 and Bonds of denominations of more than $5,000 shall be treated as representing the number of Bonds obtained by dividing the face amount of the Bond by $5,000 and such Bonds may be redeemed in part. The notice of redemption for Bonds redeemed in part shall state that upon surrender of the Bond to be redeemed a new Bond or Bonds in an aggregate face amount equal to the unredeemed portion of the Bond surrendered shall be issued to the registered owner thereof. If less than all of the Bonds of any maturity shall be called for redemption prior to maturity, unless otherwise provided, the particular Bonds or portions of Bonds to be redeemed shall be selected by lot by the Paying Agent, in the principal amounts designated by the School District. Any Bonds selected for redemption will cease to bear interest on the date fixed for redemption, whether presented for redemption, provided funds are on hand to redeem said Bonds. Upon presentation and surrender of such Bonds at the corporate trust office of the Paying Agent, such Bonds shall be paid and redeemed. So long as the book-entry-only system remains in effect, in the event of a partial redemption the Paying Agent will give notice to Cede & Co., as nominee of DTC, only, and only Cede & Co. will be deemed to be a holder of the Bonds. DTC is expected to reduce the credit balances of the applicable DTC Participants in respect of the Bonds and in turn the DTC Participants are expected to select those Beneficial Owners whose ownership interests are to be extinguished or reduced by such partial redemption, each by such method as DTC or such DTC Participants, as the case may be, deems fair and appropriate in its sole discretion. TAX PROCEDURES Article IX, Section 3, of the Michigan Constitution provides that the proportion of true cash value at which property shall be assessed shall not exceed 50% of true cash value. The Michigan Legislature by statute has provided that property shall be assessed at 50% of its true cash value, except as described below. The Michigan Legislature or the electorate may at some future time reduce the percentage below 50% of true cash value. On March 15, 1994, the electors of the State approved an amendment to the Michigan Constitution permitting the Legislature to authorize ad valorem taxes on a non-uniform basis. The legislation implementing this constitutional amendment added a new measure of property value known as "Taxable Value." Beginning in 1995, taxable property has two valuations -- State equalized valuation ("SEV") and Taxable Value. Property taxes are levied on Taxable Value. Generally, Taxable Value of property is the lesser of (a) the Taxable Value of the property in the immediately preceding year, adjusted for losses, and increased by the lesser of the inflation rate or 5%, plus additions, or (b) the property's current SEV. Under certain circumstances, therefore, the Taxable Value of property may be different from the same property's SEV. 7

12 When property is sold or transferred, Taxable Value is adjusted to the SEV, which under existing law is 50% of the current true cash value. The Taxable Value of new construction is equal to current SEV. Taxable Value and SEV of existing property are also adjusted annually for additions and losses. Responsibility for assessing taxable property rests with the local assessing officer of each township and city. Any property owner may appeal the assessment to the local board of review, the Michigan Tax Tribunal, and ultimately to the Michigan appellate courts. The Michigan Constitution also mandates a system of equalization for assessments. Although the assessors for each local unit of government within a county are responsible for actually assessing at 50% of true cash value, adjusted for Taxable Value purposes, the final SEV and Taxable Value are arrived at through several steps. Assessments are established initially by the municipal assessor. Municipal assessments are then equalized to the 50% levels as determined by the county's department of equalization. Thereafter, the State equalizes the various counties in relation to each other. SEV is important, aside from its use in determining Taxable Value for the purpose of levying ad valorem property taxes, because of its role in the spreading of taxes between overlapping jurisdictions, the distribution of various State aid programs, State revenue sharing and in the calculation of debt limits. Property that is exempt from property taxes, e.g., churches, government property, public schools, is not included in the SEV and Taxable Value data in the Official Statement. Property granted tax abatements under Act 198, Public Acts of Michigan, 1974, amended, is recorded on a separate tax roll while subject to tax abatement. The valuation of tax-abated property is based upon SEV but is not included in either the SEV or Taxable Value data in the Official Statement except as noted. Under limited circumstances, other state laws permit the partial abatement of certain taxes for other types of property for periods of up to 12 years. LEVY AND COLLECTION OF TAXES FOR PAYMENT OF THE BONDS AND BONDHOLDERS' REMEDIES The Resolutions authorizing the issuance of the Bonds and State law obligate the School District to levy a tax annually in an amount sufficient so that the estimated collections therefrom, will be sufficient to pay promptly when due the principal of and interest on the Bonds becoming due prior to the time of the next tax levy. The tax levy shall not be subject to limitation as to rate or amount. Taxes for the payment of the principal of or interest on the Bonds are certified for collection each year with the school tax levies. In the event of the failure of the proper officials to certify taxes for the payment of the principal and interest requirements, a timely action in the nature of mandamus could compel certification and collection of adequate taxes. Registered owners of the Bonds may attempt to obtain a money judgment against the School District for the principal amount of the Bonds or interest not paid when due and may periodically attempt to enforce the collection of the money judgment by requiring the tax assessing officers for the School District to place the amount of such judgment on the next tax rolls of the School District. The rights of the holders of the Bonds and the enforceability thereof are subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and their enforcement also may be subject to the exercise of judicial discretion in appropriate cases. SOURCES OF SCHOOL OPERATING REVENUE On March 15, 1994, the electors of the State of Michigan approved a ballot proposition to amend the State Constitution of 1963, in part, to increase the State sales tax from 4% to 6% as part of a complex plan to restructure the source of funding of public education (K-12) in order to reduce reliance on local property taxes for school operating purposes and to reduce the per pupil finance resource disparities 8

13 among school districts. The Legislature has appropriated funds to establish a base foundation allowance in 2015/16 ranging from $7,391 to $8,169 per pupil, depending upon the district's 1993/94 revenue. In the future, the foundation allowance may be adjusted annually by an index based upon the change in revenues to the State school aid fund and change in the total number of pupils statewide and the spread between the high and low per pupil allowance is reduced. The foundation allowance is funded by locally raised property taxes plus State aid. The source of revenues for the State's contribution to the foundation allowance is derived from a mix of taxing sources, including but not limited to, a statewide property tax of 6 mills on all taxable property 1, a State sales and use tax, a real estate transfer tax and a cigarette tax. School districts are required to levy a local property tax of not more than 18 mills or the number of mills levied in 1993 for school operating purposes, whichever is less, on non-homestead properties 2 in order for the district to receive its per pupil foundation allowance. An intermediate school district may seek voter approval for three enhancement mills for distribution to local constituent school districts on a per pupil basis. The enhancement mills are not counted toward the foundation allowance. Furthermore, districts whose per pupil foundation allowance in 2015/16 calculates to an amount in excess of $8,169 are authorized to levy additional millage to obtain the foundation allowance, first by levying such amount of the 18 mills against homestead property 3 as is necessary to hold themselves harmless and, if the 18 mills is insufficient, to then levy such additional mills against all property uniformly as is necessary to obtain the foundation allowance. The School District's per pupil foundation allowance does not exceed $8,169, and the School District does not levy such additional millage. State aid appropriations and the payment schedule for state aid may be changed by the Legislature at any time. See "STATE AID PAYMENTS" in APPENDIX A of this Official Statement. Public Act 196 of 2014 ("Act 196") amended the State School Aid Act for the 2014/15 fiscal year and increased the School District's per pupil foundation allowance to $7,251, including a one-time equity per pupil funding of $125 the School District received because its foundation allowance would otherwise have been below $7,251. Act 196 continued an additional payment to the School District to partially offset increases in the retirement plan contribution rate for the period October 1, 2014 to September 30, Act 196 also included grant funding equal to $50 per pupil (a $2 decline in the per pupil amount as compared to 2013/14) for school districts if they satisfy 7 out of 9 "best practices" relating to health and other benefits coverage, competitive bidding for certain vendor services, schools of choice, online instruction programs or blended learning opportunities, a dashboard/report card of the School District's financial management efforts, compensation methods for teachers and administrators that significantly factor performance and accomplishments, use of collective bargaining agreements that omit statutorily prohibited subjects of bargaining, implementation of a comprehensive guidance and counseling program, and opportunities for K to 8 pupils to complete coursework or other learning experiences equivalent to 1 credit in a language other than English. The Board and Administration satisfied such "best practices" requirements and the School District received and included such grant funding in the 2014/15 budget. Public Act 85 of 2015 ("Act 85") amended the State School Aid Act for the 2015/16 fiscal year and increased the School District's per pupil foundation allowance to $7,391. The prior year per pupil equity payment and "best practices" and "performance based" grants are eliminated. Act 85 also increased funding for at risk students and appropriated new funds for early literacy, career and technical 1 "Taxable property" does not include industrial personal property. 2 "Non-homestead property" includes all taxable property other than principal residence, qualified agricultural property, qualified forestry property, supportive housing property, property occupied by a public school academy and industrial personal property. Commercial personal property is exempt from the first 12 mills of not more than 18 mills levied by school districts. 3 "Homestead property", in this context, means principal residence, qualified agricultural property, qualified forestry property, supportive housing property, property occupied by a public school academy, certain industrial personal property and certain commercial personal property. 9

14 education middle college, and college and career preparation programs for eligible school districts. The Board and Administration anticipate that the School District will be eligible for said additional funding and the School District has included such funding in its 2015/16 General Fund Budget. THE SOURCES OF THE SCHOOL DISTRICT'S OPERATING REVENUE DO NOT IMPACT THE TAXING AUTHORITY OF THE SCHOOL DISTRICT FOR PAYMENT OF GENERAL OBLIGATION UNLIMITED TAX SCHOOL BONDS AND DO NOT AFFECT THE OBLIGATION OF THE SCHOOL DISTRICT TO LEVY TAXES FOR PAYMENT OF DEBT SERVICE ON GENERAL OBLIGATION UNLIMITED TAX BONDS OF THE SCHOOL DISTRICT, INCLUDING THE BONDS OFFERED HEREIN. MICHIGAN PROPERTY TAX REFORM On November 5, 2013, March 28, 2014, and April 1, 2014, Governor Snyder signed into law a package of bills amending and replacing legislation enacted in 2012 to phase-out most personal property taxes in Michigan. The bills were contingent on Michigan voters approving a ballot question authorizing a new municipal entity, the Local Community Stabilization Authority ("LCSA"), to levy a local component of the statewide use tax and distribute that revenue to local units of government to offset their revenue losses resulting from the personal property tax reform. On August 5, 2014, voters approved that ballot question. The bill package, together with the original 2012 legislation, created two new exemptions from the personal property tax. Under the "small taxpayer exemption," the commercial and industrial personal property of each owner with a combined true cash value in a local tax collecting unit of less than $80,000 is exempt from ad valorem taxes in that collecting unit beginning in For businesses that do not qualify for the "small taxpayer exemption," all "eligible manufacturing personal property" (personal property used more than 50% of the time in industrial processing or direct integrated support) purchased and placed into service before 2006 or during or after 2013 becomes exempt beginning in Taxation on "eligible manufacturing personal property" placed into service after 2006 but before 2013 will be phased-out over time; with the exemption taking effect after the property has been in service for the immediately preceding 10 years. The legislation extends certain personal property tax exemptions and tax abatements for technology parks, industrial facilities and enterprise zones that were to expire after 2012, until the voter-approved personal property tax exemptions take effect. Pursuant to voter approval in August 2014, the legislation also includes a formula to reimburse school districts for 100% of their lost operating millage revenue and lost sinking fund millage revenue. To provide the reimbursement, the legislation reduces the state share of the use tax and authorizes the LCSA to levy a local component of the use tax and distribute that revenue to qualifying local units. However, the reimbursement for the school district's operating millage will come from the state use tax component, which is deposited into the school state aid fund. 1 While the legislation provides reimbursement for prospective school operating losses, school districts will only be reimbursed for debt losses attributable to debt obligations that voters approved before January 1, 2013 or were incurred before January 1, For the 2014/2015 and 2015/2016 fiscal years, the State of Michigan will appropriate sufficient funds to the LCSA to reimburse school districts for such debt losses. 1 Because the reimbursement funds are deposited into the state school aid fund, the legislature may, in the future, change the funding formulas in the State School Aid Act of 1979 or appropriate funds therein for other purposes. 10

15 Because the Bonds are not associated with debt obligations that received voter approval before January 1, 2013, the school district will not be reimbursed for debt millage revenue it could have otherwise generated, without the exemptions, to make payments on the Bonds. 1 LITIGATION The School District has not been served with any litigation, administrative action or proceeding, and to the knowledge of the appropriate officials of the School District no litigation or administrative action or proceeding has been threatened against it, seeking to restrain or enjoin the issuance and delivery of the Bonds, or questioning or contesting the validity of the Bonds or the proceedings or authorities under which they are authorized to be issued, sold, executed and delivered. A certificate to such effect will be delivered to the Underwriter at the time of the original delivery of the Bonds. State TAX MATTERS In the opinion of Thrun Law Firm, P.C., East Lansing, Michigan ("Bond Counsel"), based on its examination of the documents described in its opinion, under existing State of Michigan statutes, regulations, rulings and court decisions, the Bonds and the interest thereon are exempt from all taxation in the State of Michigan, except inheritance and estate taxes and taxes on gains realized from the sale, payment or other disposition thereof. Federal In the opinion of Bond Counsel, based upon its examination of the documents described in its opinion, under existing statutes, regulations, rulings and court decisions, the interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that certain corporations must take into account interest on the Bonds in determining adjusted net current earnings for purposes of computing the alternative minimum tax imposed on such corporations. The opinions set forth in the preceding sentence are subject to the condition that the School District comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The School District has covenanted to comply with such requirements. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. Bond Counsel will express no opinion regarding other federal tax consequences with respect to the Bonds. There are additional federal tax consequences relative to the Bonds and the interest thereon. The following is a general description of some of these consequences but is not intended to be complete or exhaustive and investors should consult with their tax advisors with respect to these matters. Prospective purchasers of the Bonds should be aware that (i) interest on the Bonds is included in the effectively connected earnings and profits of certain foreign corporations for purposes of calculating the branch profits tax imposed by Section 884 of the Code, (ii) interest on the Bonds may be subject to a tax on excess net passive income of certain S Corporations imposed by Section 1375 of the Code, (iii) interest on the Bonds is included in the calculation of modified adjusted gross income for purposes of determining the taxability of social security or railroad retirement benefits, (iv) the receipt of interest on the Bonds by life insurance companies may affect the federal tax liability of such companies, (v) in the case of property 1 A school district that increases its millage rate, without voter approval, to replace debt millage revenue loss would not be eligible to receive reimbursement distributions. 11

16 and casualty insurance companies, the amount of certain loss deductions otherwise allowed is reduced by a specific percentage of, among other things, interest on the Bonds, (vi) holders of the Bonds may not deduct interest on indebtedness incurred or continued to purchase or carry the Bonds, and (vii) commercial banks, thrift institutions and other financial institutions may deduct their costs of carrying certain obligations such as the Bonds. Original Issue Premium For federal income tax purposes, the initial offering prices to the public (excluding bond houses and brokers) of certain Bonds, as set forth on the cover of this Official Statement, may be greater than the stated redemption prices at maturity (the "Premium Bonds"), and constitutes for the original purchasers of the Premium Bonds an amortizable bond premium. Such amortizable bond premium is not deductible from gross income but is taken into account by certain corporations in determining adjusted current earnings for the purpose of computing the alternative minimum tax, which may also affect liability for the branch profits tax imposed by Section 884 of the Code. The amount of amortizable bond premium allocable to each taxable year is generally determined on the basis of a taxpayer's yield to maturity determined by using the taxpayer's basis (for purposes of determining loss on sale or exchange) of such Premium Bonds and compounding at the close of each six-month accrual period. The amount of amortizable bond premium allocable to each taxable year is deducted from the taxpayer's adjusted basis of such Premium Bonds to determine taxable gain upon disposition (including sale, redemption or payment on maturity) of such Premium Bonds. Future Developments No assurance can be given that any future legislation, if enacted into law, will not contain proposals which could cause the interest on the Bonds to be subject directly or indirectly to federal or state income taxation, adversely affect the market price or marketability of the Bonds, or otherwise prevent bondholders from realizing the full current benefit of the status of the interest thereon. Furthermore, no assurance can be given that the impact of any future court decisions will not cause the interest on the Bonds to be subject directly or indirectly to federal or state income taxation, adversely affect the market price or marketability of the Bonds, or otherwise prevent bondholders from realizing the full current benefit of the status of the interest thereon. It is to be understood that the rights of the holders of the Bonds and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. INVESTORS SHOULD CONSULT WITH THEIR TAX ADVISORS AS TO THE TAX CONSEQUENCES OF THEIR ACQUISITION, HOLDING OR DISPOSITION OF THE BONDS, INCLUDING THE TREATMENT OF ORIGINAL ISSUE DISCOUNT AND ORIGINAL ISSUE PREMIUM, IF ANY. APPROVAL OF LEGAL PROCEEDINGS Legal matters incident to the authorization, issuance and sale by the School District of the Bonds are subject to the approving opinion of Thrun Law Firm, P.C., East Lansing, Michigan, Bond Counsel. Except to the extent necessary to issue its approving opinion as to the validity of the Bonds, Bond Counsel has made no inquiry as to any financial information, statements or materials contained in any financial documents, statements or materials that have been or may be furnished in connection with the authorization, issuance or marketing of the Bonds, and accordingly will not express any opinion with respect to the accuracy or completeness of any such financial information, statements or materials. 12

17 Certain legal matters will be passed upon for the Underwriter by its counsel, Clark Hill PLC, Birmingham, Michigan. APPROVAL BY MICHIGAN DEPARTMENT OF TREASURY The School District has received a letter from the Department of Treasury of the State of Michigan stating that the School District is in material compliance with the criteria of the Revised Municipal Finance Act, Act 34, Public Acts of Michigan, 2001, as amended, for a municipality to be granted qualified status. The School District may therefore proceed to issue the Bonds without further approval from the Department of Treasury of the State of Michigan. RATINGS Standard & Poor s Rating Services ( S&P ) has assigned its rating of AA (stable outlook) to the Bonds based solely on the municipal bond insurance policy to be issued by AGM concurrently with the delivery of the bonds. See BOND INSURANCE herein. S&P has assigned, as of the date of delivery of the Bonds, its municipal bond rating of "A+" to the Bonds without respect to the municipal bond insurance policy. No application has been made to any other ratings service for a rating on the Bonds. The School District furnished to S&P certain materials and information in addition to that provided here. Generally, the rating agency bases its rating on such information and materials, and on investigations, studies and assumptions. There is no assurance that such ratings will prevail for any given period of time or that they will not be revised downward or withdrawn entirely by S&P if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse affect on the market price of the Bonds. Any rating assigned represent only the view of S&P. Further information is available upon request from Standard & Poor s Ratings Services, 55 Water Street, New York, NY 10014, (212) UNDERWRITING Fifth Third Securities, Inc. ("Underwriter") has agreed, subject to the terms of the Bond Purchase Agreement, to purchase the Bonds from the School District. The Bond Purchase Agreement provides, in part, that the Underwriter, subject to certain conditions, will purchase from the School District the aggregate principal amount of Bonds for a purchase price as set forth therein. The Underwriter has further agreed to offer the Bonds to the public at the approximate initial offering prices as set forth on the cover hereto. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the offering prices stated on the cover hereto. The offering prices may be changed from time to time by the Underwriter. The aggregate underwriting fee equals percent of the aggregate principal amount of the Bonds. The Bond Purchase Agreement provides that the obligations of the Underwriter are subject to certain conditions, including, among other things, that (i) no event has occurred which impairs or threatens to impair the status of the Bonds or interest on the Bonds as exempt from taxation in the State (except inheritance and estate taxes and taxes on gains realized from the sale, payment or other disposition thereof) and the interest on the Bonds is excluded from gross income for federal income tax purposes and (ii) proceedings relating to the Bonds are not pending or threatened by the Securities and Exchange Commission. The Bond Purchase Agreement further provides that the School District will provide to the Underwriter within seven business days of the date of the Bond Purchase Agreement sufficient copies of the Official Statement to enable the Underwriter to comply with the requirements of Rule 15c2-12(b)(4) under the Securities Exchange Act of 1934, as amended. 13

18 FINANCIAL ADVISOR'S OBLIGATION Public Financial Management, Inc., Ann Arbor, Michigan (the "Financial Advisor"), has been retained by the School District to provide certain financial advisory services. The Financial Advisor assisted in the preparation of the Official Statement and in other matters relating to the planning, structuring and issuance of the Bonds. The information contained in the Official Statement was prepared in part by the Financial Advisor and is based on information supplied by various officials from records, statements and reports required by various local, county or state agencies of the State of Michigan. To the best of the Financial Advisor's knowledge, all of the information contained in the Official Statement, which it assisted in preparing, while it may be summarized is complete and accurate. However, the Financial Advisor has not and will not independently verify the completeness and accuracy of the information contained in the Official Statement. The Financial Advisor is a registered municipal advisor and is not engaged in the business of underwriting, marketing or trading of municipal securities or any other negotiable instrument. The Financial Advisor's duties, responsibilities and fees arise solely as financial advisor to the School District. The Financial Advisor's fees are expected to be paid from Bond proceeds. Further information concerning the Bonds may be secured from Public Financial Management, Inc., 3989 Research Park Drive, Ann Arbor, Michigan 48108, (734) , Financial Advisor to the School District or from Crawford AuSable School District. CONTINUING DISCLOSURE Prior to delivery of the Bonds, the School District will execute a Continuing Disclosure Agreement (the "Agreement") for the benefit of the holders of the Bonds and the Beneficial Owners (as hereinafter defined under this caption only) to send certain information annually and to provide notice of certain events to certain information repositories pursuant to the requirements of Rule 15c2-12(b)(5) (the "Rule") adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. "Beneficial Owner" means, under this caption only, any person who has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including any person holding Bonds through nominees, depositories or any other intermediaries). The information to be provided on an annual basis, the events which will be noticed on an occurrence basis and the other terms of the Agreement, are set forth in APPENDIX E, "Form of Continuing Disclosure Agreement." Additionally, the School District shall provide certain annual financial information and operating data generally consistent with the information contained within the tables under the headings "PROPERTY VALUATIONS - Historical Valuations," "MAJOR TAXPAYERS," "TAX RATES (Per $1,000 of Valuation) Crawford AuSable School District," "STATE AID PAYMENTS," "TAX LEVIES AND COLLECTIONS," "PENSION FUND," "DEBT STATEMENT - DIRECT DEBT," "SCHOOL BOND QUALIFICATION AND LOAN PROGRAM," if any, and "SCHOOL ENROLLMENT - Historical Enrollment," in APPENDIX A and General Fund Budget Summaries in APPENDIX B. A failure by the School District to comply with the Agreement will not constitute an event of default under the Resolutions and holders of the Bonds or Beneficial Owners are limited to the remedies described in the Agreement. A failure by the School District to comply with the Agreement must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Bonds and their market price. Except as provided herein, the School District has not, in the previous five years, failed to comply, in all material respects, with any previous continuing disclosure agreements executed by the School District pursuant to the Rule. The School District has filed, in the previous five years, its annual 14

19 filing in a timely manner pursuant to the Rule. Also, the School District recently filed late material event disclosures for rating changes that have occurred since To the best of the School District's knowledge, the School District did not receive notifications from bond insurers or the rating agencies of the rating changes for the bond insurers or the State of Michigan. However, the School District received notice from the rating agencies of changes to its underlying ratings but was not aware that it should file notices of the underlying rating changes required by the Agreement. OTHER MATTERS All information contained in this Official Statement, in all respects, is subject to the complete body of information contained in the original sources thereof. In particular, no opinion or representation is rendered as to whether any projection will approximate actual results, and all opinions, estimates and assumptions, whether or not expressly identified as such, should not be considered statements of fact. COUNTIES OF CRAWFORD, OTSEGO AND KALKASKA STATE OF MICHIGAN By: /s/ Joseph P. Powers Its: Superintendent of Schools 15

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21 APPENDIX A * GENERAL FINANCIAL, ECONOMIC AND SCHOOL INFORMATION LOCATION AND AREA Crawford AuSable School District (the School District ) encompasses an area of approximately 464 square miles. The School District includes portions of Crawford County and small portions of Otsego Lake Township in Otsego County and Bear Lake Township in Kalkaska County. POPULATION The U.S. Census reported populations for the School District are as follows: School District 2013 Estimate 11, U.S. Census 1 12, U.S. Census 1 12, U.S. Census 1 10,550 1 Based upon an extrapolation of the figures of the local units within the School District. Source: U.S. Census Bureau via American FactFinder website BOARD OF EDUCATION The Board of Education consists of seven members who are elected at large for six-year overlapping terms. The Board bi-annually elects a President, Vice President, Treasurer and Secretary. The Board is responsible for the selection and appointment of the Superintendent of Schools. The Board meets as a single body to set or amend policy, develop long range educational goals and act upon recommendations of the Superintendent of Schools. The Board is also responsible for adopting and periodically amending the operating budget and evaluating school programs in accordance with governing laws. ENROLLMENT Historical fall enrollment for the School District is as follows: School Fall School Fall Year End Enrollment Year End Enrollment 30-Jun Count Change 30-Jun Count Change , % , % , , , , , , , , * Information included in Appendix A of this Official Statement was obtained from the School District unless otherwise noted. A-1

22 2014/2015 Fall Count Kindergarten th st th nd th rd th 94 4 th th th 123 Sub Total 1,533 6 th 125 Alternative Ed th 102 Shared Services 10 Total 1, /2020 Projected Enrollment K Special Ed. Included Alternative/Shared Service 50 Total 1,422 SCHOOL DISTRICT FACILITIES The following is a table showing the existing School District facilities. Grades Year Last Type of Facility Served Built Remodel Construction Elementary Schools: AuSable/Grayling K /06 Brick Middle School: Grayling Brick High School: Grayling Alt Ed /06 Brick Additional Facilities: Bus Garage Storage Building OTHER SCHOOLS There are no private, charter or parochial schools within the School District s boundaries. A-2

23 STATE AID PAYMENTS The School District s primary source of funding for operating costs is the State aid foundation allowance per pupil. The base foundation allowance was set from $7,391 to $8,169 for the fiscal year 2015/16. In future years, this allowance may be adjusted by an index based upon the change in revenues to the State school aid fund and the change in the total number of pupils statewide. See SOURCES OF SCHOOL OPERATING REVENUE herein for additional information. The State may reduce State aid appropriations at any time if the State s revenues do not meet budgeted expectations. The following table shows a five year history and a current estimate of the School District s total state aid revenues, including categoricals and other amounts, and the per pupil state aid foundation allowance (including the 2015/16 allowance), which reflects the changes in sources of school operating revenue described herein: Fiscal Foundation Total Blended Amount Year End Allowance State Aid Pupil Received 30-Jun per Pupil Payments Count per Pupil $7,391 $11,568,245 N/A N/A ,126** 8,357,310 1, , ,026 7,830,643 1, , ,966 7,971,770 1, , ,846 7,609,425 1, , ,316 8,087,191 1, ,599* *Adjustment is offset by ARRA stabilization funds ** The School District also received a one-time $125 per pupil equity payment. 1 Represents the Total State Aid Payments divided by the Blended Pupil Count. Source: Michigan Department of Education via website PROPERTY VALUATIONS In accordance with Act 539, Public Acts of Michigan, 1982, and Article IX, Section 3 of the Michigan Constitution, the ad valorem State Equalized Valuation (SEV) represents 50% of true cash value. SEV does not include any value of tax exempt property (e.g. churches, governmental property) or property granted tax abatements under Act 198, Public Acts of Michigan, 1974, as amended ( Act 198 ). Since 1994, ad valorem property taxes are assessed on the basis of Taxable Value, which is subject to assessment caps. SEV is used in the calculation of debt margin and true cash value. See TAX PROCEDURES herein for further information. Taxable property in the School District is assessed by the local municipal assessor, and is subject to review by the County Equalization Department. HISTORY OF VALUATIONS A history of the property valuations in the School District is shown below: Total Percent State Percent Year Taxable Value Change Equalized Value Change 2015 $468,464,784* -1.47% $535,329, % ,453, ,375, ,304, ,100, ,778, ,002, ,641, ,092, *The Total Taxable Value above is from March, as of August 28, 2015 the Total Taxable Value is $472,612,702. A-3

24 History of Valuations $1,000 Millions $500 $ Total Taxable Value State Equalized Value A summary of the 2015 valuation subject to taxation is as follows: 2015 Taxable Value $468,464,784 Plus: 2015 Equivalent IFT Taxable Value 1 3,117,892 Total 2015 Equivalent Taxable Value $471,582,676 1 See INDUSTRIAL FACILITY TAX ABATEMENTS herein. Source: Crawford, Kalkaska, and Otsego Counties Equalization Departments. Taxable Value by Use A breakdown of the School District s 2015 Taxable Value by use and class is as follows: 2015 Percent By Use: Taxable Value of Total Real Property $407,127, % Personal Property 61,336, TOTAL $468,464, % By Class: Agricultural $200, % Commercial 38,118, Industrial 19,264, Residential 348,455, Timber-Cutover 1,088, Personal 61,336, TOTAL $468,464, % Taxable Value by Class 0.23% 13.09% 0.04% 74.38% 8.14% 4.11% Agricultural Commercial Industrial Residential Timber-Cutover Personal Source: Crawford, Kalkaska, and Otsego Counties Equalization Departments. Tax Base Composition Principal Non-Principal Total Percent Municipality Residence 1 Residence 1 Taxable Value of Total Crawford County $197,104,296 $250,623,824 $447,728, % Otsego County 2,583,866 6,322,643 8,906, Kalkaska County 4,552,054 7,278,101 11,830, TOTAL $204,240,216 $264,224,568 $468,464, % 1 Until 2010, all personal property was included in non-homestead valuations. Beginning in 2010, all industrial personal property is included in the homestead tax base. While commercial personal property continues to be included in the non-homestead tax base, it is exempt from 12 of the 18 operating mills levied on non-homestead property only. In 2015, industrial personal property had a taxable value of $25,389,100 and commercial personal property had a taxable value of $6,225,160 in the School District. Source: Crawford, Kalkaska, and Otsego Counties Equalization Departments. A-4

25 INDUSTRIAL FACILITY TAX ABATEMENTS Under the provisions of Act 198, plant rehabilitation districts and/or industrial development districts may be established. Businesses in these districts are offered certain property tax incentives to encourage restoration or replacement of obsolete facilities and to attract new facilities to the area. An industrial facilities tax ( IFT ) is paid, at a lesser effective rate and in lieu of ad valorem property taxes, on such facilities for a period of up to 12 years. Qualifying facilities are issued abatement certificates for specific periods. After expiration of the abatement certificate, the then-current SEV of the facility is returned to the ad valorem tax roll. The owner of such facility may obtain a new certificate, provided it has complied with the provisions of Act 198. The 2015 Taxable Value for the properties which have been granted IFT abatements within the School District s boundaries is $6,235,784, all of which is taxed at ½ rate. For purposes of computing Equivalent Taxable Value, it has been shown in the History of Valuations section as 50% of the Taxable Value. Source: Crawford, Kalkaska, and Otsego Counties Equalization Departments. MAJOR TAXPAYERS Shown below are the ten largest identifiable taxpayers in the School District based on their 2015 total valuation subject to taxation Taxpayer Product/Service Taxable Value Weyerhaeuser Co. Wood Processing $13,407,250 Grayling Co-Generation Station Electricity 8,812,597 Consumers Energy Utility 6,328,303 Breitburn Operating L.P. Oil Wells 6,004,200 Weyerhaeuser NR Company Wood Processing 5,500,000 Great Lakes Energy Utility 4,299,780 Enbridge Energy Utility 4,096,300 Marathon Oil Co. Utility 2,695,500 Georgia Pacific Mfg. Wood/Chemical Products 2,588,350 Linn Operating, Inc. Energy 2,049,564 TOTALS $55,781,844 Total 2015 Taxable Value $468,464,784 Total 10 Taxpayers as a % of 2015 Total Taxable Value 11.91% Source: Crawford, Kalkaska, and Otsego Counties Equalization Departments. SCHOOL DISTRICT TAX RATES - (Per $1,000 of Valuation) The following table shows the total school district tax rates for the past five years Operating Voted Debt Total Non-Principal Residence Total Principal Residence The School District levies 18.0 mills voted operating millage on non-principal property and authorized debt millage on all property within the School District. The mill voted operating millage expires with the 2018 levy. A-5

26 OTHER JURISDICTIONS TAX RATES - (Per $1,000 of Valuation) The following table provides the 2014 and 2013 tax rates for select municipal units of government that overlap with the School District s boundaries. Source: Crawford, Kalkaska, and Otsego Counties TAX LEVIES AND COLLECTIONS State Education Tax Crawford County City of Grayling Grayling Township C.O.O.R ISD Kirtland Community College The School District s fiscal year begins July 1 and ends June 30. School District property taxes are due July 1 of each fiscal year and are payable without interest on or before the following September 14 and without penalty on or before the following February 14. All real property taxes remaining unpaid on March 1 st of the year following the levy are turned over to the County Treasurers for collection. Crawford, Kalkaska, and Otsego Counties (the Counties ) annually pay from their Tax Payment Funds delinquent taxes on real property to all taxing units in the Counties, including the School District, shortly after the date delinquent taxes are returned to the County Treasurers for collection. A history of operating tax levies and collections for the School District is as follows: Levy Operating Collections to Collections Plus Funding to Year Tax Levy March 1, Each Year June 30, Each Year 2014 $4,904,195 $4,617, % $4,903, % ,858,825 4,549, ,857, ,741,720 4,409, ,740, ,823,679 4,452, ,821, ,076,174 4,629, ,074, RETIREMENT PLAN For the period October 1 through September 30, the School District pays an amount equal to a percentage of its employees wages to the Michigan Public School Employees Retirement System ( MPSERS ), which is administered by the State of Michigan. These contributions are required by law and are calculated by using the contribution rates and periods provided in the table below of the employees wages. The employer contribution rate for employees who first worked July 1, 2010 or later (Pension Plus members) for the time period July 1, 2010 to September 30, 2010 was 15.44%. For other employees, the rate was 16.94% through September 30, Effective October 1, 2010, the employer contribution rate for all employees except Pension Plus members increased to 19.41%. For Pension Plus members, the employer contribution rate is 17.91%. On June 28, 2010, the Michigan Court of Claims issued an injunction in response to a challenge to the authority of the State to require employees who began working before July 1, 2010, to contribute 3% of reportable wages to the retired health care trust at MPSERS. As a result, the State has adjusted the contribution rate due on employees wages paid between November 1, 2010 and September 30, 2011 to 20.66% for members who first worked prior to July 1, 2010 and 19.16% for Pension Plus members. In March 2011, the Court of Claims granted the plaintiffs motions for summary disposition finding that the mandatory 3% contribution violated both the U.S. and the Michigan constitutions. The State appealed the ruling to the Michigan Court of Appeals. In August 2012, the Court of Appeals affirmed the decision of the Court of Claims. The State of Michigan has filed an application for Leave to Appeal with the Michigan Supreme Court. A-6

27 On September 4, 2012, the Governor signed Act 300 Public Acts of Michigan, 2012 ( Act 300 ) to reform MPSERS. Act 300 makes changes to employee contributions to their pensions and retiree health benefits, shifting the 3% pension contribution to retiree health benefits. Act 300 increased the amount retirees contributed to their health insurance, and employees will be required to choose to increase contributions to their new pension plan, maintain current contribution rates and freeze existing benefits, or freeze existing pension benefits and move into a defined contribution plan. In addition, the legislation ended retiree health benefits for new hires. On November 29, 2012, the Ingham County Circuit Court judge, sitting as the Court of Claims, ruled that the substantive provisions of Act 300 were constitutional except for one particular provision relating to an election window for healthcare benefits. The Legislature promptly adopted legislation signed into law by the Governor which addressed the constitutional concerns of the election window raised by the Court of Claims. Two public school employee unions appealed that decision with the Court of Appeals, which affirmed that decision on January 14, The unions filed an application for leave to appeal with the Michigan Supreme Court which the Michigan Supreme Court granted May 21, On April 8, 2015, the Michigan Supreme Court upheld Act 300 by ruling that the required employee elections to participate in and contribute to retiree healthcare and defined benefit pension plans are constitutional under both the Michigan and United States Constitutions. It is unknown at this time if plaintiffs will appeal this decision to the federal court. The Michigan Supreme Court has not yet ruled on the mandatory 3% retiree health contributions made by members from July 2010 to September 2012 before Act 300 took effect. The School District s estimated contribution to MPSERS for the 2014/15 fiscal year and for the previous five years are shown on the table below. For more information regarding this and other retirement plans see Appendix C in this Official Statement. 1 Estimated. Contribution Period Contribution Rate Pension Plus Oct. 1, 2014 Sept. 30, % % Oct. 1, 2013 Sept. 30, Feb. 1, 2013 Sept. 30, Oct. 1, 2012 Jan. 31, Oct. 1, 2011 Sept. 30, Nov. 1, 2010 Sept. 30, Oct. 1, 2010 Oct. 31, Oct. 1, 2009 Sept. 30, N/A Contribution to Fiscal Year Ended June 30, MPSERS 2015 $2,724, ,547, ,067, ,958, ,667, ,429,577 Note: Effective for fiscal years beginning after June 15, 2014, GASB Statement 68 requires all reporting units in a multiemployer cost sharing pension plan to record a balance sheet liability for their proportionate share of the net pension liability of the plan. The School District will be required to implement GASB 68 in their year ended June 30, 2015 financial statements. Preliminary unaudited estimates from the State for fiscal year 2014 indicate a potential pension liability of approximately $20,684,254. Source: Audited Financial Statements and School District A-7

28 OTHER POST-EMPLOYMENT BENEFITS MPSERS is a cost-sharing, multi-employer, statewide plan. Pension benefits, and retiree health benefits, are established by law and funded through employer contributions. The cost of retiree health benefits is funded annually on a pay-as-you-go basis, with retirees paying some of the costs. Current year liability for retiree health benefits is reflected in the figures provided above. Further information regarding MPSERS, including retiree health benefits, can be found at LABOR RELATIONS The School District has labor agreements with the following employee groups. The agreements all provide for complete and comprehensive salary, wage, fringe benefit and working conditions provisions. The number of employees and duration of the agreements are as follows: No. of Exp. Date Employee Group Employees Affiliation of Contract Administrators 11 Non-Affiliated N/A Teachers 101 MI Fed. Of Teachers/CAFT 08/30/16 Secr./Clerical/Maintenance 13 MI Fed. Of Teachers/Sup. Pers. 06/30/16 Food Service/Para-Prof. 33 MI Fed. Of Teachers/Sup. Pers. 06/30/16 Transportation 11 MI Fed. Of Teachers/Sup. Pers. 06/30/16 TOTAL 169 The School District has not experienced a strike by any of its bargaining units within the past ten years. DEBT HISTORY The School District has no record of default on its obligations. FUTURE FINANCING The School District will have approximately $5,110,000 million of voted bond authorization following the issuance of the 2015 bonds which it expects to issue in $2,125,000 in 2016, $995,000 in 2018, $995,000 in 2021 and $995,000 in A-8

29 DEBT STATEMENT* - (As of 11/18/15 including the Bonds described herein) Dated Final Principal Date Purpose Bond Type Maturity Outstanding 06/01/06 Building & Site UTNQ 05/01/16 $220,000 05/01/08 Building & Site UTNQ 05/01/16 635,000 07/09/13 Technology & Bus Bonds UTNQ 05/01/19 825,000 02/11/15 Refunding UTQ 05/01/21 6,745,000 12/16/15 Building & Site, Series A UTNQ 05/01/29 8,950,000 TOTAL DIRECT DEBT $17,375,000 OVERLAPPING DEBT: Percent Net District's Share Municipality Debt Share % Grayling, City of $1,610,000 $1,610, Bear Lake Township Beaver Creek Township Frederic Township Grayling Township Lovells Township Maple Forest Township Otsego Lake Township Crawford County 1,346,000 1,118, Kalkaska County 2,320,000 37, Otsego County 2,247,847 12, COOR ISD Kirtland Community College 10,220,000 1,629,068 TOTAL OVERLAPPING DEBT $4,408,395 NET DIRECT AND OVERLAPPING DEBT $21,783,395 Source: Municipal Advisory Council of Michigan SCHOOL LOAN REVOLVING FUND (SLRF) PROGRAM The School District did not have a SLRF balance as of October 31, OTHER DEBT In addition to the other financing shown in the footnotes to the audited financial statements, the School District has the following short-term borrowing outstanding. Maturity Annual Date Description Date Interest Balance 12/09/11 Leasing Xerox Copiers 11/09/16 -- $84,944 A-9

30 DEBT RATIOS. Estimated School District Population 11, Taxable Value $468,464, State Equalized Value (SEV) $535,329, True Cash Value (TCV) $1,070,659,350 Per Capita 2015 Taxable Value $39, Per Capita 2015 State Equalized Value $44, Per Capita 2015 True Cash Value $89, Per Capita Net Direct Debt $1, Per Capita Net Direct and Overlapping Debt $1, Percent of Net Direct Debt of 2015 Taxable Value % Percent of Net Direct and Overlapping Debt of 2015 Taxable Value % Percent of Net Direct Debt of 2015 SEV % Percent of Net Direct and Overlapping Debt of 2015 SEV % Percent of Net Direct Debt of 2015 TCV % Percent of Net Direct and Overlapping Debt of 2015 TCV % LEGAL DEBT MARGIN - (As of 11/18/15 including the Bonds described herein) 2015 State Equalized Value $535,329,675 Legal Debt Limit - 15% of SEV $80,299,451 Total Bonded Debt Outstanding $17,375,000 Less: SLRF Qualified Bonds 1 6,745,000 Net Amount Subject to Legal Debt Limit 10,630,000 LEGAL DEBT MARGIN AVAILABLE $69,669,451 1 Section 1351(3) of Act 451, Public Acts of Michigan, 1976, as amended, provides that the bonded indebtedness of a school district shall not exceed 15% of the total assessed valuation of the district. Bonds not included in the computation of the legal debt margin are (1) any bond qualified under Article IX, Section 16 of the Michigan constitution of 1963, and (2) deficit budget bonds as authorized under section In addition, Section 605 of Act 34, Public Acts of Michigan, 2001, as amended, provides, in relevant part, that debt evidenced by a refunding security shall not be deemed to be within any statutory or charter limitation of outstanding debt limit. A-10

31 EMPLOYMENT CHARACTERISTICS Listed below are the largest employers that are located within the School District, Crawford County, Otsego County, and Kalkaska County: Employer Product or Service Approx. No. of Employees Within the School District-Crawford County (50 + employees) Grayling Mercy Hospital Health Care 350 Crawford AuSable School District Education 169 Glen's Markets Groceries/Retail Store 150 Hilltop Manor Health Care Center Nursing Care Facility 150 Weyerhaeuser Wood Products 125 Big Boy Restaurant 100 Holiday Inn Hotel 90 Spring Window Fashions Wooden Shutter & Blind Components 90 Custom Forest Products Wooden Shutter & Blind Components 63 Kmart Retail 59 AJD Forest Products Lumber Processing 54 Camp Grayling National Guard Camp 50 Air Way Automation, Inc. Automated Metal Assembly Equipment 50 Otsego County (150 + employees) Otsego Memorial Hospital Health Care 500 Golf USA Running & Jogging Supply 500 Standard Electric Co Security Control Equipment & System 402 Gaylord Community Schools Education 301 Treetops Resort Golf Course 300 M Bank National Commercial Bank 197 Tendercare Nursing & Convalescent Home 150 Glen's Markets Groceries/Retail Store 150 Kalkaska County (150 + employees) Wayne Wire Cloth Products Inc. Wire Products Mfg. 300 Kalkaska Memorial Health Center Health Care 300 Kalkaska Public Schools Education 178 Alken- Ziegler Inc. Motor Vehicle Metal Stamping 150 Beckman Production Service Inc. Oil & Gas Services 150 Key Energy Service Oil Field Services 150 Source: 2015 Michigan Manufacturers Directory, Michigan Business Directory and Manta Intelligence Company ( A-11

32 EMPLOYMENT BREAKDOWN The U.S. Census Bureau, American Community Survey reports the occupational breakdown of persons 16 years and over for the County of Crawford as follows: County of Crawford Number Percent PERSONS BY OCCUPATION 5, % Management, Professional & Related 1, Service 1, Sales & Office 1, Natural Resources Construction, & Maintenance Production, Transportation & Material Moving The U.S. Census Bureau, American Community Survey reports the breakdown by industry for persons 16 years and over in the County of Crawford as follows: UNEMPLOYMENT County of Crawford Number Percent PERSONS BY INDUSTRY 5, % Agriculture, Forestry, Fishing, Hunting & Mining Construction Manufacturing Wholesale Trade Retail Trade Transportation Information Finance, Insurance & Real Estate Professional & Management Services Educational, Health & Social Services 1, Arts, Entertainment, Recreation & Food Services Other Professional & Related Services Public Administration The U.S. Department of Labor, Bureau of Labor Market Statistics, reports unemployment averages for the County of Crawford as compared to the State of Michigan as follows: Annual County of State of Average Crawford Michigan August, % 5.2% A-12

33 POPULATION BY AGE INCOME The 2010 U.S. Census estimate of population by age for the County of Crawford are as follows: County of Crawford Number Percent Total Population 14, % 0 through 19 years 3, through 64 years 8, years and over 2, Median Age 47.7 years The U.S. Census Bureau, American Community Survey estimates of household income for the County of Crawford are as follows: County of Crawford Number Percent HOUSEHOLDS BY INCOME 5, % Less than $ 10, $ 10,000 to $ 14, $ 15,000 to $ 24, $ 25,000 to $ 34, $ 35,000 to $ 49, $ 50,000 to $ 74,999 1, $ 75,000 to $ 99, $100,000 to $149, $150,000 to $199, $200,000 or MORE Median Income $40,295 A-13

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35 APPENDIX B GENERAL FUND BUDGET AND COMPARATIVE FINANCIAL STATEMENTS Crawford AuSable School District General Fund Budget As Adopted 2015/16 Revenue: Local Sources $5,213,928 State Sources 8,354,794 Federal Sources 1,014,733 Other Sources 234,422 Total Revenue $14,817,877 Expenditures: Instructional Services Basic Program $7,869,928 Added Needs 2,140,828 Support: Pupil 893,748 Instructional Staff 277,127 General Administration 308,056 School Administration 1,028,188 Business Services 256,213 Operation & Maintenance 1,353,121 Pupil Transportation 579,943 Support Services Central 379,032 Support Services Other 251,346 Community Services 5,300 Total Expenditures $15,342,830 Excess of Expenditures (over) under Revenues ($524,953) Beginning Fund Balance - July 1 $3,719,872 Projected Fund Balance - June 30 $3,194,919 Source: School District B-1

36 Crawford AuSable School District General Fund Comparative Balance Sheet For Fiscal Years Ended June 30th Assets: Cash and Cash Equivalents $2,420,454 $2,073,933 $2,653,910 Accounts Receivable 43,978 15,213 26,354 Due from Other Governmental Units 1,868,173 1,925,910 1,613,830 Due from Other Funds 39, ,940 76,854 Prepaid Expenses 419, , ,181 Inventories 49,092 46,914 41,307 Investments 11,797 11,802 11,805 Total Assets $4,852,223 $4,778,081 $4,948,241 Liabilities: Accounts Payable $93,990 $236,215 $228,456 Accrued Expenses 190, , ,970 Salaries Payable 545, , ,885 Due to Other Funds 10,943 44,743 Deferred Revenue 60,864 11,171 Total Liabilities $890,338 $992,689 $1,078,054 Fund Balance: Non-Spendable: Inventory $49,092 $46,914 $41,307 Prepaid Expenditures 419, , ,181 Committed for: Future Capital Outlay & Large Repairs 267, , ,865 Assigned to: Subsequent Year Expenditures 716, , ,592 Unassigned 2,509,157 2,457,643 2,327,242 Total Fund Balance $3,961,885 $3,785,392 $3,870,187 Total Liabilities and Fund Balance $4,852,223 $4,778,081 $4,948,241 Source: Audited Financial Statements B-2

37 Crawford AuSable School District General Fund Comparative Statement of Revenues, Expenditures and Changes in Fund Balance For Fiscal Years Ended June 30th Revenue: Property Taxes Local Sources $5,062,491 $4,990,246 $5,114,278 Intermediate Sources $49,900 $49,234 $83,322 State Sources 7,666,847 8,031,440 7,918,821 Federal Sources 1,671,842 1,274,322 1,127,883 Other Transactions 291, , ,779 Total Revenue $14,742,705 $14,511,145 $14,724,083 Expenditures: Current: Instruction $9,659,204 $9,717,759 $9,528,709 Supporting Services 5,132,047 4,788,654 4,954,634 Athletics 237, , ,907 Community Service 6,977 6,355 5,293 Facilities Acquisition, Construction, & Improvements 6,670 Total Expenditures $15,042,559 $14,733,628 $14,712,543 Excess of Revenue Over (Under) Expenditures ($299,854) ($222,483) $11,540 Other Financing Sources (Uses): Sale of District Assets $13,287 $4,810 $29,255 Operating Transfers In (Out) 57,650 41,180 44,000 Total Other Financing Sources (Uses): $70,937 $45,990 $73,255 Excess of Revenue & Other Sources Over (Under) Expenditures & Other Uses ($228,917) ($176,493) $84,795 Fund Balance - Beginning $4,190,802 $3,961,885 $3,785,392 Fund Balance - Ending $3,961,885 $3,785,392 $3,870,187 Source: Audited Financial Statements B-3

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39 APPENDIX C AUDITED FINANCIAL STATEMENTS

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41 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. C-1 CERTIFIED PUBLIC ACCOUNTANTS 134 WEST HARRIS STREET CADILLAC, MICHIGAN PHONE: (231) FAX: (231) To the Board of Education Crawford AuSable School District Grayling, Michigan Report on the Financial Statements INDEPENDENT AUDITOR S REPORT i August 21, 2014 We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Crawford AuSable School District, Grayling, Michigan as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Crawford AuSable School District, Grayling, Michigan as of June 30, 2014, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and budgetary comparison information on pages iv through xi and 35 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Crawford AuSable School District s basic financial statements. The combining fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated August 21, 2014, on our consideration of Crawford AuSable School District s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of ii

42 internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Crawford AuSable School District s internal control over financial reporting and compliance. BAIRD, COTTER AND BISHOP, P.C. MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 Crawford AuSable School District is a K-12 school district located in Grayling, Michigan. The Management s Discussion and Analysis, is intended to be the Crawford AuSable School District administration s discussion and analysis of the financial results for the fiscal year ended June 30, Overview of the Financial Statements This annual report consists of three parts: management s discussion and analysis (this section), the basic financial statements, and required supplemental information. The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements. The basic financial statements include two kinds of statements that present different views of the District. A. Fund Financial Statements C-2 The fund level statements are reported on a modified accrual basis in that only those assets that are measurable and currently available are reported. Liabilities are recognized to the extent they are normally expected to be paid with current financial resources. The fund statements are formatted to comply with the legal requirements of the Michigan Department of Education s Accounting Manual. In the State of Michigan, school districts major instructional and instructional support activities are reported in the General Fund. Additional activities are reported in various other funds, which include Special Revenue Funds, Debt Service Funds, Capital Projects Funds, and Fiduciary Funds. In the fund financial statements, capital assets purchased are reported as expenditures in the year of acquisition with no asset being reported. The issuance of debt is recorded as a financial resource. The current year s payments of principal and interest on long-term obligations are recorded as expenditures. The obligations for future years debt service are not recorded in the fund financial statements. B. Government-Wide Financial Statements The government-wide financial statements are designed to provide a broad overview of the District s financial position. These statements are calculated using full accrual accounting and more closely represent those presented by business and industry. The District s entire assets and liabilities, both short and long-term, are reported. As such, these statements include capital assets, net of related depreciation, as well as all debt of the District. iii iv

43 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 C-3 C. Summary of Net Position The following schedule summarizes the net position at June 30: Assets Current Assets $ 5,519,947 $ 5,283,762 Non Current Assets Capital Assets 33,100,807 32,394,993 Less Accumulated Depreciation (13,895,631) (13,211,051) Total Non Current Assets 19,205,176 19,183,942 Total Assets 24,725,123 24,467,704 Deferred Outflows of Resources Deferred Charges on Refunding 62,003 72,336 Liabilities and Net Position Liabilities Current Liabilities 3,114,350 3,028,694 Non Current Liabilities 9,958,979 11,107,599 Total Liabilities 13,073,329 14,136,293 Net Position Net Investment in Capital Assets 8,922,179 7,916,278 Restricted for Debt Service 497, ,343 Restricted for Food Service 36,384 41,465 Unrestricted 2,257,809 2,073,661 Total Net Position 11,713,797 10,403,747 Total Liabilities and Net Position $ 24,787,126 $ 24,540,040 D. Analysis of Financial Position During the fiscal year ended June 30, 2014, the District s net position increased by $1,310,050. A few of the more significant factors affecting net position during the year are discussed below: 1. Depreciation Expense School districts are required to maintain a record of annual depreciation expense and the accumulation of depreciation expense over time. The net increase in accumulated depreciation expense is a reduction in net position. Depreciation expense is recorded on a straight-line basis over the estimated useful lives of the assets. In accordance with GAAP, depreciation expense is calculated based on the original cost of the asset less an estimated salvage value, where applicable. For the fiscal year ended June 30, 2014, $743,977 was recorded for depreciation expense. 2. Capital Outlay Acquisitions and Disposals For the fiscal year ended June 30, 2014, the District disposed of one bus and $765,211 of expenditures were capitalized and recorded as assets of the District. These additions to the District s capital assets will be depreciated over time as explained above: Major capital asset additions included two buses and technology equipment. 3. Payment of Long-Term Liabilities During the year ending June 30, 2014, the District decreased its long-term liabilities by $1,089,156. Restricted assets represent resources that are subject to external restrictions on how they may be used. v vi

44 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 C-4 E. Change in Net Position For the years ended June 30, the results of operations, on a district-wide basis, were: General Revenues Property Taxes $ 7,200,895 $ 7,035,917 Investment Earnings 5,918 8,025 State Sources 6,192,544 6,416,682 Other 160, ,332 Total General Revenues 13,560,143 13,585,956 Program Revenues Charges for Services 447, ,778 Operating Grants 3,893,932 3,572,282 Total Program Revenues 4,341,750 3,972,060 Total Revenues 17,901,893 17,558,016 Expenses Instruction 9,497,706 9,788,407 Supporting Services 4,846,040 5,167,867 Community Services 229,200 6,355 Food Service Activities 749, ,681 Interest on Long-Term Debt 497, ,964 Other Transactions 27,125 7,552 Unallocated Depreciation 743, ,047 Total Expenses 16,591,843 16,962,873 Change in Net Position $ 1,310,050 $ 595,143 F. Financial Analysis of the District s Funds The financial performance of the District as a whole is also reflected in its governmental funds. The following table shows the change in total fund balances of each of the District s governmental funds: Increase (Decrease) Major Funds General Fund $ 3,785,392 $ 3,870,187 $ 84,795 Food Service Fund 41,465 41, Nonmajor Funds 2013 School Technology and Bus Bonds 0 72,613 72, Debt Retirement 169, ,447 (22,927) 2005 Debt Retirement 234, ,043 55, Debt Retirement 28,213 29, Debt Retirement 22,145 29,589 7, Debt Retirement 0 (435) (435) Total Governmental Funds $ 4,280,686 $ 4,479,147 $ 198,461 In 2014, the General Fund increased its fund balance primarily due to revenue generated by the Great Lakes Online Education Program. Of the total fund balance, $565,488 is non-spendable inventory and prepaid expenditures, $308,865 is committed for future capital outlay and large repairs, $668,592 is assigned to subsequent year expenditures, and $2,327,242 is unassigned. The Food Service Fund balance went up minimally due to the large transfer to the General Fund for indirect cost. The 2013 School Technology and Bus Bonds was new last year and proceeds from debt exceeded expenditures during the year. The 2003 Debt Retirement Fund decreased its fund balance, all of which is restricted for debt service, because the amount of revenue, based on the millage levied, was less than the amount of the principal and interest payments. The 2005 Debt Retirement Fund increased its fund balance, all of which is restricted for debt service, because the amount of revenue, based on the millage levied, exceeded the amount of the principal and interest payments. vii viii

45 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 C-5 The 2006 Debt Retirement Fund increased its fund balance, all of which is restricted for debt service, because the amount of revenue, based on the millage levied, exceeded the amount of the principal and interest payments. The 2008 Debt Retirement Fund increased its fund balance, all of which is restricted for debt service, because the amount of revenue, based on the millage levied, exceeded the amount of the principal and interest payments. The 2013 Debt Retirement Fund is a new fund and it only paid interest and paying agent fees which resulted in a deficit of $435 at June 30, The deficit was eliminated on July 1, 2014 by the collection of tax revenue. G. Analysis of Significant Revenues and Expenses Significant revenues and expenses are discussed in the segments below: 1. Property Taxes The District levies 18 mills of property taxes for operations on non-homestead properties, less the mandatory reductions required by the Headlee Amendment, Article IX, Section 31. According to Michigan law, the taxable levy is based on the taxable valuation of properties. The annual taxable valuation increases are capped at the rate of the prior year s Consumer s Price Index increase or 5%, whichever is less. At the time property is sold, its taxable valuation is readjusted to the State Equalized Value, which in theory is half of the property s market value. For the fiscal year, the District levied $4,860,263 in non-homestead property taxes. The following table summarizes the property tax levies for operations and debt for the past three years: 2. State Sources Fiscal Year Tax Levy $ 7,166, ,035, ,116,343 The majority of the state sources is comprised of the per student foundation allowance. The State of Michigan funds districts based on a blended student enrollment. The blended enrollment was based on pupil membership counts taken in February of 2014 and October of For the fiscal year, the District received $7,026 per student FTE. ix 3. Student Enrollment The following schedule summarizes the blended student enrollment for the past three fiscal years: 4. Operating Grants Blended Fiscal Year Student FTE , , ,668 The District funds a significant portion of its operations with categorical sources. For the fiscal year ended June 30, 2014, federal, state, and other grants accounted for $3,893,932. H. General Fund Budgetary Highlights The Uniform Budget Act of the State of Michigan requires that the local Board of Education approve the original budget for the upcoming fiscal year prior to its starting on July 1, the start of the fiscal year. Any amendments made to the operating budget must be approved by the Board prior to the close of the fiscal year on June 30. The following schedule shows a comparison of the original general fund budget, the final amended general fund budget and actual totals from operations: x ORIGINAL FINAL BUDGET BUDGET ACTUAL Total Revenues $ 14,240,842 $ 14,588,961 $ 14,724,083 Total Expenditures $ 14,769,560 $ 14,850,874 $ 14,712,543 The change from the total revenue original budget to the final budget was an increase of $348,119. This was due primarily to an increase in expected local sources. The change in the total expenditures original budget to the final budget was an increase of $81,314. This was due to an increase in expenses related to personnel costs Actual total revenues differed from the final budget due to miscellaneous receipts received near the end of the year. Actual expenditures were less than budgeted due to expending less in operations and maintenance than anticipated. Additionally, the District budgets conservatively and tries to budget in a 1% buffer.

46 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2014 I. Capital Asset and Debt Administration 1. Capital Assets At June 30, 2014, the District has $19,205,176, net of depreciation, in a broad range of capital assets, including school buildings and facilities, school buses and other vehicles, and various types of equipment. This represents a net increase of $21,234 over the prior fiscal year. Depreciation expense for the year amounted to $743,977, bringing the accumulated depreciation to $13,895,631 as of June 30, Long-Term Debt THIS PAGE INTENTIONALLY LEFT BLANK At June 30, 2014, the District had $10,345,000 in bonded debt outstanding. Also, the District had $1,617,575 of accrued expenses at June 30, 2014, which was made up of early retirement incentive payments and accumulated sick pay liability. These long-term accrued expenses decreased by $94,156 during the year due to payments made to retirees. C-6 J. Factors Bearing on the District s Future At the time that these financial statements were prepared and audited, the District was aware of the following items that could significantly affect its financial health for the future: With the current economic condition of the State of Michigan, uncertainty continues to surround the level at which districts will be funded for the student foundation allowance and categorical funding for the school year. It is statistically difficult to calculate future declining enrollment due to an increasing number of students moving out of the District. Retirement rates continued to increase for the school year, as determined by the State of Michigan. The cost of employee benefits now uses up a significant portion of per pupil dollars. Union contracts have been negotiated through the school year. The District will continue to negotiate one or two year contracts until the State s financial situation improves and/or health care insurance costs are more stable. It is difficult to plan for long range financial stability with one or two year employee contracts and significant increases in rates on health care and retirement. K. Contacting the District s Financial Management This financial report is designed to provide our citizens, taxpayers, customers, investors and creditors with a general overview of the District s finances and to demonstrate the District s accountability for the money it receives. If you have questions about this report, or need additional financial information, please contact Crawford Ausable School District, 1135 North Old 27, Grayling, Michigan xi

47 C-7 GRAYLING, MICHIGAN STATEMENT OF NET POSITION JUNE 30, 2014 ASSETS CURRENT ASSETS Cash $ 3,290,662 Accounts Receivable 26,452 Due from Other Governments 1,620,343 Prepaid Expenses 524,181 Inventories 46,504 Investments 11,805 Total Current Assets 5,519,947 NON CURRENT ASSETS Capital Assets 33,100,807 Less Accumulated Depreciation (13,895,631) Total Non Current Assets 19,205,176 TOTAL ASSETS 24,725,123 DEFERRED OUTFLOWS OF RESOURCES Deferred Charges on Refunding 62,003 LIABILITIES CURRENT LIABILITIES Accounts Payable 230,214 Accrued Expenses 225,187 Accrued Interest Payable 69,954 Salaries Payable 580,681 Unearned Revenue 4,718 Current Portion of Non Current Liabilities 2,003,596 Total Current Liabilities 3,114,350 NON CURRENT LIABILITIES Bonds Payable 10,345,000 Early Retirement Incentive Contracts 340,103 Accumulated Leave Liability and Other Vested Benefits 1,277,472 Less Current Portion of Non Current Liabilities (2,003,596) Total Non Current Liabilities 9,958,979 TOTAL LIABILITIES 13,073,329 NET POSITION Net Investment in Capital Assets 8,922,179 Restricted for Debt Service 497,425 Restricted for Food Service 36,384 Unrestricted 2,257,809 TOTAL NET POSITION $ 11,713,797 The notes to the financial statements are an integral part of this statement. 1 [THIS PAGE INTENTIONALLY LEFT BLANK]

48 GRAYLING, MICHIGAN STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2014 GOVERNMENTAL ACTIVITIES NET (EXPENSE) PROGRAM REVENUES REVENUE AND CHARGES FOR OPERATING CAPITAL CHANGES IN FUNCTIONS/PROGRAMS EXPENSES SERVICES GRANTS GRANTS NET POSITION GOVERNMENTAL ACTIVITIES Instruction $ 9,497,706 $ 47,570 $ 2,314,877 $ 0 $ (7,135,259) Supporting Services 4,846, , ,024 0 (3,665,990) Community Services 229, ,293 0 (223,907) Food Service Activities 749, , , ,116 Interest on Long-Term Debt 497, (497,951) Other Transactions 27, (27,125) Unallocated Depreciation 743, (743,977) Total Governmental Activities $ 16,591,843 $ 447,818 $ 3,893,932 $ 0 (12,250,093) GENERAL REVENUES Property Taxes -Levied for General Purposes 4,860,735 Property Taxes -Levied for Debt Service 2,340,160 Investment Earnings 5,918 State Sources 6,192,544 Other 160,786 Total General Revenues 13,560,143 Change in Net Position 1,310,050 NET POSITION - Beginning of Year 10,403,747 NET POSITION - End of Year $ 11,713,797 The notes to the financial statements are an integral part of this statement. 2 [THIS PAGE INTENTIONALLY LEFT BLANK] C-8

49 C-9 GRAYLING, MICHIGAN BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2014 OTHER FOOD NONMAJOR TOTAL GENERAL SERVICE GOVERNMENTAL GOVERNMENTAL FUND FUND FUNDS FUNDS ASSETS Cash and Cash Equivalents $ 2,653,910 $ 58,709 $ 578,043 $ 3,290,662 Accounts Receivable 26, ,452 Due from Other Governments 1,613,830 6, ,620,343 Due from Other Funds 76,854 44,743 4, ,722 Prepaid Expenditures 524, ,181 Inventories 41,307 5, ,504 Investments 11, ,805 TOTAL ASSETS $ 4,948,241 $ 115,260 $ 582,168 $ 5,645,669 LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable $ 228,456 $ 1,758 $ 0 $ 230,214 Accrued Expenses 224, ,187 Salaries Payable 579, ,681 Due to Other Funds 44,743 66,190 14, ,722 Unearned Revenue 0 4, ,718 Total Liabilities 1,078,054 73,679 14,789 1,166,522 FUND BALANCES Non-Spendable: Inventory 41,307 5, ,504 Prepaid Expenditures 524, ,181 Restricted for: Food Service 0 36, ,384 Debt Service , ,766 Capital Projects ,613 72,613 Committed for: Future Capital Outlay & Large Repairs 308, ,865 Assigned to: Subsequent Year Expenditures 668, ,592 Unassigned 2,327, ,327,242 Total Fund Balances 3,870,187 41, ,379 4,479,147 TOTAL LIABILITIES AND FUND BALANCES $ 4,948,241 $ 115,260 $ 582,168 $ 5,645,669 GRAYLING, MICHIGAN RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION JUNE 30, 2014 Total Governmental Fund Balances $ 4,479,147 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and are not reported in the funds. The cost of the capital assets is $ 33,100,807 Accumulated depreciation is (13,895,631) 19,205,176 Long-term liabilities are not due and payable in the current period and are not reported in the funds. Bonds Payable (10,345,000) Deferred Charges Net of Amortization 62,003 Early Retirement Incentive Contracts (340,103) Accumulated Leave Liability and Other Vested Benefits (1,277,472) Accrued interest is not included as a liability in governmental funds, it is recorded when paid. (69,954) NET POSITION OF GOVERNMENTAL ACTIVITIES $ 11,713,797 The notes to the financial statements are an integral part of this statement. 3 The notes to the financial statements are an integral part of this statement. 4

50 C-10 GRAYLING, MICHIGAN STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2014 OTHER FOOD NONMAJOR TOTAL GENERAL SERVICE GOVERNMENTAL GOVERNMENTAL FUND FUND FUNDS FUNDS REVENUES Local Sources $ 5,114,278 $ 183,222 $ 2,354,595 $ 7,652,095 Intermediate Sources 83, ,322 State Sources 7,918,821 45, ,964,328 Federal Sources 1,127, , ,693,114 Other Transactions 479, ,779 Total Revenues 14,724, ,960 2,354,595 17,872,638 EXPENDITURES Instruction 9,528, ,528,709 Supporting Services 4,954, ,770 5,674,404 Athletics 223, ,907 Community Services 5, ,293 Food Service 0 749, ,844 Debt Service Principal 0 0 1,820,000 1,820,000 Interest , ,150 Bond Issuance Costs ,385 22,385 Other Transactions 0 0 4,740 4,740 Total Expenditures 14,712, ,844 3,066,045 18,528,432 Excess (Deficiency) of Revenues Over Expenditures 11,540 44,116 (711,450) (655,794) OTHER FINANCING SOURCES (USES) Issuance of Debt , ,000 Transfers In (Out) 44,000 (44,000) 0 0 Sale of Capital Assets 29, ,255 Total Other Financing Sources (Uses) 73,255 (44,000) 825, ,255 Net Change in Fund Balance 84, , ,461 FUND BALANCE - Beginning of Year 3,785,392 41, ,829 4,280,686 FUND BALANCE - End of Year $ 3,870,187 $ 41,581 $ 567,379 $ 4,479,147 GRAYLING, MICHIGAN RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2014 Net Change in Fund Balances Total Governmental Funds $ 198,461 Amounts reported for governmental activities are different because: Governmental funds report capital outlays as expenditures. In the statement of activities, these costs are allocated over their estimated useful lives as depreciation. Depreciation Expense (743,977) Capital Outlay 765,211 Accrued interest on bonds is recorded in the statement of activities when incurred; it is not recorded in governmental funds until it is paid: Accrued Interest Payable - Beginning of Year 81,486 Accrued Interest Payable - End of Year (69,954) The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. The net changes in long-term liabilities are: Issuance of Debt (825,000) Repayment of Bond Principal 1,820,000 Amortization of Deferred Charges (10,333) Employees Early Retirement and Accumulated Sick Pay are reported on the accrual method in the statement of activities, and recorded as an expenditure when financial resources are used in the governmental funds: Early Retirement Incentive Contracts - Beginning of the Year 350,294 Early Retirement Incentive Contracts - End of the Year (340,103) Accumulated Leave Liability and Other Vested Benefits - Beginning of Year 1,361,437 Accumulated Leave Liability and Other Vested Benefits - End of Year (1,277,472) CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES $ 1,310,050 The notes to the financial statements are an integral part of this statement. 5 The notes to the financial statements are an integral part of this statement. 6

51 C-11 GRAYLING, MICHIGAN STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2014 PRIVATE PURPOSE TRUST AGENCY FUNDS FUNDS ASSETS Cash and Cash Equivalents $ 5,306 $ 292,360 Due from Groups and Organizations 0 78 TOTAL ASSETS 5, ,438 LIABILITIES Due to Groups and Organizations ,438 NET POSITION Reserved for Trust Activities $ 5,228 $ 0 GRAYLING, MICHIGAN STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2014 PRIVATE PURPOSE TRUST FUNDS ADDITIONS Earnings on Investments and Deposits $ 10 DEDUCTIONS Scholarships Awarded 0 CHANGE IN NET POSITION 10 NET POSITION - Beginning of Year 5,218 NET POSITION - End of Year $ 5,228 The notes to the financial statements are an integral part of this statement. 7 The notes to the financial statements are an integral part of this statement. 8

52 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 C-12 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The basic financial statements of the Crawford AuSable School District have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standardsetting body for establishing governmental accounting and financial reporting principles. The more significant of the District s accounting policies are described below. A. Reporting Entity The School District (the District ) is located in Crawford, Kalkaska and Otsego Counties with its administrative offices located in Grayling, Michigan. The District operates under an elected 7- member board of education and provides services to its students in elementary, middle school, high school, special education instruction, guidance, health, transportation, food service, athletics and recreation. The District receives funding from local, state, and federal government sources and must comply with all of the requirements of these funding source entities. However, the District is not included in any other governmental reporting entity as defined by generally accepted accounting principles. Board members are elected by the public and have decision-making authority, the power to designate management, the ability to significantly influence operations, and the primary accountability for fiscal matters. B. Description of Government-Wide Financial Statements The government-wide financial statements (i.e., the statement of net position and the statement of activities) report the information on all of the nonfiduciary activities of the primary government and its component units. All fiduciary activities are reported only in the fund financial statements. Governmental activities, which normally are supported by taxes, intergovernmental revenues, and other nonexchange transactions, are reported separately from business-type activities, which rely to a signification extent on fees and charges to external customers for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The District does not have any business-type activities or component units. C. Basis of Presentation Government-Wide Financial Statements While separate government-wide and fund financial statements are presented, they are interrelated. The governmental activities column incorporates data from the governmental funds. Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. D. Basis of Presentation Fund Financial Statements The fund financial statements provide information about the government s funds, including its fiduciary funds. Separate statements for each fund category governmental and fiduciary are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds. Major individual governmental funds are reported as separate columns in the fund financial statements. The District reports the following major governmental funds: The General Fund is the District s primary operating fund. It accounts for all financial resources of the District, except those required to be accounted for in another fund. The Special Revenue (School Service) Fund accounts for revenue sources that are legally restricted to expenditures for specific purposes. The District accounts for its food service activities in a special revenue fund. Other Non-Major Funds: The 2013 School Technology and Bus Bonds Fund accounts for activities related to technology and bus expenses as approved by voters. This fund is treated as a Capital Projects fund type. The Debt Service Funds account for the resources accumulated and payments made for principal and interest on long-term general obligation debt of governmental funds. Additionally, the District reports the following fund type: Fiduciary Funds are accounted for using the accrual method of accounting. Fiduciary funds account for assets held by the District in a trustee capacity or as an agent on behalf of others. This fund is custodial in nature and does not involve measurement of results of operations. Trust funds account for assets held by the District under the terms of a formal trust agreement. Fiduciary funds are not included in the government-wide statements. The District reports the following fiduciary funds: The Agency Fund is custodial in nature and does not present results of operations or have a measurement focus. Agency funds are accounted for using the accrual basis of accounting. This fund is used to account for assets that the District holds for others in an agency capacity. The Private Purpose Trust Fund is accounted for using the accrual method of accounting. Private purpose trust funds account for contributions earmarked for scholarships available to qualifying students of the District. 9 10

53 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 C-13 During the course of operations the government has activity between funds for various purposes. Any residual balances outstanding at year end are reported as due from/to other funds and advances to/from other funds. While these balances are reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Balances between the funds included in governmental activities are eliminated so that only the net amount is included as internal balances in the governmental activities column. Further, certain activity occurs during the year involving transfers of resources between funds. In fund financial statements these amounts are reported at gross amounts as transfers in/out. While reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Transfers between the funds included in governmental activities are eliminated so that only the net amount is included as transfers in the governmental activities column. E. Measurement Focus and Basis of Accounting The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. In the government-wide statement of net position, the governmental activities column (a) is presented on a consolidated basis, (b) and is reported on a full accrual, economic resource basis, which recognizes all long-term assets and receivables as well as long-term debt and obligations. The District s net position is reported in three parts net investment in capital assets; restricted net position; and unrestricted net position. The government-wide statement of activities reports both the gross and net cost of each of the District s functions. The functions are also supported by general government revenues (property taxes, certain intergovernmental revenues, fines, permits and charges, etc.). The statement of activities reduces gross expenses by related program revenues and operating grants. Program revenues must be directly associated with the function. Operating grants include operating-specific and discretionary (either operating or capital) grants. 11 The net costs (by function) are normally covered by general revenue (property taxes, state sources, intermediate district sources, interest income and other revenues). This government-wide focus is more on the sustainability of the District as an entity and the change in the District s net position resulting from the current year s activities. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, and claims and judgments, are recorded only when payment is due. General capital asset acquisitions are reported as expenditures in governmental funds. Issuance of long-term debt and acquisitions under capital leases are reported as other financing sources. Property taxes, state and federal aid and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Entitlements are recorded as revenues when all eligibility requirements are met, including any time requirements, and the amount is received during the period or within the availability period for this revenue resource (within 60 days of year end). Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other eligibility requirements have been met, and the amount is received during the period or within the availability period for this revenue source (within 60 days of year end). All other revenue items are considered to be measurable and available only when cash is received by the government. The private-purpose trust funds are reported using the economic resources measurement focus and the accrual basis of accounting. The agency fund has no measurement focus but utilizes the accrual basis of accounting for reporting its assets and liabilities. F. Budgetary Information 1. Budgetary Basis of Accounting Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. Annual appropriated budgets are adopted for the general and special revenue funds. Appropriations in all budgeted funds lapse at the end of the fiscal year even if they have related encumbrances. Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting - under which purchase orders, contracts and other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriation - is utilized in the governmental funds. While all appropriations and encumbrances lapse at year end, value outstanding encumbrances (those for which performance under the 12

54 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 C-14 executory contract is expected in the next year) are re-appropriated and become part of the subsequent year s budget pursuant to state regulations. The District follows these procedures in establishing the budgetary data reflected in the financial statements: (a) In June, the superintendent submits to the school board a proposed operating budget for the fiscal year commencing on July 1. The operating budget includes proposed expenditures and the means of financing them. The level of control for the budgets is at the functional level as set forth and presented as required supplementary information. (b) A public hearing is conducted during June to obtain taxpayer comments. (c) Prior to July 1, the budget is legally adopted by the School Board resolution pursuant to the Uniform Budgeting and Accounting Act. The Act requires that the budget be amended prior to the end of the fiscal year, when necessary, to adjust appropriations if it appears that revenues and other financial sources will be less than anticipated, or so that expenditures will not be in excess of original estimates. Expenditures shall not be made or incurred, unless authorized in the budget, in excess of the amount appropriated. (d) The superintendent is charged with general supervision of the budgets and shall hold the department heads responsible for performance of their responsibilities. (e) For purposes of meeting emergency needs of the District, transfer of appropriations may be made by the authorization of the superintendent. Such transfers of appropriations must be approved by the Board of Education at its next regularly scheduled meeting. (f) During the year the budgets are monitored and amendments to the budget resolution are made when it is deemed necessary. (g) Budgeted amounts are as originally adopted on June 17, 2013, or as amended by the School Board of Education throughout the year. G. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance 1. Cash and Investments Cash includes amounts in demand deposits. Investments are carried at market value. The District complies with State statutes regarding investment of funds. The Board policy on investment of funds authorizes the District to invest as follows: (a) Bonds, bills, or notes of the United States, or obligations, the principal and interest of which are fully guaranteed by the United States. (b) Certificates of deposit issued by any state or national bank organized and authorized to operate in this state. (c) Commercial paper rated prime at the time of purchase and maturing not more than 270 days after the date of purchase. (d) Securities issued or guaranteed by agencies or instrumentalities of the United States. (e) Michigan Investment Liquid Asset Fund Plus (MILAF). (f) Certificates of deposit or share certificates of state or federal credit unions organized and authorized to operate in this state. (g) United States government or federal agency obligation repurchase agreements. (h) Bankers acceptances issued by a bank that is a member of the federal deposit insurance corporation. (i) Mutual funds composed entirely of investment vehicles that are legal for direct investment by a school district. (j) Investment pools, as authorized by the surplus funds investment pool act, composed entirely of instruments that are legal for direct investment by a school district. Investments in the U.S. Treasury securities and those other securities completely guaranteed by the Treasury as to payment of principal and interest may be purchased in any dollar amount or up to 100 percent of the available reserves. All investments must mature or be redeemable within two (2) years of the date of purchase. The District s deposits and investments are held separately by several of the District s funds. 2. Excess of Expenditures Over Appropriations APPROPRIATIONS EXPENDITURES Supporting Services Central Services $ 371,582 $ 416,289 These overages were covered by available fund balance and greater than anticipated revenues

55 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 C Inventory and Prepaid Items Inventory is valued at cost. Inventory consists of expendable supplies held for consumption, which are recorded as expenditures when consumed rather than when purchased. Certain payments made to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased. The nonspendable fund balance at the governmental fund level is equal to the amount of inventories and prepaid items at year end to indicate the portion of the governmental fund balances that are nonspendable. 4. Capital Assets Capital assets purchased or acquired are capitalized at historical cost or estimated historical cost. Donated capital assets are valued at their estimated fair market value on the date received. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Improvements are capitalized and depreciated over the remaining useful lives of the related capital assets. Depreciation on all assets is provided on the straight-line basis over the estimated useful lives as follows: Buildings and Additions Furniture and Other Equipment Buses and vehicles Years 5-20 Years 5-10 Years The District s capitalization policy is to capitalize individual amounts exceeding $5, Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The District only has one item that qualifies for reporting in this category. It is the deferred charge on refunding reported in the government-wide statement of net position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or funding debt. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. The separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and 15 so will not be recognized as an inflow of resources (revenue) until that time. The District does not have any items that qualify for reporting in this category. 6. Net Position Flow Assumption Sometimes the District will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the government-wide financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the District s policy to consider restricted net position to have been depleted before unrestricted net position is applied. 7. Fund Balance Flow Assumption Sometimes the District will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the District s policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. 8. Fund Balance Policies Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The District itself can establish limitations on the use of resources through either a commitment (committed fund balance) or an assignment (assigned fund balance). The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the District s highest level of decision-making authority. The governing board is the highest level of decision-making authority for the government that can, by adoption of an resolution prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the resolution remains in place until a similar action is taken (the adoption of another resolution) to remove or revise the limitation. Amounts in the assigned fund balance classification are intended to be used by the District for specific purposes but do not meet the criteria to be classified as committed. The governing board has by resolution authorized the superintendent to assign fund balance. The board may also assign fund balance as it does when appropriating fund balance to cover a gap between estimated revenue and appropriations in the subsequent year s appropriated budget. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not 16

56 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 C-16 normally have to be taken for the removal of an assignment. Conversely, as discussed above, an additional action is essential to either remove or revise a commitment. 9. Use of Estimates The process of preparing basic financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenditures. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. 10. Restricted Assets Certain resources ($79,152) of the 2013 School Technology and Bus Bonds Fund which are set aside for capital outlay are considered restricted cash on the balance sheet because their use is limited by applicable bond covenants. H. Revenues and Expenditures/Expenses 1. State Revenue The State of Michigan utilizes a foundation grant approach which provides for a specific annual amount of revenue per pupil based on a statewide formula. The Foundation is funded from state and local sources. Revenues from state sources are primarily governed by the School Aid Act and the School Code of Michigan. The Michigan Department of Education administers the allocation of state funds to school districts based on information supplied by the districts. For the year ended June 30, 2013, the foundation allowance was based on pupil membership counts taken in February of 2014 and October of For fiscal year ended June 30, 2014, the per pupil foundation allowance was $7,026 for Crawford AuSable Schools. The state portion of the foundation is provided primarily by a state education property tax millage of 6 mills and an allocated portion of state sales and other taxes. The local portion of the foundation is funded primarily by non-homestead property taxes, which may be levied at a rate of up to 18 mills. The State revenue is recognized during the foundation period and is funded through payments from October 2013 to August Thus, the unpaid portion at June 30th is reported as due from other governmental units. The District also receives revenue from the state to administer certain categorical education programs. State rules require that revenue earmarked for these programs be used for its specific purpose. Certain governmental funds require an accounting to the state of the expenditures incurred. For categorical funds meeting this requirement, funds received, which are not expended by the close of the fiscal year are recorded as unearned revenue. Other categorical funding is recognized when the appropriation is received Program Revenues Amounts reported as program revenue include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. All taxes, including those dedicated for specific purposes, state foundation aid, certain revenue from the intermediate school district and other unrestricted items are not included as program revenue but instead as general revenues. 3. Property Taxes Property taxes levied by the District are collected by various municipalities and periodically remitted to the District. The taxes are billed as of July 1. The due date is September 15, after which time the bills become delinquent and penalties and interest may be assessed by the collecting entity. For the year ended June 30, 2014, the District levied the following amounts per $1,000 of taxable valuation: Fund Mills General Fund - Non-Principal Residence Exemption (PRE) General Fund - Non-PRE Commercial PPT Debt Service Fund - Homestead and Non-PRE Debt Service Fund - Homestead and Non-PRE Debt Service Fund - Homestead and Non-PRE Debt Service Fund - Homestead and Non-PRE Compensated Absences It is the District s policy to permit employees to accumulate earned but unused sick pay and vacation time benefits. The amount allowable to be compensated for depends on the position and the longevity of the individual employee. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. 5. Long-Term Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight line method which approximates the effective interest method over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts during the current period. The face amount of debt issued is reported as other financing sources. 18

57 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 C-17 Premiums received on debt issuances are reported as other financing sources while discounts on debt issuance are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. NOTE 2 STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Violations of Legal or Contractual Provisions Note I.F.2, on the Excess of Expenditures over Appropriations, describes a budgetary violation that occurred for the year ended June 30, Additionally, the 2013 Bonds debt retirement fund ended the year with a deficit of $435. This was a result of paying agent fees on interest payments due before the fund levied tax revenue. The deficit at June 30, 2014 was eliminated on July 1, 2014 when tax revenue was collected. NOTE 3 DETAILED NOTES ON ALL ACTIVITIES AND FUNDS A. Deposits and Investments Custodial Credit Risk Deposits. In the case of deposits, this is the risk that in the event of a bank failure, the government s deposits may not be returned to it. As of June 30, 2014, the District s bank balance was $4,357,178 and $2,141,621 of that amount was exposed to custodial credit risk because it was uninsured and uncollateralized. All of the $2,141,621 of uninsured funds were in the governmental funds. Although the District s investment policy does not directly address custodial credit risk, it typically limits its exposure by purchasing insured or registered investments or by controlling who holds the deposits. Foreign Currency Risk. The District is not authorized to invest in investments which have this type of risk; therefore, it is not addressed in the investment policy. Custodial Credit Risk Investments. For an investment, this is the risk that, in the event of the failure of the counterparty, the government will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The District s investments are categorized to give an indication of the level of risk assumed by the District at year end. Category 1 includes investments that are insured or registered, or securities held by the District or the District s agent in the District s name. Although the District s investment policy does not directly address custodial credit risk, it typically limits its exposure by purchasing insured or registered investments or by controlling who holds the investments. Category 2 includes investments that are uninsured and unregistered with securities held by the counterparty s trust department or its agent in the District s name. Category 3 includes investments that are uninsured and unregistered, with the securities held by the counterparty, or by its trust department or its agent but not in the District s name. At year end all of the District s investments were uncategorized as to risk. At year-end, the only investments were investment trust funds. Investments not subject to categorization: Investment Trust Funds $ 11,805 The District invests certain excess funds in the Michigan Investment Liquid Asset Fund (MILAF). MILAF is an external pooled investment fund of qualified investments for Michigan school districts. MILAF is not regulated nor is it registered with the SEC. MILAF reports that as of June 30, 2014, the fair value of the District s investments is the same as the value of the pool shares. Balance sheet classifications: Fiduciary Deposits Investments Assets Total Cash $ 3,290,662 $ 0 $ 297,666 $ 3,588,328 Investments 0 11, ,805 B. Receivables $ 3,290,662 $ 11,805 $ 297,666 $ 3,600,133 Receivables as of year end for the government s individual major funds and nonmajor are as follows: Food General Service Fund Fund Total Receivables Accounts $ 26,354 $ 98 $ 26,452 Other Governmental Units 1,613,830 6,513 1,620,343 Total Receivables $ 1,640,184 $ 6,611 $ 1,646,795 Amounts due from other governments include amounts due from federal, state, and local sources for various projects and programs. The allowance for doubtful accounts is not considered to be material for disclosure

58 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 C-18 C. Capital Assets Capital assets activity for the year ended June 30, 2014, was as follows: Balance Balance July 1, 2013 Additions Deletions June 30, 2014 Capital Assets: Buildings and Additions $ 28,766,653 $ 24,575 $ 0 $ 28,791,228 Machinery and Equipment 2,367, , ,920,468 Transportation Equipment 1,260, ,857 59,397 1,389,111 Subtotal 32,394, ,211 59,397 33,100,807 Less Accumulated Depreciation for: Buildings and Additions (10,500,249) (544,634) 0 (11,044,883) Machinery and Equipment (1,894,784) (82,675) 0 (1,977,459) Transportation Equipment (816,018) (116,668) 59,397 (873,289) Accumulated Depreciation (13,211,051) (743,977) 59,397 (13,895,631) Net Capital Assets $ 19,183,942 $ 21,234 $ 0 $ 19,205,176 Depreciation for the fiscal year ended June 30, 2014, amounted to $743,977. The District determined that it was impractical to allocate depreciation to the various governmental activities as the assets serve multiple functions. D. Employee Retirement System Plan Description - The District participates in the statewide Michigan Public School Employees Retirement System (System) which is a cost-sharing, multiple employer, state-wide, defined benefit public employee retirement plan governed by the State of Michigan (State) originally created under Public Act 1363 of 1945, recodified and currently operating under the provisions of Public Act 300 of 1980, as amended. Section 25 of this act establishes the board s authority to promulgate or amend the provisions of the System. The System s pension plan was established by the State to provide retirement, survivor, and disability benefits to public school employees. In addition, the System s health plan provides all retirees with the option of receiving health, dental and vision coverage under the Michigan School Employees Retirement Act. The System s financial statements are included as a pension and other employee benefit trust fund in the State of Michigan Comprehensive Annual Financial Report. The MPSERS issues a publicly available financial report that includes financial statements and required supplementary information 21 for MPSERS. That report may be obtained by writing to Michigan Public School Employees Retirement System, P.O. Box 30171, Lansing, Michigan or by calling (800) It is also available at The System is administered by the Office of Retirement Services within the Michigan Department of Technology, Management & Budget. The Department Director appoints the Office Director who serves as Executive Secretary to the System s Board, with whom the general oversight of the System resides. The State Treasurer serves as the investment officer and custodian for the System. Benefit Provisions Pension Introduction Benefit provisions of the defined benefit pension plan are established by State statute, which may be amended. Public Act 300 of 1980, as amended, established eligibility and benefit provisions for the defined benefit (DB) pension plan. Retirement benefits for DB plan members are determined by final average compensation and years of service. DB members are eligible to receive a monthly benefit when they meet certain age and service requirements. The System also provides disability and survivor benefits to DB plan members. A DB member or Pension Plus hybrid plan member who leaves Michigan public school employment may request a refund of his or her member contributions to the retirement system account. A refund cancels a former member s rights to future benefits. However, returning members who previously received a refund of their contributions may reinstate their services through repayment of the refund upon satisfaction of certain requirements. Pension Reform 2010 On May 19, 2010, the Governor signed Public Act 75 of 2010 into law. As a result, any member of the Michigan Public School Employees Retirement System (MPSERS) who became a member of MPSERS after June 30, 2010 is a Pension Plus member. Pension Plus is a hybrid plan that contains a pension component with an employee contribution (graded, up to 6.4% of salary) and a flexible and transferable defined contribution (DC) tax-deferred investment account that earns an employer match of 50% (up to 1% of salary) on employee contributions. Retirement benefits for Pension Plus members are determined by final average compensation and years of service. Disability and survivor benefits are available to Pension Plus members. Pension Reform 2012 On September 4, 2012, the Governor signed Public Act 300 of 2012 into law. The legislation grants all active members who first became a member before July 1, 2010 and who earned service credit in the 12 months ending September 3, 2012, or were on an approved professional services or military leave of absence of September 3, 2012, a voluntary election regarding their pension. Any changes to a member s pension are effective as of the member s transition date, which is defined as the first day of the pay period that begins on or after December 1, 2012, subsequently amended to February 1, Under the reform, members voluntarily chose to increase, maintain, or stop their contributions to the pension fund. 22

59 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 C-19 Option 1 members voluntarily elected to increase their contributions to the pension fund as noted below, and retain the 1.5% pension factor in their pension formula. The increased contribution would begin as of their transition date and continue until they terminate public school employment. Basic Plan members: 4% contribution MIP-Fixed, MIP-Graded, and MIP-Plus members: a flat 7% contribution Option 2 members voluntarily elected to increase their contribution to the pension fund as stated in Option 1 and retain the 1.5% pension factor in their pension formula. The increased contribution would begin as of their transition date and continue until they reach 30 years of service. If and when they reach 30 years of service, their contribution rates will return to the previous level in place as of the day before their transition date (0% for Basic Plan members, 3.9% for MIP-Fixed, up to 4.3% for MIP-Graded, or up to 6.4% for MIP-Plus). The pension formula for any service thereafter would include a 1.25% pension factor. Option 3 members voluntarily elected not to increase their contribution to the pension fund and maintain their current level of contribution to pension fund. The pension formula for their years of service as of the day before their transition date will include a 1.5% pension factor. The pension formula for any service thereafter will include a 1.25% pension factor. Option 4 members voluntarily elected to no longer contribute to the pension fund and therefore are switched to the Defined Contribution plan for future services as of their transition date. As a DC participant they receive a 4% employer contribution to a tax-deferred 401(k) account and can choose to contribute up to the maximum amounts permitted by the IRS to a 457 account. They vest in employer contributions and related earnings in their 401(k) account based on the following schedule: 50% at 2 years, 75% at 3 years, and 100% at 4 years of service. They are 100% vested in any personal contributions and related earnings in their 457 account. Upon retirement, if they meet age and service requirements (including their total years of service), they would also receive a pension (calculated based on years of service and Final Average Compensation as of the day before their transition date and a 1.5% pension factor). Members who did not make an election before the deadline defaulted to Option 3 as described above. Deferred or nonvested public school employees on September 3, 2012, who return to public school employment on or after September 4, 2012, will be considered as if they had elected Option 3 above. Returning members who made the retirement plan election will retain whichever option they chose. Employees who first work on or after September 4, 2012, choose between two retirement plans: the Pension Plus hybrid plan described above and a Defined Contribution (DC) plan that provides 50% employer match (up to 3% of salary) on employee contributions. New employees are automatically enrolled as members in the Pension Plus plan as of their date of hire. They have 75 days from the last day of their first pay period to elect to opt out of the Pension Plus hybrid plan and become a qualified participant in the DC plan; if no election is made they will remain in the Pension Plus hybrid plan. If they elect to opt out of the Pension Plus hybrid plan, their participation in the DC plan will be retroactive to their date of hire. 23 Funding Policy Member Contributions Mandatory member contributions were phased out between 1974 and 1977, with the plan remaining noncontributory until January 1, 1987, when the Member Investment Plan (MIP) was enacted. MIP members enrolled prior to January 1, 1990, contribute at a permanently fixed rate of 3.9% of gross wages. The MIP contribution rate was 4.0% from January 1, 1987, effective date of the MIP, until January 1, 1990, when it was reduced to 3.9%. Members first hired between January 1, 1990 and June 30, 2008, and returning members who did not work between January 1, 1987 through December 31, 1989, contribute at the following graduated permanently fixed contribution rates: 3% of the first $5,000; 3.6% of $5,001 through $15,000; 4.3% of all wages over $15,000. Members first hired July 1, 2008, or later, including Pension Plus plan members, contribute at the following graduated permanently fixed contribution rates: 3% of the first $5,000; 3.6% of $5,001 through $15,000; 6.4% of all wages over $15,000. Basic plan members make no contributions. For a limited period ending December 31, 1992, an active Basic Plan member could enroll in the MIP by paying the contributions that would have been made had enrollment occurred initially on January 1, 1987, or on the date of hire, plus interest. MIP contributions at the rate of 3.9% of gross wages begin at enrollment. Actuarial rate of interest is posted to member accounts on July 1 st on all MIP monies on deposit for 12 months. If a member leaves public school service and no pension is payable, the member s accumulated contributions plus interest, if any, are refundable. Under Public Act 300 of 2012, eligible members voluntarily chose between increasing, maintaining, or stopping their contributions to the pension fund as of the transition date. Members who elected to increase their level of contribution contribute 4% (Basic Plan) or 7% (MIP); by doing so they maintain a 1.5% pension factor in their pension formula. Members who elected to maintain their level of contribution will receive a 1.25% pension factor in their pension formula for their years of service as of their transition date. Their contribution rates are described above. Members who elected to stop their contributions become participants in the Defined Contribution plan as of their transition date. Employer Contributions Each school district or reporting entity is required to contribute the full actuarial funding contribution amount to fund pension benefits, plus an additional amount to fund retiree health care benefit amounts on a cash disbursement basis. For the period October 1 through September 30, the School District pays an amount equal to a percentage of its employees wages to the Michigan Public School Employees Retirement System ( MPSERS ), which is administered by the State of Michigan. These contributions are required by law and are calculated by using the contribution rates and periods provided in the table below of the employees wages. In addition, the District is required to match 50% up to 1% of the employees contribution in the Pension Plus plan. The contribution requirements of plan members and the District are established and may be amended by the MPSERS Board of Trustees. The District contributions to MPSERS were equal to the required contribution for those years. 24

60 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 C-20 The School District s contributions to MPSERS are as follows: Fiscal Year Ending Contributions June 30, to MPSERS 2014 $ 2,308, ,067, ,958,518 Included in the amounts paid above, the District received $391,354 of section 147(c) State Aid for the sole purpose of making supplemental payments to MPSERS. The District has recorded this amount as state revenue and additional pension expenditures/expenses for the year ended June 30, PA 464 Retirees Returning to Work, effective December 27, 2012 also requires applicable employer contributions to the defined benefit and defined contribution plans. These amounts, if any, are included in the amounts paid above. The following table displays the various retirement plans and rates based on what plans certain employees chose to enroll in or what plans certain employees hired after certain dates are required to enroll in. Fiscal Year 2014 Contribution Rates Effective February 1, September 30, 2013 Pension Plus Pension Plus to PHF - First DC with PHF Basic MIP DB Public School Employee worked after First worked to DC with DB Basic MP DB Basic MIP with Pension Rates (FYE Sept. 30th) Basic MIP Pension Plus 9/3/2012 after 9/3/12 Health to DC with PHF PHF DB Contributions Pension Normal Cost 2.43% 2.24% 2.24% 0.00% 0.00% 0.00% 2.43% Pension UAL 11.42% 11.42% 11.42% 11.42% 11.42% 11.42% 11.42% Pension Early Retirement Incentive 1.36% 1.36% 1.36% 1.36% 1.36% 1.36% 1.36% Pension Contributions - Total Rate 15.21% 15.02% 15.02% 12.78% 12.78% 12.78% 15.21% Health Normal Cost 0.93% 0.93% 0.00% 0.00% 0.93% 0.00% 0.00% Health UAL 8.18% 8.18% 8.18% 8.18% 8.18% 8.18% 8.18% Health Contributions - Total Rate 9.11% 9.11% 8.18% 8.18% 9.11% 8.18% 8.18% Total 24.32% 24.13% 23.20% 20.96% 21.89% 20.96% 23.39% DC Contributions DC Employer Contributions 0.00% 1.00% 1.00% 3.00% 4.00% 4.00% 0.00% Personal Healthcare Fund 0.00% 0.00% 2.00% 2.00% 0.00% 2.00% 2.00% Total 0.00% 1.00% 3.00% 5.00% 4.00% 6.00% 2.00% Fiscal Year 2014 Contribution Rates Effective October 1, 2013 Pension Plus Pension Plus to PHF - First DC with PHF Basic MIP DB Public School Employee worked after First worked to DC with DB Basic MP DB Basic MIP with Pension Rates (FYE Sept. 30th) Basic MIP Pension Plus 9/3/2012 after 9/3/12 Health to DC with PHF PHF DB Contributions Pension Normal Cost 2.90% 2.67% 2.67% 0.00% 0.00% 0.00% 2.90% Pension UAL 14.08% 14.08% 14.08% 14.08% 14.08% 14.08% 14.08% Pension Early Retirement Incentive 1.36% 1.36% 1.36% 1.36% 1.36% 1.36% 1.36% Pension Contributions - Total Rate 18.34% 18.11% 18.11% 15.44% 15.44% 15.44% 18.34% Health Normal Cost 0.93% 0.93% 0.00% 0.00% 0.93% 0.00% 0.00% Health UAL 5.52% 5.52% 5.52% 5.52% 5.52% 5.52% 5.52% Health Contributions - Total Rate 6.45% 6.45% 5.52% 5.52% 6.45% 5.52% 5.52% Total 24.79% 24.56% 23.63% 20.96% 21.89% 20.96% 23.86% DC Contributions DC Employer Contributions 0.00% 1.00% 1.00% 3.00% 4.00% 4.00% 0.00% Personal Healthcare Fund 0.00% 0.00% 2.00% 2.00% 0.00% 2.00% 2.00% Total 0.00% 1.00% 3.00% 5.00% 4.00% 6.00% 2.00% 25 26

61 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 C-21 Benefit Provisions Other Postemployment Introduction Benefit provisions of the postemployment healthcare plan are established by State statute, which may be amended. Public Act 300 of 1980, as amended, establishes eligibility and benefit provisions. Retirees have the option of health coverage, which, through 2012, is currently funded on a cash disbursement basis. Beginning fiscal year 2013, it will be funded on a prefunded basis. The System has contracted to provide the comprehensive group medical, hearing, dental and vision coverage for retirees and beneficiaries. A subsidized portion of the premium is paid by the System with the balance deducted from the monthly pension of each retiree health care recipient. For members who first worked before July 1, 2008, (Basic, MIP-Fixed, and MIP-Graded plan members), the subsidy is the maximum allowed by statute. To limit future liabilities of Other Postemployment Benefits, members who first worked on or after July 1, 2008, (MIP-Plus, plan members), have a graded premium subsidy based on career length where they accrue credit towards their insurance premiums in retirement, not to exceed the maximum allowable by statute. Public Act 300 of 2012 sets the maximum subsidy at 80% beginning January 1, 2013; 90% for those Medicare eligible and enrolled in the insurances as of that date. Public Act 75 of 2010 requires each actively employed member of MPSERS after June 30, 2010 to annually contribute 3% of their compensation to offset employer contributions for health care benefits of current retirees. Dependents are eligible for health care coverage if they meet the dependency requirements set forth in Public Act 300 of 1980, as amended. Retiree Healthcare Reform of 2012 Public Act 300 of 2012 granted all active members of the Michigan Public School Employees Retirement System, who earned service credit in the 12 months ending September 3, 2012, or were on an approved professional services or military leave of absence on September 3, 2012, a voluntary election regarding their retirement healthcare. Any changes to a member s healthcare benefit are effective as of the member s transition date, which is defined as the first day of the pay period that begins on or after December 1, Under Public Act 300 of 2012, members were given the choice between continuing the 3% contribution to retiree healthcare and keeping the premium subsidy benefit described above, or choosing not to pay the 3% contribution and instead opting out of the subside benefit and becoming a participant in the Personal Healthcare Fund (PHF), a portable, tax-deferred fund that can be used to pay healthcare expenses in retirement. Participants in the PHF are automatically enrolled in a 2% employee contribution into their 457 account as of their transition date, earning them a 2% employer match into a 401(k) account. Members who selected this option stop paying the 3% contribution to retiree healthcare as of the day before their transition date, and their prior contributions will be deposited into their 401(k) accounts. Members who did not make an election before the deadline retain the subsidy benefit and continue making the 3% contribution toward retiree healthcare. Deferred or nonvested members on September 27 3, 2012 who are rehired on September 4, 2012, will contribute 3% contribution to retiree healthcare and will retain the subsidy benefit. Returning members who made the retirement healthcare election will retain whichever option they choose. Those who elected to retain the premium subsidy continue to annually contribute 3% of compensation into the healthcare funding account. A member or former member age 60 or older, who made the 3% healthcare contributions but who does not meet eligibility requirements may request a refund of their contributions. Similarly, if a retiree dies before the total value of the insurance subsidy paid equals the total value of the contributions the member made, and there are no eligible dependents, the beneficiary may request a refund of unused funds. Refunds of member contributions to the healthcare funding account are issued as a supplemental benefit paid out over a 60 month period. 1. Retirees with at least 21 years of service, who terminate employment after October 31, 1980, with vested deferred benefits, are eligible for subsidized employer paid health benefit coverage. 2. A delayed subsidy applies to retirees who became a member of the retirement system before July 1, 2008 and who purchased service credit on or after July 1, Such individuals are eligible for premium subsidy benefits at age 60 or when they would have been eligible to retire without having made a service purchase, whichever comes first. They may enroll in the insurances earlier, but are responsible for the full premium until the premium subsidy begins. Under Public Act 300 of 2012, the state no longer offers an insurance premium subsidy in retirement for public school employees who first work on or after September 4, Instead, all new employees will be placed into the Personal Healthcare Fund where they will have support saving for retirement healthcare costs in the following ways: They will be automatically enrolled in a 2% employee contribution into a 457 account as of their date of hire, earning them a 2% employer match into a 401(k) account. They will receive a credit into a Health Reimbursement Account (HRA) at termination if they have at least 10 years of service at termination. The credit will be $2,000 for participants who are at least 60 years of age at termination or $1,000 for participants who are less than 60 years of age at termination. Participants in the Personal Healthcare Fund, who become disabled for any reason, are not eligible for any employer funded health insurance premium subsidy. If a PHF participant suffers a non-duty related death, his or her health benefit dependents are not eligible to participate in any employer funded health insurance premium subsidy. If a PHF participant suffers a duty death, the state will pay the maximum health premium allowed by statute for the surviving spouse and health benefit dependents. The spouses insurance subsidy may continue until his or her death, the dependents subsidy may continue until their eligibility ends (through marriage, age, or other event). Upon eligibility for a duty death benefit, the 2% employer matching contributions and related earnings in the 28

62 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 C-22 PHF 401(k) are forfeited and the state will pay for the subsidy payments. The beneficiaries receive the member s personal contributions and related earnings in the PHF 457 account. Other Information On June 28, 2010, the Michigan Court of Claims issued an injunction in response to a challenge to the authority of the State to require employees who began working before July 1, 2010, to contribute 3% of reportable wages to the retiree healthcare trust as MPSERS. As a result, the State has adjusted the contribution rate due on employees wages paid between November 1, 2010 and September 30, 2011 to 20.66% for members who first worked prior to July 1, 2010 and 19.16% for Pension Plus member. In March 2011, the Court of Claims granted the plaintiffs motions for summary disposition finding that the mandatory 3% contribution violated both the U.S. and Michigan constitutions. The State appealed the ruling to the Michigan Court of Appeals. The Court of Appeals accepted the appeal and ordered an expedited review. The Court of Appeals also granted the State s motion for a stay of proceedings and ordered that the 3% deduction continue to be collected and placed into an escrow account until further order of the Court. On August 16, 2012 the State of Michigan Court of Appeals affirmed the trial court s orders granting summary dispositions in favor of the plaintiffs in each of the cases before it, terminating the stay ordered by this Court on March 18, The State of Michigan has appealed the decision to the Michigan Supreme Court. The Office of Retirement Services is instructing Michigan public school employers to continue withholding the 3% contribution. Should the plaintiffs prevail, the escrowed funds will be returned to the employees. E. Risk Management The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees and natural disasters. The District participates in two distinct pools of educational institutions within the State of Michigan for self-insuring property and casualty and workers' disability compensation. The pools are considered public entity risk pools. The District pays annual premiums to each pool for the respective insurance coverage. In the event a pool's total claims and expenses for a policy year exceed the total normal annual premiums for said years, all members of the specific pool's policy year may be subject to special assessment to make up the deficiency. Each of the pools maintain reinsurance for claims in excess of $500,000 for each occurrence with the overall maximum coverage being unlimited. The District continues to carry commercial insurance for other risks of loss, including employee health and accident insurance. No settlements have occurred in excess of coverage for June 30, 2014, or any of the prior three years. F. Lease Information The rental expense for the year ended June 30, 2014, totaled $42,733. The rental expense consists of lease agreements on copiers. The future minimum lease payments for these leases are as follows: G. Long-Term Liabilities YEAR ENDING PAYABLES $ 37,251 36,384 12,562 $ 86,197 The District issues general obligation bonds to provide funds for the acquisition, construction and improvement of major capital facilities. General obligation bonds are direct obligations and pledge the full faith and credit of the District. The following is a summary of the governmental long-term liability transactions for the District for the year ended June 30, 2014: ACCUMULATED GENERAL SICK PAY AND OBLIGATION RETIREMENT SERIAL BONDS INCENTIVE TOTAL Long-Term Debt at July 1, 2013 $ 11,340,000 $ 1,711,731 $ 13,051,731 Increase in Debt 825, , ,209 Reductions in Debt (1,820,000) (217,365) (2,037,365) LONG-TERM DEBT AT JUNE 30, 2014 $ 10,345,000 $ 1,617,575 $ 11,962,575 Due Within One Year $ 1,900,000 $ 103,596 $ 2,003,

63 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 C-23 The District s liability obligations at June 30, 2014, are comprised of the following issues: 2003 Refunding Bonds; due in annual installments of $665,000 through May 1, 2015; plus interest at 4.00%. At the District's option, bonds can be redeemed on or after May 1, 2013, prior to maturity. $ 665, Refunding Bonds; due in annual installments of $1,005,000 to $1,145,000 through May 1, 2021; plus interest at 4.15% to 5.00%. At the District's option, bonds can be redeemed on or after May 1, 2015, prior to maturity. 7,770, School Buildings and Site Bonds; due in annual installments of $130,000 to $220,000 through May 1, 2016; plus interest at 4.150% to 4.200%. At the District's option, bonds can be redeemed on or after May 1, 2016, prior to maturity. 350, School Buildings and Site Bonds; due in annual installments of $100,000 to $635,000 through May 1, 2016; plus interest at 3.85% to 4.00%. At the District's option, bonds can be redeemed on or after May 1, 2016, prior to maturity. 735, School Technology and Bus Bonds; due in annual installments of $235,000 to $315,000 through May 1, 2019; plus interest at 1.20% to 1.80%. 825,000 Total general obligation bonds payable 10,345,000 Accumulated leave liability and other vested benefits 1,277,472 Early retirement incentives contracts 340,103 Total long-term debt $ 11,962,575 The annual requirements to amortize all long-term liability outstanding as of June 30, 2014, including interest payments of $1,501,705 are as follows: Early Retirement Bonds Incentive Contracts Amount Year Ending June 30, Principal Interest Principal Interest Payable 2015 $ 1,900,000 $ 419,722 $ 103,596 $ 0 $ 2,423, ,960, ,627 89, ,382, ,350, ,025 70, ,672, ,400, ,817 52, ,654, ,450, ,880 24, ,624, ,285, , ,429,634 $ 10,345,000 $ 1,501,705 $ 340,103 $ 0 12,186,808 Accumulated leave liability and other vested benefits 1,277,472 $ 13,464,280 The annual requirements to amortize the accrued sick leave and other vested benefits are uncertain because it is unknown when the employees will use the sick leave or retire. The General Fund will generally liquidate accumulated sick pay and other vested benefits. Compensated absences and early retirement benefits will be paid by the fund in which the employee worked, including the general fund and other governmental funds. H. Interfund Receivables and Payables INTERFUND RECEIVABLES INTERFUND PAYABLES General Fund $ 76,854 $ 44,743 Food Service Fund 44,743 66,190 Non-Major Funds 4,125 14,789 $ 125,722 $ 125, The outstanding balances between funds result mainly from the time lag between the dates that (1) Interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are 32

64 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 GRAYLING, MICHIGAN NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 recorded in the accounting system, and (3) payments between funds are made. All Interfund balances outstanding at June 30, 2014 are expected to be repaid within one year. I. Interfund Transfers TRANSFERS TRANSFERS IN OUT General Fund $ 44,000 $ 0 Food Service Fund 0 44,000 The State of Michigan Office of Retirement Services (ORS) operates the pension plan for participating school districts in the State of Michigan. In February 2014, the ORS estimated District s proportionate share of the pension liability based on 2012 figures. The estimate was $22,245,000 which, if recorded in the current year would reduce the District s net position from its current surplus of $11,713,797 to a deficit of ($10,531,203). The ORS will continue to update the estimate of liability as the implementation date moves closer. $ 44,000 $ 44,000 C-24 Transfers are used to (1) move revenues from the fund that is required to collect them to the fund that is required or allowed to expend them; (2) move receipts restricted to or allowed for debt service from the funds collecting the receipts to the debt service fund as debt service payments become due; and (3) use unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. J. Other Information 1. Commitments and Contingencies Under the terms of various federal and state grants and regulatory requirements, periodic audits are required and certain cost may be questioned as not being appropriate expenditures under the terms of the grants and requirements. Such audits could lead to reimbursement of the grantor or regulatory agencies. However, management does not believe such disallowances, if any, would be material to the financial position of the District. NOTE 4 UPCOMING ACCOUNTING PRONOUCEMENTS The District is currently evaluating the impact these standards will have on the financial statements when adopted. GASB Statement No. 68, Accounting and Financial Reporting for Pensions, was issued by the GASB in June 2012 and will be effective for the District s 2015 fiscal year. The Statement requires governments that participate in defined benefit pension plans to report in their statement of net position a net pension liability. The net pension liability is the difference between the total pension liability (the present value of projected benefit payments to employees based on their past service) and the assets (mostly investments reported at fair value) set aside in a trust and restricted to paying benefits to current employees, retirees, and their beneficiaries. Statement 68 requires cost-sharing employers to record a liability and expense equal to their proportionate share of the collective net pension liability and expense for the cost-sharing plan. The Statement also will improve the comparability and consistency of how governments calculate the pension liabilities and expense

65 GRAYLING, MICHIGAN REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE YEAR ENDED JUNE 30, 2014 C-25 GENERAL FUND FOOD SERVICE FUND ORIGINAL FINAL ORIGINAL FINAL BUDGET BUDGET ACTUAL BUDGET BUDGET ACTUAL REVENUES Local Sources $ 4,962,293 $ 5,085,131 $ 5,114,278 $ 177,406 $ 172,948 $ 183,222 Intermediate Sources 45,655 77,200 83, State Sources 7,870,489 7,837,775 7,918,821 31,424 47,296 45,507 Federal Sources 1,175,791 1,125,712 1,127, , , ,231 Other Transactions 186, , , Total Revenues 14,240,842 14,588,961 14,724, , , ,960 EXPENDITURES Instruction Basic Programs 7,616,651 7,423,342 7,391, Added Needs 2,126,909 2,145,010 2,137, Supporting Services Pupil 823, , , Instructional Staff 335, , , General Administration 244, , , , , ,844 School Administration 924, , , Business 251, , , Operations and Maintenance 1,168,626 1,331,961 1,264, Pupil Transportation 607, , , Central 359, , , Other 69,195 76,824 76, Athletics 231, , , Community Services 10,100 5,300 5, Total Expenditures 14,769,560 14,850,874 14,712, , , ,844 Excess (Deficiency) of Revenues Over Expenditures (528,718) (261,913) 11,540 31,671 26,595 44,116 OTHER FINANCING SOURCES (USES) Transfers In 50,000 26,595 44,000 8, Transfers Out (9,350) 0 0 (50,000) (26,595) (44,000) Sale of Fixed Assets , Total Other Financing Sources (Uses) 40,650 26,595 73,255 (41,180) (26,595) (44,000) Net Change in Fund Balance (488,068) (235,318) 84,795 (9,509) FUND BALANCE - Beginning of Year 3,622,015 3,785,392 3,785,392 40,147 41,465 41,465 FUND BALANCE - End of Year $ 3,133,947 $ 3,550,074 $ 3,870,187 $ 30,638 $ 41,465 $ 41,581 [THIS PAGE INTENTIONALLY LEFT BLANK] 35

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67 APPENDIX D U.S. Mail Address: P.O. BOX 2575 EAST LANSING, MI PHONE: (517) FAX: (517) FAX: (517) ALL OTHER SHIPPING: 2900 WEST ROAD, SUITE 400 EAST LANSING, MI MICHAEL B. FARRELL ROY H. HENLEY KIRK C. HERALD DAVID M. REVORE KATHERINE WOLF BROADDUS GORDON W. VAN WIEREN, JR. ROBERT G. HUBER MARGARET M. HACKETT JENNIFER K. JOHNSTON TIMOTHY T. GARDNER, JR. BEVERLY J. BONNING MICHAEL D. GRESENS MATTHEW F. HISER RYAN J. NICHOLSON Philip G. Clark MARTHA J. MARCERO CHRISTOPHER J. IAMARINO KARI S. COSTANZA BRANDON C. WALKER LISA L. SWEM RAYMOND M. DAVIS ROBERT A. DIETZEL FREDRIC G. HEIDEMANN KEVIN S. HARTY (OF COUNSEL) JEFFREY J. SOLES MICHELE R. EADDY ERIC D. DELAPORTE DANIEL R. MARTIN ROBERT J. ROBINSON (OF COUNSEL) Crawford AuSable School District Counties of Crawford, Otsego and Kalkaska State of Michigan DRAFT LEGAL OPINION We have acted as legal counsel in connection with the issuance by Crawford AuSable School District, Counties of Crawford, Otsego and Kalkaska, State of Michigan (the "Issuer"), of bonds in the aggregate principal amount of $8,950,000 designated 2015 School Building and Site Bonds, Series A (General Obligation - Unlimited Tax) (the "Bonds"). The Bonds are in fully registered form and issued without coupons. The Bonds are dated December 16, 2015, are subject to redemption prior to maturity in the manner and at the times as set forth in the Bonds, are of $5,000 denomination or any integral multiple thereof, mature serially on May 1 of each year, and bear interest payable on May 1, 2016, and semiannually thereafter on November 1 and May 1 of each year in the amounts and rates as follows: Year Amount Rate Year Amount Rate 2020 $ 50, % 2025 $1,100, % , ,125, ,025, ,150, ,050, ,150, ,075, ,175, We have examined the documents which we deem authentic and pertinent to the validity of the Bonds, including the certified record evidencing the authorization of the Bonds by the board of education of the Issuer, a copy of the approval of the Department of Treasury of the State of Michigan to issue the Bonds, and a specimen of the Bond certificates. Based upon the foregoing, we are of the opinion that under existing law: (1) the Bonds have been lawfully authorized and issued and are enforceable obligations of the Issuer in accordance with their terms; (2) the Bonds are the general obligation of the Issuer for which its full faith, credit and resources have been irrevocably pledged; (3) the Issuer has the power, and is obligated, to levy taxes on all taxable property now situated within the corporate boundaries of the Issuer, without limitation as to rate or amount, sufficient to pay the principal of and interest on the Bonds; D-1 East Lansing Novi West Michigan